SFA’s Research Corner considers credit card ABS which, unlike other asset classes, are tied to the prime rate and are particularly sensitive to the Fed’s rate hikes. Credit card debt is nearing a record $1 trillion, up 15% year-over-year. Younger borrowers are mounting debt at nearly twice that rate and also pushing into delinquency at twice the rate for all age groups.

In SFA’s Research Corner, issuance of Solar ABS reflects the growing consumer interest in financing PV systems. In 2022, $4.3 billion of solar ABS were offered—a 207% increase over 2017 and a 20% increase over 2021—in a time when the broader ABS market dropped by 8%. According to the latest report from the Energy Information Administration (EIA), the demand for solar is expected to continue. Owing much to tax incentives like the federal Investment Tax Credit (ITC), the EIA anticipates renewable sources to provide 16% of electricity generation nationwide in 2023, 18% in 2024. Solar ABS, with its stable credit performance—90% of solar ABS bonds are rated investment grade according to KBRA’s Solar Loan Index—will continue to draw investors seeking highly-rated green investments.

January’s SFA Market Snapshot closes out 2022’s decline in issuance. Total issuance was down 48% for the year as MBS sectors (agency RMBS, non-agency RMBS and CMBS) pulled back meaningfully. ABS supply has been relatively steady compared to other asset classes, down 10% for the year. Higher borrowing costs dampened appetite for new financings as pricing for new issues moved appreciably higher across asset classes. 

The FED’s November 7 release of the Senior Loan Officer Opinion Survey on Bank Lending Practices (SLOOS) showed that demand for credit card loans has become stronger even as banks tighten access to credit for borrowers with lower credit scores.

By the end of Q3 2022, 22 million Americans held unsecured consumer debt—closed-end installment loans used primarily to consolidate existing debt, cover emergency expenses or make large purchases—with an average balance of $10,749. This represents a 35% increase over 2021 according to a recent TransUnion Report, which attributes the rise to “significant increases in lending to below prime risk tiers” and the wealth-eroding effect of persistent inflation.