Despite skepticism from the financial press, asset-backed issuance for 2000 has passed 1999 levels, and the market still shows no signs of slowing down.
As of Nov. 27, year-to-date new issuance totals were $198.6 billion, compared to the full-year 1999 total of $197.3, according to researchers at Banc of America Securities. That didn't include the additional $4 billion in issuance that priced last week. Reaction among market observers was mixed.
"My expectation was for issuance to meet or exceed last year's, so I was not surprised by that," said Russell Hurst, director of ABS research at First Union. "I thought if we had not had the experience that we had in the second quarter, I might have been surprised, but I expected a strong quarter."
"In the first six months of this year, in particular, issuance seemed to be very slow and numbers seemed to be not as strong," added Jeff Salmon, director of ABS research at Barclay's Capital. "In the third and the fourth quarter, things really started to perk up. As things perked up, things started to get better. I think most people are surprised that issuance has gone as well as it has."
The amount of issuance comes at a time when the corporate and high-yield bond markets are getting hammered.
"The corporate bond and high-yield market are getting shellacked and spreads are widening, therefore issuance is getting done in the ABS market," Salmon said. "Case in point: Ford [Motor Credit Co.]. Ford had a really hard time accessing the corporate bond market, so they accessed the asset-backed market. It's a pleasant surprise to see that issuance has in fact gotten up there."
Market observers are predicting issuance will continue to be placed into the market until the second week of December, despite a recent slowdown.
"There's still a lot of ABS CDOs in the market," said Hurst. "So there will be a couple more of those transactions that are actually going to get done. It's still a fairly strong market. We could see some issuance until people have decided they don't have time to get the deal done or they're not ready."
Salmon added that there are some home-equity deals lined up as well.
GMAC Brings Variety
With recent frequent issuance by Ford, investors found scarcity value in last week's General Motors Acceptance Corp.'s $980 million auto transaction. The deal priced four basis points tighter than the most recent Ford transaction.
"I think what's driving that is that GMAC has issued much less in terms of ABS this year than Ford, so you have some scarcity value relative to Ford that has come close to saturating the market," said an ABS trader.
"This is a chance to pick up a newer name, and also a name that hasn't had any negative press right now," Salmon added. "Suffice to say, I'm not surprised to see it price where it did."
The structure of the GMAC deal also made it attractive to investors looking to steer away from the corporate market.
"The GMAC deal is a soft bullet structure, and that soft bullet structure really is seeing a lot of good demand out there from corporate crossover buyers," said the ABS trader. "They tend to like soft bullet stuff. They can understand it better than payment window stuff, so that helped drive the GMAC deal."
GMAC also priced $1.35 billion in home-equity loans through its RASC vehicle. The $170 million 0.9 year tranche priced at EDSF +26, two basis points tighter than guidance.
IKON Office Solutions was also in the market with a well received equipment deal. The $632.7 million deal consisted of two fixed-rate and two floating-rate tranches, which helped get the deal done at reasonable levels.
"Those floaters really played to the deepest demand for that type of stuff," said an ABS trader. "If the bond had been done as a fixed rate, the execution would have been much worse for the company. So I think issuers such as IKON and others that are a little more off the beaten path find a much better reception in the floating-rate market for their name than they do fixed rate."
Also notable in the market is the first public transaction from private-label credit card issuer Federated Department Stores. The $400 million Prime Receivable Credit Card priced at 30 basis points over swaps. The first issuance ever from NextCard, a $482 million Rule 144A offering, was in the market, but had not priced.