Issuance Of Non-TALF Consumer Loan-Backed Deals Growing
15 April 2009 - 3:51AM
Dow Jones News
There is a steady growth in the issuance of consumer loan-backed
bond deals that are not eligible for funding under the Federal
Reserve's program to revive this market.
About $9 billion in deals with collateral ranging from student
and auto loans to agricultural-equipment loans have come to market
since the beginning of the year, according to Informa Global
Markets, an information provider for such bonds. This includes a
$946 million auto loan issue that is due to be sold on
Wednesday.
This is less than nearly $12 billion in asset-backed securities
deals sold that were eligible for funding under the central bank's
Term Asset-Backed Securities Loan Facility, or TALF, which has had
a slow start. That said, it is a sign that investors are warming up
to this corner of the credit market which went into hibernation
once the credit crunch erupted.
"Investors see safe returns in ABS," said Michael Wade, head of
asset securitization origination at Barclays Capital in New York.
The bank has been an underwriter for five of the eight non-TALF
deals that have emerged since the beginning of this year.
The bulk of the deals sold have been those backed by auto and
student loans, including three non-TALF eligible ones from SLM
Corp. (SLM), better known as Sallie Mae.
Investors are drawn to these bonds because of their relative
stability when contrasted with subprime loan-backed deals and the
much-maligned collateralized debt obligations, he said.
Defaults and downgrades on bonds backed by auto and credit-card
loans have not been as swift or as dramatic, Wade pointed out.
Even though risk premiums are much wider on the current crop of
deals compared with similar bonds sold two years ago, given that
yields on Treasurys are at all-time lows, asset-backed securities
are seen as an attractive investment, Wade said.
He said an older Honda auto loan-backed deal sold flat to swaps
but the one-year portion on a deal sold earlier this year was
priced at 175 basis points over swaps.
There is "pent-up demand" for new asset-backed securities "with
or without TALF," said Chris DeReza, a researcher and manager at
Informa Global.
Issuance of consumer loan-backed deals will pick up in the weeks
ahead, regardless of whether they are eligible for the Fed's
program, market participants say.
While hedge funds are the main buyers of TALF-eligible deals,
the non-TALF deals are being bought by "real money investors" who
are not mandated to use leverage, DeReza said. These include
insurance companies, pension funds, some banks and money
managers.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371;
anusha.shrivastava@dowjones.com