The beach was looking a lot better than the office last week for many ABS traders, who noted that the summer slowdown has sapped deal flow, removing any hope of liquidity picking up.
Trading in the secondary market also remained light, according to an ABS trader. This is despite all the government efforts to salvage the mortgage market by supporting new regulations, providing liquidity injections and encouraging growth in untapped sectors such as covered bonds.
Spreads continued to widen out, partly because of the slow season but also because of the auto sector downgrades by the rating agencies last week, according to another ABS trader.
Ford Motor Co., Chrysler and General Motors Corp. were all slapped with downgrades. Standard & Poor's recently placed the ratings of 14 classes of auto loan ABS issued from DaimlerChrysler Auto Trusts series 2007-A and 2008-A on negative watch because of higher-than-expected losses and delinquencies.
The rating agency also put a slew of auto leasing trusts on review for downgrade. These actions come as the auto sector continues to be hurt by rising fuel prices, declines in sales and weak used car valuations.
As a result of the decline in resale values for leased vehicles, Chrysler Financial recently announced that it will be suspending its U.S. auto lease program while GMAC announced it will stop subsidizing leases in Canada as well as eliminating leasing opportunities to borrowers with lower credit. Ford said it will hike up lease rates on certain SUVs.
The reduction in lease programs will certainly affect new ABS issue volume, although the auto lease sector has always been a relatively small segment of the total auto ABS volume, Deutsche Bank Securities analysts said in a recent report. Auto lease ABS deals made up about 10% of the auto ABS volume in 2006 and 2007, the bank said.
Fitch Ratings recently cautioned that auto lease transactions from 2007 and 2008 may not have enough credit enhancement to offset the potential increase in residual value losses while still maintaining debt coverage consistent with the rating agency's original ratings.
However, despite the negative news, deals still came through last week, though they were heavier on the credit card side.
Credit card deal American Express Issuance Trust, Series 2008-2, totaling $1.06 billion, launched via Banc of America Securities, Barclays Capital, Morgan Stanley, BNP Paribas, Credit Suisse, Lazard Capital Markets and Williams Capital Group. This latest deal is the sixth series issued from the trust. Triple-A paper worth $1 billion priced at 82 basis points over its benchmark with an average life of one-and-a-half years.
Meanwhile, $275 million in class C notes for BA Credit Card Trust 2008-5 also came to market. Fitch said it expects to rate the deal âBBB+'. Banc of America Securities, Barclays Capital and RBS Greenwich Capital arranged the transaction.
Also coming to market was a tobacco settlement securitization for Suffolk County, New York via Suffolk County Asset Securitization Corp., a special purpose and bankruptcy-remote local development corporation organized by the county and incorporated under the not-for-profit corporation law, according to a presale report from Fitch. Citigroup Global Markets is arranging the transaction.
The Series 2008 deal will be the first securitization of the county's tobacco settlement revenues. The series 2008-A bonds total $4.595 million and are expected to be rated âBBB+' by Fitch.
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