This month, Fitch Ratings published its first edition of the European ABCP Papertrail, highlighting the significant growth of European commercial paper. The numbers are not entirely surprising, and they remain largely in line with market expectation reported late last year (see ASR 10/28/02).

"Many new entrants are still looking to the ECP market for funding," reported Diana Turner at Fitch. "At the end of May 2003, the asset-backed ECP market had reached US$72.93 billion, more than double the US$35.88 billion seen in the same period last year."

Much of the growth in investor appetite is still attributed to the exposure outside the U.S. CP market, say sources. The European investor base is also on the rise. According to Fitch, European investors purchased at least 30% of the CP issued by Fitch-rated conduits.

The rate of growth is in line with trends of last year. Sterling-based paper is still on the rise since appearing in the market in 2002, accounting for 21% of the market compared with the 13% recorded last year. According to Fitch's figures, while sterling issuance still remains below the 62% of euro-denominate paper, it has gradually surpassed the 16% of U.S. dollar-denominated paper issued in the ECP market.

But predictions that lower-tiered conduits would make up a larger portion of the market may be a few quarters off the mark. Fitch said that the majority of the conduits it has rated still maintain the F1+' initial rating. While last year, A1'/'P1'/'F1' rated conduits represented at least 32% of the market, this year that figure has risen to a little over 33%, though going forward this trend should gradually continue to take hold. "This weighting is expected to change over time in line with the trend already being observed among European conduit managers to restructure an F1' rating following the downturn in the banking sector, which saw the universe of F1+' liquidity providers significantly contract," reported Fitch. "There is also broad acceptance among the investor base for this development."

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