The year-end whirlwind that brought 2001 to a close with record-breaking European ABS issues is set to pick-up again this year, with the January pipeline building in momentum.

Analysts at Dresdner Kleinwort Wasserstein are expecting a pick-up in volume and estimate European ABS supply will reach levels between EURO170 billion to EURO180 billion from the EURO131 billion volume recorded in 2001. "Issuance should easily surpass EURO100 billion on the back of rising government, auto and telecom supply," said one market source.

Although the market has not yet reached U.S. levels, sources are confident that the strength demonstrated post-Sept. 11, 2001 marks the maturity levels of European ABS and are confident that European market participants will continue to live up to their potential. "We have to look at the growth of the ABS market in general; there are new deals all over," said one bank source. "But what you don't see is the investor demand - it is more sophisticated than the U.S. because there are various aspects that need to be considered [in European ABS]. These range from jurisdictional issues to different asset classes, which makes the market more varied than its U.S. counterpart.

"It's a positive trend because investors spend more time to understand and this consequently allows room for many firsts. It's a growing trend in European ABS."

To be sure, within the last 12 to 18 months the European ABS market managed to produce good spreads when compared to corporate bond spreads; and even as late as December spreads tightened by one basis point to three basis points. In the face of volatility such numbers can only represent sophisticated borrower and investor base.

On the borrowing end, a prime example is the Italian government, which single-handedly drove volumes up by a considerable percentage last year and has already announced its intentions to come to market in 2002. "Italy is considered a sophisticated borrower that typically looks for alternative funding sources [and is not too committed to one aspect of the market}," said the bank source. "Because this seasoned borrower has become a repeat issuer in the ABS market it demonstrates that we are seasoned as well."

According to Dresdner, ABS spreads may potentially tighten throughout all asset classes in 2002 and analysts expect to see a convergence of spreads if corporates outperform as expected. The total financing needs should fall, promoting a shift from the corporate bond market to the ABS market, with corporate bond supply expected to drop by 25% to 30%.

The shift is largely attributed to ongoing overall balance sheet repair; merger and acquisition activity within the auto, telecom and utility sectors; and the inaccessibility of the conduit paper market to issuers who face a loss of prime short-term ratings, which affects issuers mainly within the auto and telecom sectors.


The issues are lining up, though in these first weeks of January nothing has launched. Counted among the first-quarter potentials are a variety of asset classes that range from balance-sheet CDOs to telecom receivables. According to Dresdner, for first-quarter RMBS, expect to see Northern Rock back in the game with its GBP1.5 billion Granite 2002-1. German-based BHW is also expected to also issue a EURO1.26 billion RMBS. S&P reports that European RMBS issues are on the rise and are expected to show a 25% growth in 2002.

The U.K. is expected to remain the main driver of volume. In 2001 numbers rose to $22 billion from $19 billion in 2000. However, continental European issues are increasing from Italy, Germany and the Netherlands.

Uni Credito Italiano is slated for a balance-sheet CDO dubbed Cordusio plc, a EURO233 million transaction and Societe Generale will be back with MORE Europe, a $48 million transaction. Under the managed arbitrage CDO umbrella expect to see Axa Investment Manager with a EURO1.5 billion portfolio called Jazz CDO; Prudential M&G with a EURO510 million issue, Panther CDO 2; and Allied Irish Bank with the EURO400 million Clare Island.

Canary Wharf has announced plans to come to market with a GBP1.3 CMBS issue this quarter as well adding on to activity in 2001. Along with the U.K. issuer are also German-based West Deutche Immoblian Bank and U.K.-based Annington Homes who will continue its series adding Annington Finance No.4.

Southern Water's planned GBP1.8 billion Trident is expected to come to market as well, with a GBP800 million Home Technology receivables No.1 plc by Box Clever. Both issues join a busy whole-business sector that also expects to see issues emerging from Isle of Man Steam Packet Co. with a GBP65 million transaction, Kyndal with a GBP190 million deal and AWG with a GBP400 million to GBP600 million transaction.

Telecom receivables will see France Telecom and Telewest enter the market in the first-quarter with a EURO1 billion and GBP200 million transaction, respectively. Telecom Italia is also expected to return to market with a EURO1.3 billion deal.

German-based Volkswagen Leasing will initiate the auto-loan asset class with a securitization of EURO1 billion worth of loans and leases while Italy will continue to securitize non-performing loans with two issues slated for the first-quarter, including a EURO400 million NPL from Banco di Sicilia and another expected from Banco di Navara. Italian-base Bielle will also be in the market before the end of the month, securitizing EURO200 million of its leases in Securesel-2.

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