Volumn Lightens Up, But Markets Still Soft


Though volume was a bit light versus the hefty $10 billion priced in last week's market, spreads stayed soft as issuance was off-the-run with the exception of a credit card deal from Bank of America. First Security, Navistar, Equicredit and Advanta made up non-vanilla transactions.

Spreads widened from premarketing squawk on Navistar's $715 million heavy truck transaction and Equicredit's $870 million home equity offering, though only by a few basis points. The weather was splendid compared to the chill felt in the corporate sector, as spreads in that market were fattened 15 to 20 basis points to entice finicky investors.

Deals have been postponed in the corporate debt market, according to this person, who mentioned British American Tobacco and Provident Bank's 10-year deal delayed due to ballooning spreads and minimal interest.

Typical investors in straight corporate bonds have been said to be migrating lately over to the ABS sector for shorter, fixed-rate securities.

"People are looking for yieldier' paper," said an investor. "People are looking for juice in corporates. But sometimes you get decent levels on the ABS two-years, and they're jumping all over it."

Some market insiders saw no marked bias for short asset-backed paper, and thought the attraction to ABS was lengthening in terms of average lives. "I see the most demand for longer securities: 10-year paper, seven-year credit cards," said an ABS trader last week.

"People are willing to pick up some more off-the-run stuff to pick up a little bit more spread," he added.

A source intimate with the Chase-led Navistar deal thought the transaction went well considering what market conditions had offered. "We were only two or three back of John Deere," he said of last week's $761 million agricultural equipment lease deal, though he did admit "certain tranches went better than others."

Other managers found their longer bonds doing better than their shorter paper. The NAS tranche of Advanta's $517 million offering of home equity paper came in three basis points to sell at 112 over the bench.

First Security priced the $278 million A-4 chunk of its $1 billion subprime auto deal at 78 basis points above the curve. Investors said the First Security had to "really fight hard" to get the deal done though.

"They didn't do that great a job of convincing anyone," said one investor. "There wasn't a lot of info on this or the Navistar deal. They had some numbers -used and new percentages - but not as much info as people would have liked."

If you look at the spreads on Navistar and First Security's two-year tranches versus the comparable level from last week's UAC auto deal, they are out six to nine basis points. Market experts attribute this widening to a glut of supply from the auto and equipment sector, but also to short memories of late last year, as more players who got hurt in that liquidity crunch react quicker to slight market adjustments.

In The Pipeline

Chase Manhattan Corp. has gathered $1 billion for a collaterilized bond and loan fund dubbed Octagon Investment Partners II. Chase Capital provided the debt and equity for the CDO. Octagon Management will manage 75% of the non-investment grade bank loans and junk bonds, while Chase Capital will manage what's left. - SK