Last week's record-setting new issue volume, bolstered by three multi-billion deals - including the largest-ever ABS - closed out what will likely be the strongest month and quarter for supply in the history of the asset-backed market.
Roughly 13 deals made the rounds last week, totaling approximately $19 billion of supply, which is about $5 billion greater than the previous weekly record, set earlier this month (see ASR 03/11 p.1).
In addition to a $6.2 billion home-equity loan securitization last week, backed by EquiCredit collateral that Bank of America securitized late last year but retained, there was a $3.5 billion auto loan deal from Ford, its second of the year, and a $2 billion student loan-backed deal from Sallie Mae. In esoteric assets, Option One Mortgage priced the largest-ever net-interest margin (NIM) securitization to date, sources said, a $717.6 million deal via bookrunner Banc of America Securities and Greenwich Capital as joint lead.
Additionally, CNH brought an agricultural equipment transaction and Household International was marketing a private-label credit card deal, which was expected to price last Friday, each approximately $1 billion in size.
As demand for securitized product has remained strong throughout the first three months of the year, spreads have continually tightened for the three primary collateral types. But with the spate of supply seen so far this year, most wonder how much richer the ABS market can get.
Banc One strategist W. Alex Roever thinks the tightening can and will likely continue based upon an improving investor sentiment over the future prospects of consumer credit. Currently, spreads for auto loan and credit card-backed paper are through mid-2001 levels, with home-equity spreads approximately four to six behind where they were last summer, buyside sources noted.
"Investors, bearish by nature, seem somewhat optimistic," said Banc One's Roever. "Consumer credit - while it does not look terrific - is improving. Looking at the Eurodollar futures market, it indicates the U.S. economy heating up, pricing in (approximately) 150 basis points of tightening this year," he added.
Also noted as a factor that is driving spreads in is the currently rising ABS benchmark rates, as steadily rising Libor and Swap rates have contributed to "spread compression" in recent weeks. Currently at 3.01125%, one-year Libor is up 50 basis points from the 2.50125% it was at on the last day of January, and three-year Swaps are approximately 4.802% up 61.7 basis points from the 4.185 seen late January.
As for the week's activity, the large deals continue to churn out of the primary market, as each week of the month has ranked in the top five of all-time weekly rankings (see chart below), bringing total monthly volume as of March 21 to an astonishing $46.5 billion, assuming deals that were scheduled for Friday pricing were completed.
The trend of large home-equity deals has continued throughout the month, capped off by the $6.2 billion EquiCredit offering. While technically the largest deal on record, an asterisk must be placed next to this number, as roughly 55% of the bonds were pre-placed via reverse inquiry to an undisclosed government-sponsored entity.
The $2.6 billion that was placed in public markets was in the form of a single-tranche FSA-wrapped 2A class, with a 2.2-yearaverage life, which priced at 30 basis points over one-month Libor. Banc of America and Goldman Sachs, the same duo that packaged the retained $17 billion of EquiCredit collateral in the waning days of 2001, led the 2002-1 offering jointly.
With its second new issue of the first quarter, Ford came back in with $3.5 billion of prime retail auto supply via Banc of America and JPMorgan. Factoring in the then-record $5.78 billion 2002-A that kicked off the year for the ABS market, Ford has already brought roughly $9.3 billion in 2002. By contrast, Ford sold $16.4 billion in all of 2001, including the then largest-ever $5 billion of dealer floorplan bonds.
Continuing the trend it developed with its first offering, Ford once again let investor demand decide the size of its senior classes, splitting $1.09 billion of one-year and $1.16 billion of two-year bonds between fixed-rate and floaters.
Since Ford's 2002-A offering, GMAC, Toyota, AmeriCredit and Mitsubishi have all offered a mix of fixed- and floating classes in their respective 2002 deals. "We split the tranches on our last auto loan ABS," said David Kimball, securitization manager at Ford. "Now we like it as a programmatic structure."
Brad Dansker, vice president in the JPMorgan N.A. ABS group, confirmed the market's taste for the floating-rate notes, adding that there was more than $1.5 billion in demand for the $776 million A2B two-year floaters.
While spreads for Ford 2002-B were not through the Toyota's or Chase Auto deals seen this quarter, they were five inside its 2002-A offering for floating- and 10 basis points inside of fixed-rate classes. Two-year 2002-B notes priced six inside of comparable 2002-A and 10 through 2002-A A2B pricing levels.