A full moon on Friday the 13th capped a surprisingly depressing week for the asset-backed market. External market forces kept issuance at a minimum while spreads widened, even though observers believed the deals in the market were structurally sound.
"The deals are doing absolutely phenomenal," said Jeff Salmon, head of asset-backed research at Barclay's Capital. "Asset quality is still pretty strong. There's no indicators that things are going bad or negative. The technicals in the market are quite good in terms of collateral performance quality."
Up until the ABS East conference in the Bahamas earlier this month, issuance was going at a record pace. It's been at a virtual standstill since. "We're embarking on the fourth quarter and it seems that really what's going on, is ... due to external factors beyond the ABS market that might be causing concerns and selling pressure in the market," he added.
One transaction actually made it to market last week, a $937 million auto receivables offering from AmSouth Bancorp. The deal was lead managed by Goldman Sachs and Bear, Stearns & Co., and the $315 million triple-A rated two-year tranche priced at 15 basis points over swaps, in line with price talk of 14 to 16 basis points over.
A $200 million-plus fixed-rate credit card bid list also made it into the market last Wednesday, but didn't seem to meet the expectations of the investors that bought it.
The six items in the list "traded very well," said an ABS trader. "However, we saw a lot of the bonds resurface on the Street, which indicates that the dealers that bought the bonds weren't that excited to own the bonds; they just wanted to see if they can get out of them."
Aside from a $250 million 144A medical receivables deal from National Century Financial Enterprises, there were no other deals in the pipeline for this week as of press time.
Much of the blame is being put on external factors. "If high yield markets are going through some hard times and spreads are widening, and if spreads are widening in the investment-grade corporate market, it's hard for the ABS market to hold in and be the same," Salmon said. "It's bound to see spreads kind of ease out a bit as a result of the external market."
Spreads in the two-to five-year term widened a few basis points, with longer term paper widening as much as four basis points.
"In corporates, that doesn't sound like much," said an ABS trader. "But in asset-backeds, where spreads have kind of been ratcheting tighter versus swaps and versus Libor in the last few months, that's a significant kind of move there."
"In the asset-backed land it will be an in-sympathy widening if there is any kind of pressure here on spreads," Salmon added. "It's just the external market factors that are causing the widening."
Buyers are currently scarce, but all indications are pointing to a robust fourth quarter, if the market volatility that has been seen every October for at least the past four years quells.
Many issuers said at the conference that they do have deals in the works for the fourth quarter. "So, it's kind of like full steam ahead, and the question is will the external market factors make it a challenging issuance market which could dampen issuance plans?" Salmon said.