Nothing about the market indicates the looming holidays - not the flow, not even the pricing. By this time in previous years, dealers would have been bringing in a last minute rush of deals that would have pressured spreads. The seasonal tide this year has been no heavier than the aggressive volumes placed throughout the whole of 2006 and December's volume is unlikely to affect spread levels.
Royal Bank of Scotland analysts expected 12.9 billion ($17 billion) of European ABS and MBS deals to price by the end of last week, building off the strength of the 19.3 billion of transactions printed during the U.S. Thanksgiving week and in the run-up to year-end. By Monday, 14.0 billion of deals had issued price guidance with another 15.2 billion more awaiting price guidance. Analysts said that so far, they have seen only limited spread pressure in the face of this supply.
Deals in the market
"This year has been another record year for European ABS issuance, with the drivers for strong growth during 2007 well in place," Societe Generale analysts said. "We expect volumes to approach 500 billion in 2007, approximately 20% up on 2006, which will likely close at around 430 billion."
Although SG analysts are generally positive from a credit standpoint, they think junior spreads usually reflect the benign environment experienced in recent years. They believe that abundant supply has permitted investors to be more selective, and hence, hold spreads at levels that rising demand would otherwise allow.
Among the deals to issue guidance last week was the GBP850 million ($1.6 billion) U.K. CMBS deal for supermarket retailer Somerfield, Starling Plc CMBS. Guidance over Libor was revised wider at 32 basis point for the Class A tranche, 40 basis points area for the Class B tranche, 50 basis point area for the double-A rated Class C tranche, and 75 to 80 basis points for the single-A rated Class D tranche.
On the U.K. credit card side, guidance was heard on both tranches of Arran Funding Ltd Series 2006-A, the GBP57.9 million equivalent issue to support the existing Arran Funding Series. Both the euro- and sterling-denominated double-B rated notes were talked at a spread of 285 to 295 basis points.
Bookrunners offered price guidance on the 1.9 billion FTA Santander Consumo 2 consumer loan securitization backed by loans originated by Santander Consumer E.F.C. The 1.7 billion triple-A rated Class A notes were talked at the 15 basis point area, the triple-B rated 7.4-year Class D tranche was talked at the 55 basis point area and the double-B rated Class E notes were talked at the 220 basis point area. The remaining tranches were preplaced.
Guidance was also on offer for Amstel SCO 2006, the 7 billion securitization of counterparty credit risk. At the triple-A level, the 6.2 billion Class A1 notes were talked at the 17 basis point area and the Class A2 tranche was talked at a spread in the low 20 basis points. The double-A rated Class B notes were talked at a spread of low 30 basis points, the single-A rated Class C tranche were talked at the low 50 basis points, the triple-B rated Class D notes were talked at a spread in the low 100 basis points and the double-B rated Class E tranche was talked at the low 300 basis points.
Among the new issues that began marketing last week was the 930.6 million Spanish RMBS, TDA 27 Mixto FTdA. Pool LTV was 62.9% with 24.6-month seasoning. Underwriters also began showcasing IM Caja Laboral 1, the 910.8 million inaugural RMBS transaction of loans originated by Caja Laboral. The Spanish deal is backed by 11,022 first ranking mortgages with an average LTV of 63.23% and a seasoning of 46 months.
HSBC announced its GBP260.87 million CMBS transaction out of its Nemus commercial property loan conduit, Nemus II (Arden) Plc. The portfolio is backed by six loans secured on 22 properties with an LTV of 69.9%.
Bookrunners began marketing the 400 million European high yield CLO, Cadogan Square CLO III. The portfolio comprises primarily of senior loans, second lien loans, mezzanine obligations, structured finance securities and high yield bonds.
Caja de Ahorros del Mediterraneo marketed its 1.53 billion CLO of loans to Spanish SMEs, FTPYME TDA CAM 4 FTdA. The pool comprised 14,971 loans (of which 57% are secured) to 12,726 obligors with a seasoning of 2.04 years. Bookrunners also began marketing Raffles Place II Funding, the $1 billion cash flow high-grade structured finance CDO. Approximately 65% of the portfolio consists primarily of prime and sub-prime RMBS (65%) and 35% is made up of CDOs with a maximum weighted average life of 5.4 years.
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