The European ABS market has finally shifted into summer mode, as the new-issue pipeline last week appeared to have finally reached the customary slowdown. Pricing on the primary and secondary fronts was almost at a standstill. However, it was business as usual in the run-up to August - year-to-date issuance volumes have peaked at 145 billion (US$177.44 billion).
Market reports indicated that more than 3 billion (US$3.67 billion) priced over the first week of August. An upswing in CMBS paper occurred, both from U.K. names as well as the continent, with spread improvement on secondary trading levels. The Morpheus deal, launched under the EloC program earlier in the month, saw its four-year sterling-denominated triple-A tranche trading at 23 basis points over three-month Libor and offering a 20 basis point pickup over RMBS in the single-A level, JP Morgan Securities said.
Above-normal flows in secondary trading also caused tightening in RMBS paper across Europe at the start of the month. "Given the moderate tiering currently in place, there are some sound relative value stories to be told, and, if the firming continues, these may not be available when the September calendar kicks in," explained analysts at ABN AMRO. "We suspect that it would only take two basis points of tightening for benchmark issues to take us back to a largely un-tiered marketplace."
But by the beginning of last week, it looked like any pending major business would be reserved for the post-holiday business calendar. Nonetheless, dealers managed to price Eurohypo's GBP550 million (US$1.03 billion) Opera Financing deal launched at the end of July. The triple-A rated, 6.8-year notes priced at 25 basis points over Libor and the double-A rated seven-year Class B notes priced at 47 basis points over Libor. The seven-year single-A rated class C notes priced at 68 basis points over Libor.
In the pipeline for post-holiday activity is a deal for Italian insurer Alleanza, which is already in the market. This deal topped off the firm's 1999 San Giorgio securitization deal backed by insurance policies. Market sources indicated that this second deal, San Giorgio II, would offer investors 550 million (US$673 million) of notes with an average life of 7.1 years. The deal is led by Mediobanca and is rated double-A by Standard & Poor's.
Spain is in the process of launching a 50 million (US$61.19 million) deal originated by Mitsubishi Motors' Spanish subsidiary MMC Automoviles Espana, said market sources. The commercial paper notes will be supported by a liquidity facility from Confederacion Espanola de Cajas de Ahorro. Sources said 88% of the loans are from new vehicle sales and 12% will come from spare part sales.
The CMBS front looks set to maintain its relatively brisk pace, as dealers begin lining up what will become Morgan Stanley's EloC 20, a 340 million (US$415 million) Italian synthetic CMBS. Four commercial mortgages and one Value Added Tax (VAT) loan secured on 195 properties, with 317 tenants, will back the Nerus portfolio. The VAT loan will be secured by an assignment of the borrowers VAT proceeds as well as a second-rank property mortgage, according to market reports. About 2% of the properties are located outside Italy. For those located in Italy, 44% are in the region of Lazio, 22% are located in Lombardia, 16% in Piedmonte and 4% are located in Toscana.
Expected to come in September is yet another deal from the Granite master trust series. Northern Rock is expected to reignite the post-holiday RMBS sizzle with a giant 5.7 billion (US$6.9 billion) deal led by Deutsche Bank and Lehman Brothers. This will offer investors the typical mix of U.S. dollar, euro and sterling paper. Also in the pipeline is a $1 billion (US$1.22 billion) shipping loans securitization deal, Ocean Star 2004, for HSH Nordbank. At least 90% of the loans are European - 80 of the loans referenced in the deal will be secured on 103 vessels with a 50% weighted average LTV and 3.5-year seasoning.
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