Last week looked in danger of being an all-HEL, all the time sort of issuance period, but a mid-ticket equipment lease, a shipping container deal and a stubbornly inverted swaps spread curve intervened to break up the monotony.
In terms of spreads, several market conditions converged to force three-year, fixed-rate auto spreads out to eight basis points. Traders say it was a case of an inverted swaps curve, a precipitous fall-off of absolute rate levels and soft demand from investors who are too disinclined to spend a lot of money at the end of the year. These days, investors have pulled back from front-end, fixed-rate bonds, said one market source. What's more, according to one trader, is that two-year notes are offering yields that are five basis points higher than three-year notes.
"It's a tough sell," one trader said. "Why buy three-year [paper] when you can get more yields on the twos and ones?"
At least a couple of HEL deals made the most of more favorable conditions in their markets. The $859 million Wells Fargo Home Equity Trust transaction, brought to market by lead manager Barclays Capital, sold its triple-A rated one-year notes to investors at five basis points over the one-month Libor. Pricing appeared tight further down the structure, as the triple-B, 4.40-year piece gave investors a tidy 173 basis points over the same benchmark.
GMAC-RFC priced its series 2006-SP4 deal from its RAAC shelf at 10 basis points over the one-month Libor for the one-year, triple-A rated tranche. Investors picked up yield on the triple-B, 4.33-year piece, at 325 basis points. Market participants who saw the deal said the underlying portfolio, seasoned at nearly five years, priced well in the face of bearishness unfolding in the HEL market, particularly among synthetic deals. Lehman Brothers acted as lead manager on that transaction, while Residential Funding Corp. was co-manager.
GE Equipment Midticket LLC came to market with a revamped structure via Morgan Stanley that appeared to go over well with investors. Destined for the ABCP market, the 0.30-year tranche priced at Libor minus three basis points. The 0.90-year, triple-A rated piece came in at EDSF plus one basis point. Meanwhile, the most yield investors could shake out of the deal was 32 basis points over the one-month Libor on the triple-B, four-year piece.
HSBC priced its $937 million shelf deal, the HSBC Home Equity Loan Trust to market last week, and the 0.80-year, fixed-rate tranche priced at 20 basis points over the EDSF. Bank of America Securities, Citigroup Global Markets, Deutsche Bank, JPMorgan Securities and Morgan Stanley acted as co-managers on the deal, which made use of three benchmarks in its pricing. Floating-rate tranches appeared to fare a little better, as the two-year tranche, similarly rated at AAA', came in at 11 basis points over the one-month Libor.
It appeared to bear out one particular market participants' observation that "fixed-rate HEL spreads have softened since September."
Triton Container Finance, further mixed up the asset class offerings with a $575 million transaction. The single tranche, triple-A rated deal priced at 17 basis points over the one-month Libor. Wachovia Securities acted as lead manager on that transaction.
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