ABS

As the tail of the newly developed ABS CDS market wags the dog of the home-equity ABS market, analysts are hoping a more mature CDS market could bring the end of recently volatile home-equity ABS spreads. According to sell-side researchers, widening of home equity ABS CDS spreads is largely thought to be the primary cause for the recent widening seen, particularly for triple-B rated tranches.

Fitch Ratings is working on a new methodology for assigning formal seller/servicer ratings to auto ABS issuers and should have the criteria ready sometime next year. Fitch Associate Director Lena Katsnelson confirmed the methodology was being finalized but could not specify when it would be available. Additionally, Fitch published a report outlining its auto ABS ratings criteria last week.

Dynamic Credit Partners expects to bring its second CDO to the market before year-end, according to sources. The $992 million Barrington CDO Ltd. will contain as much as an 80% concentration of RMBS collateral, up to 50% of that being subprime mortgages.

Chase Manhattan Bank, N.A. added $4.5 billion in additional receivables to its First USA Credit Card Master Trust, according to Securities & Exchange Commission filings. The move is seen as an attempt to buttress the trust in the wake of a spike in chargeoffs wrought by recently implemented bankruptcy reform. The trust currently has $6.5 billion outstanding, which is spread over nine transactions, and has not issued a deal since 2001.

Standard & Poor's said the increase in credit card minimum payments, due to go into effect at the end of next year, will not negatively impact credit card ABS and will more than likely be offset by higher payment rates and the positive effects of recently enacted bankruptcy reform.

NEW YORK - In the ongoing debate over if and when the oft-referenced housing bubble will burst, the latest ABS analyst to publicly weigh in expressed his belief that the bubble will experience a "slow hiss" as prices gradually decline. "Most of the time, bubbles end softly...the air hisses out," said Mark Adelson, director and head of structured finance with Nomura Securities, speaking at the Asset-Backed Securities Summit hosted by Financial Markets World last week.

In a Herculean effort, the U.S. ABS primary market generated $27 billion in new issues last week, as issuers likely rushed to get deals done before the Thanksgiving-shortened week.

Rental car company Hertz Corp., a unit of Ford Motor Co. that will soon become a stand-alone entity, is not expected to issue significant amounts of auto ABS after it becomes a stand-alone company, say analysts. Despite having a near-junk corporate debt rating (BBB-/Baa3/BBB-), which is soon expected to fall even further, the company is expected to maintain its foothold in the high-yield debt market and should not be forced to over-utilize the ABS market for funding.

As RBS Greenwich Capital analysts put it last week, "it has been a while since we last saw it, and new investors in the sector may not recognize it. Volatility has returned to HEL credit." The volatility is a result of pricing fluctuations in the home equity ABS credit default swap market, the cause of which is not entirely clear.

Investors looking to exploit the newly volatile home equity ABS sector are expected to be among the catalysts for the growth in a relatively new CDO structure, combining both funded and unfunded assets and liabilities, to hit the U.S. market.

Imagine the embarrassment of a synthetic CDO manager when, forced to purchase the par amount of a referenced asset gone bad, also has to suck up nearly the entire amount of the deal's excess credit enhancement in order to fund the purchase, consequently causing a rash of downgrades.

Capital One Financial Corp. scooped the credit card industry last week by being the first to provide full FICO score distributions for its credit card trust as will be required on Jan. 1, when Securities & Exchange Commission Regulation AB goes into full effect.

Independent finance company AmeriCredit Corp. took a step into the prime lending world last week with the announcement that it would purchase Bay View Acceptance Corp., a prime and specialized auto loan originator.

The U.S. ABS primary market swelled to roughly $20 billion with only four full days of issuance due to the Veteran's Day holiday.

In what has come to be an annual event, J.G. Wentworth, a Bryn Mawr, Pa.-based specialty finance company, has issued its fifth private Rule 144A deal backed by structured settlement obligations in five years. The $227 million deal, tagged 321 Henderson Receivables I Trust 2005-A, is the largest of the company's four other deals and is led by Deutsche Bank Securities. Officials from Deutsche Bank could not be reached for comment, nor could officials from J.G. Wentworth.

First time issuer SBA Communications Corp. has a $405 million securitization in the market, led by Lehman Brothers, which is expected to close by the end of the week. The deal, though backed by leases on wireless communications towers, has a CMBS-like structure and is issued out of the SBA CMBS-1 Depositor LLC trust.

The latest rate reduction bond offering from Houston-based CenterPoint Energy Inc. was being shown throughout Southeast Asia last week in the hopes that bankers can drum-up demand for the deal and for future Texas RRB issuance. Representatives from joint-lead managers Credit Suisse First Boston, Lehman Brothers and RBS Greenwich Capital, as well as financial advisor Saber Partners were in the midst of a whirlwind tour that included Beijing, Hong Kong, Singapore and Tokyo last week, showing off CenterPoint's $1.85 billion offering that is due to hit the market before the end of the year.

The CDO community is the fastest growing customer base in line for a relatively new analytic system offered by Moody's Investors Service - so-called market-implied ratings. In short, the system tracks the gap between what the secondary market assesses as the chance of a security defaulting, versus the rating agency's own credit rating for the bond. And while the tool is only applicable to the cash and synthetic corporate bond sectors and it is not used by Moody's analysts as a precursor for ratings changes per se, the principle behind the system has "profound implications for the financial market," said Moody's Managing Director David Munves, who invented the system.

Displaying an increasingly bearish sentiment on the home equity ABS sector, JPMorgan Securities analysts last week, calling the mix of expected slowing home price appreciation and simultaneously heightened short-term borrowing costs an "indeed ugly" mix, lowered its bias last week to neutral on the asset class.

Because of the lower value investors are placing on subprime loans, New York-based real estate investment trust MortgageIT Inc. is in the process of scaling back earlier plans for a "heavy growth strategy" within the subprime lending market.