There may be three weeks remaining in the asset backed securities production year, but traders and analyst say any serious action will remain under wraps until 2008.
"There are some new deals entering the pipeline, and although deals also keep pricing, they are not publicly offered," analysts at the Royal Bank of Scotland said in a report. "The market seems to be holding off and waiting for the new year to bring some relief."
The analysts said that they expect Fortis Bank to have a 3 billion ($4.4 billion) partially-funded synthetic CDO of Belgian SME loans ready for market soon. The deal, which will be called Park Mountain SME 2007-1, will likely be structured with six tranches of credit-linked notes beneath a super-senior CDS. Also, the first securitization of consumer loans in Greece is underway in the form of a 2.5 billion transaction, originated by EFG Eurobank and involving several different types of loans, such as auto and revolving loans.
However, these deals will likely remain privately placed, according to a trader at Societe General. The trader added that investment banks are using the down time to develop new models of securities to bring new products to the market early next year, but he declined to elaborate on what techniques those models may include.
Analysts at Deutsche Bank affirmed the concern that securitization may be in need of change. "We expect structured finance dependent business models to remain under pressure going forward, but at this stage [we] see risks of failure limited mostly to the smaller, less capitalized and generally privately owned entities," they said in a report.
U.K. buy-to-let lender Paragon is also said to be seeking a rights issue, which would allow existing shareholders to buy more shares of the lender at a competitive price, in order to raise as much as GBP280 million ($580 million) and refinance a corporate facility of the same amount. The facility would be due on Feb. 27, 2008, according to the Deutsche Bank analysts. This is a decision Paragon decided to take rather than paying a much increased loan margin on a bailout offer from its lenders, according to analysts.
An analyst at a European-based investment bank said the lending facilities offered to Paragon as a bailout were on a short-term and expensive basis. He said the reaction of Paragon to this offer was "clever."
"They simply gave the bank the middle finger," with the attempt to raise the money themselves, he said. "This way the warehouse will stay open, and Paragon's securities will not go into a run-off mode."
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