UPDATE:Issuance Of Non-TALF Consumer Loan-Backed Deals Growing
April 14 2009 - 2:35PM
Dow Jones News
There is a steady growth in the issuance of consumer loan-backed
bond deals that are not eligible for funding under the Federal
Reserve's program to revive this market.
This signals investors are tentatively warming up to this corner
of the credit market which went into hibernation once the credit
crunch erupted.
About $9 billion in deals with collateral ranging from student
and auto loans to agricultural-equipment loans have come to market
since the beginning of the year, according to Informa Global
Markets, an information provider for such bonds. This includes a
$946 million auto loan issue from USAA, a financial services
company, that is due to be sold on Wednesday.
Still, this is less than nearly $12 billion in asset-backed
securities deals sold that were eligible for funding under the
central bank's Term Asset-Backed Securities Loan Facility, or TALF,
which has had a slow start. Though some investors have been wary of
the central bank's program because of lengthy documentation and
other requirements, they are finding the asset-backed securities
sector attractive.
"Investors clearly see safe returns in ABS," said Michael Wade,
head of asset securitization origination at Barclays Capital in New
York. The bank has been an underwriter for five of the eight
non-TALF deals that have emerged since the beginning of this
year.
The bulk of the deals sold have been those backed by auto and
student loans, including three non-TALF eligible ones from SLM
Corp. (SLM), better known as Sallie Mae.
Investors are drawn to these bonds because of their relative
stability when contrasted with subprime loan-backed deals and the
much-maligned collateralized debt obligations, he said.
Defaults and downgrades on bonds backed by auto and credit-card
loans have not been as swift or as dramatic, Wade pointed out.
Even though risk premiums are much wider on the current crop of
deals compared with similar bonds sold two years ago, given that
yields on Treasurys are at all-time lows, asset-backed securities
are seen as an attractive investment, Wade said.
He said an older Honda auto loan-backed deal sold flat to swaps
but the one-year portion on a deal sold earlier this year was
priced at 175 basis points over swaps.
There is "pent-up demand" for new asset-backed securities "with
or without TALF," said Chris DeReza, a researcher and manager at
Informa Global.
Issuance of consumer loan-backed deals will pick up in the weeks
ahead, regardless of whether they are eligible for the Fed's
program, market participants say.
Hedge funds are the main buyers of TALF-eligible deals, and the
non-TALF deals are being bought by "real money investors" who are
not mandated to use leverage, DeReza said. These include insurance
companies, pension funds, some banks and money managers.
While there are indications of recovery in this market, it will
be a long time before issuance matches the more than $230 billion
in 379 deals issued in 2007, according to data from Asset-Backed
Alert, a trade publication.
In 2008, issuance totaled $60.83 billion and there were 78
deals.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371;
anusha.shrivastava@dowjones.com