Wrapped volume reached $16,406 billion in the 1Q06, which is a significant drop from last quarter's showing of $23.4 billion, although faring a tad better than 1Q05's figure of $13 billion. Many attribute the drop to the tight spread environment, where only mortgage wrapped transactions, and some auto deals, flourished.
Mark Zucker, MBIA's head of global structured finance, said that challenges that the monoline market faced include heavy credit and pricing challenges in the first quarter, and that such issues are expected to continue going forward. Zucker stated the market's current stance in the credit cycle, tight spreads and pricing for monolines that he considers almost predatory are marginalizing players in the business.
"Insurer penetration has declined, which is a clear function of where we are in the credit cycle," he said. "There is also alternate execution found in the senior/sub market as well as other forms of CDO execution coming into play." As a consequence, Zucker said that monolines are probably not going to find as much excess spread in the traditional flow or public ABS markets. There would be more opportunity in one-off transactions or in the more esoteric asset classes, such as whole-company, triple-X and future flow deals. "We are seeing fewer traditional ABS opportunities, and there could be greater success in one-off securitizations that are larger, less granular and lumpy," Zucker stated.
Once again, the real estate sector had a lion's share again of wrapped volume by asset class, capturing $13, 464.54. Wrapped mortgage deals only shared the spotlight with the auto sector, which was a very distant $2,693.40 billion. Countrywide Home Loans Inc. had a number of wrapped deals in the market that boosted the number of deals in the sector. Meanwhile, Triad Financial, Prestige Financial Services, Dollar Thrifty Automotive Group, and Consumer Portfolio Services kept the auto sector flushed with wrapped transactions. Aside from these, only the equipment and trade receivables sectors contributed to the wrapped business.
Tom Adams, senior managing director at FGIC, said that, "mortgage-related transactions comprised a large percentage of our first quarter public ABS deals, which reflected the large percentage of mortgage transactions generally in the market for this period." In terms of areas for growth, Adams said that his firm is actively pursuing opportunities across the consumer and commercial ABS arena.
In terms of market share, Ambac had the most business with $6,683.30 billion, followed by FGIC with $5,108.90. XLCA was next with $2,439.13 billion and FSA with $1,048.70 billion in proceeds. MBIA had $865.90 while CIFG had $260.68 billion in wrapped transactions.
As in the last two quarters, the GSEs missed on the guaranty business once again in 1Q06. The last transaction from them was when Fannie Mae made an appearance in the second quarter of 2005 with a re-remic securities on behalf of itself and RBS Greenwich Capital.
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