ABS market professionals are still dealing with a sluggish issuance calendar, and with four weeks remaining in 2007, they do not expect to unwrap the gift of recovery anytime soon. Between Nov. 19 and press time Nov. 28, around $9.7 billion of deals came to market.
A couple of credit card deals, a cashflow CDO and a student loan ABS deal marked an otherwise calm stretch for the ABS market. Credit Suisse launched a $240 million cash-flow CDO called Apidos CDO VI, but it was unclear what type of underlying debt was in the deal. If the current Apidos structure followed the previous one, then corporate loans likely make up the transaction's underlying debt, said market sources.
"You can't make any assumptions about these deals. You have to look at the prospectus," said one market source, acknowledging such sciolism has helped wreaked enough havoc in the ABS market this year.
According to information provided to ASR, the triple-A, 8.5-year tranche priced at three-month Libor plus 64 basis points. A 10-year, double-B-rated piece came in at three-month Libor plus 675 basis points.
Citigroup Global Markets was busy launching $2 billion in credit card ABS. Broken up into the 2007-A10 and the 2007-A11, both transactions received triple-A ratings and priced against one-month Libor. The five-year notes in the A10 series priced at 45 basis points over, while the 7.09-year piece came in at the benchmark plus 55 basis points.
CMBS Tiering?
The commercial MBS sector also had representation this week with the $2 billion CD 2007-CD5 Commercial Mortgage Trust. Citigroup managed that deal, along with Deutsche Bank Securities. Perhaps expressing concerns about the health of the CMBS market, the market priced its three-year, triple-A notes at swaps plus 110 basis points.
Another CMBS deal, the $3.1 billion LB-UBS Commercial Mortgage Trust, 2007-C7, came to market via Lehman Brothers and UBS. ASR could not make a direct comparison between the ratings on the LB-UBS senior notes and the Citigroup-Deutsche deal because rating information was not available at press time. However, the senior notes on the LB-UBS transaction with similar durations as the Citigroup-Deutsche deal came in tighter. The 3.17-year notes priced at swaps plus 95 basis points. In what might turn out to be a bonus for investors, the notes that priced against swaps came in at about 10 basis points wider than initial guidance.
Earlier this month, Citigroup also managed a $1.7 billion student loan ABS deal from SLC Student Loan Trust, secured by FFELP loans.
Very few residential MBS deals have priced since Nov. 16, at least according to information supplied to the ASR Scorecard database and ABS investors.
"Of what I'm seeing, there is little appetite," said one mutual fund portfolio manager. "A couple of deals have hit the marketplace. I don't know if they've gotten all of their triple-As done, but I know [in some cases] they have not gotten the whole stack done. People are just standing on the sidelines."
Fixing It
While investors maintain such defensive positions, some market professionals said fixing the damage created by predatory lending represented the MBS and ABS markets' best hope for recovery. Congress should enact emergency legislation empowering them-or other suitable market participants-to renegotiate mortgages at rates that qualified homeowners can afford to pay.
"Basically, I think we should do that and push these losses back on the investors and the investment banks," said one market source.
Whatever the approach to recovery, the absence of RMBS deals and the prospect of a market that will remain troubled well into 2008 have made deep impressions on seasoned investors.
"I've been doing this for 27 years, and this is the worst I've ever seen it," said the mutual fund manager.
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