There were few surprises in primary asset-backed trading last week, with most of the $5.4 billion pricing in the auto-loan and credit card sectors.
The lone off-the-run sector to be represented was stranded costs, as AEP unit Central Power & Light brought a sizeable stranded cost deal. But the vanilla assets performed well, as demand for ABS remains insatiable.
It was a good week overall for Salomon Smith Barney, the top ABS underwriter of 2001, which had a finger in all of the large pies, after relative inactivity to begin the year. Salomon led both of the billion-dollar credit card deals offered last week, as well as leading, albeit jointly, the $2.03 billion retail auto-loan securitization for Honda. Along with Salomon, Banc One jointly led the books on Honda.
Unlike the previous auto deals from captive finance arms this month, this offering did not offer investors a floating-rate option at the front-end of the curve. This is simply due to Honda's funding philosophy of "issuing fixed-rate securities when possible," according to company spokeswoman Nancy Beckman.
This did not have any negative impact on the deal, however, as each class was oversold, up to three and a half times for three-year A4 paper, which moved in from talk of 11 basis points to price with a yield of 10 over Swaps.
The strong collateral of the Honda portfolio and its relative scarcity in the market, something common to Japanese captives, bolstered the offering.
The company was quick to point out the success within Honda, as evidenced by steadily declining enhancement levels. "We aren't having the same problems as the Big Three. They are closing plants while we are building them," Beckman added.
Beckman was also quick to point out that enhancement for Honda's retail auto-loan ABS has declined from 5.75% in its 1999 offerings down to just 3.00% for the past two deals.
An interesting story developed in the credit card sector last week, as the top two issuers, Citibank and MBNA, squared off, each with fixed-rate five-year deals. To truly level the playing field, both issuers even tapped the same underwriter, Salomon Smith Barney.
Citibank demonstrated its power over the market, pricing $1 billion of de-linked "block & trap" paper at 9.5 basis points over swaps, a basis point and a half inside of MBNA. Most credited this to Citibank's financial strength, but buyers were pleased with the level, as was MBNA.
"Citibank did tighten their deal up and set the standard for five-year credit card paper," said an investor who bought paper from each of the deals, "But that allows for tightening in the MBNA paper and that keeps the buyside happy. On a purely collateral-performance basis, however, Citibank is the credit card benchmark."
Also pricing in the sector, Cleveland, Ohio-based National City Bank sold its annual January credit card ABS, approximately $400 million, through Lehman Brothers. In contrast to the other deals in the market, the issuer also chose to stay floating with the 2002-1 offering.
The deal priced its senior tranche at par, with a coupon of 14 basis points over one-month Libor, with the single-A rated sub class coming in at 50 basis points over Libor.
The collateral backing the deal was extremely seasoned, according to the Fitch presale report for the deal, with account age averaging 10 years (120 months). Formerly called the First of America Credit Card Master Trust, it was re-branded in June of 2000.
Utility and subsidiary of global utility holding company American Electric Power, Texas-based Central Power & Light, announced, but had yet to price as of press time, a $797 million stranded cost securitization. The deal, offered through Goldman Sachs, had been planned by the company for over one year but delayed by the Public Utility Commission of Texas.
