The monoline guarantors enjoyed a pickup in business in the second quarter, thanks to marginally, albeit temporary wider credit spreads - particularly at the triple-A level - and an increase in volume from asset classes that are traditionally wrapped.
The sureties took down about $15.8 billion in ABS, or about 8.85% of total U.S. dollar issuance for the quarter, compared to the $11 billion, or 6.62% market penetration in the first quarter.
Not surprisingly, most the business centered around mortgage-related ABS, with a notable spike in securitized home equity lines of credit (HELOC), which, as a general rule, come to market with a wrap. About $7.1 billion of the $12 billion in wrapped real estate ABS was HELOC collateral. In all, the monolines picked up more than 10% of the real estate market.
Financial Security Assurance (FSA) wrapped its first HELOC deal a few years via GMAC Mortgage, according to Rick Holzinger, managing director of FSA's corporate finance group. "That's an area that we have not recently participated in, and GMAC is our first re-entry into the business," Holzinger said. "We're expecting to do more of them this year."
Financial Guaranty Insurance Corp. (FGIC) has continued its strong push into the market, wrapping $4.3 billion for the quarter, exclusively in the real estate sector. Prior to its break from GE Capital Corp. last year, FGIC only played in HELOCs. For the second quarter, the monoline worked with a few new clients in a few new asset classes, wrapping a subprime home equity deal for Accredited Home Lenders and two high LTV deals for GMAC-Residential Funding Corp. FGIC also guaranteed a securitized portfolio of property lot loans, which are consumer loans secured by non-developed properties. The loans are generally five years in term, and are refinanced into a first lien mortgage after the house is constructed. IndyMac Mortgage Holdings was the seller on the $180 million deal.
"Typically we've been in the prime quality second lien, so we've broadened the type of home equity product that we do," said Tom Adams, senior managing director, head of consumer ABS at FGIC. "We're actively looking at non-mortgage assets as well. We're hoping to be further into that market."
Ambac had the busiest quarter, with wrapped volume approaching $6 billion and a 38% market share. The surety lined up five HELOC deals, one shipping container deal for GE SeaCo, and a rental car fleet lease deal for Dollar Thrify, among other transactions. MBIA wrapped just less than $3 billion in over the quarter, including the Cendant Corp. timeshare receivables deal and a $227 million non-prime credit card deal for Metris Companies.
XLCA had a fairly strong quarter as well, wrapping about $1.5 billion in the public/144A market, plus another billion or so in the private and/or secondary market, including CDOs. "We've seen an improvement in market conditions," said XLCA's President Ed Hubbard. "Deal volume is up. Credit spreads have widened slightly in some asset classes. It appears to be an improved environment for bond insurers."
"We're hoping that we'll see some widening," commented FSA's Holzinger. "But the continued liquidity and activity in the market do not indicate a dramatic spread widening anytime soon."
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