For the second year in a row American International Group, Inc. unit AIG Credit withdrew a proposed securitization of insurance premium loans, citing pricing concerns each time. But sources indicate interest was lacking from a buyside still fighting the issuer's parent in court to recoup losses from the failed surety provided by AIG unit Lexington Insurance Co.
AIG spokesman Ned Burke confirmed that the offer had been withdrawn from the primary market, but would not comment on future plans to tap the ABS market. Investors reportedly showed little interest in the bonds and indicated that, regardless of offered spreads, they would essentially boycott AIG asset-backed securities, as a cloud hangs over the firm that spurned the ABS market by allegedly breaking a surety agreement covering the defaulted Hollywood Funding film receivables securitization.
Timothy Lyons, CEO of Quadrant Capital, manager of Asset-Backed Capital, the primary investment firm in the Hollywood funding deal, said flatly the postponement of the 2002 deal "was not a question of pricing."
"I understand that there was no investor interest whatsoever from Europeans and that underwriters could not schedule a roadshow interview in Europe," Lyons said.
Introduced in early June, AIG Credit Premium Finance 2002-1 is a $518.6 million floating-rate offering with a five-year average life, securitizing loans made to businesses to pay the up-front premiums required for AIG-issued coverage. Five percent of the portfolio consists of deferred obligation payments.
The $500 million triple-A rated senior class went out in the 20 basis point area over Libor and shortly thereafter widened to 23 to 25 basis points over Libor. When little interest was seen at the revised level, the offering was discretely removed from the pipeline. No guidance was ever distributed for the $18.6 million single-A rated sub class.
"If one issues a piece of paper saying one thing and then behaves in an opposite fashion, it leaves a bad taste in people's mouths," Lyons said of the reneged upon surety provided by Lexington.
By contrast, first-time ABS issuer Flatiron Insurance Premium 2002 was able to complete a $150 million insurance premium ABS via Credit Suisse First Boston. The single-tranche MBIA-wrapped offering, also with a five-year average life, priced with a 37 basis point spread to Libor.
This year's AIG offering was led by Salomon Smith Barney, while last year's deal was brought by Goldman Sachs, which was not involved in any aspect of the offering this time around. One investor theorized that rather than AIG leaving Goldman out of the selling group, Goldman - anticipating the negative response - declined any role in the 2002 transaction.
Last year, roughly three weeks after AIG Credit Premium Finance 2001-1 was pulled from the market last May, a unit of Premium Financing Specialists Inc. sold $400 million of a five-year MBIA-wrapped single-tranche offering with a coupon of 33 basis points over one-month Libor. Banc One Capital Markets acted as lead manager for the transaction.
