Investor Demand Drives Issuance Of TALF-Eligible Deals
05 Mai 2009 - 11:10PM
Dow Jones News
Investors want consumer loan-backed deals.
Issuance of such deals shot up to $13.55 billion this week in a
clear sign that the Federal Reserve's program to kickstart the
asset-backed securities market is on its way to success despite
initial hiccups.
Clustered around the central bank's third loan application
deadline Tuesday for its Term Asset-Backed Securities Loan
Facility, or TALF, issuers with credit card, student, equipment and
auto loans tapped the market, often because investors told
underwriters they wanted the offerings, according to market
participants.
Issuers in three of the deals increased the size of their
offerings from initial estimates and most sold with tighter risk
premiums than expected.
Hedge funds and money managers have been among those buying
TALF-eligible debt in recent days.
"The issuance, the upsizing and the tightening of spreads should
prove beyond a doubt that TALF is working and as long as the well
does not run dry, investors will come," said Dan Nigro, an
asset-backed securities portfolio manager at Dynamic Credit
Partners in New York, which has $5 billion of assets under
management.
Solid demand allowed JP Morgan & Chase Co. (JPM) to sell a
$5 billion credit card loan-backed deal in one day - an usually
short period of time for such securitizations. The triple-A bonds
sold at 155 basis points over the one-month London interbank
offered rate. That's nearly a full percentage point below the
average for credit card-backed bonds at the end of April, according
to data from Barclays Capital.
On Tuesday, Volkswagen AG (VLKAY), Honda Motor Co. (HMC) and CNH
Global NV (CNH) increased the size of their deals and sold at
tighter-than-expected risk premiums.
"TALF provided some points to base pricing on," said Gyan Sinha,
a partner at hedge fund KLS Diversified Asset Management, which
bought TALF-eligible bonds last month and has applied for loans to
buy more this month.
Investors had given a lukewarm welcome to TALF when it was
launched in March, citing concerns over tedious documentation and
the possibility of legislative meddling. The magnet of nonrecourse
loans - which leave the central bank, not investors, on the hook
for the bulk of potential losses - has clearly contributed toward
getting over some of these issues.
This funding period is a "solid step forward," said Chris
DeReza, a researcher and manager at Informa Global, adding the
expectation now is for June to be "an even bigger month."
Though the ultimate goal of the program is to lower lending
rates for consumers, it will take some time before that is
accomplished, market participants pointed out.
That said, the cost of debt is already going down, Sinha
remarked, noting mortgage rates fell after the Treasury swooped in
to support that market.
In the asset-backed market, too, "lenders will eventually pass
on the benefits to consumers," he said.
-By Anusha Shrivastava, Dow Jones Newswires; 201-938-2371;
anusha.shrivastava@dowjones.com