Chase Manhattan Corp., a wall-flower among debt issuers this year, was not shy about asset financing yesterday.
The New York money center bank, which has shunned the underwritten bond market in 1991 despite the bank sector's roaring performance, inaugurated a new asset-backed issuing vehicle with $1 billion of credit card securities.
The deal, Chase's second card offering this year, comes as many corporations -- banks especially -- are stepping up their scuritization in typical end-of-quarter fashion.
Working through its Chase Securities Inc. unit, Chase offered the securities via its new master trust, Chase Manhattan Credit Card Master Trust 1991-1. Underwriters priced the securities, which have a five-year average life, as 8.75s to yield 85 basis points over the Treasury curve.
The deal is expected to carry triple-A ratings from Standard & Poor's Corp. and Moody's Investors Service.
In the master trust structure, recently favored by First Chicago Corp. and Citicorp, issuers create giant pools of receivables -- in Chase's case, about $4.6 billion -- and then draw on this collateral whem market conditions are ripe.
This gives corporations greater flexibility, while cutting the costs of monitoring many individual trusts.
"If you plan to issue more than once in you're life, you can dump your portfolio into the master trust today, and then issue as you need it," said Patricia Lynott Bonan, managing director Chase Securities. "It's the closest thing to a shelf registration in asset-backed land."
With a master trust, "you can come to market very fast," possibly as fast as 48 hours, said Michael Basset, vice president at Stone & McCarthy Research Associates in Princeton, N.J.
Moreover, the structure enables issuers to build up the main trust over time.
Take a deal backed by auto loans. The life of a loan from a manufacture to a dealer depends on how long the dealer's inventory stays on the floor. That's about 65 to 70 days on average -- far shorter than a two-year life of most auto securities.
"A master trust allows them to keep the collateral rolling better," Mr. Basset said.
Trouble is, "there are certain investors, and extremely large investors, who do not like the master trust concept," Mr. Basset continued. "The reason is, you're running a bunch of deals off the same collateral pool, so if anything goes wrong with one of the deals there are various ways it could impact the other deals. You could conceivably be affected by something you don't even own."
While top-flight banks such as BankAmerica Corp. have raised Tier 2 capital several times in the bond market this year, Chase, whose subordinated debt is rated Ba2 by Moody's and BBB by Standard & Poor's, has not ventured to the underwritten market. Instead, the bank has quietly raised funds in the less visible medium-term note market or securitized assets.
With yesterday's deal, Chase managed to cut its costs dramatically from its previous card deal in March, underscoring the asset-backed markets continued strength. In March, the bank offered $750 million in 3.5-year securities at 114 basis points over Treasuries.
"they have opted for asset-backeds, which are an excellent veheicle to provide a bank with some funding while at the same time easing capital constraints," said Anne McDermott, bank analyst at PaineWebber Inc., adding that Chase's relatively low ratings have probably kept it out of the market this year.
As for more asset-backed issuance, "you're seeing a lot of people coming in now who decided in the first quarter to tap the asset-backed market for the first time," Ms. McDermott said. "I'm sure everybody is looking at the market."
In the secondary market yesterday, investment-grade corporate bonds inched 1/8 point higher in light trading, while junk issues finished narrowly mixed.