The European securitization market prepares to exit another landmark year, with industry estimates of 205 billion ($272 billion) being placed this year - accounting for a 15% increase over volumes recorded at year-end 2003.
Although issuance has increased, it's done little to curb appetite, as continued demand imbalances caused tightening spreads across most asset classes this year. Industry sources attribute the continued shift in the pricing dynamic to a broadening investor base that includes hedge funds new SIVs, institutional and retail funds, as well as private banks. "We believe that Basel II and the benefits it will bring to ABS has been responsible for generating much of the new interest in the sector," reported Morgan Stanley analysts.
RMBS continued to lead European volumes, representing roughly 57% of total market issuance so far this year but increased appetite was also seen for other asset classes, according to market reports. Sources at Dresdner Kleinwort Wasserstein reported an increase for CMBS paper and said that most other asset classes also experienced increased demand, albeit from relatively low levels.
"The size of the market as a whole and the number of jumbo [triple-A] tranches helped secondary market activity to increase further," said Dresdner analysts. "We also saw an increase in liquidity further down the curve and in the CDO market, although this remains limited."
Little is expected to change for the remaining weeks of the year. Sources report that while some investors have begun to lay the books to rest for this year, there is still plenty of interest that should see the remaining issues price along the tight levels seen throughout this year. Investors looking to cash in on what was once the traditional year-ending widening are likely to find little alleviation as transactions continue marketing at the tightest levels of this year.
An additional 11 billion of paper remains on the primary calendar of 2004. New on the calendar is Promise Caravela, the latest deal from the KfW sponsored platform. It's the first Portuguese synthetic transaction transferring SME loan credit risk. The 3.5 billion referenced loan portfolio will consist of 7,369 facilities and loans with the option of adding new claims up to October 2008. This SME transaction has only 7.3% of the portfolio secured by a mortgage and losses may be realized before the workout has been finalized, according to market sources.
Credit Suisse First Boston tops the initial offering made earlier this quarter from its Titan Europe conduit, offering investors a 265.3 million CMBS backed by five loans on 16 properties. Titan Europe 2004-2 includes properties located in France and Germany. Redstone Mortgages adds GBP288 million ($552 million) of first-lien mortgages to the December pipeline variety. The deal, Bluestone Securities 2004-1, is backed by 2,478 loans purchased from Amber Homeloans and Rooftop Mortgages with a weighted average pool seasoning of 9.5 months and a weighted-average LTV of 76.1%.
Spanish airline operator Iberia Lineas Aereas de Espana SA is marketing its $333.1 million aircraft lease securitization, Iberbond 2004 Plc. It is the third in the Iberbond series, but the first European aircraft lease deal of 2004. Iberia will use the proceeds to fund delivery of 20 new airbus aircrafts. The transaction will offer two class A notes as well as B and C class notes, which are offered under a note facility agreement with financial institutions.
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