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dailynews.yahoo.com
Sunday May 9 12:55 AM ET
US Asset-Backed Q4 Volume May Be Bitten By Y2K Bug
By Tim Ryan
NEW YORK (Reuters) - A growing number of U.S. asset-backed players are considering staying out of the fourth-quarter market for fear of exposure to a year-end bug.
But it isn't a flu bug that market participants hope to avoid. It's the Year 2000 bug, or the Y2K bug that some analysts believe has the potential to cause worldwide computer problems and economic fallout.
''That's one a lot of people are talking about right now,'' said Thomas Hourican, head of asset-backed securities (ABS) research at Chase Securities. ''I'm not sure Chase (Securities) is one of them, but a lot of (investment) banks around the Street are advising a lot of clients to avoid the fourth quarter.''
ABS are bonds or notes issued by a bank or other lender and backed by an expected or predictable cash flow such as credit card or home equity loan payments.
The Y2K bug, widely referred to by the ''Millennium Bug'' misnomer even though the new millennium actually begins in 2001, is a problem computers could experience because many older machines were originally programmed to read only the last two digits of a year.
When the clock switches over to 2000, computer programs that haven't been updated will read ''00'', in some cases assuming that means ''1900''. The potential fallout from that has led to various speculations, with some theorists saying it will cause only minor glitches to those at the other end of the spectrum saying it could cause worldwide chaos.
''This is looming in the background,'' said Jeff Salmon, head of asset-backed securities (ABS) research at Barclays Capital, who said he has heard rumblings of ABS players moving to the sidelines as the end of the year draws closer.
But in what is more Catch 22 than Y2K, many market participants may avoid the market not because they foresee a technological disaster but simply because they are hearing that their peers may avoid the market. Many are concerned that if too many players bow out, the securities will be less liquid.
''One of the worries is very limited liquidity in what is normally the most active quarter of the year,'' said an analyst at a Hartford, Conn.-based investment company.
''It's a matter of what approach the investor base is going to take,'' this analyst said. ''They may decide to close their books early. It's a big question mark. People are starting to talk about it a lot and plan for it more.''
But all this talk and planning may make a dearth of fourth quarter issuance a self-fulfilling prophecy, said Grant Carwile, senior vice president at William Hough & Co.
Carwile addressed the issue when it came up during the question and answer session of a student loan securitization panel at an ABS conference here this week.
''People are saying fourth quarter activity is going to cease to exist,'' he said. ''And if everyone believes that, then it will happen.''
Sharon Asch, analyst at Moody's Investors Service, another member of that student loan panel, said the rating agency has heard that many may not be doing business in the fourth quarter, or at least in November and December.
Analysts at Merrill Lynch in a recent monthly market research piece, wrote that ''Y2K fears and distractions are likely to make November and December issuance the lightest the ABS market has seen in several years.''
It may also mean a supply bulge late in the third quarter or very early in the fourth quarter as issuers rush to market before Y2K anxiety fully settles in, the analysts wrote.
However, the fourth quarter could also be a particularly opportune time, said Hourican. Investors who brave the Y2K fears could benefit from the absence of other buyers to get some very attractive yield spread levels, he said. ''I would think some people will be taking that opportunity.''
Likewise, issuers would have the investor base largely to themselves, noted Alex Roever, head of ABS research at First Chicago Capital Markets.
''Potentially, fourth quarter could be a nice time to issue,'' he said. ''It's not like investors aren't going to have cash to spend. They're going to have to put that cash someplace and it might as well be asset-backeds.'' |
