SCOTTSDALE, Ariz. – The most hardcore of ABS golf enthusiasts sloshed around in the rain and mud last Tuesday, as Mother Nature cast a nasty storm over the last two days of the 8th Annual SRI Asset Securitization Symposium at the Scottsdale Princess resort.
But that did not stop some of the golf diehards, who stuck out the bad weather just as nimbly as they stuck out some of the sleepier, arcane discussion panels. “That’s why I stick to the opening panels,” said one banker, off the record.
Not that missing a few sessions is necessarily a loss – several sources mentioned that some banks trying to tighten their purse strings found a more “cost effective” way to attend these conferences: they do not register, but go golfing instead. “They don’t register, but they pick up all the stuff at the exhibit halls and stay elsewhere,” said another anonymous source.
But with the exorbitant prices for golfing in tony Scottsdale – one group paid $275 per person – the non-registration option is not necessarily a bargain. “Some banks would rather pay for the golfing than the registration fees,” an attendee noted. “Still, it adds up.”
Despite the minority of conference-goers who chose to “cut corners” in order to save some valuable cash, and despite rumblings that many market players who went to IMN would not attend SRI, the conference was packed, with a crowded exhibit hall and nary a seat in sight at some of the more popular sessions. In fact, many market players interviewed preferred SRI over IMN, stating that – besides other factors – well, the “hotel service was better.”
Attendance was estimated to be between 1200 and 1300, still below the tally at IMN, which was about 1700. But the general feeling was that the SRI conference is much more investor-friendly and investor-focused, while IMN catered more to underwriters and issuers.
Subprime pools
may be affected
A decidedly bearish opening session gave way to a more tempered session presented by researchers, who stressed that most of the risk with the slowing economy is with the subprime sector.
Job losses affect the sector most, analysts said, and panelists noted that the best bet is to stay in more liquid, higher quality names. That being said, Credit Suisse First Boston’s Neil McPherson said that there is hidden value in some distressed names, such as Budget’s auto ABS fleet or Conseco’s truck lending operation. With ample credit enhancement, these distressed names many present great opportunity.
Lehman Brothers’ Beth Starr said, “There is value in doing work on a tainted name.”
Besides subprime, however, the analysts remained generally upbeat. “If the economy is going to fall off a cliff, this is the sector to be in – structure will get you out every time,” said Anthony Thompson, an analyst at Deutsche Banc Alex. Brown. “If the economy is going to hell in a handbasket, ABS is a safe haven.”
On the other hand, Merrill Lynch’s Dan Castro said that “most sectors of ABS do not have a great deal of upside potential, so looking for coupon return is the best bet.”
Subprime borrowers will surely suffer the most, the panel said, and as the economy slows down, the average hours worked decreases. As subprime pools may be affected, issuer selection will become increasingly important.
“[The investor] is not getting paid to go to a beaten-up sector, so they would rather go out on the credit front,” Thompson said.
Other trends
Among some of the more interesting issuers mentioned by the panel was PeopleFirst, an Internet lender who issued a deal wrapped by FSA. Also, CSFB’s McPherson mentioned the retail-card sector – most notably, the Federated portfolio – as an opportunity to give up liquidity, but pick up spread.
Banc One’s Roever discussed the SIV market (see story p.1) as a growing trend, and implied that SIVs will present a relative value that may be more impressive than the value produced through either CDO or CP conduit technology.
The panelists also spoke highly of CDOs of ABS. Last year, 25% of arbitrage CDOs were of asset-backed receivables. Lehman’s Starr said that there will be continued tiering in the product, and the bid will continue to be strong.
Other strong sectors and trends forecast for 2001 included: rate reduction bonds (benefiting from crossover buying from utility investors), fixed-rate cards, equipment ABS, floating-rate issuers having competition from auto issuers, and less auto leasing (manufacturers are less inclined to subsidize leases).