Securitization markets have typically fallen quiet during the summer months. However, in a not-so-typical environment, this has been proven wrong.
For the July 7 Term ABS Loan Facility (TALF) subscription of ABS assets, it has meant a hearty helping of issuance that is likely to go right through the summer months, market players said.
I suspect that we will see greater issuance levels from issuers that have otherwise been able to get deals done, but will now begin to see the funding they have in place roll off, a securitization market analyst said. These issuers maybe have had enough funding to get through 2009 but are now facing the final stretch. These are the people that will be looking to take advantage of TALF.
Approximately $11.2 billion of offerings is slated to be sold tomorrow. The fifth round of financing under TALF has been largely led by auto firms. Last Thursday's addition of a $1.02 billion sale from Ford Credit Auto Owner Trust brought sales in that segment of the ABS market to $7 billion, dealers said. There is also Harley Davidson, which also brought its $897 million deal to the lineup. AmeriCredit also has a $725 million auto ABS offering.
According to the ASR Scorecard database, a $1.1 billion TALF-eligible private credit student loan ABS from Sallie Mae is also slated to come under the facility. But some market reports indicate that the July 7 subscription will be lighter than volumes seen in previous rounds. Some market players consider the fact that subscription is less funded as a signal of failure we see it as a signal that less people really need to tap the Fed program, the analyst said.
To be sure, the market continues too see a share of non-TALF deals being done, which signals that there is a degree of a non-TALF bid from cash investors. As you get more cash investors, there maybe less of a need for the Federal Reserve program, but my feeling is that the program will still be extended at least until the early part of 2011.
One market source from a syndicate desk said that he expected the next round of subscriptions to be business as usual. He added that what will be interesting to note is when the Fed announces how many bids were sold is the ratio of the cash buyer to non-cash buyer. In the past, that ratio has been pretty even, but with cash buyers increasingly shopping non-TALF deals, that ratio may shift.
The Fed also reiterated last week that the expiration for TALF remains to be Dec. 31, but so far there has been no adverse market reaction to the statement.
It maybe that some market players still believe the Fed will reverse its view and continue the facility into 2010. Its really a question of how policymakers view liquidity in the market and whether issuers can fund themselves without TALF, the market analyst said.
Continuing the program would bode well for the CMBS space, which has seen some false starts. June was scheduled to be the first subscription date, but no eligible deals were brought to market. The next subscription date for these assets is slated for July 16, but until the Fed clears the air on what the terms for eligibility are for legacy assets, its likely that the response will be lukewarm. Bank of America/Merrill Lynch analysts said that there has been no talk of any upcoming transactions for the July subscription date.
The Fed also released a schedule for the August and September non-mortgage ABS TALF operations. Subscriptions for those rounds will be due on Aug. 6 and Sept. 3, the Fed said.