Amex, Ford Hawking Retained Junior Bonds
American Express and Ford are shopping junior bonds they had to retain to facilitate securitizations conducted amid the global financial crisis, and other issuers are following suit.
Until recently, subordinate paper was selling at such steep discounts to face value that it made no sense for issuers to sell retained inventories. Now, as investors become less risk-averse, the bid for junior bonds is on the rise - drawing Amex, Ford and others into the market.
This week, for example, Amex circulated mezzanine notes from three credit-card securitizations: American Express Credit Account Master Trust, 2008-5, 2008-7 and 2008-9. The securities have a combined face value of $117.2 million.
Ford, meanwhile, has been hawking subordinate bonds from auto-loan deals that priced last year.
The efforts reflect a situation that arose as market conditions tanked in 2008 and 2009, rendering issuers of asset-backed securities able to sell only the senior-most portions of their deals at economical yields. To ensure continued access to the market, many kept the subordinate pieces of new transactions. Some also retained junior classes of offerings conducted under the Federal Reserve's now-expired Term Asset-Backed Securities Loan Facility, which offered government financing only to senior buyers.
With asset-backed bond values now higher, thanks in part to the stimulating effects of TALF, issuers that have been sitting on retained bonds are starting to see opportunities to exit those positions and raise cash. "The mezz market is definitely back," one market player said.
However, it's unclear how much of the Amex and Ford paper has changed hands. And one investor said the differential between the prices offered by buysiders and those requested by issuers remains fairly wide.
Another investor noted that buyers are primarily interested in junior notes from mainstream issuers. Subs from less-frequent players are finding few bidders.
Still, demand for junior asset-backed bonds in general is clearly growing. In the past month, issuers including CIT Group, Chrysler Financial, Ford and Mitsubishi have found buyers for subordinate portions of new deals backed by equipment and auto-related credits - paper that would have been difficult to place until recently.
Avis Budget was also in on the act as it sold $578.5 million of bonds backed by rental-car cashflows through two deals on March 16. One issue included a $15.8 billion class of 3.2-year notes with triple-B ratings that priced at 400 bp over swaps, for a yield of 5.8%. The other saw $62.7 billion of triple-B-rated five-year paper go for 425 bp over swaps (see Initial Pricings on Page 6).