The second quarter came to a close last week with $7.1 billion in issuance, a bit slower than the $10-plus-billion the primary has seen throughout the first half of the year. Just about every asset class was represented, including some of the more esoteric assets, such as insurance premium loans, mutual fund fees and franchise loans.
Through the first six months of the year, public and 144A asset-backed supply topped $210 billion, a 16% increase from the $175 billion that priced through this time last year. Home equity supply totaled approximately $86.8 billion, up 33.6% from this time last year; auto loan supply was up 25.7% from the first half of 2001 at $45.5 billion. Credit card issuance was actually down versus first-half 2001 levels - with $38 billion of supply, issuance is down 8.43%.
As usual the largest transactions came from the standard asset classes: the king being a $1.53 billion student loan ABS from Sallie Mae, its fourth ABS of the year. Banc One Capital Markets and Merrill Lynch were joint bookrunners on the deal.
The second deal to offer investors a new, four senior tranche structure - with one-year and five-year tranches and shorter payment windows - saw heavy demand that had classes up to four times oversold. Also, following the June 21 upgrade of the 1995-1 B tranche to Aa1 by Moody's Investors Service, the 2002-4 deal was the first to see its certificated tranche rated double-A across the board.
The double-A rating is significant because for the first time in a Sallie deal, the risk weighting for banks was increased to 20%, leading to spread tightening of 11 basis points from the April 30 2002-C offering. Also credited with the success of this deal, particularly at the front end, is the anticipated increase in speeds for student loan paper.
Buysiders noted that while this transaction priced at 7% CPR, prepayments are expected to step up significantly in the short term - meaning the investor is getting a return that is greater than the actual duration of the notes.
Target Corp. completed its second credit card ABS under its new shelf, after changing its name from the former Dayton-Hudson Credit Card Master Trust - which actually has an issuance history dating back to 1995. The collateral mix consists of roughly less-than-half Visa/MasterCard receivables with the remainder being retail store cards.
The issue performed surprisingly well in the primary, boosted by the unusually strong performance of the parent. The single-A rated Target is doing quite well for a retailer, and equity analysts note that Target is benefiting from the recent bankruptcy of competitor K-Mart.
Target priced its $750 million single-tranche five-year floater, at a level of 12.5 basis points over three-month Libor for triple-A paper, moving in from initial guidance in the 13 area over. The level rivaled sector leaders, as spreads for top-tier five-year paper has remained firm at 11 basis points over one-month Libor. Lehman Brothers led the transaction.
As the quarter-end approached, league-table jockeying was clearly evident in the pricing of $1 billion of five-year credit card floaters from Chase Credit Card Master Trust, which padded league-table leader JPMorgan Securities margin late in the week. Demand, however, was there for the 2002-5 deal - that was increased from $750 million and still printed at 10 basis points over one-month Libor.
Household Finance sold a $1.03 billion home equity floater, also via Lehman. The $887 million senior tranche, with a 2.86-year average life, priced at 30 basis points over one-month Libor, with the double-A rated subs pricing at 65 over. So far this year Household has securitized over $4 billion of loans across the home equity ($2.04 billion), auto loan ($1 billion) and credit card ($983 million) sectors.
World Omni Financial brought its first retail auto deal of the year, $838 million via Banc of America Securities and Merrill Lynch jointly. The offering was backed by more new auto loans (60%) than used and prime collateral with Fico scores averaging over 700. While an independent lender, World Omni also benefits from the close ties its parent company has with Toyota Motor Co. Deerfield Beach Fl-based JM Family Enterprises owns both the largest Toyota and Lexus distribution franchises in the U.S. and World Omni 02-A consisted largely of Toyota vehicle loans.
In the troubled franchise loan sector, Capital Automotive REIT, a McLean, Va.-based auto dealer franchise lender priced $324 million total of MBIA wrapped in the 144A market via Credit Suisse First Boston. After roughly one month of marketing, FEP Receivables Funding priced its $146.4 million mutual fund fee securitization via Bear Stearns.