It was business as usual last week in Europe as volumes edged past the E12 billion (US$13.7 billion) mark. By press time several new deals priced and new paper began marketing as well.

According to reports, at least E8 billion (US$9.1) is expected to launch in the near-term calendar that will be largely dominated by Dutch paper. However, the flood in issuance could begin to put a strain on pricing. According to Merrill Lynch, Dutch RMBS spreads have widened slightly and spreads for triple-A Spanish paper have pushed out five basis points wider than Portuguese

comparables.

New from the Dutch side is Monastery 2003-1, a E796.5 million (US$915.5 million) RMBS for DSB Bank/DSB Hypotheken. The transaction will offer investors a E741.5 million (US$852.3 million) triple-A piece, a E15 million (US$17.2 million) double-A piece, a E21.5 million (US$24.7 million) single-A piece, a E9.5 million (US$10.9 million) triple-B piece and E9 million (US$10.3 million) of double-B paper.

"The deal boasts a [Standard & Poor's] rating (only the fourth Dutch RMBS to do so this year), which broadens its investor appeal to include SIVs and also offers some double-A paper, which is unusual for Dutch RMBS," said one analyst at Dresdner Kleinwort Wasserstein.

As far as pricing fundamentals within the market, guidance for SNS Bank's Hermes VII transaction backed by E1.25 billion (US$1.4 billion) of prime Dutch mortgages saw its senior tranches spilt into euro and dollars talked at 25 basis points over Libor and 26 basis points, respectively.

But despite market concerns about consumer debt (see story, next page), U.K. RMBS is still the flavor of the day and continues to see spreads tighten. Secondary trading in Northern Rock's latest deal, for example, saw spreads tighten by one to two basis points from pricing levels. Credit Suisse First Boston began marketing its second Chalet Financing deal just two months behind its debut issue. Chalet II will offer exposure to E4.25 billion (US$4.8 billion) of Swiss residential mortgages and the capital structure will replicate the Chalet I transaction. It includes three triple-A rated pieces denominated in dollars, sterling pounds and euro paper. According to market sources, the deal will incorporate a synthetic structure thereby avoiding the legal and tax issues that have up to now made it difficult to structure transactions under Swiss law.

Beyond RMBS

Offering a bit of repose from the RMBS asset class is a new credit card deal for Capital One. The GBP250 million (US$415 million) Sherwood Castle 2003-2 is the bank's fourth deal backed by U.K. credit card receivables and is marketed through Credit Suisse First Boston and JPMorgan. The structure will include GBP215 million (US$357 million) of triple-A notes, GBP15 million (US$24.9 million) of single-A notes and GBP20 million (US$33.2 million) of triple-B notes. All pieces are offered with 7.7-year bullet maturity.

HBOS also came in for a second round of financing under its E14 billion (US$16 billion) structured covered bond program. Its latest deal is expected to reach E500 billion (US$575 million) with a 10-year maturity, but sources say the size will depend on investor demand.

The mortgage lender inaugurated the U.K.-structured covered bond market when it launched a E300 million (US$345 million) issue amid market uncertainty as to potential impact the establishment of this market might have for the future of U.K. RMBS (see ASR 7/7/03). As it stands, the pricing levels for structured covered bonds may seem too expensive for the typical RMBS investor. Also, said industry analysts, the benchmark HBOS issue requires a sizable backlog of assets that are only likely to be found among the bigger mortgage lenders.

Most view each market as offering a different function. "Securitizations or other financial instruments are only tools and not an end in themselves," reported ABN Amro. "As such, they are only valuable in so far as they meet a particular issuer's needs. In this case, flexibility of the structure should be praised for allowing it to be perfectly tailored to HBOS' requirements."

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