Ford $5.3 bln deal fueled by demand

NEW YORK (Reuters) - The rapid sale of Ford Motor Credit's $5.3 billion auto ABS deal on Friday signaled a turning point in demand for U.S. asset-backed securities after a first quarter nearly devoid of supply.

The sudden emergence and quick sale of the deal on Friday left some investors completely stunned and empty-handed.

"The deal came out subject (pre-sold) so there was really nothing left to sell. The entire deal was done, then they told the rest of the world," said Mike Kagawa, portfolio manager at Payden & Rygel, in Los Angeles.

The largest ABS sale of the year was driven by large institutional investors who expressed interest in a Ford deal of that size. "The deal was driven by reverse inquiry," said another investor.

Ford's "AAA"-rated one-year issue priced at 90 basis points over one-month Libor, its two-year notes came at 142 basis points over one-month Libor while its three-year tranche priced at 175 over one-month Libor, dealers said.

Prior to Ford's sale, auto ABS issuers had priced $15.6 billion in supply in the year-to-date period, a drop of 25.4 percent from the previous year's $21 billion. However, over recent weeks, demand for less-risky ABS securities, namely auto and credit cards, has grown.

"The auto ABS market continues to show signs of improvement with more new issue volume, greater investor acceptance, and tighter pricing spreads," said Glenn Schultz, analyst at Wachovia Securities. "Our expectation is that there is substantial pent-up supply, particularly from subprime lenders, that could be issued once the market recovers more fully."

The recent change in sentiment followed several measures by the Federal Reserve to bolster liquidity in the credit markets after a lengthy series of interest rate cuts.

The ABS market fuels demand for consumer debt, giving consumers access to credit for autos and personal spending. Even a slight opening in the structured debt markets is a boon for companies that rely on the ABS market for financing.

GMAC, for example, sold $1.56 billion of auto ABS into strong demand last week.

The added liquidity should help lower funding costs and narrow spreads further, analysts said.

Investors easily digested another $4.5 billion of non-mortgage ABS deals over recent days bringing total supply for the week to nearly $10 billion, dealers said.

Credit Card ABS, at $38.4 billion, is down just 1.5 percent from the year ago period.