Securitization People and Markets

As spreads on Sears Roebuck bonds continue to widen, a buy-side analyst argues that the paper is still too rich. Since Sears gets roughly 60% of its earnings before interest and taxes (EBIT) from credit card debt, the buy-sider argues that it is really a finance company in disguise. The analyst says Sears should trade closer to the 300 range, with Household Finance. While the Sears 6.7% notes of '12 were 201 basis points over 10-year Treasuries, that was well inside of Household's 7.3% notes of '12, which were at 361.

FCE Bank, Ford Motor Co.'s European financing arm, is preparing its second securitization of auto loans this year. The size of the deal has not yet been finalized, but London-based bankers say Deutsche Bank and ABN Amro have been tapped as lead managers. Ford's last deal, which was priced in March, weighed in at E800 million. Officials at ABN and Deutsche Bank declined to comment. Asset-backed traders note there continues to be strong demand from investors for high-quality consumer paper. Consumer ABS spreads continue to tighten versus non-consumer paper and collateralized debt obligations, they add.

Greenwich Capital Markets has hired Debashis Bhattacharaya from Salomon Smith Barney to do prepayment modeling as well as to work with its collateralized mortgage obligation desk. Bhattacharaya was unavailable to comment. The slot is newly created and he will report to CMO desk chief Anilesh Ahuja, as well as mortgage-backed security head Doug Greenig. At Salomon Smith Barney, he was an adjustable-rate mortgage security analyst and reported to Lahkbir Hayre, head of quantitative fixed-income research, who did not return a phone call seeking comment.

Andy Aran, senior v.p. at Alliance Capital, has shifted from his role as head of credit research to become a portfolio manager in the firm's global bond group reporting to Doug Peebles. Aran trades places with Jack Kelley, who moves over to run credit research.

BNP Paribas has hired Jeff Gray to trade the short-end of the U.S. Treasury Curve. Gray was most recently at Deutsche Bank for several years, until he was released when the firm brought in John Santoro (BW, 8/11). He was not available to comment, and it could not be determined if the slot is new or if Gray is replacing someone. He will report to U.S. Treasury and agency trading desk chief, Zbignew Ryzak, who did not return a phone call seeking comment.

At least one independent analyst and one sell-side analyst argue that the recent sell-off in the bonds of Citigroup is overdone. Though some spread widening is justified, given the substantial legal risks the firm is facing from issues such as predatory lending, IPO allocations and analyst independence, bondholders should continue to add to positions, says Kathy Shanley, analyst at Gimme Credit, an independent research firm. Shanley argues that "the risk of a large legal settlement should be viewed within the perspective of a very large and diversified earnings base--especially by bondholders, who are less worried about growth in earnings per share."

David Ford, a senior analyst and portfolio manager with a background in high-yield bonds, has left Och-Ziff Capital Management and will join another New York-based hedge fund, Satellite Asset Management. Ford will be a partner at the firm. Ford declined comment, and Mark Sonnino, who founded Satellite three years ago with two colleagues from Soros Fund Management, did not return a call. A senior executive at Och-Ziff says the parting was amicable and the firm wishes Ford well. Ford has at least 10 years of experience investing in distressed and high-yield debt, according to the sell-side executive.

With only $5 billion of new deals it was quiet in the primary market in what essentially amounted to a shortened week to observe the first anniversary of the September 11 terrorist attacks. The improving risk appetite was evidenced however, with over $1 billion in high-yield deals which were successfully placed and the pipeline for forthcoming issuance continues to look robust. Deals came from Jefferson-Smurfit (B3/B-) for $700 million, and from Gray Television (B3/B-), for $100 million. Next week's slate includes a $250 million scheduled sale from meat packer Swift and Co., and a benchmark $1 billion sale for directory provider QwestDex (Ba3/B-). This augurs well for September issuance, which we estimate will approach the $25 billion level, a substantial recovery from the drought of July.

Wells Capital is making wholesale changes to its corporate bond portfolio that will include nearly quadrupling the number of credits in which it invests and taking quicker steps to sell out-of-favor issues. The abrupt change is an effort to limit the potential damage from any future individual credit blowups. The new strategy is being installed by Wells Capital's recently hired portfolio management team, which wants to prevent a recurrence of the poor performance that hurt their predecessors. At the same time, Graham Allen has resigned from his position as director of global fixed-income at the firm. Allen acknowledges that his responsibilities shifted earlier this year due to poor performance in the firm's core fixed-income portfolio. He says that he had a place at the firm, but decided that after 27 years in the business, it was time for a break. Plans to start his own mutual fund firm, to be called Oracle Investments, are already underway.