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Issuance Remains Steady as Bid Lists Continue: Bid lists reflect market's continued aversion to mortgage exposure
Asset Securitization Report--SourceMedia (June 23, 2008)
Trading in the ABS market was steady last week as new issuance continued at a steady pace via credit card and auto transactions.
The secondary market appeared unaffected by news from industry alliance HOPE NOW, which last week adopted a uniform set of rules and procedures to speed up assistance for troubled homeowners and prevent foreclosures (see page 18). Industry participants were not optimistic that the agreement would have a substantial impact on risk mitigation other than formalizing procedures.
In fact, a large number of bid lists hit the market from real money accounts and hedge funds looking to reduce their real estate exposure. "The market is still not comfortable with the risk," an ABS trader said. He expects to see more bid lists over the coming weeks as accounts try to lighten up their balance sheets.
On the primary side, so far this year, almost $105 billion of consumer and commercial ABS has been issued, according to a report last week from Merrill Lynch.
Consumer ABS spreads in both the primary and secondary markets are continuing to tighten, Merrill Lynch noted - and traders agreed - citing solid demand for the consumer ABS product.
Generic spreads for auto loan ABS performed better than the other consumer sectors, though spreads for subordinated auto and credit card ABS also performed well, Merrill Lynch said.
But while fundamentals justify the spread tightening, Deutsche Bank analysts expect that the recent flurry of liquidations, with more expected to come, will increase technical pressure and "lend serious resistance as SIV and high-grade assets will be sold into any material rally."
Last week, however, spreads looked stable across certain sectors. Auto deals pricing in the market saw very similar levels. Hyundai Auto Receivables Trust 2008-A, a $612 million deal managed by Banc of America Securities and RBS Greenwich Capital, priced short-term paper at two basis points over interpolated Libor. One-year triple-A paper priced 68 basis points over the benchmark and two-year triple-A paper priced 95 basis points over swaps. Societe Generale was co-manager on the transaction.
Also recently pricing was a $1.1 billion transaction, Wachovia Auto Owner Trust 2008-A, managed by Wachovia Securities. One-year triple-A paper priced 67 basis points over one-month Libor while two-year triple-A paper priced 95 basis points over one-month Libor. Barclays Capital, Guzman & Co. and Merrill Lynch were co-managers on the deal.
Notably, three-year triple-A paper for both the Hyundai and Wachovia deals priced at 115 basis points over their benchmarks.
Also in the auto space, Honda Auto Receivables Owner Trust, a $1.45 billion deal, priced by way of Barclays Capital and Citigroup Global Markets.
Citibank Credit Card Issuance Trust 2008-C6 priced via Citigroup and RBS Greenwich Capital. The $500 million Class C6 tranche, rated triple-B, priced 350 basis points over swaps with a four-year average life. Barclays Capital and Lehman Brothers were co-managers on the deal.
Meanwhile, in the student loan space though issuance has been somewhat lackluster, two deals circulated last week.
Lead managers Goldman Sachs and RBC Capital Markets shopped a $600 million deal for South Carolina Student Loan Corp. UBS Securities also underwrote
a deal for Massachusetts Educational Financing Authority Series 2008.
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