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Consecutive holiday weeks slow primary deal flow
Asset Securitization Report--SourceMedia (October 9, 2006)

Donna Mitchell

With the ABS market coming out of one holiday weekend and going into another, plus historical seasonal slowdowns in activity, trading desks were fairly quiet last week. At last tally, market professionals estimated that new issuance would not amount to more than $15 billion.

"It's the beginning of a new quarter," one trader said. "We expect [issuance] to be lower than the robust weeks in September."

The AEP Texas Central Transition Funding II priced last week, selling its $1.7 billion utility transition bond deal to a far-flung investor base. Not only did the deal price at six basis points over swaps on its 10-year piece, but it also lured Chinese investors to the stranded-cost asset class for the first time, according to people familiar with the situation. Credit Suisse, JPMorgan Securities and RBS Greenwich Capital acted as joint lead managers on the transaction. Its two-year average life tranche priced at seven basis points below swaps, while investors that bought into the long, 12.6-year portion of the deal, picked up Interpolated swaps plus 14 basis points.

In the auto sector, the Capital One Auto Finance Trust priced, with Morgan Stanley and Goldman Sachs acting as co-lead managers. The short-term portion of the deal priced to the asset-backed commercial paper market, coming in at four basis points under Libor. Meanwhile, the single-A rated 3.59-year tranche came in at 12 basis points over interpolated swaps. Also in the sector, the Franklin Auto Trust rolled out its first deal of the year, a $354 million transaction underwritten by Citigroup Global Markets. Similar to the Capital One deal, Franklin sold its short-dated piece to the ABCP market. Otherwise, the one-year tranche priced at a tidy sum of one basis point over the EDSF, while the triple-B, 3.69-year piece offered the most yield, at 50 basis points over swaps.

For once, the home equity loan sector had to share the limelight with other classes instead of dominating issuance. Still, the asset class made notable showings, with the CBASS 2006-CB7 transaction, underwritten by JPMorgan Securities. The one-year tranche on that transaction priced at six basis points over the one-month Libor, while the triple-B rated, 4.43-year piece priced on the tighter end of guidance, at 90 basis points over the same benchmark.

The muted trading week also seemed to slow a recent trend wherein secondary spreads were widening on synthetics, relative to cash CDOs, according to market sources. The spread differential has also showed up between ABX index and single-name trades.

"This week, there is not as big a move one way or another," one trader said.

As for the deal pipeline, several large transactions are waiting in the wings. Permanent, an issuer with global RMBS collateral, is preparing to dump a truckload of debt into the securitization market, with a GBP4.4 billion ($8.9 billion) transaction, and Citibank is shopping a $1.4 billion home equity deal. In the student loan sector, Sallie Mae is in the market with a $2.6 billion transaction.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.



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