A couple of British and Australian RMBS deals recently distinguished themselves in the issuance market, a sign for some in the asset securitization business that a wave of such products could be on the way.
"Given the noise recently, investors are looking to diversify out of the U.S. home equity stuff," one market participant in New York said. "As long as it is prime stuff, people are jumping to it."
As one London market participant noted, a lot of large mortgage lenders, in the U.K. especially, held off from issuing RMBS paper because they had not fully appreciated all the benefits of issuing asset-backed securities.
"Securitization was only being used by the bigger players," said one market source from London, adding that some participants did not see the need to free up capital.
In 2007, it seems, they finally caught on to the benefits of ABS and have been coming to the market in droves. European issuance should surpass 250 billion ($335 billion) by mid-June, largely due to U.K., Australian and even some Italian RMBS deals, Deutsche Bank analysts wrote in their commentary last week. The GBP3.1 billion ($6.1 billion) Arkle Master Issuer, 2007-1 transaction, on which Lloyds TSB and Lehman Brothers acted as joint bookrunners, was aimed at the short-dated money market investors in the U.S., said the market participant in London. The transaction was Lloyds TSB Group's third RMBS securitization from its Cheltenham & Gloucester subsidiary, according to the company.
A vast majority of the deal was denominated in U.S. dollars, with durations of less than one year, and the entire deal seemed to be well received. According to one market source, a $2 billion tranche priced at two basis points under one-month Libor, while the $2.3 billion tranche came in at two basis points over. A 625 million and a GBP175 million piece both priced at three basis points over three-month Libor.
Several other U.K. RMBS deals are circulating in the market, including another Arran transaction, plus an enormous $10 billion deal called Holmes from Abbey National and Santander. In the current batch, however, only the Arkle deal has short-dated maturities throughout the structure.
Otherwise, asset securitization professionals eagerly made the most of a short work week after Memorial Day, even if a slow start yielded just a couple of pricings by late Wednesday and a mere $7.1 billion was on the new issue calendar by press time.
Several deals are lining up for pricing - and looking to exploit an investor market hungry for quality paper. Price talk on the Wachovia Auto Loan Owner Trust put its money-market tranche at three basis points under Libor. Investors choosing to go "long," such as it is, on the three-year, triple-B tranche could expect payment of swaps plus 40 basis points.
The Leaf II Receivables Funding, an equipment loan transaction, priced its P-1/A-1+/F-1+ rated, money-market tranche at flat to Libor.
Once again, student loans aimed to be star pupils among ABS deals for the week. After a weeks-long road show in Europe, the $1.3 billion ALG Student Loan Trust is aiming to duplicate the success that Nelnet Student Loan Trust 2007-1 enjoyed two weeks ago with its $2.4 billion deal. Co-managed by RBC Capital Markets and Goldman Sachs, the transaction is also ALG's largest deal ever. Another student loan deal, the $1.2 billion Goal Capital Funding Trust 2007-1, is seeing its three-year, triple-A piece talked at two basis points over three-month Libor, and its 10-year class, also rated triple-A, at eight to nine basis points over the same benchmark. That would put it at just one basis point wider of where Nelnet Inc.'s similarly dated tranche priced a little more than two weeks ago.
Home equity and subprime MBS deals made up the rest of the deals nearing pricing, including a $392 million transaction from Lehman ABS Corp., a deal from Structured Asset Securitization Corp., also sized at $392 million, and a $985 million transaction from HSI Asset Securitization Corp. Countrywide Securities is also marketing a $104 million transaction.
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