The credit-card sector showed its might in last week's asset-backed market, as deals by MBNA Corp. and Discover Financial Services hit the trading block, despite volatility and fluctuating swaps.
"The market right now is a little bit choppy because of the widening spreads you see on the swap side of the market," said one ABS analyst.
As it has been for the last two months, market conditions continued to drown demand for fixed-rate product.
In the secondary, a two-year piece of fixed-rate Discover MT 99-1A was trading at 75 points above the benchmark, 10 points out on the week. Simultaneously, two-year floating rate Citibank MT 99-3 paper was trading flat.
"Basically we've seen pretty decent buying in the floating rate sectors," said an industry source. "The fixed-rate sectors continue to be hampered by what's going on with swaps as well as the agencies."
MBNA's $1.5 billion deal, which was managed by Lehman Brothers, was upsized, demonstrating not only that floating-rate product is hot, but that commercial ABS is in fashion.
"I think the biggest deal is really the commercial market," argued the analyst. "The Lehman deal is probably the most significant story at this point."
The MBNA transaction was divided into two parts. The larger, five-year $1.275 billion class A tranche priced 16 basis points over U.S. Treasurys. A five-year, $112.5 million B-class priced at 37.5 basis points above Treasurys.
Discover brought a $526.3 million transaction to market, which was managed by affiliate Morgan Stanley Dean Witter. The larger, $500 million, three-year A-class, priced at 12 basis points over the benchmark, at the wide end of talk. A $26.3 three-year B class priced 30 basis points above the benchmark.
The Other Deals
Though the credit-card sector held the top spot in ABS issuance, manufactured housing and home-equity stole a bit of the spotlight. The manufactured housing sector was given a boost when Oakwood Homes brough a $298.06 million deal and home-equity's Novastar priced a $216 million offering.
According to published reports, products within the two-year range bid well.
A case in point: notwithstanding volatile market conditions, the deal's A-1 one-year senior tranche was in line with market talk, pricing 15 basis points over Treasurys.
Of significance, the three-year $216 million A-1 tranche of Novastar's HEL deal priced five points wider than talk, or 35 basis points over Treasurys. A five-year, $4.6 million M-1 tranche priced wider than talk as well, at 65 basis points above the benchmark while a five-year, $2.8 million M-2 tranche priced 130 basis points above Treasurys.
The last tranche, a five-year $2.8 million M-3 piece, priced wider than initial talk, at 270 points above the benchmark.
The Pipeline
As of press time, two deals were set to come to market.
First Sierra's $187.9 million healthcare-equipment deal, rated by Moody's Investors Service and Duff and Phelps, features two triple-A senior tranches, and a subordinate tranche.
Diversified REIT Trust has a five-part $287.1 CBO deal in the pipeline, sources say. According to published reports, it will be backed by investment-grade bonds with 32% subordination supporting two triple-A senior classes.
