There has been strong investor interest in the secondary and primary markets for European auto securitizations, according to panelists at the Global ABS 2012 conference being held in Brussels this week by Information Management Network and the Association for Financial Markets in Europe.
New originators have also expresssed the desire to come to market with deals.
areas of the auto ABS market have seen an uptick as well. Salim Nathoo, a partner at Allen & Overy, said that there has been an increasing number of residual value transactions. This is despite the tax issues affecting the registration and transfer of vehicles. Nathoo said that there are techniques being used in jurisdictions around Europe to address and get around these issues.
While these are all good signs for the European auto securitization market, the sector is also plagued by counterparty risk caused by rating agencies downgrading banks and imposing more stringent counterparty criteria. Issuers are also dealing with the European Central Bank's loan level data requirements.
One way to avoid counterparty risk is to have fixed-rate auto transactions, said Stefan Rolf, head of asset-backed securitization and Treasury Asia-Pacific region at Volkswagen Bank. However, he noted that investors still prefer floating-rate issues.
Despite the difficulty in coming to market with publicly issued fixed-rate auto deals, there have been some fixed-rate issuance on the private side. Privately-placed, fixed-rate auto offerings are easier to structure because the transactions are usually tailored for only one or two large investors.
Examples of these fixed-rate deals are the Private Driver 2012-1 and 2012-2 transactions issued this year by Volkswagen Bank.
Not only were these transactions fixed-rate, they also have a unique structure.The amortization on these offerings is initially sequential, with one tranche repaying at a time beginning with the most senior. They then switch to being pro-rata with all the tranches repaying at the same time, based on their proportion of the total balance, according to a Standard & Poor’s report on the deals.
Panelists also discussed the ECB's ABS loan-level initiative, which establishes specific loan-by-loan data requirements for ABS accepted as collateral in the bank's credit operations. They questioned the need to provide this information, given that the ECB might not even have the manpower to examine it.
Speakers also questioned whether auto ABS investors really need the amount of loan level information used for lumpier assets such as RMBS.
“There is a need for specific standards for what really needs to be there,” Rolf said.
Other panelists noted that smaller auto ABS originators are having more difficulty providing the ECB with the required data.