There were transactions worth 20.6 billion ($27.5 billion) circulating in the primary market last week. However, the volume in the European primary pipeline might have been misleading.
Commerzbank analysts said in a report that many of these deals' tranches were either pre-placed or retained. Such was the case for SME CLO Smile's triple-As where 4.5 billion was retained. The same held for CMBS EPIC Culzean's senior triple-A notes and triple-B notes, which were pre-placed. Most of U.K. RMBS Permanent 2007-1's sterling tranches and half of the three-year dollar denominated triple-As were also pre-placed.
This has contributed to spreads within RMBS mezzanine and junior tranches grinding tighter in the secondary market, explained Commerzbank analysts. Heavy over-subscription levels were seen for several deals, pushing spreads to the limit and leaving little room for tightening on the break. The Irish RMBS deal Kildare's tight mezzanine pricing pushed other prime triple-B tranches tighter. Despite these factors, increasing volume on the primary side would likely shift the focus to the new issue market and leave more value for buyers willing to take the time on secondary offer lists, Dresdner Kleinwort Wasserstein analysts said in a report.
Despite the growing primary volume, bonds were typically clearing at the tight end of guidance, with very few exceptions. However, Royal Bank of Scotland analysts said in a report that the effects of heavy supply might begin to weigh in on the ABS market, resulting in increased pressure and more tiering.
Deals in the market
Several deals hit the screens last week. Two new transactions emerged in the U.K. non-conforming RMBS space. They were the GBP575 million ($1.12 billion) Newgate Funding transaction from the Merrill Lynch-owned Mortgages plc and the GBP350 million equivalent U.K. whole loan non-conforming RMBS, Landmark Securities 2, which was the second deal from Investec Bank's Landmark series. The portfolio comprised first charge mortgages originated by Amber Homeloans, Infinity Mortgages and Unity Homeloans and secured by freehold and leasehold owner-occupied and buy-to-let properties.
Underwriters began marketing Provide Bricks 2007-1, the 4 billion ($5.2 billion) synthetic RMBS issued out of KfW's Provide platform. The deal was backed by Danish loans that were 100% originated by Danske Bank, which is owned Realkredit Danmark. The partially funded deal comprised 144 million rated, funded notes under a 3.85 billion super senior credit default swap. The reference pool contained 34,485 loans with an average LTV of 64.1% and 2.08-year seasoning.
A substantial CLO pipeline continued to build. Two new deals from repeat managers were added to the pipeline last week. The Merrill Lynch-led 405 million leverage loan CLO for Partners Group,Penta CLO 1, began marketing. Bear Stearns also began marketing Pangaea ABS 2007-1, the 309.2 million European CLO for Investec Principal Finance. The deal comprised a 300 million portfolio of RMBS, CMBS, commercial and consumer ABS and CDOs. The pool also included non-performing loans, whole business securitizations and SME loan deals.
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