Last week marked the return of several U.S. issuers to the European market. Sallie Mae priced a student loan deal, series 2004-10, via Credit Suisse First Boston, which included Euro and Sterling denominated notes mixed in with its U.S. Dollar tranches. RBS Greenwich Capital acted as co-manager on the transaction.
"The interest among European investors for student loan product, and ABS in general, has increased in the last couple years," said Peter DiMartino, managing director and head of ABS strategy at RBS Greenwich Capital, Royal Bank of Scotland's stateside unit. "A rather large pocket of opportunity exists for U.S. issuers to diversify their investor base."
The 402 million 10-year, triple-A rated A8 class, priced at 14 basis points over three-month Euribor, inside price talk in the 16 basis point area.
Details on the sterling tranche were not publicly disclosed, however, the five-year, triple-A rated A4 class, which one source pegged at GBP331 million, reportedly had a fixed-rate coupon of 5.29%.
Also last week, Capital One Financial offered a 150 million series 2004-B7 U.S. originated credit card-backed transaction from the COMET shelf. The single-A rated single-tranche deal, with a 10-year average life priced at three-month Euribor plus 49 basis points, just inside the price talk in the 50 basis point area over Euribor.
At the moment, the relative attractiveness of the swap curve might be providing some impetus for U.S. issuers as well, another analyst said. Notably, the Sallie Mae deal gave buyers another taste of rate-reset notes (RRNs).
RBS Greenwich's DiMartino added that the increasing demand for long-dated floaters has also allowed Sallie Mae to explore new structures, including such innovations as RRNs.
"One interesting thing about the RRNs is that they have a soft-bullet maturity, as opposed to the rest of the structure, which is an amortizing vehicle," said DiMartino. The soft bullet structure makes RRNs a suitable alternative to credit card ABS," he added. Sallie Mae has issued 10 consolidation deals so far this year, six of them with RRNs, he said. Several 2003 deals also included the feature.
In a recent report discussing the RRNs, DiMartino reported the structure can offer investors flexibility and good value, since the bonds traditionally price cheaper than the similar average life amortizing classes in the same transaction. "The spread advantage was four to five basis points in 2003 but has compressed this year as spreads on non-mortgage ABS in general have stubbornly remained on the narrow side of historicals," DiMartino pens in the report.
Excluding the latest deal, the total volume of Sallie Mae transactions with RRNs was $13.4 billion at issue, the report said. RRNs compose about 28% of the transactions, on average, ranging from about 8% to 45% in each.
Analysts said deals containing European collateral also continued to flow at a brisk pace last week, with a total of 4.1 billion pricing by Thursday morning, including VCL 7, a 989.9 million car lease deal for Volkswagen Financial Services; Auburn 4, a GBP1 billion U.K. RMBS deal for Capital Home Loans; Harbourmaster CLO 4, a 510 million leveraged loan CLO for Harbourmaster Capital; and GHG Finance, a GBP578 million refinancing of FRNs that General Healthcare Group originally priced in 2001.
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