Spread compression in the first quarter took a slight toll on surety business in the primary ABS market, lowering total wrapped proceeds to about $11 billion from $11.7 billion in the fourth quarter, despite a near 20% uptick in overall ABS issuance. For a list of deals, see ASR's First Quarter
Monoline penetration, or wrapped proceeds over total proceeds, was at 6.62% for 1Q04, based on U.S. public and Rule 144A non-CDO issuance, down from 8.3% in the fourth quarter. During the first quarter of 2003, the sureties wrapped about 10% of the market.
This quarter's story, however, was the reemergence of Financial Guaranty Insurance Co. (FGIC), which had been on the sidelines since the first half of 2003, pending the firm's split from longtime parent GE Capital Corp. Though GE is still a minority investor in FGIC, under the new consortium of owners -- led by PMI Group and Blackstone Group -- FGIC came into the ring swinging. The firm sported a beefed up all-star management team (many formerly of Ambac), a newly launched European headquarters, and a renewed appetite for risk. In all, FGIC wrapped about $4.6 billion in U.S. ABS, 41.8% of the insured market.
"We were extremely happy with the quality of clients we worked with in the first quarter and the reception for FGIC paper in the market," said Howard Pfeffer, who moved over from Ambac in December to head up both the public and structured finance groups. "We were able to execute deals for two first time HELOC issuers and close FGIC's first auto fleet financing transaction. Over the next year, we will continue to broaden our participation in the structured finance and asset-backed markets."
Meanwhile, Ambac still had a strong showing at $2.28 billion in proceeds, with most of its business in the real estate sector. Not surprisingly, mortgage related ABS made up the bulk of wrapped proceeds across the board, accounting for roughly 59% of business. In terms of the overall market, real estate accounted for about 72% of U.S. issuance, by Thomson Financial's cut. While making up more than half of wrapped proceeds, the $6.5 billion in insured real estate ABS covered less than 5% of the overall sector.
A few trends continued to lessen the appeal of issuing wrapped ABS. First off, a traffic jam of structured finance CDOs kept a steady bid for both new issue and secondary home equity subs. Halfway through the quarter, spreads for triple-B HELs had come in nearly 100 basis points from levels seen in the fall. Also, the popularity of simultaneous primary/NIM issuance continued to lure issuers to the senior/sub structure.
Notably, the GSEs wrapped no subprime mortgage deals in the first quarter, which seems to be the way things are moving. Freddie Mac and Fannie Mae's participation in the sector has steadily declined since first quarter of last year, when the two accounted for about 30% of guaranteed triple-A ABS (and nearly half of the real estate portion of wrapped deals).
Outside of real estate, subprime auto continued to be a large part of the ABS business for the monolines. The regular slew of issuers -- including DriveTime, Long Beach Auto, AmeriCredit Corp., Onyx Acceptance and Ford Motor's Triad -- were all active during the quarter. AmeriCredit gave this year's first two deals to MBIA and FSA, after making the rounds throughout 2003.
