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Market raises brows, widens spreads at conspicuous absences
Asset Securitization Report--SourceMedia (October 2, 2006)
Far from going quietly into the night, the third quarter of the ABS market came to a close with a final week that saw slightly wider HEL spreads and the absence of Fitch Ratings from a stream of home equity loan ABS deals.
Market players expected at least $13 billion in new ABS issuance to hit the market by the end of the week. In terms of collateral, home equity loans made up the overwhelming bulk of new business, while the auto loan and credit card sectors also chimed in with deals.
In the home equity loan sector, spreads stayed in fairly good shape going into the quarter's end, thanks to strong domestic and international demand. There was a brief period however, when the market saw a lot of supply come onto the market for the September settle.
"A few of the big players that are usually driving the one and two-year deals were not playing at the time, and that caused spreads to widen out a touch," said one trader.
The Residential Asset Securities Corp. illustrated this, when it came to market with a $699 million deal, via GMAC RFC Securities. The deal got a spread of eight points over the one-month Libor on the triple-A rated one-year tranche, and even triple-A investors on the 6.38-year piece picked up what appeared to be relatively ample spreads, at 25 basis points over the same benchmark. Residential Funding Mortgage Securities came to market via lead manager Bear Stearns, with a $272 million dip into the ABS market. Most of the transaction priced against swaps, with the two-year tranche coming in at 27 basis points over the benchmark, and the 6.21-year piece offering investors 71 basis points over. Ace Securities Corp. priced a $454 million transaction, courtesy of lead manager Deutsche Banc Securities. The one-year piece came in at eight basis points over the one-month Libor, while investors who picked up the 4.58-year piece, rated Baa1 by Moody's Investors Service and A+ by Standard & Poor's, came away with 85 points over the same benchmark. Wamu Capital Corp. acted as lead manager on the Washington Mutual Asset-Backed Securities transaction. On that deal, the one-year piece priced at seven points over the one-month Libor, while the lowest-rated tranche, which snagged Baa3' and triple-B ratings from Moody's and S&P, respectively, priced at 200 basis points over. The IndyMac Residential Asset Backed Trust came to market with a $496.8 million transaction, via Lehman Brothers.
Not only did a handful of home equity loan deals stand out because of their slightly wider pricing levels, but also because they did not carry ratings from Fitch. Since early September, the rating agency has been absent from more than a dozen transactions in the asset class. Market players point to CDO market dynamics for the quirk, saying that in that line of business, carrying a rating from Moody's Investors Service has a significant bearing on a deal's acceptance.
A majority of HEL bonds that receive ratings lower than triple-A are going into CDO transactions, where ratings from Moody's drive the trades, said one market player. Of course, said market players, it is always better for a deal to carry at least a second agency's rating, and having a third rating opinion is optimal. No HEL deal, however, will go over well in the CDO market without a Moody's stamp of approval.
"Most of the deals have tests that trade to a Moody's rating," said one professional.
Fitch Ratings was unable to return calls by press time. Other market sources, however, decried any potential slowdown in Fitch's participation on real estate ABS deals.
"Fitch ratings are very consistent," said one market player. "Their ratings are quantitative, rather than opinionated, and I would be very disappointed if this was happening."
Aside from the usual array of home equity and other real estate related ABS deals, the market saw a credit card and an auto loan deal price. The Discover Card Master Trust came to market via Morgan Stanley. Its 4.96-year tranche priced at three basis points over the one-month Libor, while the 5.06-year piece came in at 14 basis points over. Daimler Chrysler Auto Trust managed to push a $2 billion transaction to the market, via Banc of America Securities, Barclays Capital and JPMorgan Securities. The 0.27-year tranche on that transaction was sold to the asset-backed commercial paper market. It walked away with pricing of three basis points below Libor. The most yield that investors could hope for on that transaction came out of the 3.35-year tranche, which priced at 14 basis points over swaps.
Brazos Higher Education Au-thority also came to market with its $1 billion student loan ABS deal via Citigroup Global Markets.
Among anticipated deals, Taganka was prepping a $430 million auto loan ABS deal, and Capital One had plans to complete a $500 million card transaction.
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