HEL Issue Finds Tights; Softening, New Issues Continue
August 2, 1999
Last week, a continued flow of new issues churned through the pipeline as the asset-backed securities river brought a steady wave of heavy volume to the market.
The current looked as if it tapered a bit at midweek though, enough to allow a top-tier home equity deal to price within guidance - an anomaly of late.
The trend was short-lived, however. Other home-equity players priced upwards of 10 basis points wider than premarketing pricing levels, and the brief respite in supply plus a nudge from firming swap spreads stopped affecting ABS spreads as soon as the volume came back. After that, the cheapening of bonds resumed.
The marquee deal of the week was Equicredit. The home equity issuer priced a $1 billion offering the same day of launch early last week, with all tranches pricing within premarketing levels.
The timing was perfect for the issuer. Virtually no one else was in the market at the time the company was selling the deal, assuring little competition. Further, until Equicredit's pricing, more than 80% of the deals offered in recent weeks were from either the credit-card, auto or equipment sector, which meant the diversity offered by the HEL issuer sparked even more interest.
The deal also contained floating-rate bonds, another anomaly of late, as about 95% of the asset-backed bonds issued in the last few weeks have been from the fixed-rate side.
The two-year and the five-year fixed-rate classes sold for 110 basis points and 145 basis points over the curve, respectively, and the 2.6-year floating-rate class priced at one-month Libor plus 31 basis points.
But Equicredit's success was not shared by other HEL issuers making an appearance last week. Saxon Mortgage's offering was forced to widen by as much as 10 basis points to sell its six-year class of triple-A rated bonds. The securities priced at 155 over the curve. Aames priced its home equity deal to similar spread levels. At press time, a third issuer, Bayview, was marketing a $500 million, entirely floating-rate home equity loan transaction.
CDOs Get A Nod From Fitch
Meanwhile, with more than 10 collateralized debt obligations in various stages of the new issue pipeline, and volume predicted to pierce the $5 billion mark, the CDO sector looks as hot as ever.
Fitch IBCA issued a report at week's end, calling for investors to put their smart money to work in the money-market classes of collateralized bond, loan and debt obligations. The report said that yields in money market CDOs are higher than traditional money-market investments, and that buying the bonds can offer diversification with indirect exposure to an array of high-yield, bank-loan, asset-backed and mortgage-backed securities.
The report said that the notes have priced at yields five basis points to 55 basis points above Libor, depending on the subordination in the structure and the credit quality of the issuer. Some of the names currently in the pipeline include Stein Roe, Highland Capital, Conning, Sterling, Fortress, Mass Mutual, and Citicorp Ventures. - SK