Surety activity in the U.S. term market picked up during the second quarter, as guarantor penetration, or wrapped proceeds over total proceeds, increased to 12.12% from 9.94% during the first quarter 2003, a 20% gain in market share. Year-over-year, however, the $17.5 billion in wrapped proceeds trails 2Q02’s $24 billion, when nearly 22% of the market was insured. See this quarter's Guarantor supplement for deal list.
The tally — based on a rough compilation of Thomson Financial and ASR inputs — includes non-CDO, U.S. public and 144A term deals. Real estate ABS insured by the government-sponsored agencies is also captured.
Notably, GSE-wrapped home equity practically fell off a cliff compared to the prior two quarters, when Fannie Mae and Freddie Mac together accounted for about 40% of wrapped real estate ABS. During the second quarter, a single Freddie Mac wrapped deal (T55) for a Goldman Sachs shelf gave the GSEs a 13% share of real estate ABS. Fannie Mae was absent from the count.
Real estate ABS made up roughly 60% of the entire market, fairly consistent with the first quarter, though dollar volume was up about $10 billion ($86 billion of home equity in the second quarter, compared to $76 billion in the first quarter).
About 12% of real estate volume came wrapped in the second quarter, on par with the first quarter’s 12.4%. That said, real estate ABS accounted for 59% of wrapped volume, considerably less than the 77% in the first quarter. This is partially attributable to a spike in wrapped auto paper, up to $4.7 billion from $1.9 billion in the first quarter.
Financial Guaranty Insurance Corp. (FGIC) had its second consecutive strong quarter in HELOCs, wrapping $3.24 billion, up slightly from its first quarter showing of $2.8 billion. The firm wrapped less than $1 billion for all of 2002, according to last year’s tally. Apparently, FGIC has renewed its commitment to the market, despite (or perhaps associated with) parent company GE Capital’s plans to sell the company.
Top ranked surety Ambac, which neared $9.0 billion in wrapped proceeds, guaranteed two large auto deals in the second quarter: a $1.13 trade for Capital One and a $1.05 billion transaction for Household International.
MBIA and XLCA both neared the billion-dollar mark in autos, with MBIA taking a $999 million AmeriCredit Corp. deal in April, and XLCA wrapping the subprime lender’s next deal, worth $785 million, in May. XLCA also wrapped a $135 million auto transaction for Drive Financial Services, and a $500 million rental fleet lease deal for Avis Group.
With about $1.4 billion, XLCA has shown its third consecutive quarter of increasing visible term business, and its strongest showing to date in ASR’s Guarantor. "Investor acceptance has really been exceptional for the XLCA name, as well as acceptance by both issuers and bankers,” said Ed Hubbard, chief financial officer at XL.
“[AmeriCredit and Avis] represented opportunities for us to work with new clients,” said asset-backed co-head at XLCA Cassie Lau. “One of our key strategies is to build relationships and establish repeat business.”
XLCA anticipates another strong quarter. Said Lau, “We are getting inquiries and talking to what we’d call storied issuers’, who two or three quarters ago might have come to market without a wrap,” Lau said. "Due to the noise around these issuers' names, transaction execution might benefit from a monoline wrap."
Lau added, however, that due to record low interest rates, some investors might be pursuing non-insured paper for the spread pick-up. She emphasized this observation was based on anecdotal talk.