Last week, the asset securitization market closed out the third quarter with a thud. Similarly, it opened the final quarter of 2007 with a very dull roar. A mere $2.4 billion in issuance priced by press time, and although issuers were preparing a couple of transactions, they appeared to be holding back on floating much ABS debt for the foreseeable future.
Market sources say the tame MBS sector is responsible for the sluggish production.
Indeed, just one transaction made it to market last week, a $795 million transaction from Merrill Lynch's First Franklin trust. The HEL transaction had a very extensive waterfall, tranches designated M1 through M6, which were subordinate to super senior 'A' classes. Only the triple-A classes offered pricing information, and despite their ratings, they only managed to clear triple-digit spreads over their benchmarks. The 4.73-year tranche, for instance, priced at one-month Libor plus 212 basis points, while the bond with durations on a couple of tranches of nearly 10 years priced at the same benchmark, plus 250 basis points.
Merrill Lynch has another FFMER deal, a $710 million series 2007-5, in the pipeline.
"As far as new deals go, we have not seen a lot out there," said one trader unconnected to the Merrill deal. "There is an origination slowdown, as well as expectations of execution being somewhat poor."
Indeed, the $298 million RAAC 2007-SP3 was recently announced. Initial price talk on its triple-A, 6.49-year bonds was at 150 basis points over one-month Libor, while its triple-B tranche was expected to price between one-month Libor plus 850 and 900 basis points. Market sources, however, took heart that some segments of the market would soon enjoy better execution.
"There remains a good bid for prime, credit-quality collateral, and we're seeing renewed interest in Alt-As," said one trader. "We would hope that as people stretch for yield and put money to work, they would look at expanded types of collateral."
For the moment, investors bought up auto ABS and credit card collateral. The $750 million Capital One Auto Finance Trust, 2007-C, came to market via co-leads Barclays Capital and Credit Suisse. Its short-term tranche priced at Libor plus six basis points, while its 3.14-year tranche priced at swaps plus 60 basis points.
Household Credit Card Master Note Trust priced a $600 million via HSBC. The three-year, single-tranche deal snagged triple-A ratings from Moody's Investors Service, Standard & Poor's and Fitch Ratings, and priced at 55 basis points over one-month Libor.
Barclays Capital and Credit Suisse teamed up again for another deal, the $1.2 billion Discover Card Master Trust I, 2007-2. Lehman Brothers also was a co-lead manager on that transaction. The triple-A, five-year transaction priced at three-month Libor plus 34 basis points. Discover had another $1 billion during the week, with Deutsche Banc Securities and RBS Greenwich Capital as joint co-leads, but pricing spreads were not available by press time.
The Bank of America Credit Card Trust completed a $275 million deal with Lehman Brothers acting as co-manager. That two-year transaction priced its single-A notes at one-month Libor plus 60 basis points, on target with earlier guidance. The trust is preparing a much larger deal from the same trust, the Series 2007-A13. Sized at $1 billion, the two-year notes are expected to secure triple-A ratings and do a bit better on execution. Price talk was at one-month Libor plus 22 basis points.
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