After a long spate of spotty issuance, a solid pipeline of European auto securitization deals has emerged as part of the big fall lineup. According to Deutsche Bank analysts, the auto ABS market had fallen into near insignificance in recent years, with the sector poised, until recently, to show one of the weakest growth rates among the various asset classes in Europe. However, with the pipeline up ahead, 2006 is now expected to be a record year in terms of sector volumes.
The pipeline is currently filled with 5.7 billion ($7.2 billion) worth of deals backed by auto loans that are set to price in the near term. Renault and Porsche are among the sellers while Russian assets are counted among the collateral behind these transactions. "The recovery in auto securitization has more to do with balance sheet efficiency for car manufacturers, in our opinion, rather than the need to finance receivables growth - indeed, car sales remain flat," Deutsche Bank analysts said. "Auto ABS continue generally to be very well bid, helped to a large extent by rarity and diversification value."
The latest deals to be announced include the 1.35 billion Santander Auto 2006 and the 960 million Driver Three from Volkswagen Bank. Santander Consumer E.F.C. SA, a unit of Santander Central Hispano, is selling a 1.35 billion securitization of auto loans. UBS is managing the deal. The loan pool is made up of assets from Andalusia, Madrid, Catalonia and the Canary Islands.
Underwriters provided pricing guidance on FACT 2006, the 600 million Austrian auto ABS from Porsche Bank. Price guidance on the 1.6-year senior tranche was set at the five basis point area over one-month Euribor, while the single-A rated, 3.6-year Class B was talked at the 18 basis point area. The Class C notes were privately placed. Price guidance has also been released for the latest deal from Renault, Cars Alliance 06-1, with the 4.75 year, triple-A rated tranche talked at the 11 basis point area and the 5.5 year, single-A class B tranche talked at the 21 basis point area.
Healthy pipeline all around
While auto paper comes in as a front liner, the market has still plenty of activity to be had from other sectors. Royal Bank of Scotland analysts said that so far this October, 21 billion is currently visible in the pipeline. The pricing debate remains but analysts expect to see momentum move in one direction or another.
Citigroup's GBP321.4 million ($606.8 million) U.K. CMBS Victoria conduit program priced at the wider end of guidance. The triple-A rated, 6.8-year Class A notes priced at 24 basis points over three-month sterling Libor from 22 to 24 basis point guidance, the double-A rated, 7.7-year Class B tranche was priced at a level of 42 basis points versus a high of 30 basis points, the single-A rated Class C notes priced at 60 basis points from 55 to 60 basis point price talk, and the triple-B rated Class D notes at 100 basis point from talk at the 100 basis point area. The deal is backed by three loans on 15 properties, with an LTV of 64.4%. The largest loan equaled 58.9% of the deal and the top 20 tenants represented 42.7% by rent.
Lusitano Mortgages No. 5 is the eighth securitization operation and the fifth RMBS carried out by BES. It's the second jumbo Portuguese RMBS deal to price in a week following Douro Mortgages No. 2, which was equally well received. The leads tested a tighter level on the Class A tranche but were unsuccessful and consequently priced the tranche at 13 basis points over Euribor.
"As we have seen with several other transactions at [triple-A] level, while deals may be two to three times covered at the original talk, investors are showing price resistance that is preventing these tranches printing any tighter," Dresdner Kleinwort Wasserstein analysts said. "As a result, the Class A notes tightened immediately on the break and traded one basis point inside reoffer. In terms of the subordinated tranches, Classes B and C met price talk while Class D priced two basis point inside."
New deals ahead
As for new deals coming onto the pipeline, dealers announced European Property Capital 4, a GBP490.3 million CMBS from JPMorgan's conduit program. The offering is backed by two senior loans secured by mostly London office properties and is structured with five 3.8-year publicly offered tranches, ranging from triple-A ratings to triple-B. Junior loans are held outside the trust. Marketing also began for a GBP300 million CMBS for Commercial First Mortgages called Business Mortgage Finance 6. The pool contains 938 mortgage loans to small businesses.
HBOS announced its second U.K. RMBS of the year, which will also be the first issue from a new de-linked master issuer trust, Permanent Master Issuer. The deal will total GBP4.44 billion and is fully registered under Securities and Exchange Commission rules. The structure will include a 2a7 eligible tranche as well as a privately placed Canadian dollar-denominated senior tranche.
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