With another busy year over, European dealers could afford to take a brief moment of respite. The New Year kicked off at an uneventful pace despite expectations for a busy start of the year, with the city of London almost dormant as the U.S. market delayed its opening by a day.
Nonetheless, talk of another eventful year is well underway. Coming early in the year is a whispered Granite deal from Northern Rock's master trust. The issuer has become a sort of ringleader for kicking off the season and, over the past years, has stepped in as debut U.K. issuer in the primary markets. Market sources said that with the deal arena nearly empty and investors still having cash at hand to put to work, this transaction should find some very good pricing. "They are doing the opposite of Spanish issuers who seemed to push heavy in the last two months of the year - the absolute worst timing," a market trader said.
Rumors of deals marketing began circulating last week, with the end of January slated to look quite busy. One market analyst said that the primary securitization market looks set to take shape as it has traditionally done in preceding years. "The second half of January looks like it will be busy as far as we can tell and then we expect a slower February with a pick up again in March," the analyst said. Outside of the Granite transaction, traders said they were hearing that CDOs are a big part of the New Year's agenda.
Secondary trading
It's been quite a different story on the secondary front where trading took shape as early as the second day of the year. "By midweek the market began to see more clients and everybody agrees - both traders and the Street -that the market is quite cheap, especially for Spanish RMBS," one trader said. Lagging still are the last transactions to price at the end of 2006, which are still showing strong performance. "There has been a lot of activity in the last three days and we have seen as much volume as in the last few weeks of 2006," he said.
Barclays Capital analysts predicted a rise in secondary trading this year driven by the improvements in third-party data disclosure and cash flow modeling. The recently announced European CMBS index, should lead to more structured trades based on single-name or index-linked ABS.
"This increased secondary-market liquidity could attract a new type of investor and further increase investor demand, especially if primary spreads remain stable and prepayments slow," Barclays analysts reported.
Dexia wraps up deal
The market kicked off with a hint of innovation - Dexia closed its first-ever public securitization of wrapped infrastructure bonds. The 2.9 billion ($3.7 billion) CBO issued through Dexia's subsidiary, Dexia Credit Local was arranged by Credit Suisse and Dexia Capital Markets.
The securitized portfolio includes seven PFI bonds issued in relation to the financing of hospitals, other medical facilities, schools, accommodations and workplaces for the central government and local authorities, as well as funding for waste disposal. The portfolio also includes 21 bonds issued by regulated utilities in the water, electricity or gas sectors. All bonds are triple-A wrapped. The total amount of the securitized portfolio is GBP1.47 billion ($2.9 billion). Dexia said that the transaction reduces the amount of regulatory capital attached to Dexia's bond portfolio, which allows Dexia further financing opportunities in the PFI/PPP and infrastructure sectors and increases its debt underwriting and arranging capacity.
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