Asset Backed Sales Nearly $14 Billion Under TALF -Private Placement Offering

U.S. asset-backed spreads held steady in light volume on Tuesday as investors scooped up nearly $14 billion of new sales sold under the latest round of the Federal Reserve’s program to stimulate consumer lending.

Through its Term Asset-Backed Securities Loan Facility, known as TALF, the Fed makes loans to investors for the purchase of securities.

The program was designed to revive lending at the consumer level and reopen the securitization market, nearly shutdown by a credit crisis in 2008.

May’s deals were largely oversubscribed and in several cases increased in size to accommodate investor interest.

The robust demand allowed issuers to narrow spreads on deals and thereby, reduce their financing costs.

“The program is accomplishing its goal, which is to allow issuers to access the market at relatively attractive levels, which at the end of the day increases credit availability,” James Grady, portfolio manager at Deutsche Asset Management in New York, said on Tuesday.

Late in Tuesday’s session, a $2.59 billion private placement offering from student loan provider, Sallie Mae just made it in under the TALF subscription deadline, bringing total sales for May to $13.84 billion, market sources said.

Issuance totaled $3.2 billion in April, with investors requesting $1.7 billion in loans to purchase securities, while issuers sold $8.2 billion of deals and requested $4.7 billion of TALF funding in March, when the program was first launched.

Offerings in May included a wider variety of securities backed by credit cards, auto and motorcycle loans and equipment and Small Business Administration loans, dealers said.

“Pretty much everything was a blowout. Deals were priced significantly tighter,” said Ross Heller, managing director at CastleOak Securities, in New York.

May sales included a $1.5 billion Honda Auto deal, a $1.75 billion offering from Volkswagen [VLKAY 62.85 -1.00 (-1.57%) ] auto and a $500 million Harley-Davidson [HOG 19.24 -0.96 (-4.75%) ] deal backed by motorcycle loans.

“Both Volkswagen and Honda were upsized, and while Harley wasn’t, it certainly could have been because each of its three tranches were three to six times oversubscribed even after price talk was significantly tighter,” said Heller.

A $5 billion credit card ABS deal from Chase Issuance Trust was the largest offering under this month’s round of TALF and was said to be done largely by reverse inquiry and bought by two large investors, market sources said.

Chase, considered a good benchmark for the sector, sold 2.9 year AAA-rated securities priced at a spread of 155 basis points over Libor on Tuesday, sources said.

“It’s very interesting that the largest ABS deal from Chase was bought by investors at a 155 basis points spread, that’s 100 basis points less than where the market would have priced it,” said Nigro.

He referred to secondary market credit cards spreads on three-year notes which trade at 255 basis points.

“If you go back to yearend, three year credit cards were trading in the context of 550 basis points. If anybody needs any more proof that this is a successful program, they are deaf, dumb or blind,” said Nigro.

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