Wrapped ABS increased significantly from the previous quarter as well as over the similar quarter last year, driven by the growth in the real estate sector of the ABS market. Overall wrapped activity totaled $27.5 billion of the $218.5 billion of ABS sold in 3Q04, accounting for more than 12.5% of the total volume.
Wrapped real estate ABS totaled over $17 billion, up 44% from the second quarter. Boosting wrapped supply in the quarter were a pair of trends – increased HELOC supply and single-tranche guarantys on senior classes already structured to triple-A. The latter phenomenon is largely driven by GSE demand for credit diversity, while maintaining portfolio growth.
As GSEs have largely moved out of the guaranty business, but have maintained ABS purchasing capacity, the large pre-placed tranches of real estate-backed ABS typically pre-sold directly to a GSE are increasingly being sold with a wrap.
“There is a lot of demand from GSEs,” said FGIC managing director Tom Adams. “It gives [GSEs] the ability to keep buying the same names, while diversifying credit exposure.” “Overall, FGIC had wrapped good mix of triple-A and non-triple-A classes,” Adams added.
Auto ABS maintained its pace in the third quarter, with $3.6 billion of auto ABS wrapped. While the lion’s share of wrapped auto ABS was subprime retail loans, Credit Acceptance Corp. sold a dealer floorplan receivables-backed transaction, backed by a Radian guaranty.
With the strong demand for subordinate paper, combined with an improving credit environment, credit card surety activity dipped in the quarter to just $202 million, as just two credit card ABS were wrapped. In more esoteric assets, 12b-1 fee ABS entered the wrapped arena for the first time ever, as Citibank N.A. priced two Hedged Mutual Fund Fee Trust deals, each wrapped by Ambac. Trinity Rail Leasing completed its only ABS of the year, a $157 million railcar lease ABS, also backed by Ambac.
The leading guarantor in the third quarter was FGIC, which wrapped over $10.3 billion of primarily mortgage-related ABS in the quarter. Appearing on the bulk of Countrywide Home Loan Inc.’s HELOC issuance throughout the quarter, FGIC received a bump in business that pushed it ahead of its competitors.
Much of Countrywide’s FGIC wrapped deals, however, were inked in the first and second quarters, but due to Countrywide’s delayed issuance platform, much of the FGIC-wrapped paper did not hit the Street until 3Q04. More than $4 billion of FGIC’s third-quarter total – Countrywide’s 2004-A 2004-C, 2004-E and 2004-F HELOC deals – had initially been securitized, and retained, in the first or second quarters of the year, hitting the market in 3Q04.
Ambac was the second-leading guarantor in the quarter, with $5.47 billion of business, diversified among real estate, credit card subprime auto, equipment lease ABS, as well as the two aforementioned 12b-1 fee deals.
XLCA exhibited strong growth in the quarter, increasing its real estate ABS business, as well as maintaining its more traditional strength in the subprime auto loan arena.
Two insurers not known for their respective strength wrapping primary issuance – Assured Guaranty and Radian, were each seen wrapping their first new-issues of the year.
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