On the first day of Christmas the market brought to Europe one Belgium deal, one German true-sale and a whole slate of paper still holding on to the unprecedented year-end tight levels. All jingles aside, investors are gearing up to close books for the year but it shouldn't add too much pressure to issues looking to price before the 2003 window shuts, market sources said.

According to ABN AMRO, the usual year-end widening will be muted this year. "If anything, the available capacity could lead to further tightening if a significant number of transactions slip into 2004," said William Ross at ABN, adding that "We understand a bottleneck at the lawyers is this year's iron lung."

"Due to the lack of flexibility in their timing, this will be driven by the number of sellers in search of capital relief before street spirit fades out," Ross added.

In Deutsche Bank's weekly ABS research paper, recently issued senior RMBS paper was trading one basis point tighter. Deutsche adds that the secondary technicals remain unusually robust compared to previous year-end periods.

The first Belgian issue since 1998 will hit the market this week via ABN. The E2.216 billion (US$2.67 billion) RMBS, Automium Mortgage Finance, has rarity value, which, combined with strong collateral quality, is fueling interest from buyers. At press time, ABN was expected to price the issue at the close of the week. The mortgage portfolio was bought by ABN from state-owned Belgian mortgage originator Bank Credibe. The purchase was financed via a credit facility from the ABN-sponsored conduit, Tulip. The portfolio will be transferred to Occhiolino Compartment No. 3 (OC3), using the proceeds from the Automium issue.

While the rest of the market begins to cool off for holidays, activity on the Dutch side is still heated. One more name joined the already significant Dutch pipeline last week: DBV's E430 million (US$518.71 million) Holland Homes MBS 2003-1. The deal, which will be managed by ABN and Credit Suisse First Boston, is set to price by mid-December. It is the second transaction by the Dutch mortgage insurance company, following the October 2000 launch of its first Holland Homes issue, market sources said.

A new multijurisdictional CMBS issue for Aareal Bank was also part of the pipeline. The E1.7 billion (US$2.05 billion) deal, Global Commercial II, will include holdings varied among 14 countries, including the Czech Republic and Turkey. The six property types backing the deal include: 46%, office sector, 19.5%, retail sector, 11.0%, industrial, 11.9%, multifamily properties, 10.7%, hostels and 0.9%, leisure properties. Commerzbank is lead manager.

German RMBS

In reiteration that the year will end with a bang, the first German true-sale RMBS began marketing mid-week. HVB's Geldilux TS 2003 SA will be the first RMBS deal that benefits from the recent legal changes made to facilitate the true-sale structure. The transaction will provide E1.4 billion (US$1.6 billion) of funded notes distributed in four tranches rated triple-A to double-B, all with 3.1-year tenor. A portfolio of loans made to small and medium-sized entities (SMEs) backs the transaction.

On the synthetic side, a few new transactions also hit the market last week. Haus 2003-1 will offer investors E30.4 million (US$36.62 million) of credit-linked notes from a E2.9 billion (US$3.4 billion) portfolio of mortgages. The capital structure will include E13.0 million (US$15.6 million) of triple-B rated notes and E17.4 million (US$20 million) of double-B notes offered through Deutsche Bank. Also marketing is a new transaction for DG Hyp, Hall AG and five small co-operative German banks, which will launch under KfW's Provide platform through lead manager DZ Bank. The E69.4 million (US$83.7 million) transaction will be backed by a portfolio of second-lien residential mortgages consisting of seven sub portfolios originated by different entities from the German co-op banking sector.

According to Fitch Ratings, German RMBS that includes investment mortgage loans (including multifamily) concentrated in East Germany shows higher levels of defaults. The portfolio of this latest transaction contains concentrations in both investment mortgages (38.7%) and East Germany (29.9%). At a press conference late last week, Fitch reiterated its rating methodologies for the sector, explaining that it provides individual surveillance for notes that do not achieve a minimum credit cover conversion, which provides an indication of how many times a tranche is covered through available credit enhancement.

"What we have seen is concentration of credit events in East Germany and particularly pools exposed to investment properties," said Asina Ajwani at Fitch. "It's nothing that we didn't already anticipate, adding corroboration to Fitch's rating methodology for German RMBS."


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