search   Knowledge Bank printable version
 News
 Knowledge Bank
 Deal Information
 International
 Software
 Publications
 Industry Events
 Advocacy Forums
 Links
 Site Utilities
 Contributors
 Free Offers
 Home

Click here to
Update Registration
Information

Please be advised that the use of Securitization.net ®
is subject to the
Terms & Conditions

of use and the
Privacy Policy

Download

Best viewed in

Knowledge Bank > Financial > General
Select an area


FREE Three-week trial of Asset-Backed Alert's newsletter

Issuance to Surge With TALF's Next Round
Asset Backed Alert, Harrison Scott Publications Inc. (April 17, 2009)

The third round of funding from the Federal Reserve's Term Asset-Backed Securities Loan Facility is shaping up as the largest yet.

As much as $10 billion of securitizations are in the works for the program's May installment, headlined by a $3.6 billion student-loan deal from Sallie Mae. Also in the queue are auto-loan issues of $1 billion from Toyota and $500 million from Honda, along with an auto-lease transaction from PHH Vehicle Management.

Among credit-card deals, J.P. Morgan is planning a $1 billion offering and GE Capital is working on an issue of undetermined size. Motorcycle manufacturer Harley-Davidson also intends to be in the market. So do Caterpillar and John Deere, following through on previously discussed plans.

Early indications are that the issues will price by May 7, with the Fed doling out TALF loans to buyers on or around May 14.

While the deal flow is still a far cry from what was the norm before the credit market tanked, it is robust by recent standards. Just $7.4 billion of TALF-eligible bonds priced in the program's opening round in March, followed by a mere $2.7 billion of offerings in April - representing the lion's share of U.S. asset-backed securities volume in recent months. Those totals came as a disappointment to many industry players, who initially predicted that Round 1 alone would see $20 billion of production. But next month's tally suggests that interest in the program is still increasing.

There have also been signs of a broader market recovery. Only about half of TALF-eligible bonds have been purchased with loans from the program to date, indicating that some buyers are confident enough to gamble with their own money. A sprinkling of offerings conducted outside of TALF's scope also shows that certain issuers are able to access the market without government assistance. USAA, for example, priced an auto-loan deal this week without TALF support (see Intial Pricings on Page 6).

TALF's complexity may be partly to blame for the initiative's slow start. Buyers have to consent to a 40-page contract that has been revised every month, while issuers face mountains of related paperwork. Indeed, it was a paperwork matter that kept Sallie from completing its deal in time for the April round.

Now it's believed that most issuers are up to speed. TALF is designed to revive demand for asset-backed bonds - and thus stimulate consumer and commercial lending - by extending Fed loans to buyers of such instruments. Projections are that the facility could eventually funnel $1 trillion of government money into the market. The program initially caused spreads on new asset-backed bonds to tighten, demonstrating that it was serving its purpose. However, values appear to have leveled off with Round 2. A 1-year piece of a $750 million auto-loan securitization that World Omni priced April 7, for instance, fetched a spread of 170 bp over Libor. That's comparable to the 175 bp spread on similar securities sold by Nissan on March 19.

On the other hand, secondary-market prices have been improving since the Fed disclosed plans for TALF in November. This week, 3-year bonds from Nissan's issue that initially went for 300 bp over Libor were trading 80-100 bp tighter - effectively putting them over par. Similar-dated Ford securities that initially priced at 425 bp over swaps have tightened by about 50 bp.

Non-TALF-eligible issues have also tightened in secondary trading. Just this week, 3-year credit-card securities from J.P. Morgan saw their spreads contract by 40 bp, to 260 bp over Libor.

Market players expect spreads to tighten further on both new issues and secondary-market trades, but see no near-term prospects for a return to the ultra-narrow levels that prevailed prior to the credit crisis. That's partly due to a balancing of supply and demand, as hedge funds have been TALF's biggest borrowers - and they require double-digit returns. If spreads fall too far, "probably, the hedge funds go away," one source said.

 

 

© Copyright 2014. The Mayer Brown Practices. All rights reserved.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

Legal Notices | Attorney Advertising | Site Index | Contact Webmaster

*The site links listed on this web site are for reference use only.
The firm does not necessarily sponsor, endorse or verify the accuracy of the content contained in any of these sites.