Investors chase window of opportunity in auto-loan bonds

By Charles Williams

NEW YORK, July 26 (IFR) - Investors aggressively bid on a fresh supply of asset-backed securities (ABS) this week, hoping to take advantage of slightly juicier spreads before they inevitably tighten again.

Nearly US$7bn in bonds backed by assets including auto-loan payments, structured settlements, and electric-utility charges were marketed this week. With a slate of well-established issuers returning to the market and yields at higher levels than earlier this year, underwriters had little trouble filling out the order books.

Auto deals, the mainstay of the ABS market, attracted the most interest.

Demand was so strong, in fact, that Ford, a frequent and popular auto ABS issuer, was able to fast-track its US$1.342bn prime auto-loan deal, basically dictating to investors the range at which the deal was expected to price.

"Once again the issuer continued its strategy that some in the market refer to as the 'Ford syndicate approach', in which it skipped price 'whisper' talk and announced the deal with official price guidance," said a senior ABS banker with knowledge of the deal.

"The strategy tells investors they should prioritize their work on the deal and lets them know right away where the trade should expect to price."

Once a tranche becomes one-time subscribed, Ford offers a so-called "subject" warning, which means it's ready to price. The Triple A classes of the FORDO 2013-C transaction were about 1.5 times oversubscribed.

About 90 investor orders took part in the deal, consistent with Ford's prior two transactions this year. Orders were said to be in the US$30m to US$40m-size range from investors, as opposed to larger US$100+m requests.

According to a market participant with knowledge of the deal, the trade probably could have "tested through guidance levels", or priced slightly tighter, but Ford, which taps the market frequently, wanted to get the deal done quickly.

In fact, every transaction that printed this week was priced within or tighter than its price guidance levels, meaning that there was very strong demand for the paper.

While next week could be a bit of a letdown following this week's US$6.9bn total, the next few weeks leading up to Labor Day should see a steady pipeline with a blend of both large and small-scale ABS issuers, according to securitization insiders.

BETTING ON SPREAD

Three prime auto issuers, including two names that already tapped the market in 2013, priced new deals this week for a total of US$3.7bn.

Spread levels were wider than their previous offerings in 2013, which enticed more investors to participate, although Deutsche Bank ABS analysts said spreads are eventually expected to tighten.

The Triple A slices of Ford's current deal offered tenors of 1.05, 2.25 and 3.38-years and were talked at EDSF plus 20bp-22bp, interpolated swaps plus 27bp-29bp and interpolated swaps plus 35bp-37bp. Final pricing was set on the tight end of the ranges at 20bp, 27bp and 35bp, respectively, but were still 12bp, 11bp and 18bp wider than the company's 2013-B transaction that priced back in mid-May.

The Triple A weighted average spread was 25bp for the current transaction compared to 13bp in Ford's last deal.

The 3.88-year AA+/AA (S&P/Fitch), 3.96-year AA/A and 3.96-year A/BBB notes were priced at interpolated swaps plus 60bp, 80bp and 140bp. The subordinate bonds were the first to get sold and were said to be up to five times oversubscribed. The weighted average spread through the Triple B notes was 35bp with a weighted average yield of 1%.

The subs in the 2013-B series were printed 20bp-30bp tighter at 40bp, 60bp and 110bp.

Deutsche Bank, Morgan Stanley and RBC were the joint leads on the Ford 2013-C offering.

Nissan returned this week with its second prime offering of the year, the US$1.4bn Nissan Auto Receivables 2013-B Owner Trust (NAROT) 2013-B.

Pricing levels were tighter than Ford's deal at EDSF plus 16bp, interpolated swaps plus 25bp and interpolated swaps plus 30bp for the Triple A tranches. Subscription levels across the deal were said to be two-to-four times oversubscribed.

It was also heard that an investor account had made an initial bid to purchase an entire tranche.

JP Morgan (structuring lead), Citigroup and Societe Generale were the joint leads. Investor demand increased the deal from an initial size of US$1bn.

The Triple A notes in Nissan's last deal, January's NAROT 2013-A series, were priced at EDSF plus 6bp, interpolated swaps plus 10bp and interpolated swaps plus 16bp.

Lastly, Mercedes made its 2013 debut this week with its US$975m Mercedes-Benz Auto Receivables Trust 2013-1. It was the issuer's fifth prime securitization since its debut offering in 2009.

The 1.03 and 2.16-year Triple A classes were priced similar to Nissan at EDSF plus 16bp and interpolated swaps plus 25bp. The 3.16-year class stamped 2bp wider at interpolated swaps plus 32bp.

RBS (structuring lead), Bank of America and RBC were the joint leads.

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