Choosy and cautious investors put the brakes on the ABS production market last week by tightening their purse strings. Without their money on the table, sell-side sources doubted that anything would be done at all before year end.
"Judging from what is going on this week, liquidity has really dried up," one fixed-income trader said. "Things are closing up early this year."
Issuers seemed equally unwilling to float new ABS debt, a mood underscored when First Marblehead Corp. decided to bow out of securitization for this fiscal quarter, citing uneconomical terms, according to a statement from the company.
"We are exploring non-securitization and securitization alternatives for future quarters to enhance our business model and bring long-term capacity to the private student loan market in a manner that benefits our shareholders," said Jack Kopinsky, First Marblehead's president and CEO.
The announcement comes a week after Moody's Investors Service said it would place several of Marblehead's SLABS deals under review for possible downgrade.
Last week, Kopinsky said that the overall quality of its portfolio remained strong, with an average FICO score of over 700. The company has taken steps to tighten its underwriting criteria related to lower credit tiers and said that it would modify its collection and recovery processes. It also said it would continue to monitor its portfolio performance.
The Boston-based student loan provider also declared a quarterly cash dividend of 12 cents per share on its common stock. Although that amount equals the dividend paid in the same quarter last year, it falls short of the 27 cents per share paid in the second quarter.
"Most market participants just want the year to be over," the trader said.
Citigroup Global Markets, apparently, was still hard at work. At press time, the bank was busy putting the final touches on the $1 billion Palisades CP program, an asset-backed commercial paper program that will issue short-term notes out of the Citibank Omni Master Trust.
All tranches of the Palisades CP notes are issued at discount, said Fitch Ratings, which gave the program an F1' rating. Palisades has 100% liquidity support from Citibank to ensure the timely repayment of maturing paper. Subordination in the form of Class C and D notes provides credit enhancement, according to Fitch.
Aside from those events, the ABS market fell into virtual silence last week. Deutsche Bank Securities managed a $489 million CLO, the Knightsbridge CLO 2007-1. The triple-A-rated notes in that deal priced at 50 basis points over Libor, while the double-B-rated securities came in at 900 basis points over the benchmark.
Protective Finance Corp. REMIC Commercial Pass-Through Certificates came to market with a $1 billion deal via Wachovia Securities, but full pricing information was not available at press time.
As for how the market would behave in the beginning of 2008, market participants are expected to begin slowly, with asset classes that are relatively easy to manage.
"Everyone is looking forward to a new year," the trader said. "I think we will see, at the beginning [of the year], more on-the-run liquid assets come back first."
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