With the month nearly over, it's clear that this will be the heaviest quarter in the history of the asset-backed securities market, with close to $70 billion in the public market plus an additional $11 billion in the rule 144A market, according to numbers provided by Thomson Financial Securities Data.
"I think, for one, we're seeing the asset-backed market benefit from problems in other markets, both fixed income and equities," said Dan Castro, head of ABS research at Merrill Lynch. "There's a lot of money flowing out of equities into fixed-income in general."
Additionally, there's cash coming over from the agency mortgage market, with investors wary of the prepayment wave that continues to build as interest rates fall. Investors continue to pour in from the corporate market, driven by event risk and earnings disappointments, among other factors.
"People still view asset-backeds as a safe haven," Castro said. "Yeah, we've taken our lumps, but not much relative to the other markets."
However, buysiders were seeing spreads push out modestly, on account of several repeat issuers hitting the market so frequently that accounts are pushing over their exposure limits, said one large portfolio manger.
The manager named First USA's five-year credit card floater as an example, since the issuer has already been in the market already this quarter.
Although the top piece has sold-off at Libor plus 14, allegedly the mezzanine A1/A' and the Baa2/BBB' was still left to go, noted the source.
The source speculated that the triple-B piece could push-out as much as 5 basis point to Libor plus 105.
"Demand has been pretty good," Merrill's Castro said. "If demand wasn't there you could expect spreads to be significantly wider than where they are. We've only seen a couple of basis points of back up over the last couple of weeks."
Still in the pipeline at press time, Florida-based Westage was in the market with a time-share securitization, starting talk at Libor plus 60.
Investors were calling this deal a good value, particularly with a triple-A wrap from MBIA. This will be Westgate's first deal since 1998. Salomon Smith Barney is lead manager.
Meanwhile, Education Funding of the South was in the market with a student loan deal, which was about 70% subscribed at Libor +15 (3.79Y A/L).
At press time, Connecticut Light & Power was out with price guidance. Lehman Brothers and Salomon are joint leads on the transaction.
The notes are backed by what rating agencies call transition property, a statutory right to collect a tariff from CL&P electric customers. The deal is broken into five classes that equally share in the collateral. Credit enhancement consists of a capital account equal to 0.5% of the original principal balance, funded at the close, and overcollateralization equal to an additional 0.5% of the original principle balance, funded throughout the term of the transaction.
