Asset-Backed Alert - IMN

April 12, 2013
Asset-Backed
6
ALERT
Alt-A Securities Setting the Pace
Hedge funds that started buying alternative-A mortgage
paper late last year knew what they were doing.
Turns out that bonds backed by alt-A adjustable-rate mortgages
have outperformed other types of home-loan securities
since the start of the year. According to an April 5 research
report from Bank of America, the values of alt-A bonds issued
from 2005 to 2007 are up at least 6% year to date — compared
to a 3.6% average gain for legacy jumbo-mortgage securities.
The top performers: alt-A bonds issued in 2006, which have
gained an average of 7.4% since Jan. 1.
Hedge funds and other buyside players turned their attention
to alt-A paper late in the fourth quarter as a nearly yearlong
rally in the market for jumbo-mortgage bonds appeared to
be losing steam. Among the shops thought to have been active
buyers at the time are Greg Lippmann’s LibreMax Capital and
BTG Pactual.
Trups CDO Offering Tests Market
Investors are salivating over an unusually large offering of
collateralized debt obligations backed by trust-preferred securities
that hit the secondary market this week.
The $200 million “BWIC” — for bids wanted in competition
— is made up of senior bonds from 16 transactions issued
prior to the financial crisis. Sources identified the seller as Commerce
Street Investment, a Dallas shop that appears to be liquidating
its entire inventory of so-called Trups CDOs. Bids are
due April 17.
The expectation is that the offering could establish a new
pricing benchmark for such securities, whose values plummeted
during the financial crisis. Some believe the notes will
change hands above 70 cents on the dollar, and possibly as high
as 80 cents, compared to a mere 30 cents four years ago.
“Prices are up 6% this year,” one trader said. “Everyone is
looking for this stuff, even though not a lot is coming out.”
Indeed, offerings of Trups CDOs have been sporadic, and a
$200 million batch is virtually unheard of. That largely reflects
the fact that no such deals have been issued since the financial
crisis, and an increasing number of transactions are in run-off
mode.
That’s one factor behind the price gains. Another is that deal
performance has been improving, after many of the regional
banks that issued Trups deferred payments to bondholders
during the credit crisis have resumed installments. In most
cases, payment deferrals are permitted for up to five years —
meaning the window is now closing for those issuers.
That’s part of the reason rating agencies lately have upgraded
a broad swath of Trups CDOs. “All the rating agencies are acting
uniformly,” another trader said. “There is no question all
the trends and ratings actions are favorable. There is probably
more room to run.”
Commerce Street’s offering is dominated by bonds from FTN
Financial’s once-popular PreTSL shelf, which sold $12.5 billion
of Trups CDOs from 2000 to 2007, according to Asset-Backed
Alert’s ABS Database. The portfolio encompasses pieces with
face values up to $30 million, though half are $10 million or
less.
Bidders will likely include one or more insurance companies,
which last year began snapping up senior Trups CDOs as
buy-and-hold investments. One of the largest buyers following
the financial crisis was Hildene Capital of New York, which has
amassed a portfolio with a face value of $2 billion.
Trigger ... From Page 1
in a deal that also gives the bank the right to write and fund all
of the retailer’s plastic in the U.S. for the next seven years.
Industry professionals have been talking about TD’s potential
as an issuer of credit-card bonds since mid-2012, when
several Canadian banks indicated that they would lean more
heavily on securitization for funding. So far this year, CIBC,
National Bank of Canada and RBC have securitized accounts
written at home. However, predicted deals backed by U.S.
receivables have yet to materialize.
TD’s plans for issuing auto-loan paper have been more of a
moving target. Last year, sources said they expected the bank to
act on a rumored push to securitize the loans of Chrysler Financial,
the former Chrysler Corp. unit it bought from Cerberus
Capital in 2011. But TD set aside any such bond-issuing ambitions
as it pushed to replace Ally Bank as the preferred lender
for the automaker — which years earlier had removed Chrysler
Financial from that role.
TD eventually lost out to Banco Santander. With that matter
out of the way, however, the word is that its securitization plan
is back in motion. “TD is the one people keep talking about,
and they’ve been planning this for a while,” one source said.
“Ultimately, they want to expand the funding alternatives they
have.”
TD has never been an issuer of credit-card accounts in the
U.S., but has completed a few deals in Canada, most recently
in 2003. The bank hasn’t sold auto-loan paper to date in either
country. It has been behind some collateralized bond and
loan obligations in both nations and in Europe, but not since
well before the credit crisis. Separately, TD has issued covered
bonds in Canada and has been looking at similar deals in the
States.
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