The Capital Markets

CHAPTER 18Asset‐Backed Securities

Daniel I. Castro, Jr.

Starting in about 1985, non‐mortgage asset‐backed securities (ABSs) were created and offered to the public. One of the very first deals was a securitization that was backed by auto loans and equipment leases. Since that time, we have seen ABS collateralized by myriad financial assets, including auto loans, credit card receivables, home equity loans, and student loans. We have also seen the creation of ABS backed by off‐the‐run assets such as burglar alarm and cell tower receivables, mutual fund fees, tax liens, property and casualty insurance policies (catastrophe bonds), and loans for timeshare condos. The famed Bowie Bonds, collateralized by David Bowie's music royalties, received much outsized attention from the press. While the issuance of ABS collateralized by intellectual property (i.e., music and film royalties) comprises an insignificant part of the ABS market, it is worth mentioning as it hammers home the point that all sorts of financial assets can be securitized.¹

Since 1985, the ABS market showed consistent growth during its first decade, followed by explosive growth in the mid‐1990s through the mid‐2000s. Issuance peaked from 2005 through 2008 and then dropped dramatically following the financial crisis. ABS issuance first topped $100 billion in 1996, $200 billion in 2001, and topped out at almost $300 billion in 2007. The Fed's Term Asset‐Backed Securities Loan Facility (TALF) program helped restart the market ...