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Strong demand for primary ABS as auto sector leads the way

Primary ABS activity remained strong last week, pricing $8.8 billion, with an additional $2 billion pending for late in the week. The auto loan collateral continued to flow into the market, accounting for $4 billion of the week's total, as issuers of amortizing assets reportedly sought to tap the market. Strong demand was reported for most issues on profit taking from the investment community, cashing in on tightening throughout the first-half and moving into par-priced new-issues.

Leading the way in autos was Chase Manhattan Bank, which priced $2 billion of 2003-A notes. But programmatic issuers CarMax Inc. and Household Financial were also represented. Additionally, Navistar International Corp., manufacturer of International Trucks sold a sizeable deal.

Chase's first auto ABS of the year went well, although spreads out on the curve for all of the auto deals saw spread widening out on the curve. While the short-term A1 class priced at four basis points under four-month Libor and the one-year A2s came in at eight basis points over EDSF - both in line with guidance - the two and 3.3-year classes each moved out one basis point from initial guidance levels. Two-year paper cleared at five basis points over and three-year priced at six basis points over comparable swaps, respectively.

Strong demand from 2a7 accounts, combined with rabidly decreasing swap spreads, was credited with the mixed spread performance.

Household saw a similar effect in its first auto loan ABS of the year, which priced via Barclays Capital and JPMorgan Securities, jointly. The $1.05 billion transaction priced its money-market eligible A1 class at four basis points under three-month Libor and its one-year A2s price at 10 basis points over EDSF. Household's two-year class, however, moved out to 22 basis points over swaps, from guidance in the 18 basis point area over. Longer-dated 3.16-year A4s priced to yield 25 basis points over swaps.

While spreads did soften, a 20 basis point rally in two-year swap spreads kept all-in yields favorable for issuers. For example, The 1.73% all-in rate on the Household two-year tranche is in-line with the 1.69% that sector leader American Honda Finance priced its comparable notes May 13 and the 1.83% yield for the two-year class from Capital One Financial three days later.

CarMax sold $500 million of 2003-1 notes through joint leads Banc of America Securities and Wachovia Securities, mostly in line with expectations. Short-dated A1s priced at three basis points under three-month Libor and one-year A2 notes priced at nine basis points over EDSF. Two-year and three-year A3 and A4 classes came in just outside of indicative levels, pricing at 15 and 19 basis points over comparable swaps.

Moving from cars to trucks, Navistar sold $500 million of 2003-A notes through Banc One Capital Markets. Clearing at levels five to 10 basis points outside of the auto deals for one- through three-year seniors, one-year A2s priced at 19 basis points over EDSF and two- and three-year A3 and A4 tranches priced at 28 and 38 basis points over swaps.

In home equities, where volume totaled roughly $4 billion, American General Financial, a unit of triple-A rated insurer AIG Corp., sold its first-ever mortgage loan securitization. Also, GMAC-RFC, Chase and NovaStar Financial wrapped up deals.

American General Financial priced $507 million of home equity paper via Banc One Capital Markets and Citigroup. The offering, backed by fixed-rate first-lien residential mortgage product, was motivated by a desire to expand into new funding sources said. As a first-time issuer with limited performance data for servicer AGFC, however, the issuer had to pay up to priced its deal. AGFC's three-year A2 seniors priced to yield 60 basis points over swaps, outside of levels for comparable classes issued by Chase last week.

The credit card sector priced two single-tranche offerings for $675 million in total volume. Capital One Financial, which has brought $1.8 billion from its COMET shelf this quarter after not selling any credit card ABS in the first quarter, sold its first triple-B rated class from the de-linked vehicle. COMET 2003-C1 saw strong demand for the floating-rate subordinated notes, tightening 20 basis points from initial price talk. The five-year class, priced at 255 basis points over one-month Libor via Lehman Brothers.

Circuit City's First North American National Bank unit sold $425 million of Ambac-wrapped paper via BofA and Wachovia. The three-year triple-A rated floating-rate notes priced on the screws to price guidance at 48 basis points over one-month Libor.

On a side note, Charlotte, N.C.-based underwriters BofA and Wachovia acted as joint leads on both offerings affiliated with Richmond, Va.-based electronics retailer Circuit City Stores. In addition to FNANB 2003-A, the Tobacco Road Tag Team also jointly led the CarMax auto Owner Trust 2003-1 trade, a rarity for the cross-town rivals.

Rounding out the week's deals was earth-moving machinery manufacturer Caterpillar Inc., which sold $760 million of 2003-ASM fixed-rate notes via Banc One and JPMorgan. With a stellar performance in the primary, Caterpillar priced tighter than its collateral would suggest. In particular, the 2.77-year single-A rated subordinated B class priced at 38 basis points over swaps, more akin to an auto deal than an equipment deal.

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