Citicorp was expected to issue up to $1 billion in credit-card-backed securities this week, a move that could launch the asset-backed securities market toward another record-shattering year.
The bank's offering, together with planned offerings by Dean Witter, Discover & Co., Green Tree Financial Corp., and Continental Airlines, are just the first major securities deals in a year that analysts believe will generate nearly $125 billion in asset-backed securities.
Volume in the market has more than doubled, to nearly $108 billion in 1995 from $51.4 billion in 1992, with credit-card-backed deals leading the surge. Credit card offerings rose to $45.4 billion, or 43.1% of the total last year, from $15.8 billion, or about 30.7% of total volume in 1992.
Although growth in credit card lending is expected to wane, analysts said asset-backed issuance could remain strong in 1996, as banks respond to rising consumer delinquencies with innovatively structured issues.
"What we don't have in consumer growth will be made up by banks trying to get their loans off the balance sheet," said Lisa Anderson, an asset- backed securities analyst at Chase Securities.
Ms. Anderson added that efforts by banks to get automobile and other consumer loans off the balance sheet would boost volume in these areas as well.
Citicorp did not respond to phone calls about its issue, but market sources said the bank was considering a zero coupon structure geared to the deteriorating credit environment.
Zero coupon bonds are sold at a discount to face value. In contrast to traditional credit-card-backed securities, in which investors share in interest income, the yield of zero coupon securities is based on the difference between the discount price and the eventual repayment at maturity.
Analysts said that, depending on the exact structure, such a deal could have the advantage of limiting investors' risk. The deal could include a credit enhancement to repay loans in the event of defaults by consumers.
A deal of this type would also give investors a better return if interest rates continue to decline, because of the longer duration of the zero coupon structure. If rates rise, however, the price of these securities could fall.
Dan Castro of Merrill Lynch & Co. predicted in a yearend research report on the industry that the volume of asset-backed issues will rise as much as $17 billion this year - and cited the use of innovative structures as one reason.
"We expect (the asset-backed securities) supply to increase by 15% to 20% and total $125 billion," Mr. Castro said. He said that new classes of investors, including more foreign institutions, are expected to gravitate toward the market.
Among the issuers expected to come to market this month, Green Tree Financial is expected to build on its reputation for expanding the list of assets used to back securities by securitizing $400 million of loans backed by motorcycles, jet skis, boats, and other personal assets.
In the past, the Minneapolis-based lender has securitized manufactured- housing loans as well as floor plan loans to manufactured-housing dealers.
Green Tree's new offering is also expected this week.
Dean Witter is planning a more conventional offering for its Discover Card. The company is expected to come to market with as much as $1 billion in credit card securities this month.
The five-year deal, which reportedly was delayed because of the snow storm this week, is expected to be structured as a floating-rate offering and will be managed by Dean Witter itself.
Continental Airlines is expected to follow the examples set by United Airlines and Northwest Airlines last year by securitizing $400 million of aircraft leases.
Structured as equipment trust certificates, the private placement is being led by CS First Boston.
