The ABS market was in better spirits last week, thanks to BlackRock's announcement that it will purchase $15 billion of subprime mortgage debt from UBS.
BlackRock's plans to purchase the debt at a 25% discount from its face value of $20 billion is a sign that the market is starting to recover, industry insiders said.
"A lot of people are viewing [this deal] as a very good thing for the ABS industry," an ABS trader said. "You have one of the smarter guys out there saying: I will take this,' and that is a positive for the market."
Steady new issuance volume is also keeping traders optimistic. Auto and credit card transactions that priced last week have all done very well, one trader noted. "The issue market is flying for top-tier auto and credit cards," he said.
On the auto side, DaimlerChrysler came to market with a deal managed by a bank consortium including Citigroup Global Markets, Deutsche Bank Securities and JPMorgan Securities. Co-managers on the transaction were Banc of America Securities, HSBC Securities and TD Securities.
Daimler's pricing appeared in line with market optimism. Short-term paper priced just three basis points over interpolated Libor. The one year piece priced at 93 basis points over the EDSF, while the two-year piece priced at 148 basis points over swaps. The rest of the deal priced more than 100 basis points over Libor.
Citigroup priced a Capital Auto Receivables Asset Trust 2008-2 deal. The one-year triple-A tranche came in at 92 basis points over EDSF, while two-year paper priced at 145 basis points over swaps.
Several credit card deals also came to market; including Chase Issuance Trust. Lead manager JPMorgan Securities priced $1.5 billion in 1.5-year triple-A paper at 65 basis points over one-month Libor. The co-managers on the deal were Barclays Capital and Credit Suisse.
However, not all market players were convinced that new issuance was rebounding, saying people are worried about headline risk associated with the mortgage bill that Sen. Christopher Dodd (D., Conn.) and Rep. Barney Frank (D., Mass.) pushed through Congress last week.
The Senate unanimously passed the bill last Wednesday, after the House of Representatives approved it earlier in the session, but President Bush is considering a veto on the plan.
The veto news put pressure on top of the ABX capital structure, which has been rallying over the past six weeks amid hopes of government intervention, according to Banc of America Securities analysts. The ABX-HE-AAA 07-2 hit a weekly low of 56.54 last week, as of press time, close to its all-time low of 50.67.
The veto not withstanding, not all traders thought the plan would help the mortgage market and issuance volume, and there was special concern about subordinate tranches where borrowers might not qualify for the program. "If the proposed plan goes through, eventually it could annihilate subs. The government will pick up loans, but the lenders only get enough back to pay higher tranches of this stuff," another ABS trader said.
However, secondary trading did not appear to be impacted by the proposal. In fact, spreads were beginning to come in for all of ABS last week, a market source noted. Wachovia analysts explained that market participants are now better able to assess the current market situation and potential risks. "The shock and awe of mortgage and CDO-related mark-to-market write-downs are beginning to work their way through the system."
Other consumer ABS also hit the market last week. J.G. Wentworth Management Co. came to market with a $116.69 million structured settlements deal, 321 Henderson Receivables IV. Interestingly, this will be the second deal from the company without an MBIA wrap.
The company closed a similar unwrapped transaction in the first quarter after monoline troubles prevented the company from insuring the transaction. Cash flow on the collateral will come from rated and unrated personal injury annuities from insurance carriers. It was not clear whether the deal had priced by press time.
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