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ABS Market Continues Positive Momentum: Old players come back to market as the FHA initiative finds its way in Congress
Asset Securitization Report--SourceMedia (May 19, 2008)

Gabrielle Stein

The ABS market continued to see sunny skies last week, as the Senate Banking Committee was close to approving a bill that would set up a $300 million Federal Housing Administration loan guarantee program, and appoint a regulator that would oversee both Fannie Mae and Freddie Mac, initiatives that, according to one trader, will made ABS "a safer place to put money."

This, along with the various student loan initiatives making their way through Congress, have brought back a lot of the major players that had exited the market last summer, the trader said. The consensus in the market was that issuance has hit rock bottom and performance would improve from here. Other pundits agreed.

"Many cash ABS investors who had been on the sidelines waiting for spread widening to cease are likely to look again at putting cash to work in ABS," said Wachovia Securities analysts. "Our view is that, in light of the actions of both issuers and investors, this recovery is sustainable."

Indeed, activity has picked up in all sectors, though issuance last week was heavy in credit card securitizations, said another source.

Spreads appear to support the brighter investor sentiment. Citigroup came to market with two separate transactions last week that both priced with tighter spreads than seen earlier this year. Citibank Credit Card Issuance Trust 2008-A6 priced $1.15 billion in triple-A paper at 120 basis points over one month Libor. The deal has a seven-year average life.

Banc of America Securities, Lehman Brothers and Credit Suisse were co-managers on the transaction.

Meanwhile, Citibank Credit Card Issuance Trust 2008-A7 priced $450 million in triple-A paper last week, which was slightly wider than the other deal at 137.6 basis points over one month Libor, with a 10-year average life. Co-managers on the transaction were Lehman Brothers, RBS Greenwich Capital and Merrill Lynch.

Equipment lease securitizations are also picking up traction, sources said. Barclays Capital and JPMorgan priced a $612 million deal for CIT Group last week - CIT Equipment Collateral 2008-VT1. Short term paper priced six basis points over interpolated Libor. The one year piece priced 200 basis points over Libor and the two-year piece priced 350 basis points over Libor. Banc of America Securities, BNP Paribas and SG Americas Securities were co-managers on the transaction.

Banc of America and BNP also priced another equipment lease securitization last week for CNH Capital America. The deal, worth $626.9 million, is CNH's second deal of this sort to come to market in 2007.

Also making news was the introduction of a new ABX subindex, the penultimate ABX, which began trading on May 14. The new ABX.HE.PENAAA subindex is second-to-last in payment priority, in front of the Last Cash Flow AAA' index, or LCF AAA' index.

The addition takes advantage of interest at the top of the capital structure, which has seen the most activity because of pricing uncertainty and hidden value, sources agreed. While market participants expected the addition to increase trading liquidity, they felt that it was a substitution for the lack of new issuance that would warrant the roll of a new 2008 index.

The penultimate AAA' indices went out with the same coupons as their AAA' LCF counterparts, but after the first day of trading, they performed slightly better. The 07-2 AAA' penultimate index closed at 67.78, slightly higher than the 07-2 AAA' LCF tranche, which closed at 56.92. The 07-1 and 06-2 AAA' penultimate indices closed at 77.2 and 91.68, respectively, both above the AAA' LCF indices for their respective series. The AAA' 07-1 index closed at 62.81 and the AAA' LCF 06-2 closed at 80.75.

This is because the penultimate index is senior in cash flow priority to the LCF, sources agreed. Other traders sold this tranche as a hedge.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.



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