Last Tuesday's $3.8 billion auto receivables transaction from Ford Motor Credit Co. sent spreads in the sector out two to three basis points. Some ABS market players believe Ford's frequent issuance this year could be tied to the company's negative headlines, where the ABS market seems safer than the corporate debt market.
As DaimlerChrylser is placed on review for a corporate rating downgrade, the ABS market is awaiting to see if Chrysler will follow suit.
Last week's deal marked Ford's seventh offering of the year, bringing its issuance total to $19.5 billion - all but one were above $2 billion. "The unsecured debt markets, the cost of issuing in that, was probably pretty high," said Jeff Salmon, head of ABS research at Barclay's Capital. "There was a real preference to say, given that situation, Why don't we go ahead and tap the ABS market?'"
"It's been a better execution for them all year long," added Randy White, head ABS trader at First Union. "The auto companies will go in and out of the market just based on where they can get the best execution."
Salmon pointed out back in 1993, when Chrysler last ran into problems, the company issued close to $11 billion in issuance over six deals, because the cost of unsecured funding was so high. Ford only had three deals in the market that year.
"Since Daimler was in fact put on watch for a potential downgrade situation, could their funding costs go up? And if that is indeed the case, will they increase their securitization efforts?" Salmon said. "That's one of the beauties of asset securitization, is this is a great other source when the unsecured debt capital markets funding costs goes up."
Ford's deal possibly sent spreads out because of the large amount of Ford paper that's been in the market recently. "We've already seen some correction taking place in that market," added White.
The week also saw other deals get priced very well. A credit card offering from Capital One was upsized to $1.23 billion from $739 million, due to investor demand. The $1 billion senior tranche priced at one-month Libor plus 10. Other credit card deals included offerings from First National Bank of Omaha ($450 million) and Circuit City ($232.4 million). The three-year tranche of the Circuit City deal priced tighter than guidance, at one-month Libor plus 23.
Harley Davidson priced its $221 million motorcycle receivables deal at the tight end of guidance as well; the one year tranche priced at EDSF plus 10.
Countrywide Credit Industries was in also in the market with a $340 million home-equity deal. Wrapped by Financial Guarantee Insurance Corp., the transaction priced at one-month Libor plus-23. More home-equity issuance is seen as the year comes to a close. IndyMac is in the market with a $450 million deal scheduled to price this week.
"What I hear going forward, is that all eyes are turning to more supply in the home-equity arena," Salmon said. "We probably will see more home-equity deals get done in the near-term." Salmon expects robust issuance to continue through Dec. 15.
More than $1 billion in bid lists was also seen in the market last week, as accounts begin to prepare for year-end.
Further, White suggested that the inverted Libor curve in the short end has continued to make one- and two-year ABS attractive.
Erisa Has No Impact, Yet
Amendments to Erisa went into effect last week, and so far they have had little effect on the ABS market, mainly because pension funds are reluctant to invest in new asset classes right away.
"We think it's going to take a little while for that to happen," said Russell Hurst, director of ABS research at First Union. "Some accounts are testing the waters. They're trying to see if their bonds are going to trade tighter because they're approved for Erisa."