The deluge of RMBS paper at the end of October has done little to sway pricing away from tight levels. According to market reports, October's volume reached a new all-time record of over 70 billion ($89.26 billion). However, as the month came to a close, over 25 billion remained in the visible, short-term pipeline, with issuance expected to grow in the run-up to year end.
Analysts at Deutsche Bank predict that 2006 primary volumes look poised to exceed 400 billion, which would make securitized products one of the largest sectors in the European fixed income credit market.
The RMBS pipeline
Lloyds TSB has priced its monumental GBP7 billion ($13.36 billion) debut RMBS transaction Arkle - the largest RMBS deal the U.K. market has seen to date. But despite having a raft of other U.K. issues competing to get done, investors remained attracted to the diversity the new name offered and bid for the deal within price guidance.
And right off the heels of Arkle's debut, Barclays Capital managed to price its new GBP6 billion delinked master trust, Gracechurch Mortgage Financing 06-1, within price guidance. Most of the triple-A tranches met guidance, with the longer dated A6 and A7 classes ending up at one basis point inside talk, pricing at 10 basis points and 11 basis points, respectively. Further down the curve, pricing on the double-A tranches and triple-B tranches was inside guidance. The double-A rated 1.8-year Class B1 tranche ended at 10 basis points, while the other two double-A rated tranches, the five-year Class B3 and B4 notes, came in at 18 basis points. The single-A rated five-year U.S. dollar denominated Class C1 tranche also priced at 18 basis points, the sterling- and euro-denominated Class C3 and C4 notes came in at 27 basis points and the triple-B rated five-year Class D tranches (D2, D3 and D4) priced at a spread of 47 basis points over the three-month Libor benchmark.
In terms of comparisons with Arkle, Gracechurch's 4.65 year, euro denominated Class A5 tranche priced at the same 10 basis point level as Arkle's Class 5A1, which was one year longer. At the subordinated level, the double-A tranches and single-A tranches came at similar levels to Arkle while the triple-B tranches priced two basis points wider.
On the subprime side of the business, official price guidance was offered on Eurosail 2006-3NC, the GBP510 million UK non-conforming RMBS originated by Southern Pacific Mortgages Ltd. and Southern Pacific Personal Loans Ltd. Guidance on the triple-A level came at the tighter end at six to seven basis points for the Class A1 notes, 13 basis points for the Class A2 tranche and at 17 basis points for the Class A3 notes. Spread for the triple-B rated Class D1 tranche is talked at a spread of 85 to 90 basis points.
From the continent, a new Dutch RMBS deal from GMAC-RFC - the 800 million E-MAC Compartment NL 2006-III. - began marketing last week. Dealers also announced AyT Caja Murcia Hipotecario II, the 315 million Spanish RMBS for Caja Ahorros de Murcia. The underlying collateral contains 4,014 first ranking mortgages with an average loan-to-value of 62.3% and 30.1-months seasoning.
Italian bank UniCredit is prepping its 2.5 billion RMBS deal Cordusio 3 RMBS. Roadshows are slated to start this week. The issue comprises five rated tranches of floating rate notes and a sixth unrated tranche, a source said. The securitized portfolio consists of performing residential mortgages granted by Banca per la Casa and UniCredit Banca, two units of the UniCredit group. All loans are guaranteed by a first lien on residential properties.
Moving away from the heavy RMBS calendar, Telereal prepped its tap issue and refinancing of its floating rate notes. The U.K. property company plans to raise GBP650 million through the refinancing of its securitization backed by property rental income from phone company British Telecom. Only GBP385 million of Ambac-wrapped notes are being offered for sale in two classes that are divided into GBP190 million Class A8 fixed-rate and GBP195 million Class B6 floating-rate. An additional GBP93 million of Ambac-wrapped floating rate notes (Class A7) will be issued, but would not be offered for sale. The other classes are not offered for sale, which include GBP265 million of unrated zero coupon bonds in three classes that can be exchanged in September 2011 for GBP381 million of forward purchase notes that will be issued, but not sold until 2008. Citigroup and Goldman Sachs are the lead managers.
A planned tap of the U.K. CMBS Epic deal is also in the works. The expected GBP253 million tap of original transaction, which was priced at the end of September, was structured to accommodate new properties introduced into the loan. According to market reports, three new properties were added to the transaction, raising the number of tenants to 27 from 15 and reducing individual tenant exposure. All tranches will be tapped, and the underlying loan's loan-to-value is reduced to 70.1% from 77.2%.
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