The asset-backed securities market in Europe is still on a roller coaster ride. Last week, Moody's Investors Service announced that it may downgrade a series of SIVs that include some senior sponsors, while Standard & Poor's upgraded 13 tranches in 10 U.K. nonconforming RMBS 2004 and 2005 vintage deals.
Although market sources are optimistic that deals will continue to trickle into the pipeline, they say the market will need time before it returns to normal in a satisfactory way.
"We believe that primary volumes need to remain at current low levels for spreads to tighten," said an analyst at Societe Generale. "Many buyers are waiting for signs of stabilization before they re-enter markets. This, in turn, will allow demand to build up sufficiently for normal conditions to resume."
Moody's move will do little to allay pricing disruption, sources say. As a matter of fact, the announcement sent trades back to levels previously seen during the crisis. "With credit market sentiment so fragile, we do not expect any meaningful primary deal flow this side of the new year as issuers and investors wait out the volatility," Deutsche Bank analysts said. "But we make the point that, at this stage at least, structured finance remains a cost-competitive balance sheet funding tool for banks."
Primary securitization volumes have stalled in the past couple weeks. Although several deals continue to be actively marketed, those that are publicly marketed deals are few in number and endure longer marketing cycles. "Primary deals in non prime RMBS sectors may be priced at generous levels as banks attempt to clean up their balance sheets ahead of the year end," said analysts at Societe Generale.
Lehman Brother's GBP575 million ($1.19 billion) U.K. RMBS, Eurosail UK 2007-5NP priced its "triple-A," 2.6-year A1 and A2 tranches at 70 basis points; the double-A-rated 4.1-year Class B notes came in at 125 basis points; the single-A-rated 4.1-year Class C tranche priced at 175 basis points; and the triple-B-plus-rated 4.1-year Class D notes priced at 375 basis points. The deal is backed by a portfolio of 5,566 loans with a weighted average current LTV of 73.5%, a weighted average seasoning of three months and geographical concentration in SE England (37.2%).
La Caixa released details about a new Spanish SME CLO, the 1.03 billion ($1.5 billion) Foncaixa FTGENCAT 5. The capital structure includes a 450 million triple-A-rated tranche guaranteed by the Government of the Autonomous Community of Catalonia. The pool consists of 27,575 loans to 23,945 obligors with a weighted average LTV of 52.04% and 1.7-year seasoning.
The secondary market remained just as quiet. "The ABS market died a death, and the initial move wider was the only evidence that anything actually happened on the day," reported traders at Dresdner Kleinwort. "The only fixed pattern that is emerging is the inverse relationship between bid lists and trades; the more bid lists we see, the less trades that occur."
But trades are expected to pick up on the back of a number of mezzanine lists out for bids. Analysts at Societe Generale said that pricing spreads should improve in the run up to December as supply, particularly for RMBS paper, remains limited.
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