Last week's asset-backed securities market showed increased activity, tightening spreads, and establishing a healthy tone, according to traders and bankers alike. Though press time totals weren't huge - just nearing $3 billion - the pipeline was said to be overflowing with deals of every kind, including credit cards, auto loans, equipment leases, home equity loans, and collateralized bond obligations.
"There's been a flurry here with a couple of deals in the auto sector," said one trader. Others considered action to be light, compared with earlier projections - an ongoing sentiment thus far in the fourth quarter.
Although auto paper was abundant, there was substantial demand for real-estate, according to Dan Nigro of Chase Asset Management, enough to drive action in the secondary market.
"I had a piece of 1.8 year home-equity being shown to me on the secondary at 102 over," said Nigro. "That's probably five to 10 basis points tighter than I would have expected.
"I think the other thing that has happened, is longer paper has outperformed shorter paper," Nigro explained. "Two-year swaps on the month have been flat to tighter on the five to 10 area, where on the short end of the curve, two's and three's have backed up to seven to eight basis points."
In terms of issuance, Option One came to market with a $930 million home-equity deal, wrapped by a guarantee from Freddie Mac. The transaction was structured in seven parts, the largest leg of which was a 2.91-year, $631 million A-7 class, priced at 15 basis points over one-month Libor. Average lives on the deal ranged from 0.91 year to 7.75 years.
Option One also sold $145 million in home-equity bonds out of the Option One Mortgage Loan Trust. That deal was structured with a 2.92-year A-1 class that priced at 38 basis points over one-month Libor. Greenwich Capital Markets managed both transactions.
Also notable, Carmax Group, a division of Circuit City Stores Inc. came to market with a $644 million auto loan-backed deal, structured in five parts. Spreads were wide on this deal, ranging from two basis points to nine basis points over talk. The largest tranche was the $208 million, 0.30 year A-1 class, talked at 40 over but pricing at 42 basis points over ESDF. The smallest tranche, $12.9 million in certificates, was talked at 110 over Treasurys but priced at 119 basis points over Treasurys, according to published reports. Banc of America Securities was lead manager.
Good Things To Come
Meanwhile, Prudential Securities is in the finishing stages of its premier Internet deal, according to a source at the company. The transaction will be backed by auto loans originated exclusively online.
"We still gearing up," the source said. "We've got a bunch of other stuff in the works too. I think the [deal] will be popping up quite shortly, and there's some other [Internet] stuff that has some longer lead time, coming a bit behind it."
The consensus, at this point, is to get things done before December, according to traders.
"Post Thanksgiving, it's unclear what the market's going to be like, and most people don't want to take the chance to find that out," said a banker. "Clearly there have been some people like Chase who have already come forward and said, We're a gold-plate name, we can issue in the fourth quarter' - you know, Hear us roar.' And they can probably do it."