Buyers drive ABS funding costs up for Navistar,Nissan

By Nancy Leinfuss

NEW YORK, May 21 – U.S. asset-backed debt issuers sold $3.5
billion of securities at more costly funding levels this week
as wary buyers demanded more spread premium to hedge potential
spillover effects from Europe’s debt crisis.

Limited supply and plenty of demand largely have benefited
ABS issuers this year, allowing securitizers of consumer debt
to test tighter spread levels continually with every pricing
through last week.

While the ABS market had remained largely unscathed by
broader market volatility that enveloped the U.S. stock,
corporate debt and financial markets around the world,
new-issue spreads finally succumbed to pressure this week.

“The ABS market was operating within its own bubble, while
sovereign debt, high-yield and other markets weakened. ABS had
held in but that rubber band can only stretch so far,” said one
ABS portfolio manager. “Navistar, Nissan new-issue spreads are
showing investors are more risk averse,” the manager said.

Most recently, Navistar Financial Owner Trust’s sale,
dubbed “NAVOT 2010-A,” on Friday priced at wider-than-expected
spread levels as nervousness among investors grew.

The deal’s shortest tranche, a P1-rated 0.31-year note
issue priced at spread guidance of 7 basis points over Libor.
However, buyers required additional spread premium for its
longer-dated tranches.

“A lot of investors are sitting on cash and are looking for
shorter, safe places to put it. If they go further out, they
are going to look for more yield in longer classes,” said
William Bemis, portfolio manager at Aviva Investors.

Navistar’s AAA-rated one-year notes priced at a wider
spread of 60 basis points over Eurodollar swap futures,
compared with initial guidance of 50 basis points, while its
$217.9 million of AAA-rated 1.89-year notes were sold at a
wider 85 basis points over Eurodollar swap futures, versus
guidance of 70 basis points, sources said.

The sale, backed by retail truck, bus and trailer loans,
was marketed to investors by Credit Suisse, Deutsche Bank
Securities, JPMorgan Securities and RBC, market sources said.

Prior to that, Nissan Auto Lease Trust’s $750 million auto
ABS deal came at wider-than-expected spread levels as concerns
over Europe’s debt woes and volatile stocks heightened.

Its AAA-rated 0.9-year notes were priced at a spread of 35
basis points, versus guidance of 25 basis points over
Eurodollar swap futures, while its AAA-rated 1.64-year notes
priced at a wider spread of 40 basis points, compared with
initial guidance of 30 basis points over Eurodollar swap
futures, market sources said. JPMorgan Securities, Citigroup
and Deutsche Bank were lead underwriters for Nissan’s sale.

In yet another example, a $1 billion auto securitization
from Santander Drive Auto Receivables Trust dubbed “SDART
10-1,” priced on the wider end of initial price talk, market
sources said. Credit Suisse, Wells Fargo Securities and
Santander were underwriters for the deal.

ABS issuers have sold $53 billion of supply this year, with
auto issuers comprising nearly 50 percent of the sales.
Issuance to-date remains above the $38 billion of securities
sold during the same period in 2009.

The weakness spilled over into the secondary ABS market,
where existing securities trade, traders and investors said.

“Spreads are wider by 10 to 15 basis points this week
depending on the bid or offered side,” said an ABS trader.
Stock Trading

(Editing by Dan Grebler)

Buyers drive ABS funding costs up for Navistar,Nissan