NEW YORK, Feb 17 (IFR) -
This was a week of firsts as six issuers, most of which are well-established names, priced their first deals of 2012.
Five of these transactions were in the auto space. Auto deals are still the main drivers of the ABS sector, and this past week’s offerings bring year-to-date total US auto ABS issuance to approximately US$15.02bn.
Year-to-date total US ABS issuance (excluding CLOs) is roughly US$25.4bn.
The overwhelming investor demand for the money-market tranches of the prime-retail auto transactions continued to increase this week, with market players reporting that the commercial-paper pieces of the Honda and Nissan deals were between seven and nine times oversubscribed.
Nissan’s money-market tranche priced at a 22bp below interpolated Libor, which is definitely a record-tight print for money-market auto ABS debt – both pre- and post-crisis.
However, these extremely low prints are mostly due to the fact that three-month Libor has widened out considerably – to about 50bp – which, even by subtracting 22bp, is still a more attractive yield than alternative money-market products, according to bankers.
As for the A3 and A4 tranches of these transactions, there is just a great deal of investor capital to deploy right now, the bankers said, and there is investor comfort in moving out on the maturity curve. The Honda A3 and A4 tranches each were four to five times oversubscribed, reflecting the increasing amount of last-cashflow interest compared to late last year.
Given that there was hardly any product in the second half of fourth quarter 2011 – and the volatility surrounding the European debt crisis – investors decided to hold onto their money and close their books. Now that things have cooled down with Europe, the “risk on” mentality means that investors currently have a lot of money to put to work.
Bank of America (structuring lead) and Barclays priced the first offering of the year from Honda this past week. The deal was the US$1.693bn prime retail-backed Honda Auto Receivables 2012-1 Owner Trust (HAROT).
The Triple A rated classes consisted of average lives of 1.10, 2.20 and 3.06-years, and were talked at EDSF plus 10bp area, interpolated Swaps plus 22bp area and Interpolated swaps plus 30bp to 32bp.
Investor demand drove final pricing spreads tighter to 8bp, 18bp and 28bp, respectively. A money-market tranche was also priced at 19bp less than interpolated Libor after guidance was seen at minus 16bp to 17bp. The transaction was also increased from US$1.25bn.
The prior Honda transaction was the US$1.483bn HAROT 2011-3 series, which priced in mid-October 2011. The Triple A rated tranches of that transaction consisted of similar average lives and were printed at EDSF plus 9bp, interpolated Swaps plus 20bp and interpolated Swaps plus 32bp. The money-market tranche was priced at eight basis points less than Interpolated Libor.
Fellow prime issuer Nissan also tapped the market this week with the US$1.54bn Nissan Auto 2012-A series. The deal was led by JP Morgan (structuring lead), Credit Agricole and HSBC and was increased from an initial offering size of US$1bn.
The Triple A rated classes consisted of average lives of 1.10, 2.30 and 3.55-years, respectively. Price talk was seen at EDSF plus 8bp-10bp, interpolated Swaps plus 19bp area and interpolated Swaps plus 29bp area. Final pricing spreads firmed to 6bp, 15bp and 25bp, respectively. The money-market class was printed at a whopping record low (pre- and post-crisis) of 22bp less than interpolated Libor.
Ally was back in the market last week with its first dealer floorplan transaction of 2012, the US$750m Ally Master Owner Trust (AMOT) 2012-1, via the three-way lead of Barclays, Deutsche Bank and RBC. The collateral consisted of passenger vehicles as well as light and medium duty trucks (limited to 2.0% of the pool) inventory of dealers financed by Ally. The majority of AMOT is secured by new vehicles, with used vehicles representing approximately 11.0% of the portfolio. The deal is also said to have strong ageing distribution with only 3% inventory aged past 270 days.
The 2.98-year fixed and floating-rate Triple A classes were sized to demand and publicly offered. Guidance levels were seen at one-month Libor and interpolated Swaps plus 70bp-73bp. At pricing both spreads were softened to 80bp.
The Double A, Single A and Triple B rated subordinate tranches were offered as a 144a and consisted of the same weighted average lives. They were offered at interpolated Swaps plus 135bp, 180bp and 250bp. A majority of the subs were heard to be sold, according to market sources. In the September 2011 AMOT 2011-4 transaction, the three-year Triple A fixed-piece priced at 90bp and the floater at 80bp. The subs of that transaction were not offered.
Wells Fargo was sole lead on the US$150m 144a American Credit Acceptance Receivables 2012-1. The deal was backed by sub-prime auto receivables and solely rated by Standard & Poor’s.
The Single A plus tranches offered average lives of 0.35 and 1.46-years, respectively, and were initially seen at EDSF plus 165bp-175bp and EDSF plus 265bp-275bp. Final pricing was set at 155bp and 255bp, respectively. The 2.48-year Double B slice was priced at interpolated Swaps plus 675bp after being talked in the area of 700bp. The 2.33-year Single A and 2.48-year Triple B classes were pre-placed.
Wells Fargo was also sole lead on the US$150m 144a sub-prime-backed First Investors Auto Owner Trust 2012-1. The 0.19-year class was priced at 15bp over interpolated Libor while the 1.66-year Triple A tranche was printed at EDSF plus 140bp. The 3.40 and 3.93-year Double A and Single A rated slices were priced at interpolated Swaps plus 210bp and 265bp, respectively. The Triple B and Double B rated notes offered average lives of 4.12-years and were stamped at interpolated Swaps plus 475bp and 600bp.
Credit Suisse (structuring lead) and Citigroup priced the first equipment floorplan transaction of the year for GE. The GE Dealer Floorplan Master Note Trust (GEDFT) 2012-1 was increased to US$750m from US$400m and included three tranches with weighted average lives of 2.99-years. The Triple A slice was the only tranche to disclose pricing at one-month Libor plus 57bp. It was originally talked three basis points wider in the 60bp area.
The majority of the portfolio is secured by various types of equipment with power sports, marine, technology, lawn and garden, recreational vehicles, and consumer electronics and appliances, making up the majority of the portfolio, according to Fitch. The transaction comprises receivables associated with approximately 2,200 manufacturers, 24,000 dealers, and 13 separate product lines.
Adam Tempkin and Charles Williams
NEW YORK, Feb 3 (IFR) -
Election-year pressures to deflect the anger of the “99%” – and a race against time to bring charges before statutes of limitations on crisis-era RMBS and CDOs run out – are spurring both the US government and private investors to push ahead with RMBS law enforcement and litigation, respectively, according to people close to the probes.
A surprise criminal indictment by the US this week of three former Credit Suisse traders – who artificially boosted the prices of battered RMBS in 2007 to earn higher bonuses – raised eyebrows across the legal community, both for its noticeable proximity to the formation of an Obama-administration federal RMBS fraud task force the week prior and the case’s strikingly easy targets: alleged rogue traders.
Given two of the traders’ plea agreements, this may be the first successful criminal indictment stemming from the financial crisis.
But the case also may foreshadow the fact that federal investigations are likely to focus far more heavily on actions taken by banks and ratings agencies to cover up their mistakes as the market was imploding in 2007 and 2008, rather than on the original assembly of toxic securities in the years prior, according to people familiar with the investigations.
This is partially due to the fact that statutes of limitation are expiring on the creation of the securities.
The DOJ and SEC civil probes into Standard & Poor’s, for example, focus far more heavily on the steps the agency took to address the crisis in 2007, rather than on the initial assignment of Triple A ratings in 2005 or 2006, insiders say, which was initially thought to be central to the investigation.
Still, the timing of the Credit Suisse trader charges last week took some by surprise. The incident has been public knowledge for four years, and the Swiss bank, whose early-2008 write-down of US$2.85bn was partially due to the alleged fraud, fired the individuals at that time. The bank itself is not a target at all, and the US Department of Justice has been investigating the case since 2008.
Fortuitous timing?
In addition to the DOJ indictment, the SEC revealed its own parallel civil case this week – which has also been in the works for years – prompting experts to ask why the charges are first being brought now.
“This is a strange prosecution to coincide with the Obama administration’s RMBS Working Group. How fortuitous the timing is,” said Isaac Gradman, an attorney who has brought legal action over mortgage bonds.
“What’s more, this isn’t really the typical fraud you’d expect to prosecute from the crisis. These are three rogue traders who defrauded their institution, and were disciplined by their institution back in 2008,” he said. “The RMBS Working Group, on the other hand, pledged to look under every rock and down every avenue to go after the financial institutions that assembled toxic RMBS. That’s not what this is.”
While this rare criminal indictment may be hard for federal enforcers to repeat, there is bound to be an uptick in both civil and criminal charges related to the financial crisis in 2012, experts say. Last Friday, the DOJ issued civil subpoenas to 11 financial institutions as part of the RMBS Working Group's pursuit of cases related to the sale of mortgage bonds and CDOs in the run-up to the crisis.
Although the SEC can only pursue cases where there are violations of civil laws, it is likely that they will refer several cases with possible criminal elements to the DOJ, insiders say.
Taking its Toll
There has also been acceleration in MBS litigation brought by bondholders or civil actions brought against banks by states due to the short statute of limitations.
“Given that most of the deals were created in New York, the conservative attorney will look at the state’s six-year limitations period both for breach of contract and fraud. But every state is different,” said another prominent structured finance litigation attorney who has represented investors. "These private civil RMBS lawsuits have only really exploded last year."
But statutes of limitation have become a thorny point of contention between plantiffs' attorneys representing competing groups of RMBS investors. There have recently been many creative attempts by various legal teams to get around the statutes, Gradman said.
Some lawyers try to take a more liberal approach, hoping to extend the timeline.
For instance, in the context of loan putbacks to banks, some attorneys take the view that each time an investor tries to enforce putback rights, and the bank refuses, a new breach of contract occurs, and the clock starts ticking anew on the statute of limitation. Others say that if an investor wants to initiate litigation, it should be done six years (in New York) from when the deals close.
Confusing the issue even more is the uptick in plaintiffs asking defendants to "toll" the statutes, which means that the parties agree to stop the clock temporarily on the statute of limitations so that they can possibly negotiate a settlement.
This "time out" has become much more common in private lawsuits, sources say, but can happen in both civil and criminal cases, as well as in federal or state-led probes.
Since plaintiffs may be running out of time to bring their cases, defendants are typically eager to "toll the statute", or stop the clock, lest they be taken to court immediately. It buys them time to negotiate.
However, it's not always easy for lawyers to discover the existence of tolling agreements. Therefore, for example, one might assume that RMBS created in 2005 might be immune to prosecution at this point, but because of several tolling agreements in existence, the timeline has been suspended, and ultimately, extended.
What's more, as the timeline increases, the losses to investors increase as well. Therefore, knowledge of the existence of tolling agreements can affect how investors' attorneys size the losses taken on a bond.
However, it is impossible to toll a statute that is already expired.
The federal advantage
The statute of limitations for federal securities fraud, meanwhile, is typically five years, but at least part of the motivation for elevating the pursuit of RMBS fraud to the federal level with the formation of the RMBS Working Group was to take advantage of longer statutes of limitations.
Banks and other financial institutions have special protection under federal criminal laws: various types of bank fraud may have 10-year statutes of limitation, particularly if banks were affected by the deceit, as Credit Suisse was.
While it's not clear whether the 10-year statute will apply to all of the Working Group's cases, federal authorities typically operate under US securities laws when engaging in enforcement, and are not encumbered by the same restrictions imposed under the state, lawyers said.
“The federal laws may have longer statutes of limitations than the state laws," said Robert Anello, a white collar defense attorney at Morvillo Abramowitz. "Either way, as statutes get closer, the government, as well as private investors, are going to pull the trigger this year."
Adam Tempkin
adam.tempkin@thomsonreuters.com
