Last quarter, insured proceeds in the primary U.S. Public and Rule 144A market (excluding CDOs) were at $11.7 billion, roughly 14% of total issuance. This is at least few percentage points below typical industry penetration of 20% or so, according to a deal sampling derived from Thomson Financial Securities Data and IFR Mortgage Data.
As the frequent asset-backed issuers are finding a stronger bid for their subordinated bonds, the monoline insurance companies have devoted more of their efforts on the esoteric, one-off type transactions and new issuers, as well as the robust collateralized debt obligation market.
Of course, last year Ambac provided a wrap on the Arby’s whole company securitization, and is said to be currently working on other deals along those lines.
“Whether it’s the CDO business or the future flows, the volume is there,” said Mark Zucker, head of structured finance at MBIA. Zucker added that synthetics CDOs and other risk transfer products (see story p. 1) – in light of the regulatory pressure being put on banks – will continue to be especially lucrative, although not necessarily visible, in the same vein as the ABCP market.
The larger one-off transactions continue to be the dominant type on the international side of the business. MBIA has played a part in a number of those deals, including the Eurotunnel, Welsh Water, and the toll-road securitizations in South America.
Domestically, MBIA took part in the novel student loan net interest margin (NIMs) deal for The Nelnet Group (see ASR 4/16/01). The Salomon Smith Barney-managed transaction repackaged the residuals from two past securitizations with an aggregate value of $1.9 billion. The firm is also finding value in the aircraft lease securitization sector.
Meanwhile, Asset Guaranty Insurance wrapped a $60 million deal for TFC Enterprises, also known as The Finance Company, which was backed by auto loans largely made to a military clientele (see side bar).
Non-prime auto has proved a lucrative sector in recent quarters. In 1Q2001, MBIA wrapped deals for CarMax, Franklin Auto, Onyx Acceptance Corp. and Avis Rent-A-Car. Officials at Financial Security Assurance have said they’re working on two subprime credit-card deals from new issuers, most likely to close this quarter.
Although difficult to track because most of the deals are private, the monolines have been also actively picking up business in the growing mortgage-related NIMs market, and the advent of the NIMlet, which is the repackaged residual sold alongside the primary securitization.
FSA has already partaken in three NIM transactions, one last quarter. Other transactions that are still lucrative include structurally intensive equipment deals, such as those backed by shipping containers.
In fact, for MBIA, the one area where there hasn’t been a lot of growth has been the run-of-the-mill home-equity sector, which “was the engine of the monoline ABS business just two years ago,” Zucker said.
However, going into an economic slowdown, the flight to credit quality could bring the bread-and-butter ABS classes back to the monolines.
“My expectation for the year is that markets will still be in our favor, and credit issues will be paramount on people’s minds,” Zucker said. “That provides us, all of the monolines, with opportunity.”