ABS investors show resistance to falling yields

Fri Mar 8, 2013 11:32am EST

NEW YORK, March 8 (IFR) - ABS investors are finally showing resistance to a falling yield environment after a year of relentless buying of paper that is now trading near record lows.

At least two deals faced pushback this week from investors who refused to participate if they were not paid the yield they demanded. That meant the deals, though successfully placed, were not as oversubscribed as recent deals that securitised the same asset class.

A US$250m trade from CLI Funding through its Seacube Container vehicle that securitised a pool of cash flows from the sale and lease of containers was only 1.5 times covered. Previous offerings of such collateral were at least three times oversubscribed.

Market sources said some investors bailed out of the transaction because the issuer was looking to price it at a yield way below their expectations.

Seacube priced Single A-rated Class A notes with a weighted average life of 5 years with a yield of 2.85%, only the second time ever a container lease ABS has dipped below 3%. The investors who did not participate wanted a yield of 3%.

In February, a TAL Advantage V 2013-1 container lease offering also printed with a yield of 2.85%.

Auto lender Santander, which along with AmeriCredit is one of most prolific issuers in subprime auto ABS, was not spared either.

One of the tranches on Santander's US$1.27bn 2013-2 Series this week, a Triple B-rated 4.13-year slice, was initially heard to offer whisper levels of interpolated swaps plus mid 100s area before official guidance was released at 165bp area and final pricing was set at 185bp.

As a comparable, the 4.06-year Triple B rated piece from a previous offering by the issuer in January was priced 25bp tighter at interpolated swaps plus 160bp.

The 2.79-year Double A and 3.50-year Single A tranches were printed at interpolated swaps plus 85bp and 135bp compared to 70bp and 120bp in the prior series.

The resistance to some deals is not all that surprising, according to some market participants, and is way overdue given the price levels that have been achieved over the past few months. Secondary levels of ABS were already reflecting an end to the falling yield cycle, said bankers.

ABS investors were also taking a slower and more deliberate approach to new issues this week and were trying to get a little more spread before issuers could price up their deals.

Some on the buyside decided to sit on cash and wait for higher yielding transactions before deploying more capital.

"Investors are anticipating a busy March pipeline and expecting more attractive investment opportunities, including more non-flow ABS transactions offering an incremental yield pickup," said Jay Steiner, head of banking and origination, structured credit in the Americas at Deutsche Bank.

A lot of investor attention was diverted by this week's US$1.8bn American Tower Trust senior secured revenue securities 2013-1/2. The transaction represented the largest non-consumer Triple A rated ABS offering post-crisis, and is the only Triple-A rated secured tower transaction in the market.

American Tower refinanced its US$1.75bn Series 2007-1 Securities (6.97 years tenor, 5.608% blended coupon) with a two tranche new issue at a blended coupon of 2.825% and weighted average life of 8.6 years.

The two slices offered tenors of five and ten-years and were priced at Treasuries plus 75bp and 115bp. Both tranches were multiple times oversubscribed with more than 85 unique investors from both the structured and corporate side participating.

While the issuer has issued corporate bonds in the past, bankers said American Tower saved approximately 80bp by using the ABS space as opposed to unsecured funding.

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