Despite declining figures recorded at year-end 2003, CMBS issuance is expected to flourish during the first half of this year with an estimated 2.98 billion (US$3.8 billion) slated. Deals should start to hit the pipeline over the coming month, market sources said.

According to figures released by Standard & Poor's, international CMBS issuance in 2003 decreased by 26% to 15.7 billion (US$20 billion). However, a surge of CMBS lenders and repeat issuers expanding into new jurisdictions could spur volume in 2004. "Whether looking at large or conduit loans, lenders are increasingly originating commercial property loans for the express purpose of securitization," said analysts.

This year's performance is expected to mirror the achievements of 2003, analysts said, as originators remain committed to exploring new structures to contend with the jurisdictional and legislative hurdles in continental Europe that could make these types of deals impossible. "All of these factors will continue to make life challenging for originators, lawyers, rating analysts and investors, and will continue to require great effort and time to bring transactions to market," reported analysts. "Struggling with and overcoming these obstacles over the past year has, in fact, paved the way for the industry's future growth."

Some of the more established names have made substantial progress. Morgan Stanley's ELOC program, for instance, launched the first pan-European CMBS programs under the Khronos deal at the end of last year. At least seven other institutional firms are actively establishing CMBS platforms, said S&P, adding that the number of interested players is still increasing.

The third installment to the La Defense series of transactions issued via BNP Paribas and Credit Suisse First Boston came out of France last week. This latest deal will refinance La Defense I and II, which is secured on eight office properties in the Paris area. La Defense III has a 57.5% LTV and a DSCR of 1.62x. The deal will include 475 million (US$602 million) in triple-A notes, 98 million (US$124 million) in double-A notes and 62 million (US$78 million) in single-A notes. "La Defense will likely be the first CMBS transaction of 2004 testing spread levels for the sector - deals from bank- sponsored conduits are expected soon after," said analysts at the Royal Bank of Scotland.

Also from France, a 355.45 million (US$451 million) sale/leaseback ABS of 389 France Telecom properties is marketing through JPMorgan Securities and BNP. European Property Capital 1 - a single-tranche, triple-A rated 10-year floater that is wrapped by Ambac - is expected to price at the beginning of March. The deal is secured on a loan made by JP Morgan in 2003 for the purchase of France Telecom properties containing technical equipment.

In addition, the market holds a GBP132.5 million (US$249 million) U.K. CMBS for Commercial First Mortgages Ltd, a specialized lender to small- and medium-sized companies (SMEs). Business Mortgage First is marketing GBP100 million (US$189 million) of triple-A rated notes with a 3.4-year average life supported by 5-year soft bullet single-A and triple-B pieces. The transactions provisional pool has an average GBP161,000 (US$304,000) loan size and a 66% LTV.

British Telecom is in the market with a GBP980 million (US$1.8 billion) refinancing of its GBP2 billion (US$3.79 billion) Telereal Securitization plc. The proceeds will be used to repay a portion of the class A1 and A2 notes and will pay the B1s in full, said market sources. The new notes offered include a GBP370 million (US$700 million) Ambac-wrapped triple-A piece, plus GBP180 million (US$340 million) in double-A notes, $310 million (US$586 million) in single-A notes and GBP120 million (US$227 million) in notes that will also include an Ambac wrap. Citigroup Global Markets and Morgan Stanley will lead the deal.

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