A lot of talk centered around the securitization market this week, from former Federal Reserve chairman Alan Greenspan's gloomy remarks about the sector, to a midweek summit that attracted more than 900 industry delegates. What spoke volumes, however, was the uptick in securitization activity from various asset classes, including a small mortgage transaction from Yale.
Leading into the week, securitization professionals heard the former Fed chairman compare ABS with "cocaine"; draw parallels between the ABCP market and the savings and loan disaster of the late 1980s; and practically predict the disappearance of the CDO market (see story, page 20).
Seasoned market players, however, said industry professionals who are well-acquainted with how ABS works would not be put off by Greenspan's comments.
"I think what you have to worry about is somebody who is senior at one of these organizations - maybe not the guy who has been day-to-day working on it, but who came up a different channel - who will call him up and say What is this stuff?" one buy-side source said. If that securitization professional cannot explain the workings of the industry to his chief's satisfaction, then the order might be given to abandon the product.
Indeed, all of the $4 billion in transactions that came to market recently comprised only class-A certificates, according to information available by press time.
Deal flow included a pair of auto transactions. World Omni Auto Receivables Trust priced a $900 million transaction, via Barclays Capital and Wachovia Securities. A string of other investment banks, including Banc of America Securities and Credit Suisse, acted as co-managers on the deal, which primarily floated triple-A-rated debt. One of the 0.85-year tranches priced at 32 basis points over one-month Libor. In another sign of continued life in the short-term market, the deal sold P-1' and A-1+' notes to investors with a 5.68% coupon. Similarly, the Hyundai Auto Receivables Trust, 2007-A transaction came to market with all class-A notes (see story on next page). Barclays Capital and JPMorgan Securities were co-lead managers on the $858 million transaction.
In the student loan ABS sector, the National Collegiate Student Loan Trust priced $1.4 billion in bonds secured by private student loans. Citigroup Global Markets, Deutsche Bank Securities, Goldman Sachs and UBS Securities all acted as joint managers, while Banc of America Securities was the co-manager. A $150 million tranche priced at 52 basis points over one-month Libor, while the $550 million class came in at 85 basis points over the same benchmark.
Caterpillar Financial Asset Trust, 2007-A, came to market with a $659 million deal secured by trade receivables. Managed by Merrill Lynch and JPMorgan Securities, the one-year tranche priced at 50 basis points over EDSF, and a larger tranche with a similar duration came in at 42 basis points over one-month Libor.
Credit remained especially tight for the MBS sector. Even the Yale Mortgage Loan Trust could avail itself of only a sliver of financing from the capital markets. It priced a $96 million deal, via BMO Capital Markets.
While issuance from the securitization market remained in the doldrums, industry delegates gathered in midtown New York for the Global Summit on the State of the Securitization Industry, sponsored by the American Securitization Forum and the European Securitization Forum.
Gyan Sinha, head of the asset-backed research group at Bear Stearns and a panelist at last week's event, repeatedly raised a thematic question early on in the discussions: Why does the securitization market have an enormous crisis of confidence in rating agencies now, especially when they had been active and functioning for a very long period of time?
"We have to make better distinctions between triple-A's," Sinha said. "It always looks like there is a fundamental contradiction between triple-A and triple-A's on mezzanine."
He added that the ABS industry allowed derivatives into the sector and transformed subprime credits into triple-A-rated securities, employing techniques that seemed like alchemy to the outside world. Therefore, the ABS industry needs to make better distinctions between triple-A ratings.
"There should not be an insider's perspective, [while] to the outside world a triple-A is a triple-A," he said.
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