At just shy of $3.5 billion, volume in equipment ABS is notably behind where it was at this time last year. Recent events, including the DVI Inc. debacle and the acquisition of several programmatic issuers, could put downward pressure on issuance for the year.
The revelations at DVI have left much of the market feeling skittish about the equipment sector. "There are concerns that it may not be cost-beneficial," said a source at a rating agency. "Meeting the enhancement levels and other requirements to get to a triple-A is going to be challenging."
Small-ticket and unrated specialty finance companies that originate leases with companies that may also be unrated, or not highly rated, stand to suffer the most, market sources said.
Both IKON Office Solutions and HPSC were snatched up by GE Capital last year, which could depress future volume, sources said. Prior to being acquired, ICON could be counted upon every year, while HPSC came in both 2000 and 2002. Additionally, MBNA bought dental issuer Sky Financial earlier this year. The ramifications of this deal are unclear. A company official at MBNA said there are no plans to securitize loans originated by the Sky unit in the public market at this time.
So far this year, there have been no surprises in the agricultural and construction segment. The CIT Group hit with a $936 million deal through Deutsche Bank Securities and Bank of America Securities in March. John Deere followed suit in April with a $754 million offering via Deutsche Bank. Caterpillar came last month with $648 million through Bank of America and JPMorgan Securities.
Both GE SeaCo and Top Cat have come with intermodal transactions, via Wachovia Securities and BB&T Capital Markets, respectively. Market sources are still waiting for an unnamed issuer to hit with its premier container transaction. The deal was initially slated to close last year, but now talk is that it may come late in the second quarter or sometime in the third. There are a few more container transactions from repeat issuers also in the pipeline.
Navistar Financial also came to market twice this year with truck loan and dealer inventory transactions.
Market sources predict that railcars will be fairly quiet due to poor collateral performance. Late last fall, Moody's Investors Service took action on a transaction issued by Touax Lease Receivables, which closed in early 2002. The Baa3' fixed-rate notes were placed on review for downgrade in December.
Familiar names Great America Leasing, Marlin Leasing and CNH will likely make appearances later this year, sources said.
Currently, one-year triple-A rated equipment notes are trading at seven basis points over EDSF in the secondary market, just outside a 52-week low of six points, according to Banc One Capital Markets.
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