With the year-end push currently underway, a steady flow of supply hit the U.S. ABS market, as $7 billion of issuance was marketed throughout last week. GMAC-RFC and DaimlerChrysler led the way, each with billion-dollar-plus deals, with smaller retail auto loan deals from World Omni Financial, Mitsubishi, Chevy Chase FSB rounding out the week.
The week's largest offering, $1.2 billion of subprime home-equity loan paper from GMAC-RFC's RASC shelf, had only half of the paper hit the Street; an undisclosed agency reportedly drove the deal with a reverse inquiry. The floating-rate Ambac-wrapped A2 paper that was offered through JPMorgan was structured with a 2.62-year average life and priced with a coupon of 32 basis points over one-month Libor.
The spread to Libor illustrates the volatility seen in the home-equity sector since Sept. 11, which resulted in the company seeking the monoline, according to Jamie Willeck, a managing director at RFC. "This offering was simple in nature," said Willeck, adding that the wrapped single-tranche offering, with an easy-to-understand structure, was an attempt to stabilize the sector.
Salomon Smith Barney brought $1.0 billion of DaimlerChrysler dealer floorplan paper from the issuer's Carco shelf. The first floorplan deal of the year from Daimler, with a single three-year tranche, was well received, pricing with a discount margin of eight basis points over one-month Libor, in from initial talk of nine to 10 over.
In an odd twist, the deal actually pays a coupon of 6.5 over Libor, it was noted, but as one source said, "Salomon owned that deal" and in turn re-offered it to investors at a price of 99.95671. The re-offering of securities is a common practice in the unsecured debt markets, but a rarity for ABS, the source added.
The retail auto-loan sector saw proportionately heavy issuance last week - $1.6 billion of the week's total - with three prime deals from World Omni, Mitsubishi and Chevy Chase.
Of the three comparable deals, World Omni was the largest, and most successful from the issuer's standpoint. Led jointly by Credit Suisse First Boston and Wachovia Securities, the second deal of the year came in at the tightest levels of the three, despite cheapening seen in the one-year senior tranche, with the lowest absolute yields for the privately held unit of JM Family Enterprises Inc.
Despite the independent status of the issuer, which has caused trouble for other non-captives, its close ties with Toyota drove this deal, sources noted. "World Omni is as close to a franchise dealer as you are going to see." Also, the lack of Toyota models offered with incentive loans alleviated any concerns of decreasing originations for the world's largest Toyota distribution channel.
Mitsubishi, on the other hand, saw the opposite effect. The company, whose use of finance incentives is not new, offers prime borrowers "the triple Z" plan: zero down, zero payments and zero interest for a period of over a year, on most of its models.
"There is some history for the payment characteristics from previous deals, but not much," noted a buysider. "The pool is loaded with deferred and balloon loans - more are akin to a lease deal - and even though these are prime borrowers, there are no payments at all for sometimes as long as 15 months."
That feeling was evident in the execution, as talk in the mid-to-high 20-basis-point area over EDSF for the one-year senior A-2 class widened to yield 30 over. Also, talk in the mid-to-high 30s over interpolated swaps for the 3.48-year senior A-4 class moved out to yield 45 over.
Chevy Chase, a Maryland-based federal savings bank, offered investors mostly new-car (52.74%) collateral with a hefty amount of used-car (74.26%) loans in the pool as well. But the relatively short tenor of the tranches that stayed inside of 2.34 years helped quell any concerns.
As a result the issuer covered its initial spread talk, coming in at the tight end of preliminary guidance, as well as a two-basis-point tightening for the one-year A2 class.