Credit card transactions continued to dominate the issuance tally last week. The American Express Credit Account Master Trust, Series 2008-2 came to market with a $1.2 billion transaction. Lead managers were Barclays Capital, Citigroup Global Markets and JPMorgan Securities. The 10-year notes priced at the one-month Libor plus 126 basis points.
On Feb. 15, the Citibank Credit Card Issuance Trust, 2008-A2 priced, and was managed by Citigroup. The $1.8 billion deal snagged triple-A ratings and came in at one-month Libor plus 115 basis points. Aside from those deals, Bank of America Securities was said to be acting as lead manager on two pending deals totaling $650 million: the Chester Asset Receivables, series 2008-A1 and 2008-A2.
Analysts seem to think that the card ABS sector's dominance will continue for some time to come, and some expressed confidence in the ability of existing trusts to withstand potential economic volatility. Year to date, between $26 billion and $28 billion of ABS has been issued, according to dealer and analyst estimates.
"Only the credit card sector has seen an increase on a year-over-year basis," wrote Merrill Lynch analysts last week. "Most of the volume has been triple-A-rated classes, although Bank of America has issued several subordinated classes."
As for the existing trusts, the credit card market remains in fine shape, wrote Citigroup analyst Mary Kane.
"Credit card delinquencies for major trusts are only 39 basis points wider than one year ago (currently at 4.28% compared to 3.89%) and defaults are only 63 basis points higher (4.97% compared to 4.34%). These are manageable levels and show modest deterioration."
Credit performance is somewhat weaker, Kane acknowledged, but she emphasized that card performance is returning to normal levels as the credit cycle plays out.
Meanwhile, dealers continue to keep close watch on investor sentiments and headline risk, both of which continue to shape everything.
"One of the problems is that there is not a lot of rationality," said one market source. "Investors see value in what they own based on what might happen."
The other issue, said that source, is that sometimes the so-called forced sellers come to market and accept a bid from what they call a vulture fund. Deals that close on those terms end up repricing subsequent deals in the market.
Student loan lender SLM Corp. now falls into that category, said market sources. The company has ongoing funding needs, exacerbated by the fact that its planned $25 billion buyout never happened.
"Things have changed a lot for them," said one investor source. "They're a force issuer. They have to come to market."
Sallie Mae was in the market last week with a $1.5 billion transaction led by Barclays Capital, Bank of America, Deutsche Bank Securities and JPMorgan Securities. Nelnet was also circulating a deal.
While the auction rate market remained stalled, one market source hinted that variable-rate demand notes might also destabilize. Known as VRDNs, these long-term securities bear floating interest rates and allow investors to tender securities at par on seven days' notice.
Elsewhere in the ABS market, some dealers reported that their peers were spending some time hedging triple-A tranches on the ABX, most likely in an effort to manage their exposures. It was unclear, at press time, which vintages were being targeted, but those in the know wagered that anything older than 2006 would be in play.
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