The securitization market's mood remains palpably apprehensive, but last week several issuers resigned themselves to the reality of having to accept wider spreads. So, they completed a handful of student loan, credit card, equipment and subprime auto loan deals. Granted, issuance failed to amount to more than $4 billion, among those deals, but several market participants withstood market conditions to get things done.
AmeriCredit Auto Receivables Trust priced a $1 billion transaction, secured mainly by subprime auto loans. Rated triple-A throughout, with the exception of a P-1'-rated short-term piece, the deal carried an FSA wrap. A tranche with a 0.85-year duration priced at 55 basis points over Libor, while a 3.22-year piece came in at 80 basis points over the benchmark. Credit Suisse, Lehman Brothers and UBS acted as lead managers on the deal, as Barclays Capital, Deutsche Bank Securities and Wachovia Securities took up the co-manager role, according to AmeriCredit Corp.
The wider-spread trend continued throughout the week, as issuers from other sectors floated paper onto the market. Citigroup Global Markets managed a $1 billion, 10-year, fixed-rate credit card transaction. That deal priced its notes at around 60 basis points over mid swaps. Citigroup officials did not discuss the transaction, but market players speculated that the manager was able to use its market cachet to tap into a pool of corporate bond investors.
An equipment lease transaction, CNH Equipment Trust 2007-B, illustrated the fact that a boost in the agricultural sector compensated for a mortgage-related slump in demand for construction equipment. Secondarily, the CNH notes attracted investors because over the life of the deal, they suffer very minimal losses - a net of only about 50 basis points.
"Everything that you read about prices going up because of a demand for ethanol," has played in the transaction's favor, a market source said.
Just as the market scrambled to assess and control damage from the faltering RMBS sector about six weeks ago, the ABCP and structured investment vehicle (SIV) sectors continued to draw intense scrutiny from all quarters. On a positive note, Moody's Investors Service said it thought that multiseller, bank-sponsored ABCP conduits would withstand current market disruptions, and would most likely be the first to recover. By the end of June 2007, more than 200 such vehicles were operating worldwide, and they had about $900 billion of ABCP outstanding, making up two-thirds of the outstanding ABCP rated by Moody's, the rating agency said.
Spreads were also beginning to recover. Benchmark sponsors such as Citibank, Bank of America and JPMorgan Chase were able to roll paper at spreads of Libor plus 20 to 25 basis points, a bit better than the 45 basis-point spread that they were getting. Money funds have not lost any money, and the widespread expectation is that the short-term market will begin to normalize in the fourth quarter.
There is one major caveat: "All SIVs are in danger of unwinding," one source said.
JPMorgan Securities analysts said investors are worried about what would happen to the SIV market if the $400 billion in assets underlying the MTNs and CP from those vehicles were to liquidate en masse.
"While we believe it is possible that some SIVs can survive the current turmoil, particularly if they are able to secure some form of emergency funding," the bank's analysts wrote recently, "we also feel that this segment of structured finance is at the beginning of a significant consolidation that will winnow the field of SIVs."
One ABCP and SIV market professional was thoroughly fed up with the extent of the market disruption. Investors who actually buy ABCP and SIV paper still want to participate in the market, yet many are constrained by overly cautious portfolio managers and directors who are reacting to headlines. Great spreads are still available for moderate risk, especially to money funds with the courage to hold ABCP on their books, said one director.
"It's Britney Spears it the financial scope, that's all it is," he said. "This has got nothing to do with reality. This is secured bank risk, for the most part. What can I tell you?"
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