Guarantor penetration, or wrapped proceeds over total proceeds, came in shy of 6.5% for the third quarter 2003, with less than $9 billion in guaranteed proceeds versus a strong $138 billion in total supply, according to a compilation of deals from ASR and Thomson Financial.
This compares to the 12.12% of insured proceeds in the second quarter, and 10.19% during the third quarter last year.
This quarter’s Guarantor tallies all non-CDO U.S. dollar offerings, including dollar cross-border tranches from Asia, Europe and Latin America. Latin American deals, in fact, accounted for about $725 billion, or more than 10% in the wrapped ABS offered to U.S. investors, reflecting the resurgence of the cross border market. MBIA, the second most active monoline for the quarter, carried three of the wrapped Latin American transactions; XL Capital Assurance took one.
The real story, however, was the dramatic drop in insured real estate ABS -- down to $2.8 billion from over $10 billion in 2Q03 despite a solid $80 billion-plus in new issue home equity.
The wrapped marketplace has seen home equity cycle in and out over the years, with the strong showing of deep MI in 2001, and the on-again/off-again play by the GSEs. Agency wrapped subprime continued to trend slightly lower for the quarter at $900 million, though considering the lag in wrapped volume, Fannie Mae’s single insured home equity deal for Countrywide Home Loans was still a chunk of the action, at about 32% of insured real estate versus 13% in the second quarter.
As reported in past issuers of the Guarantor, the sub bond bid from ABS CDOs and investors looking for spread, combined with the difficultly in issuing net interest margin securitizations off insured deals, has improved the economics of issuing home equity without the insurance policy. Just 3.5% of real estate ABS came wrapped, compared to the 12% area seen the prior two quarters of 2003.
All in all, the third quarter saw a robust mix of wrapped assets, though most of the volume came from autos ($3.8 billion) and home equity ($2.8 billion).
Financial Security Assurance saw the most business, with $2.82 billion in visible proceeds outside of CDOs. “The mortgage business was pretty stable and the consumer sector picked up pretty substantially,” said Dan Farrell, managing director and head of corporate finance at FSA, adding that the company was back in business with some of its staple names, such as AmeriCredit Corp. and WFS Financial.
The firm also wrapped the only visible equipment deal in the quarter, a $70 million transaction for Financial Pacific Leasing, via WestLB. FSA also participated in a few private NIM deals. In CDOs, the firm has preferred loans, mostly playing in the synthetic arena, though FSA will consider other sectors if pricing improves, Farrell said.
MBIA wrapped about $2.0 billion in ABS, insuring a nice mix of business, including several classes of an aircraft deal from Aviation Capital Group. XL Capital Assurance saw another decent quarter at just over $1 billion, a slight decline in visible business from its $1.5 billion in the second quarter, when the firm scored its first AmeriCredit deal. Meanwhile, Ambac’s book of business slid to just $1.6 billion from the staggering $8.8 billion the prior quarter. FGIC, which is in the midst of being acquired from GE Capital by the PMI Group, was absent from the market after a strong second quarter.
Click here to see the 3Q03 Guarantor.