There was little action in last week's asset-backed market, with just a few deals and minor secondary trading, though spreads remained stable on the week - good, good news - despite earthshattering volatility in the equity and corporate-bond markets.
"This is about interest rate volatility at its finest," commented one analyst.
"The whole mood on the Street is just one of complete pent-up frustration with all the volatility," said Jeff Salmon, of Barclays Capital. "Of course what's happening in the equity markets, that's where the action is."
The corporate market was rocked as well, with Finova Capital Corp. at the top of the list. Last week, just as the company's longtime chief executive officer announced his departure, Finova Group disclosed an $80 million loan-related writeoff, which affected a downgrade of its senior debt, widening the notes substantially.
"To trade in the corporate bond market right now is a real challenge," Salmon said. "To some extent that sort of spills over into the asset-backed market and asset-backed product, because there's a lot of similarities there, even though fixed-rate spreads this past weeks have held up quite nicely, and tend to be immune to the major credit story that's been littering the corporate-bond market."
Though spreads in asset-backed land held up, issuance and trading were slowed by the corporate and stock markets.
"People are really focusing on the stock market," said one asset-backed trader. "That's where the attention is. They tend to look at the macroscopic picture, and then they're not really looking at the microscopic, like asset-backeds."
For the most part, trading in the secondary was slow last week, and the calendar looks fairly grim going forward, in the short-term at least. Activity isn't expected to pick up until next week, the trader said.
"Until you get some stability in the equity market, I don't think anybody really wants to do anything, and hopefully in a week or two that will happen," added the trader.
A Few New Deals
Off the municipal desk, student loans continued an impressive run, as Educational Funding of the South priced a $200 million deal backed by FFELP loans (Federal Family Education Loan Program). William R. Hough & Co. led the deal. The transaction, which was structured in five parts - three A-class tranches and two B-class tranches - was rated AAA across the board by Fitch IBCA.
Just before the first quarter closed, World Omni Financial Corp. priced a $700 million dealer floor plan transaction, led by Merrill Lynch. The transaction was structured in A-class and B-class notes. The 2.95-year, $646 million senior notes priced at 13.5 basis points over one-month Libor. Pricing on the 2.95-year, B-notes wasn't available.
Though agreeably a slow start, market watchers are calling for activity to pick up this quarter, given the disappointing first quarter numbers. Several home-equity issuers who were expected to hit the market never showed, which accounted for a large part of the unrealized expectations.
One point at issue, however - considering the low Q1 numbers - is whether or not analysts are planning to recast their volume predictions for the year.
If the market is really going to see between $200 billion and $250 billion overall, as was the range of predictions, issuance will have to pick up dramatically over the next three quarters, sources said.