Do not expect much securitization activity out of Europe this year, said participants in a panel at the American Securitization Forum’s 2013 conference.
“If you measure securitization in terms of primary market, it’s going to be a disappointing year in Europe,” said Ganesh Rajendra, head of credit and mortgage strategy at RBS Securities.
The crisis naturally has dampened demand for fresh collateral while current and potential regulations, as in the U.S., has made securitization more costly.
Another reason for another year of weak issuance is the impact of counterparty criteria from the rating agencies, which has lead to many downgrades in spite of relatively healthy collateral performance of the bulk of deals in the leading asset classes, panelists said.
“Clearly with counterparties and with large amount of swaps used, the deterioration of the banking sector has had a negative effect on deals,” said Jonathan Manley, a managing director at Standard & Poor’s.
The potential for dollar product out of Europe will be weak as well as the new counterparty criteria from rating agencies has made it much more expensive to use currency swaps, Rajendra said. He pointed out that in 2001 — before this criteria went into effect — about 30% of securitization issuance from Europe was in dollars. The figure has since dropped dramatically.
Nonetheless, he expected a couple of U.K. issuers to place in dollars in order to keep that channel of financing alive.
Also there has been some good news on the regulatory front. Ulrich Lotz, a partner at Deloitte, pointed out that the Basel revision of the liquidity coverage ratio earlier this month allows double-A or higher-rated RMBS to be included, with a 25% haircut.
Manley added that some of the transactions that have been retained by issuers for funding with the European Central Bank could filter into the market.