Picking up fuel and adding names to the pipeline, the Euro securitization market is showing no signs of slowing down. Meanwhile, investment banks are hiring in the sector, according to industry reports. The reports attribute the activity to improving securitization legislation among continental European countries.
In the market last week, Punch Tavern dominated headlines as it revealed its refinancing proposal for its existing securitizations. The pub operating company is looking to merge its transactions under a singular structure that will also include pubs previously funded through short-dated bank debt, pooling together 4,300 pubs. The transaction is expected to free up to GBP250 million (US$398 million) of cash.
Under the new structure two triple-A rated tranches of up to GBP300 million (US$477 million) will be included along with a GBP200 million (US$318 million) single-A piece, a GBP400 million (US$636 million) single-A piece, a GBP150 million (US$238 million) triple-B plus piece, and a GBP214 million (US$340 million) triple-B piece.
The Dutch pipeline bulked up with the addition of two new RMBS deal marketing last week. ASR Bank was in the market with its second transaction this year. The E1.5 billion (US$1.6 billion) Delphinus 2003-1 is led by Fortis Bank and Merrill Lynch and is expected to include E1.3 billion (US$1.4 billion) spilt into two triple-A tranches, plus E84 million (US$93 million) of single-A paper, E31.5 million (US$35.1 million) of triple-B paper and a E15 million (US$16.7 million) tranche rated Baa2' by Moody's. All are structured to a soft bullet five-year weighted average life. The pool has a weighted average LTV of 91.4% with 8.5 months seasoning.
Simultaneously marketing is DBS Bank's E787 million (US$878 million) Monestry transaction through Morgan Stanley. The capital structure will include E734 million (US$819 million) triple-A notes with a 4.1 average life. Three five-year bullet tranches are included: E14.5 million of double-A rated paper, E22.5 million single-A notes and E10 million triple-B notes. ABN Amro also began marketing its synthetic CDO Amstel Securitization of Contingent obligations 2003-1 that offers investors exposure to a E5 billion (US$5.5 billion) pool of derivatives.
On the U.K. front, the extensive RMBS pipeline saw one deal price last week. Standard Life's GBP1.5 billion (US$1.6 billion) Lothian Mortgages No. 2 master trust transaction priced all of its tranches within initial guidance. The four triple-A pieces saw the two U.S. dollar offerings price at 9 basis points over the three-month Euribor and 18 basis points, respectively. The euro-based tranches and the sterling-based tranche priced at 22 basis points. A double-A piece came in at 45 basis points, the single-A piece priced at 70 basis points and the triple-B piece priced at 140 basis points.
According to industry reports, at least E23 billion (US$25.6 billion) has been completed in new U.K. RMBS issues this year, which represents almost 24% of total market issuance. Credit performance remains solid among these deals but analysts at Royal Bank of Scotland noted that, as mortgage and house prices slow, investors should continue to watch for credit deterioration within the sector.
"With several deals in the market and more expected, this asset class remains a critical pricing benchmark and bellwether insight into the health of European ABS," said analysts.
Fundamentals have driven prices tighter over the past several months. Analysts indicate that there's still strong liquidity in secondary RMBS trading. "We believe that this asset class provides excellent benchmark pricing levels," a researcher said. "However, we find other market sectors, such as subprime and buy-to-let RMBS, more attractive from a relative value standpoint."
The research still recommends U.K. RMBS as a good starting point for investors interested in entering the market.
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