Not surprisingly, given the sheer volume of the sector, real estate ABS remained the dominant area of business for the guarantor industry in 2Q05 reaching nearly $20 billion of wrapped exposure. “Mortgage-related assets are the biggest asset class out there,” said Tom Adams, senior managing director at FGIC. Behind real estate was the subprime auto sector at $4.8 billion, with shipping container leases and 12b-1 fees bringing up the rear at $413 million and $580 million, respectively.
The leading guarantor in the quarter was Fannie Mae, returning to the financial guaranty market after a yearlong hiatus, during which the GSE did not wrap a single offering. Fannie Mae wrapped two transactions in the quarter, totaling $4.4 billion to edge out FGIC. With Fannie Mae’s recent re-entery to the guaranty market, other guarantors do not feel any competitive pressures from the GSE, according to spokespeople from both FGIC and MBIA.
“Our stiffest competition right now is from the uninsured deals,” said FGIC’s Adams, referring to the seemingly insatiable demand for ABS subordinate bonds resulting from the worldwide search for yield.
Second-place FGIC, which wrapped its first 12b-1 fee deals in 2Q05 – both issued by Citibank, N.A. – insured a total of $4.3 billion of ABS in the quarter. With its stable mortgage-related ABS business, FGIC’s newly established issuer relationship in the mutual fund fee sector allowed it to remain comfortable in second place.
MBIA’s insured volume was down significantly in 2Q05 versus the previous quarter, as it wrapped four deals totaling $4 billion. In 1Q05, MBIA had wrapped $5.9 billion. Although MBIA’s business was skewed towards the auto sector – wrapping three auto deals – it insured one HELOC. Mark Zucker, MBIA’s head of global structured finance said MBIA was “not limited by any exposure limitation in asset classes, public or domestic.”
Coming on strong late in the quarter, FSA wrapped seven deals, all in the real estate sector. With $2.9 billion of business in 2Q05, six of its seven transactions came in the month of June.
Ambac wrapped the most diverse portfolio this quarter with its five deals. Although not as competitive as it has been in the past, Ambac finished the quarter in fourth, having wrapped $2.9 billion in deals.
MGIC wrapped one deal this quarter, taking 43.6% of the exposure to NovaStar Financial’s series 2005-2 transaction. Additionally, XLCA wrapped just one transaction in the second quarter, totaling $400 million. XLCA’s lone deal in the quarter, was a rental car fleet lease offering from Dollar-Thrifty.
With domestic opportunities few and far between in the current market environment, guarantors are looking for the right opportunities to expand globally, as FGIC is “looking at emerging markets”, according to Adams. MBIA’s Zucker cited Turkey as a region that his firm would feel comfortable increasing exposure to. “We’ve had a relationship with a number of Turkish banks over the last five-to-six years and we feel very comfortable in Turkey. [Turkey] has stood the test of time for us.” – KO
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