Job losses and smaller bonuses, coupled with a sluggish European primary pipeline, paint a grim outlook for the start of the year. However, players are still hopeful that once the market restarts, it will be back to business as usual.
At the moment, though, there are no deals on the primary side. "Overall volumes remain anemic in comparison to pre-crisis norms, with total volumes reaching a mere 40 billion in the fourth quarter to date, a staggering 70% lower than the comparable period last year," Deutsche Bank analysts said. "We expect to see very little primary deal flow in the run-up to the year end, and generally expect issuance to remain relatively light early in the new year."
Most bank-related deals continue to be retained for in-house financings. While December has seen a more robust deal flow after the credit crisis earlier this year, most activity consists of securitizations of warehouse lines and discounted assets in sectors including CLOs, nonconforming RMBS and conduit CMBS. Deutsche Bank analysts estimated that only around 20% of primary volumes seen after the credit crisis exploded might have been sold into the market.
Liquidity and borrowing constraints within structured finance have started to take a more visible toll on valuations. November data provided by Deutsche Bank showed U.K. commercial property prices falling noticeably, while valuations remained under pressure in other highly geared asset markets such as the U.K., Irish and Spanish housing markets as well as leveraged loans.
As volumes suffer, so will other segments of the market. Job security has become an issue in London, and market players are hesitant to forecast what's to come. The Center for Economics and Business Research (CEBR) said city players can expect up to 35% reductions in bonuses this year, although more alarming are the projections of job losses. The CEBR said that investment banks will bear the brunt of next year's cuts, losing 2,300 positions, followed by the fund management industry, which will let go of 1,600 jobs. The insurance sector faces about 600 job cuts, with professional services companies such as head hunters accounting for another 300.
"We expect the threat of asset liquidations to recede in the new year, which should allow for better buying at the unprecedented wide spreads currently," reported analysts at Deutsche Bank. "But at this stage we see no fundamental catalyst to a meaningful recovery in European structured finance spreads, not at least in early 2008."
Year end Deals
Another retained Spanish transaction was part of last week's lineup. The 1.6 billion ($2.35 billion) Royal Bank of Scotland deal Hipocat 12, from Caixa Catalunya, is backed by first-lien loans secured on owner-occupied Spanish residential mortgages, with a weighted average seasoning of 18 months. The capital structure comprises three tranches of notes with ratings from triple-A down to triple-B minus. Pricing is expected later this week. The deal is managed by JPMorgan Securities and Caixa Catalunya.
Details were also released on Amey Lagan Roads Financial Plc, the GBP146.2 million index-linked U.K. PFI project. Market reports said that the triple-A-rated Ambac-wrapped notes were said to have priced at 99.996 with a coupon of 2.267%. The portfolio includes GBP24 million in variation bonds and a GBP120.96 million index-linked guaranteed loan facility from the EIB. The proceeds will be used to finance three projects to upgrade, widen and build new highways on the south and west of Belfast.
Italy's Banca Agrileasing SpA, the leasing unit of local cooperative credit banking group Banche di Credito Cooperativo (BCC), has privately placed a reported 350 million lease-backed transaction backed by 3,000 contracts in the Triveneto area in northern Italy. The pricing spread of the triple-A-rated 8.8-year notes was not disclosed.
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