By Jody Shenn March 3 (Bloomberg) — CIT Group Inc. , the commercial lender that emerged from bankruptcy, and SLM Corp. , the student lender, are leading the most asset-backed bond sales in six months under an expiring U.S. program that helped unlock credit markets. CIT is selling $667 million of bonds backed by equipment leases this week, its first since exiting Chapter 11 in December, said a person familiar with the offering who declined to be identified because terms aren’t public. SLM, known as Sallie Mae, is selling $1.55 billion of securities backed by loans without government guarantees, another person said. Total sales this week may reach almost $7 billion. The Federal Reserve’s Term Asset-Backed Securities Loan Facility, which provides low-cost loans to bond buyers, helped spur $178 billion of issuance last year, according to Bank of America Merrill Lynch. Infrequent issuers or those selling “unusual” debt are unsure if they’ll get yields as low relative to benchmark rates after the program ends tomorrow for non-mortgage debt, said Reed Auerbach of law firm Bingham McCutchen LLP. “People are taking advantage of the final round because there is some uncertainty as to how the markets will react when TALF goes away,” said Auerbach, chairman of the structured transactions group in New York at Bingham, the top lawyer for asset- and mortgage-backed bond underwriters last year based on the number of transactions. Elsewhere in credit markets, the extra yield investors demand to own company bonds instead of government debt yesterday fell 2 basis points to 166 basis points, or 1.66 percentage point, according to Bank of America Merrill Lynch’s Global Broad Market Corporate index. Average yields were 4.04 percent. HCA, Kexim HCA Inc. , taken private in a leveraged buyout in November 2006, sold $1.4 billion of notes due in 2020, 40 percent more than planned, according to data compiled by Bloomberg. The Nashville, Tennessee-based hospital chain tapped the corporate bond market for the fourth time since February 2009 to repay a portion of its $25.7 billion of long-term debt. Issuers sold $9.25 billion of bonds in the U.S. corporate market yesterday, the most since Feb. 4 when volume reached $18.85 billion including $9.5 billion from Kraft Foods Inc. and $8 billion from Warren Buffett ’s Berkshire Hathaway Inc., Bloomberg data show. Export-Import Bank of Korea, the state-run lender known as Kexim, sold $1 billion of notes due in September 2015, Bloomberg data show. The Seoul-based lender’s notes priced to yield 195 basis points more than similar-maturity Treasuries, 5 basis points narrower than planned. AIG Default Risk The cost to protect against a default by American International Group Inc. declined to the lowest since before the company’s government bailout after a $35.5 billion sale of an Asian insurance unit bolstered creditor optimism. Credit-default swaps on New York-based AIG fell 45 basis points to a mid-price of 405 basis points yesterday, according to broker Phoenix Partners Group. The contracts, which typically decline as perceived creditworthiness improves, were trading at the lowest since Sept. 3, 2008, after dropping 146 basis points this week, CMA DataVision prices show. The Markit CDX North America Investment Grade Index, a benchmark that investors use to hedge against losses on corporate debt, rose 1.25 basis point to 89.7 basis points, according to CMA. European corporate credit risk, as measured by the Markit iTraxx Europe index of credit-default swaps on 125 investment- grade companies, fell 1.5 basis point to 81.75 basis points, the lowest since Feb. 3, according to JPMorgan Chase & Co. prices. Deadline Tomorrow Credit-default swaps linked to Greek government bonds fell 24.5 basis points to 320, the lowest since Jan. 19, according to CMA. The Greek government will announce as much as 4.8 billion euros ($6.5 billion) of additional deficit cuts today, bowing to pressure from the European Union and investors to do more to tame the region’s biggest shortfall, a person familiar with the plan said. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent. A basis point equals $1,000 a year on a contract protecting $10 million of debt. The last monthly deadline to obtain TALF funding for non- mortgage securities is March 4, as the Fed seeks to unwind the unprecedented aid to markets that the central bank used amid the worst financial crisis since the Great Depression. The Fed began TALF in March 2009 to revive the market for bonds tied to consumer and small-business loans. Sales of the debt plummeted 42 percent in 2008, choking off funding to lenders, according to Bloomberg data. TALF provides low-cost Fed loans toward the purchase of top-rated securities. It lets buyers boost returns with borrowed cash and provides issuers with lower funding costs. ‘Low-Rate Environment’ The $4.8 billion of eligible debt sold in the first two months of this year also included less-common securities such as those backed by lending to auto dealerships, subprime auto loans and mortgage-servicing payments. Yield spreads on more-traditional asset-backed securities such as credit-card or auto-loan bonds are less likely to widen, said John McElravey , an analyst at Wells Fargo Securities in Charlotte, North Carolina. Spreads on less popular bonds won’t grow much as investors seek extra yield in a “low-rate environment,” he said. Issuers including Chrysler Financial Corp. , which sold $2 billion of auto-lease bonds, are offering classes rated below AAA after a slower thawing of demand for junior-ranked debt, he said. “The spreads could widen out, but if that happens I think you would see investors get back into those sectors and those names at the wider spreads,” McElravey said. CIT, Sallie Mae Top-rated bonds backed by auto loans are yielding about 0.59 percentage point more than Treasuries compared with 5.7 percentage points a year ago, according to Bank of America Merrill Lynch index data. New York-based CIT is seeking yields 1.40 percentage point more than the benchmark euro-dollar synthetic forward rate on a portion of its AAA rated bonds, a person familiar with the offering said. The company said March 1 it expects to report a loss of about $900 million for the fourth quarter of 2009 and $4 billion for the year before the effects of its reorganization. Sallie Mae, which “faces uncertainty regarding the future of its business model due to legislation that could eliminate the company’s ability to originate federal student loans,” adjusted its private-loan practices to require that students make interest payments while still in school after delinquencies on older loans soared, Standard & Poor’s said in a Feb. 26 report. Mortgage Bonds Frozen Martha Holler , a spokeswoman for Reston, Virginia-based Sallie Mae, and Curt Ritter , a CIT spokesman, didn’t immediately return telephone calls seeking comment. Limited issuance in certain portions of the securitization market will add demand to those that have revived, McElravey said. Even amid a separate TALF program for new commercial- mortgage bonds that will run through June, only $3.04 billion of that debt was sold last year, down from a record $237 billion in 2007, Bloomberg data show. Sales of home-loan bonds without government-backed guarantees have been frozen for two years amid record defaults, after peaking at almost $1.2 trillion in both 2005 and 2006. The Fed has also held yield spreads on so-called agency mortgage securities near the lowest on record with its program to purchase $1.25 trillion of the debt, which also ends this month. Demand for traditional asset-backed securities is great enough that some offerings sell out in 30 minutes, leaving investors little time to scour the underlying loans and deal documents, said Jeffery A. Elswick of Frost Investment Advisors. “People are definitely moving in the direction of being more complacent than we’d like to see,” said Elswick, the director of fixed income at the San Antonio, Texas-based asset manager, which oversees $6.5 billion. To contact the reporter on this story: Jody Shenn in New York at jshenn@bloomberg.net
Read this article:
End of TALF Spawns $7 Billion ABS Sales Led by CIT, Sallie: Credit Markets
