The improving economy combined with investor demand for yield is allowing some of the more headline-laden issuers, who had needed surety wraps to bring offerings over the past two years, the ability to sell senior/subordinated structures once again. Strong receptions for recent transactions from Providian Financial and AmeriCredit Corp. are evidence of the changed economics that has other issuers, including The Metris Companies, assessing the possibility of issuing unwrapped ABS, sources said.

"General economic recovery, survival of [formerly distressed names], tight spreads for top-tier issuers and strong CDO demand for yieldier assets all contribute to these issuers having funding options in senior/sub form," said JPMorgan Securities ABS research head

Chris Flanagan.

"If you are going to buy unwrapped subs, the thinking is that you buy when the economy seems to be turning the corner," said Barclays Capital director Giuseppe Pagano. "We are seeing issuers rushing to the market to take advantage of the current heat," he added.

Also helping the aforementioned issuers has been the by and large successful turnaround efforts. "Issuers have been focused on recapitalization and improving collateral performance," said Deutsche Bank Securities ABS syndicate head Brian Wiele. "This enables subordinated [ABS] issuance."

In response to the improved economics for issuers typically reliant on surety providers, competing monolines have been increasingly aggressive in pricing.

The most recent issuer to return to the senior/sub structure, AmeriCredit, saw demand that had subordinated bonds four to five times oversold, leading to an upsizing to $575 million from the initial $500 million. Each of the double-A, single-A and triple-B subordinated bonds were increased by roughly $7 million and priced inside of price guidance, despite the oversubscription.

Prior to last week's series 2004-1 offering, AmeriCredit had priced six consecutive wrapped deals, using three surety providers (FSA, MBIA and XLCA). AmeriCredit's last non-wrapped transaction was its series 2002-1 deal which priced in April 2002.

Before last week's offering from AmeriCredit, Providian priced two senior/sub transactions in March and late May. Its March offering from the Gateway Master Trust, series 2004-1, was its first senior/sub offering ever for the trust, which began issuing in 2000. Providian's last senior/sub structure before those came in November 2000, from the Providian Master Trust, which has since been acquired by JPMorgan Chase.

The next senior/sub offering, coming from an issuer that had been relegated to wrapped deals, will be from Metris, sources said. Still in the planning stages, credit enhancement levels are still being hashed out by the rating agencies. This would be Metris' second deal this year. Since Metris' last senior/sub offering in October 2001, the firm has priced five consecutive wrapped deals. The lead manager is unclear at this point.

Metris reportedly is requesting 19% enhancement levels on its triple-B subordinates. One undisclosed rating agency is holding firm at 23% for the triple-B class. Enhancement for the triple-A bonds is said to be in the 50% to 55% range. As of now, timing for Metris 2004-2 is July or August, sources added.

"Anything you are hearing about our plans is pure conjecture at this point," said Scott Fjellman, senior vice president and treasurer of Metris.

Said to be moving up issuance plans is retailer and private label credit card ABS issuer Charming Shoppes, which has not visibly securitized since November 2002. Ironically, all of Charming Shoppe's four previous offerings had been senior/sub and it has never used a surety provider.

While there was some investor doubt about whether Charming Shoppes, a single-B rated seller/servicer, could place subordinated classes, the subs for its pending deal have been pre-placed, sources said. Charming Shoppes contracts some of its servicing to Total Systems Services, a Columbus, Ga.-based specialty servicer that is a former unit of Columbus Bank and Trust Co.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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