The market was in brighter spirits before the Thanksgiving holiday, as ABS market participants quite fittingly gave thanks to U.S. Treasury Secretary Henry Paulson, who rolled out a Term Asset-Backed Securities Loan Facility (TALF) under which The Federal Reserve Bank of New York will establish a $200 billion one-year, non-recourse lending facility for newly or recently originated triple-A rated consumer ABS (see story p. 16). This covers auto, credit card, student loans and small business loans that are guaranteed by the U.S. Small Business Administration.
On initial news of the plan, ABS players were optimistic it might provide a long-awaited liquidity boost to the industry.
Market participants' ultimate involvement in the program will depend on the haircut and rate of competing sources of financing, Merrill Lynch analysts said in a report last week. Additionally, the one-year term of TALF - since most consumer ABS deals have initial durations beyond one year - and the limitation to new and recently originated collateral, might reduce involvement in the program, the analysts said.
Indeed, there is minimal new issuance on the horizon.
Auto and private student loan lenders should benefit the most from the TALF, Merrill Lynch analysts said and other market participants agreed. This is because credit card lenders have several funding alternatives available including deposits, the Federal Deposit Insurance Corp.'s Temporary Liquidity Guarantee Program and the Federal Reserve's funding programs. Most FFELP loan lenders will continue to use the Department of Education's purchase programs under the Ensuring Continued Access to Student Loans Act, analysts said.
MBS also received a boost - the Fed announced that it will purchase up to $500 billion in agency MBS, as well as up to $100 billion in agency debt. This will have a positive effect on spreads, market participants agreed, while also fueling refinancing activity. However, given the uncertain economic environment, it is unclear how long these tighter spreads will last.
Nonetheless, the market did see closure on a $500 million auto loan securitization from subprime auto lender Americredit, albeit with wide spreads. The deal, AmeriCredit Automobile Receivables Trust 2008-2, priced short-term paper at 100 basis points over one-month Libor. One-year triple-A paper priced at 400 basis points over one-month Libor and two-and-a-half-year triple-A paper priced at 500 basis points over one-month Libor. Deutsche Bank Securities, RBS Greenwich Capital and JPMorgan Securities served as lead arrangers on the deal. Wachovia Securities and Credit Suisse Securities were co-arrangers on the transaction.
The deal utilizes a senior-subordinate structure, and is the second AmeriCredit transaction in 2008 to do so.
At closing, AmeriCredit will transfer a pool of approximately $645 million in retail auto installment sales contracts to AFS SenSub Corp, a Nevada corporation which is a wholly owned subsidiary of AmeriCredit, according to a presale report from Moody's Investors Service. AFS SenSub Corp. will sell the pool of subprime automobile loan contracts to the issuing entity, which will issue five classes of asset-backed notes. Class A-1, Class A-2, and Class A-3 will comprise the senior notes and be publicly offered, while Class B and Class C will serve as the subordinated notes and be privately placed.
The Class A-1, A-2 and A-3 notes could carry floating rate interest, the rating agency said. To hedge against the interest rate risk from the fixed rate automobile loan contracts producing the income stream that will support the variable rate notes, the issuing entity will enter into either an interest rate swap agreement or an interest rate cap agreement, Moody's said.
The deal also comes with a backup servicing arrangement with 'Aaa'-rated Wells Fargo Bank, in addition to Americredit, which will be the primary servicer. This was also the case with the company's previous transaction this year, AmeriCredit Automobile Receivables Trust 2008-1.
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