More than $4 billion of new supply hit the asset-backed market last week, heralding what sources predict will be a voluminous July.
Though ABS issuance will have to pick up a little bit in order to match the $25 billion some have predicted will price in July, issuance across all sectors should be robust this week.
Credit cards and autos carried the week for the most part, with equipment lessor Caterpillar Corp. breaking the mold. The deals were said to have gone relatively well, with the exception of two-year bonds, which sold sloppily in the Toyota Motor Corp. and DaimlerChrysler Corp.'s CARCO offerings, insiders said. Both deals' two-year pieces were pushed wide of talk.
Toyota priced at 74 basis points over Treasurys, but had been talked at 67 basis points over. Meanwhile, Caterpillar priced at 80 basis points over Treasurys, far wider than the low- to mid-70s sources had predicted.
"It shows a little bit of weakness in the two-year sector," a trader said. "My guess is they're looking at that place in the yield curve, and the two-years are trading slightly rich. There's also a lot of that type of supply coming in the near term, particularly the two-year maturities."
The subordinate classes on Toyota's deal executed better generally than most other classes. They priced on the tight side of talk, which was generally good news for all concerned.
"It shows me that there's some insurance companies with money to spend, whereas perhaps the total rate of return accounts, which are traditional buyers of the senior classes, are staying on the sidelines," the trader said.
Generally, people seem cautious due to the amount of supply about to spill from the pipeline. While all the credit card deals that priced last week were floaters, some sold more quietly than others. Chase Manhattan Bank for instance, priced the three-year portion of its deal 14 over the bench on a reverse inquiry. CARCO, the DaimlerChrysler's auto trust, silently placed its senior, three-year bonds with a single investor as well.
"There's a big buyer out there who wants three-year paper," said a trader.
Across The Pond
A trend among midsize card issuers that began a few years ago is continuing as companies like Metris target European investors when selling their floating rate product to get tighter spreads.
Meanwhile, utility company Boston Edison is ready to launch its stranded assets deal by the end of this week, using a long list of underwriters on the transaction, including Goldman, Sachs & Co. and Lehman Brothers as co-leads; followed by co-managers Banc One Capital Markets, BancBoston Robertson Stevens, Bear, Stearns & Co., BNY Capital Markets, CIBC World Markets, Merrill Lynch & Co., PaineWebber, Prudential Securities Inc., Salomon Smith Barney and State Street Capital Markets.
Also expected is a $500 million to $1 billion grantor trust offering from Honda Finance Corp. via Credit Suisse First Boston at the end of the month or the beginning of August.
And Wachovia Bank has filed a $2 billion shelf and looks to launch a deal with similar timing also via Credit Suisse, while Case Credit is also said to have a sizeable multi-tranche deal waiting in the wings. - SK