Conseco Finance continues to be a focus of market rumblings - first GE Capital, next Lehman Brothers, and at presstime investor Irwin Jacobs was said to be assembling a team to acquire the ailing manufactured housing arm of Conseco Inc.
The news sent Conseco's shares up a whopping 30%, or 1 1/2 points, according to published reports.
Prior to that, Lehman had announced they were putting together a group and planning to place a non-binding offer. Lehman followed that with an announcement the bank was willing to buy 78% of Conseco Finance. (Weeks back, GE was rumored to be eyeing Conseco as well.)
This was all happening while Saxon Mortgage Inc. was pricing its $724 million home-equity deal, which was structured in 13 parts, $244 million in floating-rate and $480 million in fixed-rate notes. The transaction was brought to market by Banc of America Securities.
"I think speed was the big deal on this one," one trader commented. "They marketed the fixed-rate speed at 20, and that's a kind of a recognition by a major issuer that speeds are slowing down.
"Unfortunately it's going to cause everything else to re-price, all the other outstanding Saxon's, and it will probably put pressure on all the other high quality issuers to price at this lower speed," the trader added.
Price talk was revised before Saxon came to market, with the fixed-rate spreads moving out a few points on the shorter maturities, and up to 15 points on the three-year and out AF-class notes.
Again, as the bid for floaters remains strong, Saxon brought guidance in on the AV-class notes an average of five basis points.
Also out of the home-equity sector, SoundView priced a $219 million deal managed by Greenwich Capital Markets. The transaction featured a guaranty by MBIA.
All and all, most were calling it an active start to the last month of the second quarter. According to one asset-backed investor, mid-week trading was so heavy that his computer was showing error messages.
Poor guy.
Secondary Trading
In the secondary market, spreads on fixed-rate cards moved out five or so basis points on the week. A 1.79-year A-piece of Discover MT 1999-1 was trading at 96 basis points over the benchmark, six points out from the week before (see Bellwether page 4). Floating-rate cards stayed relatively stable.
Outside of cards, there was a CBO bid, with investors gathering subordinate tranches that were rated by Moody's Investors Service.
"Most of the CBOs only want paper that's rated by Moody's," said a secondary market trader. "The non-Moody-rated stuff I think is going to be a good value, because people are willing to pay a lot for [not great] paper with a Moody's ratings, because that's the only stuff that can go into the CBOs."
It's possible the Moody's spree also reflects a recent announcement by Fitch IBCA that outstanding paper rated only by Fitch and Duff and Phelps Credit Ratings Co will be left with just one rating going forward, as the two will be consolidated (see Fitch/Duff, page 1).
The Outlook
Most analysts are saying that healthy demand will finish out the quarter, though spread volatility is still at issue.
As reported by the research group at Banc One Capital Markets, fixed rate spreads over swaps are for the most part inside their 52-week moving averages, which further points to strong demand, especially on the tranches two years and in.
Banc of America Securities was pointing at short amortizing equipment and independent finance auto product as areas of relative value.
As for the market tone, things are slowing down as they do each year when summer creeps in, and people take vacations and what not, a trader said.
"These months in the summer are always kind of quiet," said the trader. "Although, I always do real well in the summer. There's not like tons of stuff going around, and I think people are little bit lazy. If you're on your toes, you can find good value."
