PHOENIX, Ariz. – In a somewhat animated discussion at Information Management Network’s ABS West gathering last week, bank research analysts said that the recent headlines were creating a false perception that the debacles seen last year with the NextCard Inc. and National Century Financial Enterprises would spill over to the portfolios of subprime ABS issuers. The issuer that received the most attention was AmeriCredit Corp., which is still viewed by the ABS market as a viable entity that would have access to securitization if a surety stepped in with a wrap – something the panel unilaterally agreed could happen get if AmeriCredit desired.
As the defense of the market throughout the conference has been to not apply broad brush strokes to the entire market for the sins of the few, JPMorgan Securities researcher Chris Flanagan warned “don’t be too quick to apply the NextCard situation to other issuers.” AmeriCredit, noted Flanagan, “is a victim of NextCard hysteria.”
When the panel was asked by session facilitator Anatoly Burman, vice president and portfolio manager at AIG, whether AmeriCredit – which recently had subordinated tranches of outstanding ABS placed on watch for a downgrade – could obtain a financial guaranty from a surety provider, the answer from the panel was a resounding “YES!”
And even though there have been two early amortizations triggered in the first month of 2003, Banc One Capital Markets’ Alex. Roever concurred with this view, adding that recent headlines do create a false perception, among the broader media and, in turn, the investor community.
“Early amortization isn’t necessarily a bad thing, if investors get paid, as was the case with both the Conseco Inc. private label credit card and Mitsubishi Motor Credit transactions that are currently paying down early,” Roever said.
Credit Suisse First Boston’s Neil McPherson suggested that the equity and unsecured debt markets needed a lesson in the workings of securitization. Using Ford Motor Co. as an example, he noted that the questions that arose last year regarding Ford’s ability to tap the ABS market were based on a misunderstanding of the market. McPherson pointed to rival corporate debt researchers speculating that Ford will not be able to access the $20 billion of securitization funding needed in the coming year. He argued that the roll off of outstanding ABS in itself would create demand for the bulk of Ford’s securitization activity, as Ford is a core holding in most portfolios.
Despite most analysts confirming a somewhat pessimistic outlook for the economy this year (Barclays Capital research director Jeff Salmon even called his outlook “bleak”), subprime issuers still offer good value. Both Banc One’s Roever and Chip Schorin, executive director of research at Morgan Stanley, called any corporate-induced widening a “buy opportunity,” noting that enhancement levels can be increased on future new-issue offerings.
Banc One’s Roever noted the saga of Union Acceptance Corp., although not over, “is an example that servicing can be quickly and effectively be moved,” even in a bankruptcy scenario.
Deutsche Bank Managing Director Anthony Thompson noted that, given the off-chance of another NextCard-like situation, “Nobody in Washington would stand up to support a mid- or subprime lender. At least not in the short-term.”
“Once they see that liquidity dries up for their constituency, they may change their minds,” he added.
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