Last week, the U.S. ABS primary market continued at a modest pace with $6.2 billion of supply making the rounds, half in mortgage-related sectors. A couple of notable events occurred as American Honda Finance and MBNA Bank America priced transactions that challenged the market to move tighter in the already richly-bid credit card and auto loan sectors. Also, a pair of agency-wrapped classes of home equity offerings moved past previous thresholds.

Honda brought its third - and likely final - ABS transaction of the year, a $1 billion fixed-rate offering via Banc of America Securities and Deutsche Bank Securities. Demand was strongest out on the curve, due to Honda's record as the best-performing collateral in the ABS market going two years and out. While demand was strong at the front end, each class was oversubscribed, the three-year senior class was three-times oversold despite the meager return of two basis points over comparable swaps and an all-in yield of 3.638%%.

The money market A1 2a7 eligible class priced at four basis points under four-month Libor, one-year A2 priced at six basis points over EDSF and two-year A3 priced at five basis points over Swaps levels that rivaled both BMW and Toyota Motor Credit, which had previously set the bar for captive auto issuers (See chart).

In the subprime sector, AmeriQuest Mortgage unit Long Beach Holdings sold its first-ever, public, term ABS via Greenwich Capital Markets (see ASR 6/3/02). Spreads offered investors a significant yield pick-up versus comparable auto paper - even within the subprime sector. Long Beach's spreads were 9 to 13 basis points outside of the July 9 pricing from head-to-head competitor Onyx Acceptance Corp.

MBNA sold a pair of triple-A rated credit card-backed offerings, $400 million of seven-year 2002-A8 and $700 million of five-year 2002-A9 floating-rate notes. Lehman Brothers acted as joint lead on both offerings, with Banc One Capital Markets joint lead on the 2002-A8 and BofA joint lead on the 2002-A9.

The five-year single-tranche offering priced with a spread of nine basis points over three-month Libor and the seven-year coming in at 15 basis points over three-month Libor. Accounting for the two basis point trade up, the notes equaled 11 and 17 basis points, respectively over one-month Libor.

No credit card issuer this year has been able to punch through the 10 basis point barrier versus one-month Libor, with Chase Credit Card Master Trust the only issuer to hit 10 basis points over for five-year floaters and American Express Credit Account Master Trust and Chase the only issuers to hit 17 basis points over for seven-year floaters.

In home equities, deals from Long Beach Mortgage and Option One Mortgage were in uncharted territory as the sector now threatens to move into the single digits over Libor, for 2.5-year triple-A floaters. Of course the Fannie Mae and Freddie Mac wraps on the classes helped.

Long Beach, with a $1 billion 2002-4 wrapped deal via Deutsche Bank and Greenwich, split the exposure between a $500 million Fannie Mae-wrapped A1 class and a $500 million LBMT class wrapped by XL Capital. Each class had a 2.8-year average life. While the Fannie class priced at a record 10 basis points over one-month Libor, the LBMT class priced at a more yieldy 30 basis points over one-month Libor.

Later last week, Option One brought $610.9 million of home equity paper, featuring a $303 million FSPC T44 class with a 2.7-year average life. While the offering had not priced as of press time it was almost all sold at levels of 10 to 11 basis points over one-month Libor. Banc of America and Greenwich were leading the deal jointly.

Also in the home equity sector, a slew of offerings from Bay View Capital, CDC Mortgage, and Accredited Home Loans were marketing and were expected to price late in the week. Credit Suisse First Boston and Morgan Stanley each priced self-led deals that had been left over from the previous week.

Exceptionally strong demand was seen for an equipment loan/lease deal from Caterpillar Financial Services via Banc One and Merrill Lynch. With offered spreads seven to 13 basis points outside of the Honda trade, oversubscription rates topped 400% out on the curve. Triple-A rated two-year supply, initially offered at 18 to 20 basis points over swaps, tightened to 16 basis points over Swaps and single-A rated B notes, initially talked in the 60 basis point area over Swaps, priced at 56 basis points over.

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