Higher-yielding CMBS, CLOs take spotlight off US ABS deals

Fri Jan 25, 2013 2:06pm EST

NEW YORK, Jan 25 (IFR) - The US asset-backed securities (ABS) market took a back seat this week to better-yielding commercial mortgage-backed securities (CMBS) and collateralized loan obligations (CLOs), as investors continue to search for returns in an ultra-low rate environment.

Investors were treated to a host of CMBS deals, including a US$2.52bn transaction from hotel chain Extended Stay, the largest CMBS deal since the credit crisis.

The size of the deal helped take the spotlight off ABS, and caused some prime auto deals to take longer to close than usual.

"The big surprise this week was how focused investors were on yield," said one ABS banker.

The two top triple A rated tranches on the Extended Stay deal with average lives of 1.81 years were shown with guidance of one-month Libor plus 90 basis points (bp) area and 80bp area respectively. Both tranches tightened by 10bp at pricing to 80bp and 70bp, respectively.

In the CLO market, Wells Fargo priced a more than US$516m Octagon Investment Partners XV deal that included a 5.87-year triple A tranche paying a spread of Libor plus 129bp.

Those prices are well above the current meager spreads on primary prime auto receivables-backed ABS. At least six other CLOs priced during the week and investors displayed price sensitivity to more conventional ABS deals.

Hyundai, for example, had to work hard to garner attention for its first appearance in the US ABS market in 2013 through Citigroup (structuring lead), Barclays, HSBC and RBC.

The auto-maker priced a US$1.488bn Hyundai Auto Receivables Trust 2013-A (HART 2013-A) transaction that took longer than usual to get completed.

"Both the Honda deal last week and the Hyundai deal this week achieved the levels and the size they were looking for but it just took more time (than it had over the last nine months) to get investors to pay attention to the ABS deals when they are buying higher yielding assets in the same week," said a senior banker.

In the latest Hyundai deal, the triple A slices consisted of average lives of 1.15, 2.35 and 3.52-years, respectively. Pricing spreads were set in line with guidance at EDSF plus 8bp, interpolated swaps plus 13bp and interpolated swaps plus 16bp.

The transaction was however increased in size from an initial US$1.313bn.

The last offering from the issuer was the US$1.5bn HART 2012-C series, which priced on October 10 2012. The triple A notes offered similar tenors and were stamped at EDSF plus 7bp, interpolated swaps plus 12bp and interpolated swaps plus 20bp -- indicating pricing has ticked up slightly.

Meanwhile, JP Morgan (structuring lead) and RBC priced the first credit card transaction from the Capital One Multi-Asset Execution Trust (COMET) since June 2009.

The US$750m COMET 2013-A1 consisted of a triple A rated (S&P/Fitch) 2.96-year tranche, which priced in line with guidance at interpolated swaps plus 15bp.

The COMET 2009-A2 series consisted of a triple A rated 1.997-year slice that printed at EDSF plus 150bp.

"The class A (2013-1) notes' structure has not changed from that of the previous class A (2009-2) notes issued out of this trust," said an S&P report on the deal.

Barclays was the sole lead on the 144a/Reg S US$300m Nationstar Agency Advance Funding Trust Advance Receivables Backed Notes, Series 2013-T1 & 2013-T2.

The collateral consisted of servicer advance receivables made on Freddie Mac-backed US residential mortgage loans. S&P was the sole agency to rate the deal.

The credit enhancement included over-collateralization, a reserve fund and the discount factor used to determine the price paid for the receivables.

The triple A rated 2.04-year slice in the 2013-T1 series was priced with a yield of 1%, a coupon of 0.997% and a dollar price of US$99.99811. The 2.04-year double A tranche printed with a yield of 1.25%, a coupon of 1.246% and a dollar price of US$99.99843.

The triple A rated 5.04-year class from the 2013-T2 series was priced at a yield of 1.90%, a coupon of 1.892% and a price of US$99.99740. The double A piece printed with a yield of 2.50%, a coupon of 2.487% and price of US$99.99947.

Citigroup also priced the US$437.5m 144A/Reg S Nelnet (NSLT) 2013-1 FFELP student loan transaction. The triple A rated 6.56-year slice was priced at par with a coupon and pricing spread of one-month Libor plus 60bp. The 15.24-year single A plus tranche was priced with a coupon of one-month Libor plus 150bp, a discount margin of one-month Libor plus 280bp and US$83.951954.

Broadly it was a slow issuance week with only US$3bn issued versus US$10bn in the previous week.

Next week's volume could drop off even more, at least in the first half, as most market professionals will be in Las Vegas for the key industry event of the year, the American Securitization Forum 2013.

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