The U.S. ABS primary market saw a solid amount of issuance last week with over $10 billion priced, including a $1 billion auto loan deal from American Honda Finance Corp. that sources say stabilized the sector and eased fears with its pricing.
The $1 billion Honda transaction, named Honda Auto Receivables Owner Trust 2005-2, priced Monday in what was started out to be a slow week. The deal was led by Banc of America Securities and JPMorgan Securities.
The one-year tranche priced at two basis points over EDSF and the two-year tranche priced at two basis points over swaps. Sources said the deal's pricing helped bring the auto sector back to earth after news from General Motors Corp. and Ford Motor Co. over the past month roiled the sector. Spreads for one-year, fixed-rate, auto ABS had widened six basis points earlier in the month, reaching wides of three basis points above EDSF.
"Investors are concerned about headline risk, which has taken on a life of its own, and not the performance of collateral," said Barclays Capital ABS researcher Jeff Salmon. "Performance trends are very strong," he added.
"The Honda transaction, while it didn't completely calm the market, definitely added a note of realism," added another ABS analyst. "It showed that deals can still get done at a reasonable level." However, spreads still reside well outside their record-tight levels seen in early March. The auto sector was quiet otherwise, except for a $1.5 billion auto lease transaction from General Motors Acceptance Corp. - the company's first - that was set to price Friday via BofA and Merrill Lynch.
The student loan sector saw a healthy amount of issuance with $3.65 billion priced throughout the week. Nelnet Inc. priced a $2 billion deal led by JPMorgan and Morgan Stanley, backed by Federal Family Education Loan Program-guaranteed loans. The one- and three-year tranches of the deal priced in line with guidance at two basis points under three-month Libor and one basis point over three-month Libor respectively. The five-year tranche priced at four basis points over three-month Libor, two basis points inside of initial price guidance. Sallie Mae was also in the market with a $1.65 billion deal backed by private collateral, led by Credit Suisse First Boston. The three-year tranche of the deal priced four basis points over Libor, at the wide end of price guidance.
The home equity sector saw three deals price for roughly $2.8 billion of supply in a relatively light week for the sector. Fremont Mortgage tapped the market with a $964 million floating-rate deal led by Goldman Sachs. Option One Mortgage was in the market with a $1.19 billion floating-rate deal led jointly by BofA and RBS Greenwich Capital. That deal featured Fitch Ratings and Standard & Poor's rated bonds on its mezzanine and subordinate tranches. Rounding out the sector last week was a $601.8 million deal from SoundView Mortgage led by RBS Greenwich.
Triple-A home equity spreads have held tight as other sectors, such as autos, have experienced various amounts of widening over the past month. However, some sources predict triple-As will soon follow suit. "It is possible that the home equity sector could soften in the near term," said Peter DiMartino, head of ABS research with RBS Greenwich. "Competing ABS sectors have widened, along with corporates and CMBS. This may give a softer directionality to the home equity sector. Thus far, however, supply and demand has been positive, with demand outpacing supply. Residential credit demand remains strong, with most new credit packages pricing on the screws," he added.
Several other home equity deals were announced but had not priced as of press time, including a $692 million deal from Carrington Mortgage, a $717 million deal from First NLC Financial Services and a $411 million GMAC-RFC RASC deal.
The credit card sector, which seemed to be shaking off its issuance funk throughout last month, saw only one deal last week. Citibank, N.A. priced a $1.25 million, de-linked senior deal, with a seven-year average life. The deal priced on top of guidance at seven basis points over one month Libor.
An equipment-lease deal also found its way into the market last week as Caterpillar Financial Services Corp. priced an $853 million agricultural and construction equipment lease-backed deal led by Merrill Lynch. The sector is widely expected to experience a revival over the next few years as business investment picks up and the economic recovery continues (see ASR, 4/4/05).
Rounding out the week's supply was GE Capital Corp., which completed a $1.9 billion series 2005-2 dealer floorplan transaction via Deutsche Bank Securities. The three-year triple-A rated A class priced in line with price guidance at four basis points over one-month Libor, with the single-As coming in at 23 basis points over and the triple-B rated C class pricing at 47 basis points over Libor, respectively.
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