The European primary market continued to build last week, promising a busy fall. While the tightening bias has continued into September, with a heavy CMBS pipeline doing nothing to impact spreads on deals that priced last week, market players are not as sure spreads will continue to hold. Instead, they expect more tiering to emerge on the back of the heavy pipeline ahead.

According to Citibank analysts, triple-A RMBS and two -year subprime/nonconforming spreads have tightened by around 0.5 basis points in the past few weeks while CMBS have tightened across all rating levels by between 0.5 and one basis point. "Most asset classes across all rating levels are now at, or close to, their 12-month lows, with the exception of credit cards," analysts reported. "However, we expect the tightening bias to come to a halt and some tiering to emerge as the (large) pipeline unfolds, likely to create new opportunities."

Deal guidance released

So far, several new issues have entered the pipeline. Nearly 48 billion ($60.8 billion) in transactions - which are expected to price within the next two weeks -is now circulating in the European ABS market while 33 billion worth of deals have active price guidance.

The price guidance for RMAC No.1 Series 2006-NS3 was released with the 3.21 year, triple-A tranche talked at the 15 basis point area and the 4.22 year, double-A tranche talked at the 24 basis point area. The single-A tranche is offered at the 43 basis point area and the triple-B tranche is talked at a spread of 90 to 95 basis points. Price guidance was also on offer for Arran Residential 2, the GBP5 billion ($9.3 billion) U.K. RMBS originated by Natwest. The triple-A, 0.9-year tranches are talked at four to five basis points. The 2.3- year tranche is talked at six basis points and the 4.3-year tranche is talked at 10 basis points.

Guidance was offered for Opera Germany (No. 1), Eurohypo's 254 million CMBS transaction backed by residential multifamily properties located in Berlin and Dusseldorf. The triple-A rated Class A notes were talked at a spread of 19 to 21 basis points. The double-A rated Class B and single-A rated Class C are offered at the 30 basis points area and 50 basis points area, respectively. The split-rated Class D notes are talked at a spread of 80 to 85 basis points.

More new deals

Among the new deals to be announced were Deutsche Postbank's 2.5 billion synthetic RMBS deal dubbed PB Domicile 2006-1 PLC. The transaction references 19,510 loans originated by Deutsche Postbank. Another deal to emerge was Epic (Industrious) Plc, a GBP487.5 million ($917.7 million) CMBS deal backed by industrial units in U.K. estates from the Royal Bank of Scotland's conduit program. The transaction is expected to launch towards the end of September and is backed by a loan to a joint venture between RBS and the Dunedin Property, which has invested in 120 industrial estates in England and Scotland. The properties have 1,509 units and 1,060 tenants. The securitization also includes the William portfolio that was securitized originally in the Epic (Ayton) transaction. Six tranches will be offered, ranging from triple-A to triple-B.

Sherwood Castle Funding Series 2006-1 will issue GBP53.07 million. The capital structure includes a set of double-B rated notes offered in euros, sterling and U.S. dollars. Much like the structure of Barclays Capital's Gracechurch Card Notes 2006- A that was announced last week, this series will provide additional credit support to the outstanding Sherwood Castle master trust program

Preferred Mortgages began marketing its GBP615 million Eurosail 2006-2BL near-prime and subprime RMBS, which is the second U.K. nonconforming RMBS from the Lehman Brothers program. The transaction is structured with two senior tranches, one fast-pay and the other slow-pay, that are supported by five subordinated classes subdivided into euro, sterling, and U.S. dollar denominations.

Dealers also announced Lusitano 5, the 1.4 billion Portuguese RMBS from Banco Espirito Santo. Four tranches will be offered. According to market reports, the deal is expected to launch this week. And from Spain, Bancaja has begun marketing a 1.5 billion SME CLO. Approximately 77% of the pool is backed by mortgages, with the balance backed by a personal guaranty.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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