With the Labor Day holiday out of the way, a large amount of corporate issuance kept the asset-backed securities market quiet. By the end of the week, two well received deals and an unusually large bid list helped create some demand in what market observers are saying will be an active September.
American Express priced a $713 million transaction, with the triple-A rated tranche pricing at 14 basis points over the one-month Libor. The deal priced at tighter levels than any comparable credit card deals this year, yet at least one observer thought it could have priced even tighter. At one point, the company reported that the transaction was three times oversubscribed. "It doesn't happen very often," an ABS trader said.
"I thought American Express priced a little wider that I would have thought it would given the amount of card supply we had in August," said Alex Roever, head of ABS research at Banc One Capital Markets.
Another ABS trader pointed out that a Wachovia deal priced at 15 over earlier in the year, and National City - a first-time issuer - also priced at 15, "So it's not surprising to me that it got done at 14," the trader said. "I wouldn't say that's wide at all by any stretch." The trader added that the price talk for the American Express deal was at 14 from the time the deal was announced.
"We had some buyers out there allowing this to get done tighter than any deal so far this year," the trader added.
DaimlerChrysler priced a $1.5 billion fixed-rate deal, with the one- and two- year tranches pricing slightly tighter than price talk, and the three-year tranche pricing at par with talk.
"I think the talk was too wide anyway," said an ABS trader, "so it's not surprising that it got done tighter than that. DaimlerChrysler was priced a little wider than secondary levels."
A $400 million bid list consisting of short-term floating-rate bonds was traded very aggressively last Thursday, indicating a strong tone for short floaters. Each bond in the bid list was three years or shorter.
Floating-rate spreads have ratcheted in, but only in select areas. "Dealers that hooked orders on the other side and were able to get retail to pay up which would lead to a tightening trend," said a trader.
As for fixed-rates, "I think there's a lot of accounts that are still out there that are trying to figure out what the supply is going to be in September, just how much is going to come and what it's going to mean to fixed-rate spreads, especially in the auto sector," the trader said.
Roever is predicting $25 billion to $30 billion in issuance throughout the month of September.
In the pipeline, a $635 million KeyCorp student loan deal is expected to price either this week or next week. The transaction is being led by Deutsche Bank. Meanwhile, a $203 million Coast to Coast auto deal led by PaineWebber is also expected to price within the next few weeks. In addition, Roever expects a few deals by "the usual suspects" to be announced in the coming weeks.