The ABS market got off to a robust start last week, as issuers posted $5.3 billion in deals on Monday. There was good news and bad news coming from the subprime residential mortgage sector. One-month prepayments of fixed- and adjustable-rate subprime RMBS declined across most vintages in February, according to Michael Youngblood, managing director of ABS research at Friedman Billings Ramsey, a trend that is expected to continue through March. At the same time, however, default rates also rose across most vintages.
Also early in the week, Treasury yields inched up eight basis points after a speech by Federal Reserve Chairman Ben Bernanke downplayed the effect of the yield curve on the broader economy and triggered a sell off. This left some room, at least early on, for asset-backed securities to reap some benefits from flagging investor demand for Treasury debt.
Again last week, home equity loan securitizations substantially dominated the market. A new issuer from the home equity sector raised capital last week. ResMae Mortgage Loan Trust issued $715 million in ABS debt, via Deutsche Bank Securities. Secured by whole ARM loans, the deal was pegged off of the one-month Libor, with the senior tranche coming in at 12 basis points over the benchmark. Several established home equity issuers also made strong showings. Opteum Mortgage issued its $927 million home equity deal, through Bear Stearns, which also issued $489 million in ABS backed by second-lien loans through its SACO Trust. The one-year tranche on that deal priced at nine basis points over one-month Libor, while the one piece that priced against Swaps came in at 101 basis points over that benchmark.
Countrywide Securities floated $1.7 billion in debt through its shelf, Countrywide Asset-Backed Securities. The one-year tranche came in at seven basis points over one-month Libor, with the subordinate pricing at 700 basis points over. Accredited Mortgage Loan Trust came to market with a $997 million deal, with Morgan Stanley acting as lead manager. Most of the principal was stacked in the deal's top three tranches, and among them, the one-year tranche priced at six points over one-month Libor; the two-year deal came in at twelve basis points above that benchmark; and the three-year piece priced at 18 points over. The Structured Asset Securities Corp came to market with an $850 million deal, with Lehman Brothers as lead manager.
Almost all of those floating-rate tranches priced off of one-month Libor, with the two-year tranche coming in at 12 basis points over the benchmark, and the lowest-rated, four-year piece priced at 200 basis points over the benchmark. Several large banks sold huge amounts of home equity loan ABS, too. Merrill Lynch priced $750 million in ABS through its Specialty Underwriting & Residential Finance Trust, which had a one-year tranche that priced at six points over the one-month Libor. Citigroup placed $857 million through its Citigroup Mortgage Loan Trust, where the two-year piece came in at 27 basis points over swaps.
Morgan Stanley, meanwhile, priced a moderately sized $285 million second-lien deal through the Morgan Stanley Mortgage Loan Trust. Most of the underlying collateral was placed in the top piece, a one-year tranche that priced at 15 basis points over the one-month Libor.
Countrywide also priced an $860 million second-lien ABS, which used three benchmarks to market the six tranches in its structure. The senior tranche, priced at 11 basis points over one-month Libor; the one-year tranche came in at 30 basis points over Eurodollar futures contracts; and two other tranches with average lives of three and four years, both priced at 48 basis points over swaps.
In the residential mortgage sector, the REIT GSC Capital Corp. issued $427 million in debt using RBS Greenwich Capital's shelf, the HarborView Mortgage Loan Trust. RBS acted as lead manager on the 144a deal. Also in the private market, Long Beach Asset Holdings placed $120 million with investors in a net interest margin deal led by Washington Mutual Bank.
In the auto loan sector, Honda Auto Receivables Owner Trust priced a $1.3 billion deal via Barclays Capital. The highly rated transaction received attractive pricing, with the one-year piece coming in at four basis points below Eurodollar futures contracts. The two-year piece, carrying the largest amount of principal, $400 million, came in at three points under swaps.
As for upcoming deals, there are home equity loan offerings as far as the eye can see, with at least $8 billion in paper circulating in the market. New Century Financial was preparing a $1.3 billion HEL issuance, with Credit Suisse as co-lead. Both Bear Stearns and Deutsche Bank are readying deals backed by scratch-and-dent, or troubled mortgages, totaling $653 million in debt.
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