ABS Issuers Forced To Offer Wider Spreads To Entice Buyers
Prominent structured finance issuers including Ameriquest Mortgage Co., New Century Financial and Countrywide Financial were all forced to concede to yield-hungry investors last week and offer wider spreads to complete transactions.
Prominent structured finance issuers including Ameriquest Mortgage Co., New Century Financial and Countrywide Financial were all forced to concede to yield-hungry investors last week and offer wider spreads to complete transactions. The restructurings occurred amid the busiest week of the year in the asset-backed market, with up to $15 billion in securities on the table as issuers sought to secure funding ahead of quarter-end and a Federal Reserve decision on rates that is expected to increase base levels. Interestingly, issuers encountered trouble placing the senior classes of their offerings, while the harder-to-sell mezzanine and subordinate bonds benefited from a strong bid from collateralized debt obligation buyers. "A lot of senior investors don't have to invest right now and they tend to want to wait unless they are getting paid something" ahead of a change in rates, said Ketan Parekh, director in capital markets at Ameriquest, adding, "we had to entice them to come in."
Though deals were priced only marginally wider than where they were marketed, asset-backed investors said the shift is significant because it hints that issuers will face higher costs going forward--even for the most-senior classes. "Triple-As are where they were having trouble, they need to make them more appealing," said Zeid Ayer, senior research analyst at Principal Global Investors in Des Moines, Iowa. It has $2 billion in ABS but did not participate in any deals last week.
In addition to rate concerns, the sheer volume of paper in the market last week allowed investors to demand more, according to a senior official involved in the Countrywide deal. "I guess customers felt they could extract some value; with that being said we still cleared a $4.5 billion deal," he noted.
Erin Freeman, spokeswoman for New Century, declined comment on its transaction, citing a quiet period the company is in as part of its conversion to a real estate investment trust.