With the lack of substantial February volume, deals priced well within initial guidance. Many were oversubscribed and revised to reflect the strong investor demand. The healthy March pipeline continues to grow and may offer buyers some respite from the U.K. RMBS dominated theme, as well as some insight into how CMBS levels are beginning to shape up this year. Pricing levels should hold through the month.
Guidance was released on HBO's GBP4.5 billion (US$8.37 billion) Permanent Financing RMBS master trust deal, which was expected to price on Friday. Market conditions will likely cause the deal to be upsized much like prior RMBS paper that has come to market since the beginning of this year, market sources said. Citigroup and UBS are bookrunners on all tranches with Morgan Stanley as joint-book manager on the triple-A notes.
"With transactions oversubscribed - even in asset classes that struggled a year ago - transactions' pricing continues to compress," said analysts at the Royal Bank of Scotland. "After a syndicate break, unfilled investor appetite has drawn spreads even tighter as new deals trade in the secondary market." Sources added that there is little spread differential between prime and non-conforming paper, trading at comparable levels in the current market environment.
Credit Logement priced its 245 million (US$304 million) synthetic RMBS transaction Residential Asset 2004-1 via Societe Generale, BNP Paribas and Credit Agricole Indosuez. Price guidance was revised to the tighter end of talk early last week, benefiting from demand for RMBS paper as well as the previously lean French pipeline. The triple-A paper priced 20 basis points over Euribor, the tighter end of talk, and historically tight for synthetic paper, sources said.
Initial price guidance was issued for Spain's Bankinter 1 billion (US$1.2 billion) RMBS. Bankinter 8 is issued via Deutsche Bank and Societe Generale, and it includes one triple-A piece talked at 18 basis points over Euribor and a single-A piece talked at 55 basis points. The structure also includes 19.3 million (US$24 million) in pre-placed notes. Bankinter was expected to follow up with a 490 million (US$609 million) private placement, said market sources.
"Consumer ABS spreads have finally steadied across the board after a rather frenetic month of record supply and even greater demand," said analysts at Merrill Lynch. "We are now waiting to find out whether the new entrants to the market will have such ravenous demand for the CMBS, CDOs of ABS, and CLO of leveraged loans." Merrill Lynch expects these structures to be met with the same enthusiasm that
has defined the market to date. The firm anticipates the triple-A paper of CMBS and CDO transactions to price anywhere from 29 to 33 basis points, and 45 to 50 basis points, respectively, over the next two months.
France Telecom's 255 million (US$317 million) European Capital 1 transaction is expected to price its monoline-wrapped single tranche in the low 30 basis points, said market sources. The deal is led by BNP and JPMorgan Securities.
La Defense III, the refinancing transaction of the Paris' la Defense office complex, priced its triple-A rated, 4.8-year dated notes at 27 basis points over Euribor. The pre-placed Class B priced at 60 basis points. The deal was led by BNP and Credit Suisse First Boston. "This is the first CMBS transaction to come to the market in 2004," said analysts at Dresdner Kleinwort Wasserstein. "The triple-A spread is the tightest since Canary Wharf Finance II back in March 2001 that saw its class A2 price at 25 basis points for a similar average life."
Compared with Coeur Defense from December 2002, the triple-A, double-A and single-A notes priced 17 basis points, 13 basis points and 20 basis points tighter, respectively, for a 1.5-year shorter weighted average life, analysts said.
Also in the market last week was Sweden's first true-sale CMBS transaction, Mable Commercial Funding's 460 million (US$572 million) Windmere III issued via Lehman Brothers. The deal will include five classes of notes that range from triple-A to triple-B ratings.
Road shows are expected to commence in March. The transaction is structured with Pantbrev, or Swedish mortgage certificates, that will fund a borrower loan to purchase a portfolio of 29 commercial properties in central and greater Stockholm. The transaction features a 4.6-year soft bullet amortization across tranches and is already oversubscribed, market sources said. The last deal from this series, Windmere II, priced in October 2003 and saw its triple-A rated sterling and dollar notes price at 44 basis points and 42 basis points, respectively.
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