As institutions gear up for the end of the third quarter, asset-backed issuance has rebounded from its late summer slump. Six deals entered the market last week, pricing generally in line with talk.
Deals ranged from a $977 million Case Corp.-New Holland equipment transaction to a $875 million home-equity loan offering from Saxon Asset Securities Company.
"There still seems to be some good areas of demand out there and since it was a variety of asset types, you're going to tap into different investor bases as a result," said Jeff Salmon, director of asset-backed research at Barclays Capital. "We saw a variety of asset types, which helps the spread environment and also the market technicals. So I think that net a plus on the week."
He added that when supply is heavy, deals tend to become difficult to price, as spreads widen. Furthermore, demand also increased because the companies that entered the market this week are not frequent issuers, which can further diversify an investor's portfolio.
There were some problems with the Case-New Holland deal, as price talk for the deal widened out because of potential credit problems with the corporation.
"It was talked at a certain level and widened," said a market source following the deal. "The other tranches of the deal had to get talked a little wider simply because of the headline risk associated with the corporate entity, not the asset-backed deal."
Spreads, while remaining basically unchanged from last week, did come in slightly. A full recovery from last week's widening - due to large corporate bond supply - did not occur.
The largest deal to price last week was a $2.26 billion student loan transaction from Sallie Mae. The 2.5-year tranche priced five basis points over the three-month Libor, while the seven-year priced at 16 basis points over.
Interestingly, Sallie Mae gave investors the option of benchmarking off three-month Treasury bills in place of the Libor, attracting a wider investor base.
This large issuance only further portrays how strong the student loan sector is performing this year. Year-to-date, there has been $14 billion in student loan issuance, compared to $5 billion year-to-date 1999, according to Thomson Financial Securities Data. Last year's totals of $8.7 billion were surpassed before the end of the second quarter of 2000.
The overall asset-backed market for September month-to-date has already surpassed - and nearly doubled - September 1999 month-to-date. Revolving credit/home-equity leads the pack, with $5.5 billion this September compared to $1.8 billion for 1999. Credit cards, which held the top spot in 1999 with $2.8 billion in issuance, is barely noticed this September, as only $713 million has been put into the market.
And issuance will only increase as the month continues. "Quarter end is still a few weeks away, and typically September historically has been a very busy month," Salmon said. "It's safe to say we'll probably be seeing some good supply next week still."
"Going forward, next week will probably continue to be a fairly busy week," he added. "And then after that, we'll have a brief pause as we get into quarter end." Market players are becoming anticipatory of a $850 million credit card deal from Citibank. Very little is known about the deal, which could price this week, except that it consists only of subordinate classes.