Last week was the week of credit cards, said market players, as the sector squeezed out more than $2 billion, edging credit-card issuance over the 1999 totals for January and February combined.
The buyside was still hawking the shorter maturities, responding to the continued volatility associated with the inverted Treasury curve, one analyst said.
Onyx Acceptance Corp., which brought a $430 auto deal to market, priced the $72 million, 0.25-year A-1 class at two basis points below the three-month Libor, according to published reports.
In the secondary, a two-year, fixed-rate piece of Discover MT99-1A was trading at 58 basis points over the index, one point tight of the week before. However, a 4.73-year fixed-rate piece of Citibank MT 99-7 was trading at 83 basis over the index, out five points over the week. Floating-rate credit cards moved in one to two points (see p.4, Bellwether).
"The activity is not surprising," said one market source. "Especially on the credit card side. For a number of reasons, this sector's going to be active this year, it's just been pent up."
Last week's credit-card ensemble included Capital One Financial Corp., Circuit City, MBNA and Chase Securities.
Capital One came with a $593 million two-part public, one part-private deal managed by Credit Suisse First Boston, according to reports.
Circuit City priced a $425 million private-label, fixed-rate card deal, which was managed by Banc of America Securities. The largest piece, a three-year, $365 million A-1 class priced at 23 basis points over the one-month Libor, which was on the tight end of talk. The $58 million, three-year B-class priced at 59 basis points over the one-month Libor, on the wider side of talk.
The CDO Conference
At a collateralized debt obligation forum last week - another conference put on by Information Management Network - market players confirmed the growth in issuance of CDO-type product.
"If we stack that up against the general asset-backed issuance, it's a force to be reckoned with," said Eileen Murphy, managing director at Moody's Investors Service, which rated a total of 167 transactions in the past year for a volume of $90 billion dollars. Murphy was co-chairwoman at the conference.
"There are a lot of co-relation issues," she said. "The [collateralized bond obligation] is a great mechanism for taking these assets that currently have attractive spreads and putting them in a structure that can yield some nice returns."
The variety of classes is a big draw, too. "I think the pool of assets is very deep," Murphy said. "Some of them are more suitable for the CBO structure than others but the methodology is flexible enough and the rating agencies are willing to take the time to sort through how to evaluate the risk and how to mitigate them through structuring and recovery assumptions."
The [collateralized loan obliglation] and CDO technology is being re-deployed and used to create a new CDO that is purchasing asset-backed securities and other CDOs, said David Tesher, director at Standard & Poor's Ratings Services and co-chairman at the conference.
"It's essentially becoming a new investor, the new investor is called the CBO of ABS," said Tesher.
"The collateral pool consists of all sorts of asset-backed securities," said Soody Nelson, director of structured finance ratings at Standard & Poor's. "So rather than having the collateral, the bond or the equity known of a specific company, you will have the asset-backed securitized security."
In the coming year, many of the conventional investors can use this CDO technology to actually become issuers, said Tesher. These investors can essentially re-securitize assets in their portfolios through a CDO of ABS structure to enhance capacity and to free up their balance sheets, thus allowing them to purchase more ABS, Tescher explained.
"You won't find a lot of triple-A, double-A and A-rated asset-backed securities going into the CBO of ABS," said Nelson. "This is because there's not enough room for arbitrage and spread differential. You need higher-yielding asset-backed securities, and as a result you would be going down the rating category."
