A variety of ABS deals over the past four weeks has seen “something for everyone”, according to a bank research desk, and investors appear to be well fed with recent new issue demand, leading spreads to soften as a result.
Deals yet to be priced are seeing investors demanding higher spreads, with noticeable widening between initial price talk and subsequent guidance – a bruising experience for syndicate desks who are expected to have their finger on the pulse, and dashing issuer expectations of favourable funding levels.
Three forces are at play, according to a London-based ABS trader.
“The ECB has been a bit quieter in its ABS purchases, investors are in a stronger position and are dictating terms to extract more spreads from deals and, lastly, issuers fear conditions may well be worse after summer and are keen to get their deals done rather than wait,” noted the trader.
Two deals in bookbuilding illustrate the trend.
Cartesian 3, the Dutch mortgage RMBS with roughly €306m of prime mortgages originated by Venn Hypotheken B.V., which was announced in late June, has seen revised price talk at wider levels from initial price talk for the triple-A down to triple-B tranches on offer.
Price talk announced on Monday at mid-high 30bp for the triple-A tranche, moved wider on Wednesday to 45bp area, which represents roughly 30bp pick-up to the larger Dutch RMBS issuers.
Widening was even more pronounced for lower rated tranches with guidance out roughly 20bp for the double-A tranche and by around 50bp for single-A and triple-B tranches.
Pricing is targeted for July 13.
Meanwhile, the £300m CMBS arranged by Bank of America Merrill Lynch is showing similar signs of optimistic initial price talk at odds with current market conditions.
The triple-A tranche talked at 80bp area is now wider with guidance of 98 to 100 basis points with the book now 1.4 times oversubscribed. The latest guidance shows spreads 20bp to 23bp wider than another sterling CMBS, Ribbon Finance 2018, which achieved a 78bp print for its triple-A bonds in late May.
The double-A tranche and single-A tranches are now 1.4 times and 1.8 times oversubscribed with spread guidance of 165bp and 205/210bp, respectively – significantly wider than initial price talk of low 100bp and mid-high 100bp.
The triple-B and double-B tranches are better bid with the books at 2.7 times and 2 times subscribed respectively but spread guidance has widened from low 200bp to 250bp for the triple-B tranche. The double-B spread guidance is between 340 to 350 basis points.
“Primary spread levels have not settled yet and every new deal that prints at wider levels sets a new benchmark for investors”, noted the trader.
One outlier, however, is the Mercedes-Benz auto ABS, Silver Arrow Compartment 9 – which attracted decent interest.
Investors resisted earlier price guidance of 1bp tighter and the €750.5m class ‘A’ printed at 14bp over one month Libor. The book was 1.5 times subscribed. Generic auto triple-A spreads are around 14bp and the sector has only widened about 3bp since the start of the year compared to roughly 10bp widening seen in for triple-A CLOs and non-conforming UK RMBS and euro CMBS.
New RMBS mandate
The Northview Group has mandated Citi as arranger, joined by BNP Paribas as a joint lead, for Gemgarto 2018-1 – a UK prime owner-occupied RMBS, according to an announcement on Thursday.
The announcement was followed quickly by details of the capital structure and the minimum size of the deal, which is set at £250m but which may be increased to a maximum of £300m.
The four year revolving deal, rated by Moody’s and DBRS, has tranches on offer including classes ‘A’ to ‘D’ – with ratings of triple-A down to Baa3. Class ‘E’ and ‘X’ investors are advised to ‘call desk’ and class ‘F’ and ‘Z’ are to be retained.
The Northview Group is jointly owned by Blackstone and TPG and has €5.6bn in mortgage assets at the end of March. The group has accessed the RMBS market 12 times since 2015 issuing £7.1bn of public bonds. The group has two issuing platforms, Gemgarto and Finsbury Square.
Investor calls are available on request.
PGIM sterling CLO update
An update was available on Wednesday for PGIM’s sterling CLO, Dryden 63 GBP CLO 2018, following the initial deal announcement in late May.
The equity has been preplaced and classes ‘A’ to ‘D’ are offered with ratings from Moody’s and S&P. Classes ‘E’ and ‘F’ investors are advised to ‘call desk’ and the deal size has yet to be determined.
Demand for the triple-A tranche is inching forward and stands at 0.95 times subscribed. Meanwhile, initial price talk of 125bp area over three month Libor gives investors a pick-up of roughly 40bp to generic UK non-conforming RMBS.
Class ‘B’ to ‘D’ tranches, rated double-A to triple-B, are talked at low 200bp, 300bp area and 400bp area, respectively.
The CLO, with a two year non-call period and a four year reinvestment period, will invest in a combination of sterling and euro denominated, non-investment grade, senior secured corporate loans and bonds.
PGIM manages $717bn in assets including $19bn in bank loans and $47bn in high yield.
Classes ‘A’ to ‘D’ are available as fixed rate notes and pricing is expected for the week of July 16.