Three days into 2008, the ABS market was buzzing with more talk of layoffs and executive musical chairs than actual deal production. Despite the sluggishness and ongoing anxiety over how many layoffs are pending, however, traders and other market participants began gearing up for ABS deals secured by auto and credit card borrowings and other types of consumer debt.
The Tong Yuang Auto Loan Trust, which appears to be a completely new issuer, is preparing to come to market with a $1.9 billion transaction via Citigroup Global Markets, according to market sources. More deals from the auto ABS asset class are lining up for pricing, thanks to pent up demand from issuers to get deals done, sellside market participants said.
That pent-up demand stemmed from the fact that issuers were generally uncomfortable with the wide spreads available to them late last year. Although some spreads had been slighly reeled in during talk on deals, they were not near where traders wanted them to be, especially given the turn of the calendar, one market source said. Still, there is a silver lining: Thanks to significant interest in fixed-rate paper, deals pegged to those benchmarks are expected to do well in the coming weeks.
The credit card sector might also see some issuance in the coming weeks, with possible participation from one of the three largest issuers, sources said.
Bear Stearns Structured Products was the only issuer known to be preparing a residential ABS deal, a $272 million transaction secured by Alt-A paper, according to sources. Aside from Bear's deal, however, market sources did not hold out much hope for a resurgent real estate ABS sector.
The esoteric segment of the ABS market was also gearing up with a couple of transactions. Citigroup is apparently lead manager on a $226 million transaction for the Hedged Mutual Fund Fee Trust and the UBS Reverse Equity, named for its sponsor, was preparing a $661 million deal.
"It's really extremely quiet," one market participant said. "You'll start to see issuance pick up next week, and new issuance will be heavily weighted to consumer ABS."
Meanwhile, market sources were buzzing about more rounds of possible layoffs at major firms in the business, including rating agency Standard & Poor's and investment bank Merrill Lynch.
Sometime in mid-December, Standard & Poor's President Deven Sharma sent an e-mail to employees verifying that his appointment was permanent and warning of possible layoffs in the structured finance group, according to several market sources familiar with the company. A small number of executives had already left the company by early December, but drastic layoffs affecting the top third of the structured finance hierarchy are expected this week, according to these sources. A spokesman for Standard & Poor's declined to comment.
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