With $11 billion-plus pricing last week - more than double the $5.2 billion the week before - the ABS market saw its busiest week of primary issuance so far this year.
Despite the recent scrutiny placed on the market by various sources that view securitization as "a secret society cloaked in technical jargon," as Banc One recently put it, investors continue to line up for the relative safety of asset-backeds.
As the final month of the quarter opened for business, a flood of home-equity paper hit the Street, a traditional occurrence for any end-of-quarter (see charts p. 5). Of seven new issues last week that were $1 billion or more in size, five were mortgage-related, launched by the top-tier issuers in the sector.
Option One and Long Beach brought competing home-equity deals that featured GSE wraps; Countrywide and Household (see story p. 4) each added high quality collateral offerings and a foreign RMBS deal from Australian bank Westpac Banking Corp. rounded out the week.
In cards and autos, while the supply did dip, large offerings from Chase and Mitsubishi each saw strong demand. Also, smaller deals from manufactured housing lender Origen Financial and a self-led MSDW Capital transaction hit the market.
The largest offering came from Option One, which had been market buzz the week before, but was held up due to structuring issues. For the first time on an Option One deal, Freddie Mac supplied the partial guarantee, as sources said that Fannie Mae had provided past sureties.
Banc of America and Greenwich Capital led the deal jointly, with BofA running the books. The transaction, OOMLT 2002-2, had $2.1 billion of the total coming in the form of triple-A rated FSPC T-40 floaters. The remaining $372 million of the offering was four-tranche senior/sub floating paper.
Long Beach, by contrast, issued a mix of fixed- and floating-rate securities with its $1.6 billion 2002-1 offering that featured a FNMA T-5 wrap on $887 million of the total. Deutsche Banc led the transaction, which saw the wrapped 2.75-year I-A floater price at 12 basis points over one-month Libor, a tight print for the sector.
Very few classes of the two deals were comparable in structure or tenor, with the notable exception of the unwrapped floating-rate classes of each deal. The 2.91-year OOMLT A class, with a 2.91-year average life, priced at 27 over one-month Libor, five inside of the II-A1 2.84-year senior floater of the Long Beach transaction, which came in at 32 over Libor.
But even though most other classes are not apples-to-apples comparisons, the non-GSE-guaranteed classes of Long Beach, in general, were the more "yieldy" of the two, sources said.
In credit cards, new issue spreads continue to grind tighter, as evidenced by the Chase Credit Card Master Trust five-year floater that priced early last week, via JPMorgan. Following an increase to $1 billion from $750 million, the 2002-1 deal priced at levels not seen for floating card-backed paper at that part of the curve in three-and-a half years.
Pricing at a spread of 10 basis points to Libor, the senior class of the Chase deal was the tightest print since the 1998-5 issue from First USA. The closest recent new issue was the American Express 2002-1 Optima card deal, from mid-February, which priced at 11 over.
The AmEx transaction was the one most closely monitored by JPMorgan, according to Marta Ricardo in the JPMorgan N.A. ABS group, who confirmed a recent trade of AmEx 2002-1 senior A paper at 10 basis points over Libor.
The single-As also came in at impressive levels, pricing at 39 basis points over Libor, one inside of the level at which AmEx 2002-1 single-A-rated B class priced.
In order to match Chase, Citibank, the widely recognized sector leader, would have to print a comparable Citibank "Block & Trap" five-year senior at eight basis points over three-month Libor, adjusting for the difference between one-month- and three-month-Libor-indexed paper, sources noted.
As of press time, neither the Mitsubishi $1.6 billion auto loan or the Household $1 billion home-equity deals had priced, but both were expected to do so Friday. Morgan Stanley was leading both of the offerings, Mitsubishi solely and Household jointly with Credit Suisse First Boston.