Riding a pipeline that just won't seem to quit, last week's asset-backed market saw more than $5 billion in issuance, with most of the volume coming out of the auto sector.
On the news that the Federal Reserve Bank cut rates, swap spreads moved in two points on the short end and as much as four points on the long end of the curve.
Still in the market at press time, Deutsche Bank was showing investors a $770 million Conseco Finance deal, sliced up into numerous tranches, some by backed home-equity loans, some backed by home improvement loans, and some backed by high loan-to-value loans.
Also, Public Service New Hampshire was still in the market with its stranded cost deal, having trouble with the $75 million one-year class, left to sell-out, likely due to liquidity, market sources said. The five-year and ten-year tranches were reportedly oversubscribed.
Meanwhile, NextCard was said to be having a hell of a time getting investors comfortable with the limited seasoning and 18-months of data, when rating agencies and investors typically require three years. Also, it's a dot-com, which might not be helping the sale, a source noted.
Credit Suisse First Boston is lead manager on the deal.
Sub bonds galore
AmeriCredit Corp.'s $1.5 billion auto deal, which closed last week, was the largest senior subordinate subprime auto transaction to date, according to market sources. J.P. Morgan Chase was book manager on the deal, and a co-lead with Deutsche Bank on the senior and single-A bonds.
Prior to last fall, AmeriCredit issued strictly on a triple-A wrapped basis, but began alternating its structure to meet demand. The size of this deal signifies the increasing appetite for subordinate ABS.
"Right now there's a lot of investors who are looking to pick up yield, and people are looking to go down in credit quality," said Dan Castro, head of ABS research at Merrill Lynch. "There's more than one way you can do it. You can either go subprime collateral senior bonds, or you can go sub bonds on prime collateral."
Or why not sub bonds on subprime collateral?
For the most part, the deal priced in line with talk, featuring one fixed-rate money market tranche, and two triple-A-rated floaters, one benched off the EDSF and one off the swaps curve (see scorecard page).
The B-class, C-class, and E-class notes made up approximately $200 million of the deal.
As a continued theme from last year, the ABS CDO bid has been driving much of the subordinate issuance, particularly in the real estate sectors, where collateral managers can pick up the most spread.
Investors are also looking at longer-dated ABS.
Merrill Lynch currently recommends focusing on the coupon return as opposed to price return, picking up yield on the carry trade.
"We don't think there's much upside potential in most of the sectors out there right now, so we think you're better off going for the incremental spread, and usually that means looking at off-the-run stuff, like retail credit cards, equipment, and stranded costs," Castro said.
Heavy through mid-week
Those following supply trend continue to be awed by the momentum of deals this year, as the lulls seem to fade before ever getting started. For example, up until last week the quarter was moving rather slowly. Last week began with month-to-date issuance at less than $3 billion, with some players calling it a return to rational levels, following the rush to market in March.
By mid-week, nearly $5 billion had priced, and the pipeline was growing. That flood is expected to continue for the first half of the week, winding down for May 1, then picking back up again as the month gets under way.