In addition to a fairly active week - with roughly $4.6 billion worth of new issuance from May 18 to May 24 - at press time, the pipeline was still full and growing.
Going forward, however, analysts are differing in their opinions on how the quarter will play out, as by most databanks, issuance for the quarter is at least slightly down from where it was a year ago.
"We're lagging last year by, I believe, $10 billion or $15 billion," said a trader at one of the major asset-backed investment banks. "At the end of the quarter, I think we'll be down by $10 billion. A lot of the issuance we saw last year at this time was skewed by the issuers looking to front-load their issuance plan due to Y2K fears."
Through May 22, the research group at Banc One Capital Markets was estimating $72.5 billion in issuance, which was in line with their 1999 year-to-date figures, according to Banc One's weekly market update.
Despite mixed opinions on current issuance levels, the consensus on tone was fairly consistent.
"A few more deals popped up in the market and most of them went reasonably well," a trader said.
Still, the trader added that technicals are starting to weigh on the market, in certain sectors. "However, that indigestion, I think, will be short-lived as the future supply you'll see in those sectors will be relatively light," the trader said.
Discover Sets the Tone
The real sleeper last week had to be Discover Card's near $1.3 billion credit-card-backed deal, which was upsized from just $530 million earlier in the week.
"We had over $1.8 billion in interest and obviously tremendous reception for the name," said Dennis Scurletis, a managing director at Morgan Stanley Dean Witter, the deal's lead manager. "Some of the investors told us that the reason that they were purchasing it was they were recognizing the improving credit collateral quality."
The deal was structured in two parts: a 4.95-year, $1.2 billion triple-A rated, A-class, and a 4.95-year, $63.16 million, single-A rated B-class. The class-A notes priced at 18 points over one-month Libor, and the class-B notes at 41 points over the same benchmark. Both priced at par, said Scurletis.
Other managers on the deal were ABN AMRO, Bank of America Securities, Banc One Capital Markets and Credit Lyonnais. A portion of the investors were European-based.
"Frankly, I think the market sentiment, especially from the investors, is slightly more positive," said one ABS analyst. "I think this Discover issue is a case in point. Although it did in fact price a little cheap to a couple of other issues in the market place, it was enough to get people excited about it, and then they upsized it. Given that you had someone upsize a transaction and demand was strong, I think that's a sign that perhaps recovery's in the air."
Also last week, Phoenix Investment Partners announced the launch of a $405 million collateralized debt obligation, it's fourth such structured transaction. The offer, which is backed by ABS, will be managed by the fixed-income group in Hartford, CT.
The group's last transaction, Phoenix CDO I, Ltd. was a $244 million collateralized bond obligation, backed by high-yield securities.
Home Equity Next
In trading, the tone for fixed-rate product has improved over the last week or so, said one trader. Investors with cash on hand drove the boost, combined with the fact that, traditionally, supply of fixed-rate auto paper comes from the finance companies, which have been structuring their deals as floaters.
"But right now it is a somewhat thin market, in terms of demand," the trader said. "It doesn't take much, in terms of supply, to sort of upset the apple cart."
Most are calling for increased activity in the home-equity as the quarter wraps down.
The independent finance companies like Onyx Acceptance Corp., and AmeriCredit Corp. from the auto sector, and Newcourt, DVI Financial Services, and CIT Equipment from the equipment sector have already come to market.
"I believe it's really a limited universe of people left to come to market in those sectors," an observer said. "By default you're kind of left with the home-equity issuers. If you look over time, they are traditionally the heaviest issuers over the last month of the quarter." - MG