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Little rest ahead for ABS market in summer blitz

By Joy Wiltermuth

NEW YORK, July 15 (IFR) - There will be little time for a summer siesta in the asset-backed market next week as a fresh line-up of deals add more momentum to the issuance blitz in the last two weeks.

Ford Motor (LSE: 0P4F.L - news) , John Deere and subprime lender Consumer Portfolio Services have started pre-marketing a combined US$1.86bn of bonds for sale next week.

Those trades are backed by debt used by car dealers to stock showrooms with Ford cars and trucks, farmers with John Deere agricultural and construction equipment, and borrowers with poor credit with used vehicles.

Fannie Mae is also looking to hit the market with a roughly US$1.3bn residential mortgage bond - its fourth this year from its credit-risk transfer series.

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"It (Other OTC: ITGL - news) feels like there definitely is a lot more money to put to work," said one ABS banker.

"Upsizing and tightening has been the theme of this week - and that's always the best combo that you want."

Investors clamored over a US$11.5bn deluge of fresh ABS paper that cleared this week, which was the busiest primary week for deals in nearly two years, according to IFR data.

Amid the strong demand investors showed a preference for shorter paper with yield even in sectors with scant secondary trading.

Rental home company Progress Residential priced its single family rental trade after increasing its size by more than US$200m to US$833m.

The Triple As cleared as expected at 150bp over Libor, but its riskier Triple B minus class narrowed to 385bp over Libor from whispers in the 415bp area after orders reached roughly seven times.

"I am surprised by the interest but I guess there are not many high yielding Triple A alternatives," one investor said.

The largely dormant SFR bond sector is expected to re-awaken in the year's second half, one banker said, noting that many deals issued in the early days of the market could look to refinance.

SFR bonds three years ago were touted as a growing type of tradable debt created out of the wreckage of the housing crisis.

But JP Morgan analysts in their mid-year outlook cautioned investors to expected tepid issuance this year of just US$3bn versus about US$6.9bn in 2015 - and for liquidity to remain limited as dealers continue to cut expensive mortgage trading operations.

Next (Other OTC: NXGH - news) week online lender Marlette Funding will also be looking to restart a nearly stalled market with its second ever rated securitization of personal loans.

Online lenders have been in retrenchment mode this year with widespread layoffs and increased scrutiny, which has intensified since May when a scandal erupted at LendingClub (Berlin: 8LC.BE - news) .

Goldman Sachs (NYSE: GS-PB - news) has begun pre-marketing Marlette's US$185m three-tranche trade primarily of loans sold to hedge fund Colchis Capital Management.

Morgan Stanley (Xetra: 885836 - news) analysts reported this week that the fourth ABS of online loans - this time from small business lender OnDeck - had breached its performance triggers in June.

They tallied overall issuance in the sector at about US$17bn through a mix of rated and unrated transactions sold since 2014.

"That type of growth does not come without speed bumps," they said. (Reporting by Joy Wiltermuth; editing by Shankar Ramakrishnan)