Despite the distraction of having the mammoth $11 billion triple-A corporate-bond offering from General Electric Credit Corporation (GECC) competing for investors' attention last week, the ABS market made a respectable showing, particularly in the home-equity debt arena.
Adding yet another HEL asset-backed to the already jam-packed new-issue calendar, Residential Funding Corp., a unit of GMAC, was in the market with a $1.9 billion RASC 2002-KS2 offering via Banc of America Securities, and two triple-A floaters. Subordination for both the fixed- and floating-rate classes go through triple-B, and the offering was backed by subprime home loans. Centex also launched and priced its home-equity loan securitization last Tuesday, a $423 million deal completed via BofA. The 2002-B offering contains six fixed-rate seniors, one of which is a non-amortizing senior and seven subordinates, down through triple-B.
Also early in the week, Countrywide Securities Corp. printed a $460 million home-equity ABS (2.8-year average life) of senior notes, at 28 basis point over one-month Libor. The expected settlement is March 27. There was also a $175 million HEL circulating from Aames Financial Corp., sources said, and a $1 billion deal from CIT Group, Inc. (see story p.6). There were also global RMBS transactions of $2.1 billion (Granite) and $880 million (Crusade Global).
According to analysts, the domestic HEL sector will have priced more than $15 billion of supply in the past two weeks alone. This would put it on pace to be the largest March ever for the sector, which traditionally breaks out in the third month of the first quarter. In 2001, March HEL issuance totaled $16.3 billion, according to Thomson Financial. Last year's figures are almost double the $8.2 billion priced in 2000, and they top the previous record month of March in 1999, which saw $9.9 billion of supply.
In addition to home-equity supply, National City Bank's inaugural auto-loan backed deal, for $1 billion, went off without a hitch last Wednesday, with stellar performance out on the curve, market participants said. The 2A7 A1 and one-year A2 classes priced even and two basis points through a similar auto deal recently priced by issuer WFS.
Nat City made a point to show the rating agencies and investors that its geographically focused pool of mostly used vehicles would withstand an economic downturn, just as it appears that the country has made a turn towards recovery. With Fitch Ratings taking a more conservative approach than usual, the rating agency forecast the losses out to 35 months, at which point approximately 95% of potential losses have typically occurred. With that in mind, this pool is slightly longer than comparable deals, with an average term of 63 months.
One of the top concerns, however, is a lack of geographic diversity, with most of the loans focused in the Midwest, with 77% of the borrowers in Ohio, Michigan, Pennsylvania and Illinois. Nat City is based in Cleveland.
Also, should the used car market sour due to the record-setting new car sales late last year - a flood of 2001 vintage cars are expected to hit the market within the next five years - Fitch was also concerned with the residual valuations out on the curve.
As a result, both aspects of the structure were viewed with particular care by the rating agency, and it took these considerations into its cashflow stresses, Fitch added.
