When the subprime RMBS and HEL markets began to fall apart, the market watched as billions in mezzanine CDO liquidations routed spreads, undermined investor confidence and siphoned liquidity from the securitization markets.
Another major wave of CDO liquidations is set to hit the market this week, when at least $2.8 billion of high-grade CDO transactions referenced to auto, credit card and even airplane ABS are set to liquidate because they will have hit their events of default. The total amount of assets to be liquidated is much greater than that, according to market sources.
"Between now and April 15, at least $8 billion of CDOs will be liquidating," said one market source. "I can't say for certain that this has been the first [high-grade CDO liquidation ever], but I know it's the first time I've seen it en masse."
Sell-side market sources were a bit scarce - and harried - last week, but investors were more readily available and appeared to have been primed for the onslaught.
"I think the expectation is that there will be more of that going on," one investor source said. "The market knows what the market-value triggers are, and we know what market values have done in the last [few] months."
Last week, the ABS business at hand centered on a $600 million credit card deal from the Capital One Multi-Asset Execution Trust Class A, 2008-3, and a $643 million equipment lease deal from the John Deere Owner Trust.
Managed by Citigroup Global Markets and JPMorgan Securities, the COMET deal priced its single-tranche, triple-A rated notes at swaps plus 175 basis points. The John Deere transaction was managed by Merrill Lynch and JPMorgan, although exact pricing spread information was not available at press time.
On the CMBS side, Lehman Brothers and UBS completed a $1 billion deal called the LB-UBS Commercial Mortgage Trust, 2008-C1.
As for the RMBS sector, there seemed to be a bit of pricing stabilization since March, and all of that activity involved the trading of secondary paper, not new deals. Any spread tightening that did go on was closely tied to specific situations, a source said.
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