The pricing of the most recent new issue from the U.S.-based captive auto finance unit of Nissan Motor shows that the company's revival plan, instituted in 1999, is paying off. Yield spreads for the series 2001-C deal, which priced Aug. 23, came in at levels as tight as two basis points cheap to comparably tenored classes of the most recent new issue from sector benchmark Ford Motor Credit.
The triple-A-rated A1 senior tranche of the Nissan offering, with a one-year average life, priced to yield 11 basis points over EDSF, versus the nine basis points over for Ford's A2 senior class, with an average life just under one year. For two-year paper, Nissan priced to yield 12 basis points over comparable swaps while Ford printed at 10 basis points over swaps.
This is quite an improvement from Nissan's second-quarter deal, which saw two-year spreads come in nine basis points wider than the second-quarter new issue from Ford.
"The tightening seen with each new issue comes from not only credit quality but also is due to the revival plan instituted by the company," according to Andrew Dym, vice president in the N.A. ABS group for JPMorgan, which led the 2001-C offering.
In 1999, while straddled with debt, Nissan sold a one-third interest in the company to French automaker PSA Peugeot Citron S.A. using the funds to reduce debt and began cost cutting strategies. Three years previous, the company tightened lending standards, the effects of which have started to become noticed in improving collateral performance.
In the rating report for this transaction, Moody's Investors Service notes that since almost all of the receivables in the Nissan portfolio were originated after Nissan tightened its loan underwriting standards, expected losses will be similar to those of the last three deals and losses should be less than those of issues from 1998, 1999 and early 2000.
The impact has been continued oversubscription and consecutive spread tightening on the three deals Nissan has offered this year.
"We have made a concentrated effort to get in front of investors," said Jennifer Kuritz, head of securitization for the Torrance, Calif.-based finance unit, of the company's increasingly strong performance. "I think this is indicative of trends in the future. We are certainly hoping (future new issues) come in tighter."
Additionally, Nissan has been helped by other factors as well, notes Banc One Capital Markets analyst Alex Roever. "Demand for auto paper has been strong all year because there has been little competing short-dated fixed-rate assets in the market," he said.
Troubles facing the domestic captives, stemming from over-accessing the corporate debt markets in the late 1990's and increased headline risk-related volatility, have helped Nissan, which conversely is seen as a name on the rise.
"With the downgrades and negative headlines surrounding domestic captives, a little of the shine has rubbed off of the big three. That opens the door for other less frequent but still well known names," Roever added.
"Nissan has not been as ubiquitous as some domestic captives," Roever said in summation. "While becoming a regular issuer, people aren't tripping over Nissan paper."