New tights were set for Euro RMBS with last week's pricing of Dutch RMBS, Arena 2005-1 B.V. The 983 million ($1 billion) broke through the record lows set by Dutch RMBS HERME 9, which priced in early February.
The double-A and senior and single-A junior notes priced at the tightest levels seen in the market for their respective rating and tenor and came in at 13 basis points over Euribor, 15 basis points and 23 basis points, respectively. The triple-A notes priced at 9 basis points, 1 basis points inside the triple-A's in the HERME structure.
According to lead manager ABN AMRO, Arena 2005-I B.V. incorporated an innovative pre-funding period that prior to origination of the mortgages, delivers funds backing the securities. This certainty of funding enables Delta Lloyd N.V. the issuer, to take advantage of the efficiencies of the RMBS market and price its mortgages at a tighter range, while avoiding any need for contingency funding.
The soft bullet structure in Arena 2005-I B.V. also provides investors with an exact maturity date, allowing investment portfolios to be more accurately planned, and improving secondary market trading, particularly toward the maturity date. Trading for the triple-A notes immediately tightened about one basis point, said market sources. "There is an overwhelming amount of money and not enough supply at the moment, I think that helped to bring pricing in even tighter," said one market source. "The deal was structured with the current market in mind, and the soft bullet structure that was incorporated in the capital structure aimed at encouraging secondary market liquidity - it's the first time we've seen this from a Dutch RMBS."
According to market reports, spreads on prime, triple-B, paper has tightened by 15 basis points this year. Industry sources are betting that the tightening bias will continue and some speculate that pricing may go even tighter for triple-A rated RMBS notes. "The market seems to be completely fine with the amount of supply that we are seeing," said one market source. "At the moment, volume is still below issuance seen at this time last year but we have a reasonable pipeline building. In the past, a large amount of supply building would mean the market might expect some widening but the migration of a larger investor base means that there is no longer the bottleneck situation that we have seen in the past."
Subprime and buy-to-let RMBS has tightened by 13 basis points despite some widening seen on the recent issues that have come to market. Last week, Matlock Bank priced its 471 million subprime issue, Marble Arch Residential Securitization No.3 priced the triple-A notes at 14 basis points, one basis points within talk. Further down the curve, the pricing widened out, reflecting the weaker pool characteristics, which might signal that investors have reached their floors, added market sources.
"It's near impossible to come up with a single reason for any significant ABS widening going forward, unless corporate spreads widen," said one market source. "But if corporate spreads move, the relationship between the ABS and corporate markets is much stronger today than it has been. I think ABS would go out but eventually stabilize before they go too wide."
Redevco Europe priced GBP325 million (US$626 million) securitization of its U.K. portfolio of former C&A stores receivables via lead arranger Morgan Stanley. The two-tranche offering priced its triple-A notes at 14 basis points over Libor and its double-A notes at 20 basis points over Libor. It's the Holland-based company's first securitization of its commercial properties. The deal is backed by its U.K. portfolio of 47 retail and six office properties previously occupied by C&A and now leased to variety of retailers. "The deal priced within a short space of time and at historically tight sterling launch spread levels," said analysts at Dresdner Kleinwort Wasserstein. "This is on the back of the strong sponsorship from Redevco, a straightforward structure and geographical diversity of the properties and their relatively good locations, as well as supportive market technicals."
And in the pipeline at the moment is the 68 million French Residential Asset 2005-1 Plc for Credit Logement via Caylon Securities. Credit Logement's core business is providing loan guarantys for the purchase of primary or secondary residences by private individuals. According to Dresdner, Credit Logement held a 45% market share in this arena in 2004. The transaction will provide Credit Logement with capital relief on a portion of its guaranty portfolio.
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