Following a strong September in terms of asset-backed securities issuance, market participants are ready to relax for a while at the Information Management Network's ABS East conference being held this week in the Bahamas.
After all tallies are in, about $30 billion in issuance is expected to have been placed in September. "I think we're going to wind up finishing the month with somewhere in the neighborhood of $26 billion of public and I guess a ballpark of $5 billion of 144A," said Alex Roever, head of ABS research at Banc One Capital Markets.
"The first half of the year, I think all of us on the Street were hoping for supply, and the market was just so bearish and the sentiment was so uncertain and I think since mid-July going forward, which was the kind of big sea change, that the dynamics have certainly turned the corner," added Jeff Salmon, director of ABS research at Barclays Capital.
After a record-breaking $12 billion in issuance, supply seemed to keep right on flowing last week, starting with a $470.9 million fixed-rate aircraft transaction from Textron. Pricing was about 10 basis points wider than price talk on the 3.88-year tranche, according to a Banc of America Securities report.
Other deals in the market included a $407 million auto offering from Toyota Motor Credit Corp. and two floating-rate credit card transactions totaling $1.2 billion from Providian Financial Corp. While Providian's deal had wider spreads versus traditional Providian offerings, Toyota's deal signified continued strength in the auto sector, despite a large amount of supply.
A deal that priced later in the week was a $892 million floating-rate credit-card deal from Chase Manhattan Corp.; its triple-A rated class priced at the tight end of guidance - 13 basis points over the one-month Libor. While structured differently than last week's offering from Citibank, the deal was well received - the triple-B rated tranche priced tighter than Citi's deal.
"I think that we've seen the triple-B sector kind of open up very nicely here," Roever added.
Going forward, with the majority of the marketplace networking in the Bahamas, the pipeline is gearing up for supply around the second week of October, and participants are foreseeing nothing major this week.
"This is right at the end of a huge couple weeks in issuance," Salmon said. "If you've got a lot of your traders down there, research, salespeople, why do a deal and risk not getting the deal done right? You've got a bulk of the investor community down there as well. So they hold off if they can."
Stranded Costs in Trouble?
Utility companies in California have received some negative headline press regarding their financial status resulting from deregulation. Spreads widened a bit on stranded-cost bonds all over the country, though Salmon said that all should be judged on a state-by-state scenario. He added that it could be a signal to buy, as he sees no real structural problems on the bonds themselves.
"Because it's in the press and because the utilities are experiencing some financial difficulties now, there's a little bit of spillover effect into these rate-reduction bonds," he said.
