An equipment ABS deal has yet to price in the New Year; however, the market may be warming up as sector stalwart The CIT Group has recently renewed its S3 shelf filing with the Securities and Exchange Commission. CIT is expected to sustain the pace of origination set last year throughout 2005, sources said.
The new shelf differs little from the finance company's last S3 filing completed in January 2001. The shelf is good for $1 billion in receivable backed notes supported by collateral in the construction, transportation, manufacturing, logging, fitness and medical industries, to name a few.
CIT tapped the ABS market three times in 2004, and is one of the programmatic issuers that has kept the flagging sector running over the last several years in the face of industry consolidation and allegations of fraud at DVI Inc. The most recent CIT transaction was a $447 million offering via Merrill Lynch that closed in September 2004. The transaction marked the master servicing debut of Dell Financial Services. The offering was also the first CIT deal made up entirely of DFS originated collateral (see ASR, 10/4/04). DFS is a joint-owned venture of Dell Inc., and CIT, and currently services a portfolio of more than $4 billion in receivables.
CIT had $52.4 billion of managed assets as of Sept. 30, 2004, according to the filing. The financing and leasing assets of the company's specialty finance unit - representing roughly 35% of CIT's total financing and leasing assets - totaled $15.7 billion. On a managed asset basis, the specialty finance arm totaled $20.8 billion, or about 40% of CIT's total managed assets.
Some analysts are predicting another flat year for the equipment sector, however, there are a few slightly more optimistic predictions for the year ahead. In a recent outlook piece, analysts at Moody's Investors Service forecast a modest increase in the public issuance of equipment ABS in 2005. "If the economy continues growing in 2005, investment in industrial equipment is likely to increase, contributing to a higher issuance volume from existing players and the emergence of new issuers in 2005," analysts wrote in the report.
Issuance in the private market should grow as specialty finance companies enter the market, analysts added. Oftentimes the onset of a New Year ushers in talk of smaller issuers making an opportunistic play in the equipment ABS market, a Moody's analyst said. However, these predictions are seldom borne out at year's end. "We can't be sure if any of these deals will actually materialize," the analyst said. "But there is a feeling that the market is getting a little bit better, so maybe some of those deals will actually get done this year."
Performance in some of the weaker sectors, including construction and manufacturing, has been improving somewhat, a positive sign for overall volume in the sector, the source said. Moody's expects credit performance on equipment portfolios to remain stable in 2005.
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