Major legislative and regulatory propasals came forward last week, which hint at potentially big changes for the student loan and credit card industries.
But that did not do enough to significantly perk up spirits on ABS trading desks, because market participants were undecided as to whether those changes would significantly impact future deal volume or portfolio performance.
In one week, the Sen. Christopher Dodd (D-Conn.) proposed legislation that would change the way card issuers charge fees and interest rates to consumes (see story on p. 15) and the Federal Reserve was expected to propose its own similar credit card industry changes by last Friday.
The Senate passed the Ensuring Continued Access to Student Loans Act of 2008. Among other changes, it calls for guarantors and lenders making loans via the Lender of Last Resort program to abide by the same terms and ethics rules as other FFELP lenders. It also imposes additional reporting requirements on them. That would bring an end to the Secretary of Education's authority to designate institutions as eligible for the program after the 2008-2009 year.
"We view this legislation as a near-term positive for the FFELP and its lenders, as it provides the latter with a safety-valve means of funding new originations," wrote Barclays Capital analysts. "This should reduce the likelihood of originators becoming forced issuers into a potentially inhospitable ABS market that subsequently serves to reprice spreads wider."
Barclays said it expects the legislation to be signed into law by early June, and for FFELP spreads to stabilize after its implementation.
For some investors, however, the news was underwhelming. One market source said he found it interesting that almost a year ago, Congress made changes to the structure of the student loan business because it thought people were making too much money.
"People exited the business and now want to make loans to students," he said.
Opinions were a lot stronger concerning potential credit card legislation.
"Oh, it's never going to happen," that investor source said. "The lobbyists from the banks are going to kill it."
None of the legislative news, however, significantly impacted spreads on new deals.
Volkswagen came to market with a $1 billion auto deal via Citigroup Global Markets and Deutsche Banc Securities, with HSBC as co-manager, said people familiar with the deal.
On that transaction, the short-term piece came in at just three basis points over the interpolated Libor. The rest of the deal, however, priced at high double digits over their benchmarks. The one-year piece priced at 85 basis points over the EDSF, while the two-year tranche came in at 135 basis points over the interpolated swap.
Barclays Capital was marketing a $750 million Fifth Third Auto Trust transaction, although it was unclear whether the deal had come to market by press time.
The Capital One Multi-Asset Execution Trust also priced a $725 million transaction via RBS Greenwich Capital and Wachovia Capital Markets.
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