At roughly $2 billion in year-to-date proceeds, equipment ABS is 50% ahead of last year's volume through April. That said, the market is expected to pick up substantially in May and June, particularly on the agricultural and construction side, according to industry professionals.
Spreads in secondary equipment ABS have come in significantly since year-end 2002, as much as 15 basis points and 30 basis points on two-year and three year fixed-rate seniors, respectively, said John McElravey, director in the asset-backed at Banc One Capital Markets.
In the rumor mill, a large first-time issuer of equipment ABS is pending market via Deutsche Bank Securities. This issuer is not new to securitization, but has yet to bring equipment assets to term. Sources, however, are fairly tight-lipped with regard to the transaction.
"This is a large issuer, a lot larger than the Caterpillars of the world," one source said, though still hesitant to put a name on it, as investors have yet to be canvassed.
As for the regulars, it's likely that over the next two months the market will see token deals from Caterpillar Financial Funding, DVI Receivables Corp., John Deere Receivables, Navistar, Marlin Equipment and Case Receivables (CNH). Dental issuer Sky Financial came in late December. Noticeably, Deere was absent from the market last year, as were most of the shipping container issuers.
"The market has been in this sort of rut for the last couple of years," said John Bella of Fitch Ratings. "A lot of the smaller companies that used to rely on this market went away (either out of business or consolidated). The market now is very stable, but it's the same issuers, characterized by a diverse access to funding sources."
Bella added that many of the smaller, less financially strong companies that might have been term deal candidates in past years are accessing the ABCP market.
"Equipment-lease ABS continues strong, especially among companies which already have established a presence in the marketplace or for equipment types, such as containers, which hold their value and are readily re-marketable to another user," said Stephan Whelan of law firm Thatcher Proffitt & Wood.
According to sources, a fair amount of activity is expected on the intermodal asset side going into the year, as deals are running off and issuers are looking to both refinance and finance new purchases.
"It's really a matter of get it while you can, grab the low interest rates, and take advantage of the financing," said one attorney in the equipment sector, noting the prospect of rising interest rates over the next nine to 12 months.
Already, Interpool Inc. kicked off the year with a term out of a chassis securitization it had placed in Wachovia Securities' Variable Funding Capital Corp. in 2002. The $400 million deal, which was wrapped by MBIA, is Interpool's first foray into term land.
Possible transactions could be shaping up for Textainer Corp. and Triton Containers, both of which last tapped the market in 2001, sources said.
Meanwhile, after a year or so of inactivity in the equipment space, aside for a Navistar deal last year, JPMorgan Securities is making strides back into the sector. The bank was co-lead with Lehman Brothers on the recent Ikon Office Solutions deal.
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