New issuance came out of the gate fairly strong last week, with two top-tier captive auto deals announced before Monday even began, followed by deals in the home-equity, credit card sectors and even a small stranded-cost deal. By Thursday, however, issuance had slowed ahead of the holiday shortened session Friday and full market close Monday in observance of the Martin Luther King holiday.
All told, the market priced just over $5 billion of supply last week, less than half the $11 billion-plus the week previous. Of course, supply numbers that week were skewed slightly, with almost half coming in the form of one offering.
The competing auto deals offered an interesting perspective on where demand was and where spreads should be. Numerous sources noted that the sheer enormity of the previous week's Ford deal means that some degree of spread concession was likely seen, as the deal tightened in secondary trading.
Breaking late last week, GMAC brought $2.2 billion ($580 million retained) and Toyota came with a $1.5 billion ($450 million retained) of prime fixed- and floating-rate auto paper. Each issuer admitted that the mix of one- and two-year floating and three-year fixed-rate paper was something they had looked into, but it was only after seeing the success of comparable classes in the Ford deal that they decided on that particular mix.
Both offerings were backed by high-quality collateral and each contained a high percentage of incentive loans, with the GMAC deal entire backed by sub 8% loans. This led to investor concerns over the payment speed of the deals, as rates and speeds move in correlation to one another. As a result, GMAC structured this deal at 1% ABS, versus the more usual 1.5% seen on the Toyota deal.
"Toyota will pay a bit slower than 1.5% and GMAC will likely come in a bit faster than 1%," a buysider said of the differences. Upon first glance, the two deals looked equal, but in the end, the financial strength of its parent drove Toyota spreads two basis points inside of GMAC.
Toyota was definitely the success story of last week, with each class an astonishing five times oversold and spreads that tightened two basis points across the board. This surprised some, as indicative offering spreads for TOAT 2002-A were seen as an "aggressive" one-basis-point inside of GMAC prior to the deal's completion.
These deals priced through a total of five lead managers, as GMAC priced through Banc of America, Banc One and Credit Suisse First Boston jointly - the second triple-joint lead of the year - and JPMorgan and Morgan Stanley jointly priced Toyota.
"This offering clearly set the new benchmark within the auto sector for the new year," said Brad Dansker, vice president in the North American ABS group at joint lead manager JPMorgan. "The strength of the parent (Aa1/AAA) and servicer gives investors more comfort."
The GMAC offering still went well, tightening a basis point across the board as paper was over three times oversold. Also, GMAC priced three to four basis points inside of the mammoth Ford deal.
"The recent auto deals in the market are indicative to where demand is currently," said a company official. "And we structured our deal for that."
Through Thursday, approximately $11 billion of auto paper has priced in January, making up the bulk of the monthly supply. The almost $17 billion of ABS seen in the first two weeks of 2002 is ready to eclipse the roughly $18 billion of January 2001 supply.
Two top-tier issuers tapped the home-equity sector last week, as Centex and GMAC-RFC each brought small-to-medium-sized deals. For Centex, this was the first offering of the year, while GMAC-RFC has priced deals from its RAMP, RACS platforms, as well as a previous RFMS II deal.
Spreads in this sector definitely have not rebounded as nicely as in the credit card and auto loan sectors, where spreads are currently in line with six months ago. By contrast, while these two deals priced in line with one another, each was 10-15 basis points cheap in some classes, compared to where these issuers priced deals in mid 2001.
In the card sector, Discover brought $1.05 billion of paper to the market through Morgan Stanley, a deal that was increased by 25% and still tightened. The $1 billion three-year seniors priced at seven basis points over one-month Libor, in line with the recent American Express trade.
And Citibank brought its first credit card ABS of 2002, with a triple-B-rated C-1 class that was increased to $350 million from $250 million. The five-year deal moved in to price at 99 basis points over three-month Libor, versus initial talk in the 100-105 basis point area.