For everyone except issuers, the tone at last week's International Management Network's securitization conference in Bermuda was mostly one of relaxed optimism.
But for issuers like Lauralee Martin, chief financial officer for Heller Financial Inc., perhaps the week was summed up best when she said that from an issuers perspective, "this market just plain sucks!"
Martin and other issuers, like Green Tree Financial Corp. Treasurer Phyllis Knight, are frustrated about the inability to hedge for volatility and spread risk in the current market, especially, Knight said, when "you need to raise capital on an almost daily basis."
Mourning The Sub Market
The fear lately, while still focused on the immobile subordinate market, seems to have been transferred to the triple-A sector, panelists said, as efforts are afoot to stop the senior bonds from ballooning like their subordinate brethren. To accomplish this, some issuers at the conference were drumming up support for continued investor attendance on senior tranches.
"I want to emphasize the importance of the triple-A investors not shying away from the market," Martin said.
Spreads across the breadth of the ABS market have swelled since recovering in the early part of the year, with certain pieces of deals pricing as high as 30 basis points higher than their February levels.
That combined with continual interest rate noodling by the Federal Reserve and perhaps most naggingly, Y2K fears, have sapped the ABS market of most of the strength it regained after the liquidity crisis of late 1998.
This boom-and-bust wariness among market participants has led to a lot of sideline sitting on the investor's side over the last few months, leaving the subordinate market almost nonexistant.
"Triple-Bs haven't come back," said Joe Donovan, managing director at Prudential Securities Inc. "A lot of the buyers in '98 were hedge funds, and a lot of those are gone.
"The pricing differential is ridiculously high," he said. "The difference between triple-Bs and single-As used to be eight to 10 [basis points] back, now they're 20 to 30 wide of what they used to be. There's no reason we should see that."
Donovan said his shop has spent a lot of time trying to attract the traditional subordinate investors like Heller (the company buys as well as issues ABS) back to the market, but has found "there's just not a lot of appetite."
Craig Platt, senior vice president at KeyCorp, said selling short, money market tranches has been like "pulling teeth" lately. Green Tree's Knight agreed, adding her company has retained the subordinate pieces in the past, and was looking at different ways to get the "back end" of its deals done going forward.
Platt said his company retained a portion of the junior bonds from its last deal done in June, and suggested that issuers spend more time with the sub buyers on roadshows, helping them better understand the underwriting, the servicing, and the collections on these junior bonds.
To Y2K Or Not
Platt predicts increased volatility with relation to Y2K only in the case of a large number of European concerns converting assets into dollars and emptying them in American banks in December.
"Barring a systemic bank failure," said Platt, "where the trustee is unable to move the money from the issuers to where it's supposed to go, we should be okay." And even in that case, Platt said, the dislocation should be short term.
The angst churned up lately in the market has affected issuers in different ways.
Knight said Green Tree would probably brave the choppy seas. "We expect the fourth to be like past quarters," she said. The company should be back in the market this month and in November with its usual slate of manufactured housing and home equity offerings.
Martin, on the other hand, will avoid the fourth quarter, as Heller is "funded pretty much through next year."
And Platt, despite his mild concern for millenium troubles, said he "won't have to raise a dime of funding until next March."