A successful credit card securitization by First Union Corp. last week has set the stage for a number of commercial banks looking to tap the asset-backed securities market as another funding tool.
The $995 million offering - the company's first public securitization of any kind in more than three years, and its first backed by credit cards - was the largest handled by First Union's capital markets operation.
Mark Mahoney, managing director and head of First Union's investment banking group, said the deal represented a "positive step" in the bank's capital markets efforts.
"This was one of our largest publicly syndicated transactions ever," he said. "It represents another step in our ability to execute large transactions."
The offering, which accounted for nearly 50% of First Union's shelf registration filing, could presage the entry of a number of commercial banks into the asset-backed securities market. Among the expected newcomers are Fifth Third Bancorp of Cincinnati, which filed a shelf registration statement in late January for its first auto loan securitization, expected by the end of the first quarter.
Likewise, Asset Sales Report, a newsletter affiliated with the American Banker, has reported that First Omni Bank, the credit card unit of First Maryland National Bank, is expected to market its first credit card-backed offering sometime in March or April.
But observers are looking forward more to the possibility that BankAmerica Corp. will soon enter the market. The San Francisco-based bank is said to have held a beauty contest among investment bankers to see who would issue the deal, and the identity of the winner is not yet known.
The rush by banks to securitize loan assets indicates heightened interest in the market, said Phil Weingord, a senior banker with CS First Boston's asset securitization group.
"We expect to see an overall rise in volume of asset-backed securities issued by banks in 1996," he said.
If First Union's offering is any indication, card-backed securities have a receptive audience. The deal was originally scheduled for $500 million in senior securities, but was nearly doubled to accommodate investor demand.
"It's a new name that investors can use to diversify their holdings," said Dan Castro, an asset-backed securities analyst at Merrill Lynch & Co.
He added that the deal's floating-rate structure kept the cost of the transaction low for the first-time issuer. The senior tranche was priced at 17 basis points above the London interbank offering rate, with the subordinated securities at 28 basis points above the floating-rate index.
Chase Manhattan Corp. paid 11 basis points over Libor for its $1.5 billion credit card issue on Feb. 14. And First USA, one of the biggest issuers of credit card-backed securities, paid 16 basis points over Libor for its senior tranche on Feb. 8, and 29 basis points above the index for its subordinated tranche.
The volume created by deals like First Union's is just one source of the expected increase in bank-related volume of the secondary markets this year. Regular bank issuers like Citicorp and Banc One Corp. are expected to continue to tap the market to enhance balance sheet liquidity. These companies are also expected to look for ways to securitize and sell new asset types.
NationsBank Corp., for example, is preparing to sell $223 million worth of securities backed by boat loans. The offering would be the market's first boat loan-backed issue since early 1994.
Meanwhile, the Student Loan Marketing Association - Sallie Mae - is among the issuers expanding the kinds of securities structures that appear on the market. The government-backed agency came to market on Tuesday with a floating rate, $1.5 billion student loan deal based on the Treasury bill rate.
