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Headlines Overshadow Consumer ABS: Lehman Brothers news revived market anxiety even after GSE bailout
Asset Securitization Report--SourceMedia (September 15, 2008)
The beginning of September was wracked with uncertainty as Fannie Mae and Freddie Mac struggled with liquidity issues. That was until the government stepped in with a bailout plan for the GSEs. However, the government cannot stop growing fears of mounting losses at Lehman Brothers, which continued last week.
ABS market participants expressed that a comeback in the consumer ABS space would probably not happen anytime soon. The secondary market remains quiet and new issue volume is lackluster.
When the government announced that it had put both Fannie Mae and Freddie Mac into a conservatorship on Sept. 7, market observers cheered the decision, saying it would provide the necessary boost to the mortgage finance market.
Mortgage passthroughs immediately reacted with spread tightening in the sector, but consumer ABS remains relatively unaffected. "This is par for the course," said an ABS trader, who noted that consumer ABS typically lags behind the other sectors in terms of recovery. Furthermore, with the end of the quarter coming up and the presidential election in November, the uncertainty will continue to stunt recovery for consumer ABS, he added.
Several deals did come through the pipeline despite the current market unease. Chase Issuance Trust Class A 2008-13 Notes came to market via JPMorgan Securities. Barclays Capital and Lehman Brothers are all co-managers on the transaction. The $565 million triple-A rated notes priced at 150 basis points over three-month Libor with a five-year average life. As of press time, the deal was set to close on Tuesday.
Other credit card deals in the market include World Financial Network Credit Card Master Note Trust 2008-A, a $71 million deal from RBS Greenwich Capital and JPMorgan Securities. Barclays Capital, RBC Capital Markets and Wachovia Securities were co-managers on the deal. The deal's two-year triple-A paper priced at 300 basis points over one-month Libor. Its two-year double-A paper priced at 500 basis points over one-month Libor, and two-year single-A paper priced at 750 basis points over one-month Libor.
The trust also issued Series 2008-B notes totaling $151 million. The triple-A paper priced at 265 basis points over its benchmark with a duration of almost one-and-a-half years, while the double-A paper priced at 500 basis points over the benchmark for the same duration. The single-A paper priced at 725.9 basis points over the benchmark.
However, despite the presence of credit card securitizations, the government student loan sector offers the most value given the U.S. government's 97% to 98% indirect but explicit guarantee and the prospect of lower issuance volume, according to a report from Merrill Lynch. The bank also noted, however, that most classes of top-tier auto loan, credit card and equipment deals offer value as well.
Also making news last week was Markit's announcement of plans to launch an ABX.HE 05-2 index on Oct. 2, after almost a year of postponing the launch of a 08-1 index due to turmoil in the mortgage market and the lack of newly issued collateral.
The new index will reference 20 qualifying RMBS deals issued in the first half of 2005, which are considered to be higher quality collateral. The index will also help traders either hedge their current positions or build up their portfolios with an earlier pool of assets.
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