Portugal has not been amongst the busiest securitizing nations in Europe, though it has gone from nothing to a regular deal flow over the last two years. Nonetheless, although the Portuguese government implemented a securitization law last November, bankers have been disappointed that the mortgage-backed securitization - in many countries the mainstay of issuance - has yet to get off the ground.
There are several reasons for this, including the fact that when a special purpose vehicle is established it is subject to withholding tax as is the case with normal companies. "As things stand, the law has been an impediment to deals," said Stuart Jennings, an analyst at Fitch. "One of the shortcomings of the law is that it didn't explain or clarify whether the Portuguese SPVs would be exempt from withholding tax. Until that is ironed out - and a lot of banks are waiting for clarification - I don't believe that structure will be used."
While investment banks such as Deutsche Bank have discovered ways round this problem, it has meant that deals have to have complicated and expensive structures using both onshore and offshore SPVs. For mortgage assets, however, the problem is more complicated, thanks to the registration fees that are incurred when properties are transferred into securitization vehicles.
"Changes to the law are also needed to simplify the transfer process, so that where mortgages are transferred to the SPV, there wouldn't be new registration charges for the properties," Jennings explained. "In the past, it has not been clear how this would happen."
The necessary changes will come, according to Jennings, although there is some debate as to when. There are some that believe it is imminent, others who expect it to happen before the end of the year, and the majority who think it will happen in the first quarter of 2001. But whatever the timing, the amendments are likely to see a surge of mortgage lenders coming to market, and reports suggest that some of the major European investment banks are already sending teams in an attempt to win mandates.
"I think it's definitely the case that there will be a surge of deals coming from Portugal when the problems have been sorted," said Jennings. "We have visited a number of potential issuers and, without naming names, I can at least think of two or three that will come to market."
Still, the current confusion has not blocked deals backed by other asset classes, and Banco Portugues De Negocios is set to become the latest first time to issuer to hit the market with a deal arranged by Credit Suisse First Boston.
Called Chaves Funding No.1, the E200 million ($183 million) transaction securitizes a portfolio of auto contracts, credit loan contracts and leasing contracts. The underlying collateral was originated by three subsidiary companies within the BPN group: BPN Carpin Rent, which provides contracts for long-term vehicle rentals, consumer credit company BPN Creditus and equipment and real estate leasing company, BPN Leasing.
The transaction is split into three tranches that will pay a coupon over three-month Euribor. The E180 million senior notes have been provisionally rated Aa2 by Moody's Investors Service and AA by Fitch, the E10 million mezzanine notes A2 and A, and the junior E10 million tranche has been rated Baa2 and BBB.
Pricing was referenced to three-month Euribor, with the 1.6-year A tranche coming in at 45 basis points over, the 3.6 year B tranche at 85 over and the 3.6-year C tranche at 175 over.
Credit enhancement for the senior notes is provided by 10% subordination on the mezzanine and junior tranches and a E24 million reserve fund.
Jose Castelo Branco, general manager at BPN, said the company was comfortable in using securitization as other Portuguese companies, such as Banco Comercial Portuguese, had already launched deals backed by similar asset classes. "We have to a strategy for the BPN companies and securitization is one of the interesting ways to raise funds," he said. "We're happy because there have already been around 10 ABS deals originated from Portugal, and investors have had experience looking at these asset classes."
Branco added that the company was likely to return to the ABS market, but not to expect anything until next year at the earliest.