While it's hard to predict the next rendition of corporate securitization in Europe, the hybrid sector holds promise, as evidenced by the emergence of a new, streamlined European Corporate Securitization group at Standard & Poor's, co-headed by Apea Koranteng and Mike Wilkins.

The construction of the new team has been long in coming as S&P steadily recognized a need to better access the full spectrum of issues that might develop under the ever-popular hybrid structure. Koranteng and Wilkins said that S&P pulled the team from various parts of S&P Europe and hoped that the broader range of expertise might provide a continuum approach for investors and their financial advisors wanting to access both the unsecured debt market and asset-backed markets.

The group brings together 15 credit professionals from S&P's corporate, infrastructure, project, and public and structured finance practices. "With the creation of the new group and our success in making ABS criteria and unsecured criteria converge, we have now found the solution that best suits the markets," said speakers last week at a London press conference.

S&P rated GBP7.16 billion (US$12 billion) during the first eight months of this year compared with the GBP6.6 billion it rated at the same time last year.

"It's not just the water and pub deals that are sprucing up volumes, but we are starting to see rapid growth within the healthcare sector as well as telecoms and forest products," said one industry source.

As far as what's next for this sector, analysts said growth was largely contingent on the legal environment surrounding insolvency legislation that varies throughout continental Europe and the U.K. For example, the U.K. favorable insolvency environment promotes the use of wholebusiness structure, as it's the most supportive of secured creditors in the event of insolvency.

After a decent flow of U.K. water deals - including a repeat issue from the Anglian Water Services and a deal from Southern Water - analysts expect a six-month break while the U.K. water and sewerage regulator (OFWAT) concludes its review of water company price limits for 2004. If it's a favorable conclusion, the market should see other companies follow suit. "OFWAT is maintaining a consistent and, importantly, a very transparent approach to the forthcoming price review," said one analyst. "It aims to allow companies to earn a respectable return on capital and maintain adequate access to the capital markets. This will enable them to raise finance to fund their capital expenditure programs on reasonable terms."

London and Continental Railways is bringing a GBP1.25 billion (US$ billion) deal to finance construction of the recently completed rail link between the Channel Tunnel and North Kent. CTRL Section 1 Finance plc will offer two Classes of notes, a 20.7-year fixed-rate tranche and a 39.5-year Index-linked tranche. Both triple-A rated notes will be supported by government guarantees.

Outside of the U.K., there is a general trend of corporate rehabilitation and the interest of all creditors over those specifically associated with secured creditors, S&P said. Nonetheless, operating company securitizations along a similar vein as those structured in the U.K. are counted among deals rated by the agency. "Some businesses may not lend themselves well to this type of structure," said one analyst. "There has been loads of play on debt-service coverage ratios but the real issue is that you can have beautifully structured deals and still have to get to the underlying management and capital expenditure to understand how it functions."

Going forward, the agency expects to see continued participation throughout Europe. There's talk, for example, of a new Spanish utility deal, which would put Spain on the list of issuers by the end of this year.


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