The first public synthetic securitization backed by purely European credits was launched recently in a transaction that combined credit default swaps and asset backed bonds in a deal worth in total E4 billion. The deal was lead managed by Salomon Smith Barney on behalf of Citibank.

The transaction was split into E3.68 billion worth of credit default swaps with OECD banks, a separate swap with the securitization SPV (C*Star 1999-1) worth E280 million, and a E40 million first loss piece, which was retained by Citibank.

Cash received from investors in the asset backed notes was invested in German government bonds, which along with a top up from Citibank, pays the coupons, with the notes split into three chunks a triple-A piece, a single-A piece and a double B piece. Bondholders received Libor plus 21 bps, 48 bps and 300 bps, respectively.

The loans that the deal is referenced to were made to borrowers across Europe and, according to a Citibank official, the bank chose to use the synthetic securitization, rather than an ordinary CLO structure, largely because of the complexity and expense of selling loans from so many jurisdictions.

Deutsche happy with old-style CLO

Deutsche Bank was also in the market in June, in its case with the now seemingly old fashioned technology of an ordinary CLO. The transaction the third in the Core series was worth E1.358 billion and was chopped into 12 different tranches (with ratings varying from triple-A to double-B), in an effort to satisfy different investor requests.

The pricing was two basis points tighter than the last deal in the series, which was launched in January, demonstrating a continuing appetite for exposure to German corporates; in this case the sought after Mittlestand section of the German economy, and the attraction of repeat issuance programs.

One investor, who said that he bought as much of the deal as he was allowed, added that the regular issuance of near identical deals from the Core program ensured liquidity and stable pricing. "It also means that you know precisely what you are buying in Europe that's worth paying a little for," he said.

Kensington returns

Non-conforming mortgage lender Kensington Mortgage Company, another regular issuer, also returned to the market in June, with the sixth deal in its Residential Mortgage Securities series. In its case, though, investor familiarity did not lead to tighter pricing, as some of those who already owned its paper passed on adding to their holdings, according to Richard Mann, syndicate director at lead manager, Barclays Capital. Combined with a general widening of spreads, this led to the triple-A notes pricing at a comparatively wide 45 bps over Libor, compared to the 33 bps over at which the company's previous deal launched.

Like the previous transactions in the series, the deal was chopped into three tranches, though this time the lowest rated tranche was rated triple-B, rather than double-B. Kensington has also developed a reputation as one of the relatively few European issuers who provide the levels of pool performance that is standard in the U.S.

Nomura parcels TVs

Other transactions included the ever-innovative Nomura Principal Finance Group's part-refinancing of its acquisition of the Thorn group of companies, now renamed Thorn Ltd. The deal brought yet another new asset class to market, this time cashflows from rental contracts from Thorn subsidiary Radio Rentals backed by televisions, videos and other household electronic goods.

The five-year transaction, jointly arranged with CIBC World Markets, was worth GBP309 million ($482 million) and was financed through CIBC's Great Lakes Funding Corp. commercial paper conduit.

According to Nomura officials, the deal was complicated because of the huge number of contracts and customers which back the notes and because after an initial period customers can terminate their leases something that complicates cashflow prediction. However, Nomura managed to provide data that convinced the rating agencies of the predictability of the cashflows and allowed them to borrow a relatively high 68% of the expected income. MD

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