Home equity loan ABS, as usual, dominated new issuance volume last week, similar to the way that the mortgage market dominated news and investor concerns.
A couple of deals from the HE ABS sector cleared by press time late Thursday, the $618 million GSAMP Trust deal, lead by Lehman Brothers, and the $332 million transaction from Residential Asset Mortgage Products, on which Banc of America Securities acted as lead manager. At least another $5.1 billion was being marketed from the sector last week, and judging by the comments the professionals, the next several trading sessions promises to be hard going.
"There is still a lot of price discovery," one market professional said. Wide pricing on the ABX, especially in lower-rated portions of the index, continued to drag down single-name CDS, and investors balked at investing in cash deals at the tighter pricing levels.
"It is very weak, especially with [such bad] news coming out every day," one market source said. "Buyers are worried about the markets, which continue to be volatile."
In a recent trade, a GM floorplan split-rated deal saw tremendous demand from traditional auto ABS buyers, and CDO managers looking to ramp up deals with a more diverse array of high-grade assets.
"As opportunities like that come up, you will see more [CDO managers] putting their money there," another market source said.
Not all eyes were on the troubled subprime mortgage market, nor did investors examine consumer ABS more closely merely as an alternative to that sector.
A $1.5 billion transaction from GCO Education Loan Funding transaction is among a string of student loan ABS waiting in the wings for possible pricing in the next couple of weeks. Once that transaction is marketed in earnest, it will probably benefit from a possible ratings upgrade on three classes, which Moody's Investors Service announced last week. Aside from the GCO deal, College Loan Corporation was preparing a $1.7 billion transaction; Brazos Higher Education Authority finalized plans for a $130 million transaction and student loan services provider First Marblehead was preparing to launch a $1.1 billion transaction in early March. One issuer from that group, College Loan Corporation, will do its own servicing when it launches its planned $1.7 billion transaction.
True enough, some investors are taking shelter from the beleaguered subprime HEL sector. Others, however, say the surge in student loan ABS deals is driven by the cyclical nature of student loan funding. The current deal flow is probably a byproduct of funding disbursements for the spring semester, said Linda Stesney, a managing director at Moody's.
"Volume picks up early in the year, as [the market] works through the disbursements," Stesney said, adding that the market was coming off of a light issuance period for January.
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