European RMBS Investors Moving Outside 'Comfort Zone'
The lack of U.K. RMBS is depressing overall European securitization issuance and could drive investors to look for product outside of this usual comfort zone.
European investor-placed issuance was €5 billion ($6.5 billion) in February, down from €7 billion in February 2012, according to figures reported by J.P. Morgan. The primary reason for the drop: there have been no U.K. RMBS deals priced so far this year, which isn’t surprising considering the cheaper funding alternative U.K. issuers have in the Bank of England’s Funding for Lending Scheme.
The FLS allows banks and building societies in the U.K. to use certain pools of loans as collateral against borrowing Treasurys from the BoE with a maturity of up to four years. Originators can borrow up to 5% of their loan book, plus any next expansion of lending from July 2012 to Feb. 2014.
As of Feb.4, 39 lenders had signed up to the scheme, covering just over 80% of the stock of loans to the real economy, according to figures reported by Barclays Capital.
This lack of U.K. RMBS supply has driven investors to look at the supply of retained transactions. According to analysts at Barclays, the senior bonds from a couple of previously retained Italian RMBS transactions have already been remarketed and placed successfully.
“With European RMBS supply unlikely to increase in the short to medium term and spreads likely to remain tight, we believe investor interest in bonds from previously retained transactions is likely to grow as the hunt for yield continues,” said the analysts.
European securitization volumes this year have been mainly supported by the resilient pipeline of Dutch RMBS and German auto ABS. According to Barclays figures, year-to-date Dutch RMBS placed issuance is at €1.2 billion, double that of the previous year; and German Auto ABS is at €3.6 billion in the versus €1billion in the previous year.