With its first-ever offering of subordinated home equity loan-backed paper last week (see ASR 5/28/01), Centex Corp. achieved the two objectives it set out to accomplish: achieve the best possible execution and expand the investor base familiar with the Centex name.

According to Jeff Upperman, managing director of structured finance for the Dallas-based homebuilder, Centex accomplished both, pricing up to 10 basis points tight to initial price guidance disseminated for the subordinated classes.

"Participation in this offering totaled 30 investors, the most we have ever had on a single ABS transaction. Of that total 14 were new to Centex, an increase of almost 50%." Upperman added that this offering was the largest of the 14 home equity loan-backed deals Centex has brought to market to date. Previously, the largest offering had totaled $475 million.

The increased number of buyers, for essentially the same amount of supply, led to a feeding frenzy for the subordinated classes of the offering that led to a 10 basis point tightening in each of the three sub classes. Overall, most of the senior classes tightened two to five basis points.

But the most significant impact was felt in the double-A, single-A and triple-B rated classes of the deal, which were reportedly five, three and three times oversubscribed, respectively.

The second offering of the year for Centex was led by Lehman Brothers with Banc of America Securities, Credit Suisse First Boston and Salomon Smith Barney as co-managers.

Also helping the offering along was the absence of any loans backed by deep mortgage insurance, a rapidly growing part of the subprime market which limits credit exposure to loans up to a certain loan-to-value (LTV%).

"Some investors steer clear of mortgage insurance," Upperman noted. "Insured loans present investors with a whole new level of analysis, judging the credit of the insurer rather than the enhancement protections build into the deal," he said.

Oddly enough, following the success of this offering, Upperman would not commit to making senior/mezzanine/subordinated structures a regular part of the Centex funding plans. "As before, we will continue to look at the economic values of senior/sub structure versus a wrap and make our decision based on which will get us the best execution for each deal."

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