Chrysler Corp., banished from the straight debt market because of junk-grade ratings, landed off-balance-sheet financing yesterday with $631 million of auto-loan securities.
The deal, the number three U.S. automaker's seventh securitized transaction this year, inaugurates what market players say will be another booming half for the asset-backed market.
Working through a special trust, Select Auto Receivables Trust 1991-2, Chrysler offered the senior certificates with a 7.65% coupon for an 87-basis-point premium to the Treasury's two-year note.
A First Boston Corp. team underwrote the issue, which carries a 1.86-year average life and triple-A ratings from the major agencies.
Chrysler's 1991 asset-backed sales now top $4 billion -- nearly twice those of the other Big Three companies, General Motors Corp. and Ford Motor Co., combined.
This year's most prominent "fallen angel," Chrysler's cash is rapidly diminishing, raising concerns about the company's ability to introduce new products and fund maturing debt over the next 18 months, analysts say.
Such worries have forced the automaker to strip assets, rather than pay the price for speculative ratings in the straight debt market.
Though Chrysler's low ratings theoretically should not crimp its asset financings -- Chrysler asset-backeds carry top-notch ratings, like most securitized consumer debt -- its subsidiaries still pay for their connection to a weak parent.
Yesterday's deal, for example, hit the market about 12 basis points cheaper than comparable paper from GM's finance arm, General Motors Acceptance Corp., which now trades about 75 basis points off the Treasury curve. Chrysler auto securities typically trade eight to 10 basis points wider than GMAC's.
"It looks like they had to give about five basis points in extra juice to make investors step up and take exposure to the name," said one capital markets professional.
Even so, the pricing underscores the dramatic tightening in spreads that has occurred in all collateral sectors this year.
Chrysler Financial Corp., for example, paid a risk premium of 120 basis points when it became this year's first asset-backed issuer on Jan. 10.
By its next issue in mid-March, Chrysler was then able to trim that spread to 108 basis points and dropped it to just 79 basis points for its most recent issue on May 17.
Since late spring, investors in all segments of the bond market have looked for incremental yield by lengthening the duration of their holdings. Because auto securities tend to carry terms of two years or less, spreads in the sector came under modest pressure as buyers moved into three- and four-year home equity paper and longer-dated credit card deals.
"People just didn't want to be in that part of the curve," said one asset-backed trader.
But market players say investors' belief that consumer credit will strengthen as the recession wanes will continue to support spreads.
Spreads' solid performance over the first half came despite nearly $23.3 billion of supply. That was about $3 billion more than the $20 billion of volume for the first six months of 1990, according to Asset Sales Report, an American Banker-*Bond Buyer newsletter.
"We certainly expect to see continued high volume," said Richard Lamb, vice president at Daiwa Securities America Inc. "Things are always a little slower in the summer, which tends to slow down the third quarter, but we have a large volume of assets to securitize."
First Boston led underwriters in the first half, with $6.46 billion in nine issues, giving it 27.7% of the market.
Salomon Brothers Inc. was second, garnering a 26.3% market share with $6.14 billion in seven issues.
The market could get its second issue of the half as early as this week. Manufacturers Hanover Corp. may offer $750 million of credit card securities, its first card deal since June 1988.
In the straight debt market yesterday, Central Louisiana Electric Co. offered $50 million of 30-year first mortgage bonds through First Boston.
Underwriters priced the securities, which are nonrefundable for the first five years, as 9 5/8 to yield 115 basis points more than the bellwether Treasury long bond.
Moody's Investors Service rates the issue A2; Standard & Poor's Corp. rates it A-minus.
Among seasoned issues, both junk and investment-grade corporates lumbered through a quiet session unchanged.
Defaults Slowing
Take heart, corporate bond buyers: After welshing on its debt like never before in the first quarter, corporate America dramatically improved its credit record in the second period, the Bond Investors Association reported yesterday.
Twenty-seven companies defaulted on $2.7 billion of bonds in the second quarter, down 80% from the first half and 48% from the comparable period of 1990.
"The below-investment-grade market has clearly ended its default free-fall," said Richard Lehmann, president of the Florida-based bondholders group.
The association now expects corporate defaults to total about $25 billion in 1991, down 8% from 1990.
