What a difference a year makes. This is clearly shown by the significant drop in securitization volume in 4Q07 compared with 4Q06. Industry totals for 4Q07 public ABS transactions only reached $82 billion, according to the ASR Scorecards database. This is less than half of fourth quarter 2006's $188.8 billion total.
And even though real estate as an asset class still dominated in the last quarter of 2007, commercial MBS accounted for the overwhelming bulk of the activity, which garnered $29.8 billion throughout the quarter. Residential mortgage-backeds only amounted to a paltry $8.8 billion. Combined issuance in these sectors totaled only $38.6 billion. By contrast, real estate totals in 4Q06 reached $130 billion, going against the negative headlines that already surrounded the sector then.
The mortgage issuers that defied the odds in the fourth quarter include dealership vehicles such as Morgan Stanley ABS Capital Trust, Lehman Brothers' Structured Asset Securities Corp. Trust and HSBC Home Equity Loan Trust. There were also deals from First Franklin Mortgage Loan Trust as well as Renaissance Home Equity Loan Trust.
By contrast to mortgages, volumes in the credit card sector rose notably in the fourth quarter of last year when compared with 4Q06. In 4Q07, credit card volume reached $19.7 billion, rising from 4Q06 when the sector saw $11.1 billion in issuance.
The quarter's volumes reflect expectations for increased credit card deal issuance in 2008. According to Securities Industry and Financial Markets Association's fixed-income outlook report, credit card receivables are expected to replace home equity mortgages as the biggest ABS sector in 2008.
Other Street research echoed this projection. In their January Securitization Monthly report, Deutsche Bank Securities analysts called 2007 a banner year for credit card ABS, with issuance in the sector reaching record levels and performance remaining positive, although softer. Deutsche said that 2007 credit card issuance reached a record high of $94 billion, which is 40% more than 2006's volume. Credit cards, according to Deutsche, is the only major ABS asset class to see a year-over-year supply increase. Rising volume in cards was driven by the brisk rise in revolving consumer debt caused by the widespread deceleration in home prices. Helping boost up credit card volumes in 4Q07 were the usual suspects like Citibank Credit Card Issuance Trust as well as Bank of America Credit Card Trust.
"As we brace ourselves for 2008, we remain confident that credit card ABS structures can hold their own," Deutsche analysts said. They added that while they expect some deterioration in credit card portfolios, specifically for those with larger subprime buckets, the current credit card transactions that have robust credit enhancement levels could be considered strong enough to withstand higher portfolio stress levels than has been recently seen.
In other sectors, student loan ABS dropped to $11 billion in 4Q07 from $15 billion over the same period the previous year, according to ASR's database. Despite the lower numbers, a positive for the sector was the fact that Sallie Mae's buyout did not stop the student loan lender from actively issuing over the quarter. Deals from SLC Student Loan Trust made up a significant portion of the issuance in this sector.
Deutsche analysts reported that student loan ABS closed 2007 with roughly $56.8 billion, which is a 15% year-over-year drop. This is the first issuance dip that the sector has seen since 2001. Between 2002 and 2006, student loan ABS issuance grew at a compounded annual growth rate of 46%, according to Deutsche analysts' projections.
Rounding out issuance in 4Q07 are autos and other ABS ($2.62 billion). According to the ASR Scorecard database, auto ABS issuance fell dramatically in the fourth quarter of last year to $9.9 billion, compared with 4Q06's total auto volume of $24.8 billion.
This drop in auto issuance was noted by Deutsche in the same report mentioned above.
"As was the case for the credit market in general, the auto ABS market was not spared the fallout from the subprime mortgage debacle and the ensuing credit crisis," Deutsche analysts wrote. "Activity, both in the primary and secondary markets, halted temporarily during the mid-summer months."
Deutsche expects the overall cost to issue term ABS to be higher versus previous years. This would of course translate to a drop in auto activity. The bank's projection is $80 billion in auto volume for 2008, which remains slightly higher compared with the $72 billion seen in 2007, although still less than those levels in 2005 and 2006, Deutsche analysts said.
Auto issuance in 4Q07 came from players like AmeriCredit Prime Automobile Receivables Trust, Capital One Auto Finance Trust as well as Ford Credit Auto Owner Trust.
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