With buyers about to be tied up with engagements at this week's Barcelona conference, dealers rushed to get deals priced last week, squeezing in even the more unusual asset classes along with the regular slate of RMBS as part of the lineup.
The first week of June saw a flurry of unusual asset-backed deals, including an ABS backed by $430 million in oil and metal receivables for Trafigura, the billion-dollar U.S. commodity trader. Trafigura Securitization Finance 2007-01 is backed by a revolving pool of oil and metal concentrate receivables. Societe Generale and Credit Suisse were lead managers on the deal, which priced within guidance issued earlier in the week. According to market reports, the triple-A, five-year Class A notes priced at 25 basis points over one month Euribor, while the triple-B, five-year Class B tranche priced at the wider range of guidance at 135 basis points.
European issuance of double-B and triple-B ABS is growing, according to Societe Generale analysts. In 2006, the value of double-B and triple-B deals totaled 19.6 billion ($26.4 billion) and 4.8 billion, respectively, compared with 2005, where deals with the same ratings were worth 10.9 billion and 2 billion. This year's volume is already about to pass what was written in all of 2005 - and investors continue to be drawn to these ratings, reflecting the market's appetite for risk.
Guidance was also heard on B-TRA 2007-1, the 160 million securitization of tax receivables from the Belgian government. The triple-A, 1.5-year Class A tranche priced within guidance at seven basis points over three month Euribor, and the 3.3-year Class B notes priced two basis points wider than original guidance, at 12 basis points over.
Esoteric is not necessarily riskier
Esoteric deals are on the rise. Wong said that Fitch regularly receives enquiries on potential deals relating to new asset classes. "[These deals] take a longer time to close than traditional ABS deals," she said. "But taking a long time doesn't mean there is more risk to the esoteric ABS deals."
According to Wong, when a bank brings a nontraditional ABS deal to be rated, rating agencies typically spend a lot of time on research, understanding the industry and underlying asset class to assess the risks on the cash flow. For example, when Fitch is approached to rate an esoteric deal, the agency will use expertise from various teams, which slows the process. And sometimes, with truly esoteric deals, even Fitch can be taken by surprise. "There is always something new in ABS, in addition to such traditional ABS as credit cards and auto loans. There may be a one-off financing deal that is something special and that may make it an esoteric deal."
She added that the market has seen more esoteric deals recently that included intellectual property structures and insurance-related securitizations, with most being one-off transactions, often with complex structures. EMI Group was looking to issue bonds backed by future CD sales, but a deal is unlikely to come to fruition.
Nonetheless, investors in a quest for some much-needed yield continue to look toward these more unusual asset classes. "Significant demand exists for yield, with ABS spreads typically more generous on a ratings basis than corporate bonds," said Chris Greener, director and ABS senior credit research analyst at Societe Generale. "However, we believe more value exists in senior notes, recommending leveraged triple-A positions to generate yield."
Lots still left to price
With more than 50 billion left to price in the run up to Barcelona, buyers are beginning to see tiering in other parts of the market as well. Deutsche Bank analysts said that the markets' heightened credit sensitivity over the past weeks has contributed to some "sector-specific" subordinated price tiering.
"In the nonconforming RMBS market, triple-B cash spreads are clearing in the range of 115 to 140 basis points (CDS spread ranges remain much wider), depending on collateral quality for the most part, and program name to a lesser extent," reported Deutsche Bank analysts. "Leveraged-loan CLO triple-Bs are clearing at headline spreads of anywhere from 150 to 170 basis points, which seems a more dispersed range relative to earlier this year. Among CLOs, tiering looks to be based mostly on how well-established the manager is in the European CLO market, with newer names typically pricing wider to market."
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