The asset-backed securities market slowly arose from its Labor Day slumber last week, starting the shortened week slowly before finally coming alive by Thursday, when several issuers hit the tape.
One trader remarked, "There's nothing happening here," and though players expected much throughout the week, issuer hesitation was the name of the game.
At press time, the weekly asset-backed deal volume neared $1.5 billion, with another $500 million or so expected to price before market close on Friday.
"It's just been an insane market lately," said a trader who had expected to see a few franchise-backed bonds price. "I thought the issuance was going to be very heavy, but I haven't really seen it happen."
According to an analyst close to the market, issuers are timid of the increasingly widening spreads. "There's a lot of uncertainty in selling and when to sell," he said. "Ten or 15 basis points might affect whether or not an issuer walks away from a deal."
Investors are weary as well. "You're hearing a lot of talk about a lot of supply," said one investor. "The market itself is slow, compared to last week and the week before that. I know the corporate calendar is building up quiet a bit."
Of last week's comers, Arcadia led the way, pricing $600 million in an auto loan-backed securitization. The deal, which featured a wrap from Financial Security Assurance, was structured in three parts. The Class A-1 was $240 million, with an average life of less than a year, priced at 50 basis points over the benchmark Treasury note, while the two-year $150 million A-2 tranche, priced at 129 basis points over the curve, and the 3.5-year, $200 million A-3 tranche priced at roughly 147 basis point over the benchmark Treasury. The transaction was managed by Credit Suisse First Boston, with Banc of America Securities, J.P. Morgan and Chase Securities acting as co-managers.
Though there was some speculation as to the affect of Standard & Poor's downgrading of Arcadia's corporate equity rating, an S&P analyst said, "The market condition would really cause the pricing, as opposed to the downgraded rating. One piece of information does not always affect investor's decisions. Investors aren't the easiest people to figure out."
Credit-card giant American Express Co. also made an appearance, pricing a $452.5 million offering. The deal was structured in two tranches, with the 2.9-year senior $412.5 triple-A rated tranche pricing at 20 basis points over one-month Libor, right at price talked. The $40 million subordinate class, which was A-rated, was executed at 43 basis points over one-month Libor, two points narrower than expected. Lehman Brothers led the deal, with Banc One Capital Markets, Bear, Stearns & Co. and Credit Suisse First Boston acting as co-managers.
Following suit was Wachovia Bank, which sold a $452 million credit card-backed deal in two parts. The $432 million senior class had a two-year average life and was priced at 18 basis points over one-month Libor, while the $30 million subordinate class sold at 43 basis points over one-month Libor, two points narrower than initial price talk.
As of Friday, market newcomer World Financial Network Ltd. was set to price $524 million in credit card-backed bonds.