While spreads for The Permanent Financing No. 4 reached the tightest pricing levels among any U.K. MBS seen this year, how long the tightening bias will continue is a matter of speculation. Some market players are hoping that with this deal represents a plateau in spread valuations while other market reports indicate that there is still more room to tighten before the trend reverses.
Trading cooled last week when compared to the volume recorded in the prior week, with little added to the pipeline. Only 3.5 billion (US$4.29 billion) of new paper marketed throughout the week, according to market estimates. "Secondary trading reflected the market's state of mind in recent days - stalemate," said analysts at the Royal Bank of Scotland. "Thoughts are that spreads are too tight, but pent-up demand for assets keeps participants returning."
"However, markets are finding that paying premiums in secondary markets is a difficult proposition. This lackluster demand for seasoned, premium assets solidifies our view that a pause in spread tightening is coming," they added.
Nonetheless, transactions continue coming in at the tight end of price guidance. London Mortgage Co. upsized its RMBS, Marble Arch Residential Securities 2, to GBP300 million (US$540 million) from GBP274 million (US$493 million) and still priced the deal at the tight end of talk. The 2.5-year triple-A rated notes priced at 32 basis points over Libor for both the sterling and euro pieces. The notes were offered under a 3.8-year euro-denominated single-A and triple-B piece that priced at 120 basis points and 230 basis points over Euribor, respectively. The provisional pool consisted of first lien mortgages with a 75.3% weighted average LTV and six months of seasoning.
Lehman Brothers subsidiary, Mabel Commercial Funding's 460 million (US$564 million), Windmere III priced at guidance levels. The trade ultimately is backed by Pantbrev (mortgage certificates) for 29 commercial properties in Sweden. The transaction offered a triple-A rated 4.6-year soft bullet A class at 26 basis points over Euribor, and a triple-A rated, class B priced at 33 basis points over. The portfolio was divided into 76.3% office, 12.6% retail, 5.8% parking, 3.8% industrial and 1.3% residential by rental income, with a 77.5% LTV and a 2.21 times ICR.
Roadshows for SNS Bank's Provide Lowland began last week. Guidance for the 1 billion (US$1.22 billion) synthetic RMBS saw its triple-A, 10-year piece price at 24 basis points over Euribor and the double-A notes price at 45 basis points over. The 10.1-year, triple-B rated piece had yet to price, but was talked at 105 to 110 basis points over Euribor. Only 62.5 million (US$76.6 million) of notes are offered beneath a super senior tranche - due to a 43.4% weighted average loan-to-market value, reducing credit enhancement required. The last Synthetic Dutch RMBS, Provide Orange - with an 87.7% weighted average loan-to-market value - saw its 6.6-year class A notes price at 33 basis points over Euribor.
Underwriters have begun marketing a 588.5 million (US$722.11 million) Berica Residential MBS 1 from Banca Popolare di Vicenza, Cassa di Risparmio di Prato and Banca Nuova. It's the first pure prime residential mortgage portfolio to emerge from the Berica series, said market sources. It contains exposure to Northern (62%), Central (26%) and Southern (12%) Italy, respectively, with a weighted average LTV of 64.9% and 19 months seasoning.
Outside of the mortgage sector, Etruria Leasing and ACI Leasing came to market with its 207.6 million (US$254.7 million) lease-backed deal dubbed Mecenate Leasing. Dealers priced the two classes of triple-A notes at 27 basis points over Euribor for the 1.7- year tranche and 28 basis points for the 2.3-year tranche. The portfolio backing the notes is mixed, split into 46.4% real estate, 28.8% vehicles and 24.8% equipment leases.