As new ABS issuance for the year wound down last week - with the market placing only $4.2 billion - the focus turned instead to two of the most popular and competitive of yuletide activities: preparation of 2002 supply estimates and of course, year-end league-table jockeying.
This phenomenon is not shocking, of course, as balance-sheet concerns at quarter-end often lead banks to get some collateral off their own books through securitization; but with tight races for top-10 spots in the league tables, business in any form is at a premium.
Meanwhile, offerings from Capital One Auto, Conseco and LG Cards came and went last week, as Salomon Smith Barney, Chase, Credit Suisse First Boston, Wachovia and Morgan Stanley all brought self-led deals into the market.
2002, another good year
Amid all the year-end reviews under way on Wall Street, banks have started putting their chips on the table for the coming year, as analysts for most of the players in the ABS market have published supply estimates for 2002.
All analysts expect another robust year of supply, with some estimates predicting more than $350 billion of ABS product. This is in contrast to last year, when few, other than Salomon Smith Barney's Peter DiMartino, would go on record expecting more than $300 billion.
But the market proved strong this year, particularly following the events of Sept. 11, and set an issuance record for the third year in a row. "Everything was thrown at the ABS market this year (tragedy within our borders, economic crisis, corporate bankruptcies, structures were "challenged", etc). Meanwhile, the term ABS market raised more capital than ever in its history," noted DiMartino.
In the future, a loosening of regulatory restrictions on investors combined with spread stability should lead to growing demand for ABS, which is perfect for issuers eager for triple-A-rated funding.
HEL: the wildcard
There is much more agreement among analysts this year than last and there is little discrepancy in the estimates for the three main sectors of the market or the totals. The wildcard sector this year is home-equities, noted both Salomon and JPMorgan, as 2002 may have the potential to bring a record number of HEL offerings.
Salomon's DiMartino names three portfolios in particular -Associates, Household and EquiCredit - as the ones to watch for sending issuance volume through the roof. For example, parent Bank of America is close to selling servicing rights for the EquiCredit portfolio to Fairbanks Capital, opening the door early in 2002 for the previously announced plans to securitize most of its $21 billion portfolio. The issuer recently finalized its shelf registration with the Securities and Exchange Commission, boosting availability to $18 billion.
As a result, Salomon, JPMorgan, CSFB and Wachovia all foresee issuance near or over $100 billion in the coming year. "New HEL originations will be down in 2002 versus 2001, but securitization volume is the real unknown," DiMartino said. "The Bank of America (EquiCredit), Household, and former-Associates portfolios could boost volume considerably."
Autos and cards will be boosted as well, as issuers increase the usage of ABS versus debt issuance. Banc One notes in a recent research report: "Recession and tighter corporate credit will lead card issuance to a projected $65 billion in 2002."
"A substantial component of the volume will be the result of (credit card) issuers refinancing older series that will mature next year. We estimate that the refinancing component will account for approximately $40 billion," said researcher Alex Roever.
Wachovia's Rusty Hurst anticipates a breakout year in the equipment sector as well, an area that his bank has a firm hold on. Hurst estimates that equipment issuance will spike to more than $12 billion, a $47.8% increase from the $8 billion sold this year.
News is not quite as rosy in all sectors, however, as stranded- cost supply is expected to dip across the board. Correctly estimated last year by DiMartino, volume in 2000 topped $8 billion but the hefty supply seen this year and the finite nature of the asset class should limit the coming year's number to less than $4 billion, analysts said.
Banc One: Alex Roever/John McElravey
Barclays Capital: Jeff Salmon/Juliet Jones
CSFB: Neil McPherson/Rod Dubitsky
JPMorgan: Chris Flanagan/Ryan Asato
Merrill Lynch: Dan Castro
SSB/Citi: Peter DiMartino
UBSWarburg: Tom Zimmerman
Wachovia: Rusty Hurst