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ABS Spreads Wide Despite Govt. Bailout Proposal: ABS market unsteady as TARP details are awaited
Asset Securitization Report--SourceMedia (September 29, 2008)

Gabrielle Stein

The ABS market remained in limbo last week as Congress and the Treasury fleshed out plans for the government's Troubled Asset Relief Program (TARP).

Although investor interest in non-agency MBS was up, actual trading activity has been light, UBS analysts said. "We have seen more inquiries from hedge funds, distressed funds, and even some total return money managers, who have pulled money out of agency MBS to move into highly rated, non-agency MBS."

But spreads remained wide despite initial tightening on the non-agency MBS side after TARP was first announced.

With the quarter coming to a close, pricing volatility, and the roller coaster of news bombarding the market, spreads will continue to exact pressure in the foreseeable future.

Furthermore, the market still expects a deeper economic downturn, with more foreclosures and further losses in consumer finance that will not be resolved until the foreclosures/REO peak in mid-2009, according to UBS analysts.

While market participants unanimously believe the plan will help fuel liquidity, especially for consumer credit, the impact will be more indirect for the consumer and commercial loan/lease ABS sectors, according to a recent report from Merrill Lynch. Traders noted that the new-issue market has been quiet.

Indeed, last week saw only several small deals price, though issuance has remained relatively balanced across all sectors of the consumer credit markets.

Citigroup Global Markets, Wachovia Securities and JPMorgan Securities brought Cabela's Credit Card Master Note Trust 2008-IV to market. This was a $200 million credit card securitization for Cabela's, a family-owned national retailer in sporting goods, clothing, and equipment, with revenues of $2.35 billion in 2007, according to a presale report from Fitch Ratings.

The notes are backed by credit card receivables originating in Visa-branded accounts underwritten and serviced by World's Foremost Bank, a wholly owned subsidiary of Cabela's. The weighted average current FICO score was 734 as of March 31, Fitch said.

The rating agency noted that, as with other credit card trusts, chargeoffs have been trending upward throughout 2008 as a result of the softening of the economy.

However, at 2.47%, the 12-month average remains well below the industry average as of June 30, Fitch said.

The deal priced wide with three-year triple-A paper at 300 basis points over swaps and three-year single-A paper at 643 basis points over swaps.

JPMorgan Chase hit the market with a $364 million auto securitization, JPMorgan Auto Receivables Trust 2008-A. Merrill Lynch was co-manager on the transaction. JPMorgan is also issuing a $250 million credit card deal from Chase Issuance Trust in the form of CHASEseries Class A (2008-14) notes. The notes are expected to be rated triple-A by Fitch and pay a coupon of 160 basis points over one month Libor with an expected average life of five years. As of press time, the deal was slated to close on Sept. 30, 2008.

Also appearing in the ABS market last week was a $100 million FFELP student loan securitization for Rhode Island Student Loan Authority.

The 2008-C series of the trust was arranged by Citigroup Global Markets and will be serviced by Nelnet.

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



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