Spreads widen As copious Volume pours On Market


Massive supply predicted for the end of July arrived last week as a flash flood of deals hit the market.

More than $10 billion was expected to price before Friday's close, and on Wednesday alone, $4 billion in deals sold. The heavy volume triggered spread widening among the most vanilla, usually top tier names. MBNA Corp., Ford Motor Credit Co. and Honda Motor Co. all were forced to go wide in order to bring investors into the deluge.

It's Good To Be King

By all accounts, spreads widened five to 10 basis points versus the previous week.

Some investors said they had prepared for this month's onslaught by selling sizable chunks of asset-backeds in June, knowing they would benefit from a supply and demand curve that looked to spike on the supply side.

"Supply has been enormous," said a buysider who looked to get heavy again on ABS. "We sold some asset-backeds in June in anticipation of supply, and as a result we have some room to buy."

The source said the buyside has benefited not only from heavy volume, but also from the movement in swap spreads, which has helped to push spreads out on new-issue asset-backeds. Another investor waited all week "to get involved in the Honda deal."

"They're having a hard time getting some of the tranches done," he said. "They've had to widen out considerably, even more than what's priced in." The Honda deal was expected to price just after press time last week.

Ford had a rough go of it, too. The Big Three auto issuer had to go out five basis points to sell what is usually considered to be benchmark auto bonds. On the short end, Ford's 1.8-year tranche sold for 77 basis points over Treasurys, four basis points wider than premarketing talk.

MBNA likewise had to fatten its spreads three basis points from price guidance on what was in structure a normal, vanilla credit card deal. But market technicals are making even the most liquid of deals go the extra mile for a buyside commitment, market observers noted.

Alternatively, Bank of America Corp. saw decent execution on its credit card deal, as only the five-year, $55 million, A-rated piece priced wider than initial price talk, selling at 40 basis points over one-month Libor, versus the 39 points that was being asked initially. The rest of the sizeable $1.5 billion deal priced on the wide end - yet within - price guidance.

What To Expect

Marketing participants said student-loan issuance is likely to be up this quarter, as sector experts have predicted a bit of a renaissance for this asset class.

USA Group Secondary Marketing Services has registered a $1.7 billion shelf calling for the issuance of floating rate senior notes from its SMS Student Loan Trust. The bonds will be divided into two "A-class" tranches.

Also, Union Financial Services has filed a $1.5 billion shelf which the company will start issuing from when market conditions warrant, according to a source close to the company.

Moreover, expect Nissan to come back to the ABS market after a brief respite due to lagging car sales. New model sales have climbed significantly, said a source, and the auto maker could pull the trigger "anytime" the market appears palatable. - SK