Barclays Capital's securitization research team met with120 ABS investor clients in 18 European countries as part of the bank's annual tour with investors. The road show got under way in January and concluded last month.
"What is most interesting is the sheer range of investors. That ... is an indication of where this market is going," said Hans Vrensen, who is a member of Barclays' research team. "Increasingly these investors are getting more sophisticated. But the sheer size of the market is also very impressive."
Vrensen said investors continue to look at changes in prepayment profiles in CMBS. Transactions in 2005 experienced significant levels of prepayments, both at a particular interest payment date and over the course of the year.
According to a Standard & Poor's report published earlier this year, the average annual prepayment rate has remained at 15%. However, several transactions have seen annualized prepayment rates above 30%. Some CMBS deals prepay fully in less than three years, including those that have prepaid almost entirely over the first year of the transaction.
Vrensen said prepayment rates might actually increase with larger deals, leading to discussions of prepayment penalties and lockouts.
Disclosure has also emerged as a recurring topic among investors, Vrensen said.
"Investors are aware of the shortcomings of the current data provisions, but at the same time they are also unaware of some of the solutions currently being developed within the various industry organizations," he said.
One such initiative is the Commercial Mortgage Securities Association's European Investor Reporting Package Initiative on CMBS. It offers a standard template to disclose information on European CMBS, allowing for information to be downloaded to customized investor reports or internal risk management systems. This initiative has been under way for almost two years and incorporates input from market participants, including arrangers, servicers, investors and rating agencies.
Another initiative under way is the European Securitization Forum's RMBS Standardized Report, which includes fields and definitions for European RMBS. It is divided into four sections on security-level data, collateral-level data, loan-level data and transaction contact information. The RMBS Standardized Report also includes a special section on the fields and definitions for master trusts.
"In both cases, the initiatives will only gain market acceptance when investors are aware of them and become involved with them," Vrensen said. "Investors should also consider encouraging arrangers and servicers to adopt these standardized reporting formats in order to more effectively monitor their ABS holdings."
The joint task force of the CMSA and ESF is discussing the European Union's Market Abuse Directive - an initiative that deals with the disclosure of information on securities listed with recognized exchanges in the EU. The task force's meetings and discussions have focused on practices in the CMBS sector and are likely to lead to recommendations on best practices.
"In our view, these recommendations are likely to include full, regular and freely available disclosure," Vrensen said. "Specific practices may encourage monthly updates, [regulatory information service] disclosure and undertakings in [over-collateralization]. These would make the market more transparent, and are likely to increase secondary market trading."
The research team last year published an investor survey (ASR, 12/19/05) in which similar topics were covered. Vrensen said the team plans to continue with the survey to shed some insight on European investor motivation.
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