Issuers Bring Record Volume Of Asset-Backeds to Market

Issuers are flooding the market with asset-backed securities.

So far this month, about $14 billion of securities backed by mostly by auto loans and home equity loans are being priced as issuers try to shed assets from their books before Sept. 30, when the quarter ends and the Federal Reserve meets to discuss interest rates.

Analysts say the surge in supply is unprecedented in the asset-backed market's 10-year history and will test investors' appetite for the securities. Most investment banks are predicting public issuance will reach $25 billion this month.

"The numbers are truly huge," said Jeffrey P. Salmon, an asset-backed analyst at UBS Securities.

Banking companies, normally among the biggest issuers, are largely sitting out this round. Many, such as Chase Manhattan Corp., issued a huge amount of securities backed by credit cards in August.

Many market makers are closely watching how NationsBank Corp.'s $4 billion collateralized loan obligation deal sells. If the bank is able to price the securities cheaply, it could pave the way for other banks to shed large amounts of loans from their books and transfer the credit risk to buyers of the securities.

This would be an important development in bank risk management, because "banks are looking to readdress their balance-sheet needs by securitizing significant amounts of commercial, industrial, and corporate loans in their portfolios," said Standard & Poor's director David C. Tesher. Real estate and project finance loans are usually excluded from these securities, he said.

By selling the securities backed by loans, banks can free up capital needed to support the assets and use it for something else, such as acquisitions.

Allen E. Appen, director for debt capital markets at BZW, attributes the flood of issuance in other asset classes to issuers holding back from introducing deals earlier in the year. Problems at credit card companies such as Advanta Corp. momentarily shook the faith of some investors and caused some companies to retrench.

But now fears that spreads would widen considerably have subsided and issuers are eager to get the inexpensive financing they can find through securitization, he said.

Another reason the market is so busy this week, say people who bring the deals to market, is that no one wants to be caught offering their securities last, when the glut of issuance "inevitably" causes spreads to widen in investors' favor, Mr. Salmon of UBS said.

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