The Thanksgiving holiday last week put the recently robust asset-backed market on hold, at least temporarily. Two deals got placed early in the week, and another was expected by week's end.
The $680 million transaction from Aviation Capital Group displayed clear evidence of solid demand for floating-rate offerings, analysts said.
All four tranches of the deal, two double-A rated classes, a single-A rated class, and a triple-B rated tranche, all priced tighter than guidance. The double-A tranches got placed two basis points tighter than price talk at one month Libor plus 48. The single-A priced at one month Libor plus 105, with guidance at 110 to 120 over, while the triple-B class priced at one month Libor plus 195. Talk for that tranche was plus 200 to plus 210.
"There was very good sponsorship across the credit curve," said an ABS trader. "It's a newer asset class that still offers a fair amount of novelty spread, and investors diversifying away from the traditional cards and autos and other equipment lease paper they see. So I think it was really very successful deal."
Countrywide Credit Industries was also in the market, with a $1.046 billion home-equity transaction, with the $66.6 million one-year tranche pricing two basis points tighter than talk at EDSF plus 28. Countrywide was also in the market with a $500 million prime second mortgage transaction.
However, the home-equity sector is beginning to show some signs of weakness. "It's sort of unclear exactly why," said Randy White, head ABS trader at First Union. "There hasn't been too much supply, but it does appear home-equity spreads are drifting out slightly."
Conseco Finance is currently in the market with a $503 million auto-loan transaction. The deal consists of six tranches, two triple-A rated, one each of double-A and single-A, and one triple-B rated, including a tranche of commercial paper. The $181.4 million one-year triple-A tranche is being talked to price at 12-month Libor plus 20.
With the continued corporate market widening, ABS issuance for the rest of the year is still up in the air. If corporates continue to perform poorly, it could mean more ABS issuance.
"I think supply will be somewhat driven by what happens in the corporate markets. People are still looking at ABS as a safe haven, given the higher ratings, and that's generally helped our product versus other product out there," White said. "As ABS remains a more attractive funding source, issuers will continue to turn to it versus corporate debt. So it's somewhat sensitive to what happens in the future."
The next two weeks are going to be rather light, but there definitely will be new issues in December. "I think we're going to have a fairly active December, based off the rumblings I'm hearing," said Alex Roever, head of ABS research at Banc One Capital Markets. "I don't think it will be as big as September was, but I think it will be a fairly active month. I don't think we're done for the year by any stretch of the imagination."
