Last week remained eerily quiet in the asset-backed market, with spreads remaining firm in the face of little volume, but heavy expected supply for coming weeks should make it an investor's paradise, according to insiders.
Volume was less a trickle than it was a single drop, as the only major issuance came in the form of a $930 million home equity loan from Long Beach Acceptance. The deal had yet to price at press time.
Last week's silence was eerie considering the gluttonous volume predicted to fall this month. Most market experts have predicted that between $20 billion and $25 billion in supply will hit in the next three weeks.
That would be a $15 billion spike over the $10 billion of supply done in July 1998, and is almost certainly a sign of spread-widening for the near future, sources noted. A highwater mark estimate of $75 billion of ABS is expected for third quarter.
Market watchers have predicted that the huge wave of issuance could push spreads wider than last year when the levy breaks in coming days. Right now, spreads are 10 basis points to 20 basis points wider than this year's tighter range, comparable to the spreads seen in a similarly quiet January, following late 1998's prolonged liquidity crisis.
Trepidation over Federal Reserve action and fears over Y2K have created bookends of a sort for the asset-backed market, where issuers are left a narrow space in which to shelve and sell their deals.
For now, said sources, this means that market environs are generally being governed by the supply and demand curve. Translation: Investors should have their pick of cheap deals.
Long Beach And CBO Mania
Long Beach was marketing its $930 million transaction most of last week with spread talk on the three-year piece coming in at around 145 over Treasurys. The deal offered five tranches of triple-A rated home equity loans and one junior triple-B tranche that was being talked at 275 basis points to 300 basis points over one-month Libor. Credit Suisse First Boston was managing the deal.
Collateralized bond obligations quietly appeared in the market as well last week, as a handful of CBOs, led by Seneca II, a $300 million cash flow CBO managed by Seneca Capital Management. That deal was being in the mid-60s over six-month Libor for the triple-A class.
Other CBO offerings included a $300 million deal from Conning; a $500 million Sterling CLO II; a $517 million CDO from Mass Mutual; and a $300 million CBO from Citicorp Ventures.
Deals On The Horizon
The home equity sector is expected to have a big presence during this voluminous quarter, led by Keybank National Association of Ohio, which has a $100 million deal backed by fixed-rate closed end home equity loans in the coming weeks. The deal, issued from Keybank's Home Equity Loan 1999 series, looks to contain five "class A" tranches and a single residual certificate. A shelf registration filed last week included a REMIC election for tax purposes.
Lehman ABS Corp. will also join the home equity pipeline. A massive $4 billion shelf registration was filed last week. Though lately, the company's offerings have been for $100 million or less, the firm did securitize $2 billion in 1996. - SK