The new-issue European market has remained active. In fact, according to Henderson Global Investors research, March was the first month since August 2007 that issuance in the European ABS primary market exceeded retained issuance, which comprises securitization issues retained by the originating bank for balance sheet liquidity or central bank repo purposes.
Among the list of private placements was Europe's first CMBS transaction since the start of the financial crisis in 2007. Vesteda, the Netherlands-based residential property investment fund, priced a et exceeded retained issuance, which comprises securitization issues retained by the origi
The portfolio of underlying assets is rented multifamily apartment blocks and houses in the Netherlands. The issue comprises A7 notes rated triple-A by Fitch Ratings, Standard & Poor's and Moody's Investors Service. The notes priced at 163 basis points over the three-month Libor.
ABN AMRO acted as sole lead manager for the transaction, and Bishopsfield Capital Partners was the rating adviser.
This deal marks the first time since the financial crisis that all three rating agencies assigned a triple-A rating to a new CMBS issue.
Mike Nawas, a partner at Bishopsfield, said that no major overhaul of the structure was required to get to triple-A. The significant equity cushion, quality of collateral and relative stability of the country of origination behind the deal provided for a sound credit story.
Going into the transaction, there had been focus on a recent Dutch bank bankruptcy that had a number of structured finance deals in its portfolio. "The rating agencies wanted to see how this structure would behave in the event of a similar scenario, where the originator would go bankrupt," he said.
Nawas said that, in the U.S., the rating process for securitizations is often more straightforward because the frequency of issuance over the year's deals has become more or less programmatic.
In Europe, the structuring process remains more bespoke. "In this case you have to consider the jurisdiction - the Netherlands is small, so there are not many frequent issuers," he said. "There are jurisdiction-specific legal, modeling and operational risk issues that need to be considered by the rating agencies."
ABN was approached by the issuer a year ago, at which time the firm foresaw a refinancing problem of the A2 notes, which would face a step up of 100 basis points if the issuer was unable to tap the market again.
"At that point getting a similar deal looked hard," said Albert van Welderen Rengers, head of principal finance. "There wasn't much investor appetite, and it really depended on whether the originator could get a triple-A rating."
Rengers said that the key for achieving the rating in this transaction is the conservative leverage at 35% LTV and the very high quality of the 27,000 underlying multifamily residential units.
The CMBS deal is likely to be followed by more this year, "There is demand from investors for highly rated paper at the right price because there is a segment of buyers looking for yield who have not been tainted, but in these early days issues are likely to continue to be privately placed," Rengers said. "It's too soon to assume you get price tension for a public book."
However, this surge of optimism should not be confused with a bullish forecast. The refinancing challenge is still very much a story the sector must contend with.
Nawas said that it began to affect deals maturing in 2010 but that there are many tough refinancings required one to two years away. "The challenge is huge and unprecedented," he said. "Right now we are mostly seeing CMBS deals being extended with the same investors to suppress the refinancing issue for a few years until things improve. New issues like the Vesteda one are rare and there are not that many issuers that can tap new bank credit at the moment. "
The same situation applies to the RMBS space. It has been the asset class to watch in recent months, with several U.K. deals tapping the primary pipeline and meeting good investor demand. The pipeline is more actively seeing deals and the pricing has come in from where it was two years ago. The margins are still high but there is a sense that the market is normalizing.
"Overall the European ABS market enjoyed a strong first quarter," said ABS portfolio managers at Henderson Global Investors in a note published at the end of April. "Spreads tightened dramatically in the early part of January as the dealer community started the year with low inventory levels and a constructive outlook, whilst a number of investors who had been passive during December returned to the market."
Several Dutch RMBS transactions and a German auto loan deal called Driver 7 were placed, which brought the publicly placed issuance volume for 1Q10 to end of April. "Spreads tightened dramatically in the early part of January as the dealer community started the year with low inventory levels and a constructive outlook, whilst a number of investors who had been passive during
In terms of primary activity, pricing for the recent Driver Espana One deal from Volkswagen was delayed as a result of the Icelandic volcano-related flight cancellations.
Meanwhile, Lloyds' new prime U.K. RMBS Arkle 2010-1 was also officially announced. Citigroup, Lloyds and the Royal Bank of Scotland serve as leads. The deal had been expected to be launched and priced at the end of April. The transaction features British pound, U.S. dollar and euro tranches, according to the preliminary deal structure to be publicly offered.
Fortis Bank placed €4 billion of previously retained notes from its €100 billion Dolphin master trust with a single external investor this week, and the originator has enlisted the services of Cohen & Co. to market the uncollateralized class E notes.
"While the Driver Espana One transaction is a debut with respect to Spanish underlying loans, the Arkle transaction is another U.K. prime RMBS to be structured without a put option after the Fosse 2010-1 transaction placed last month," Henderson research said. "From this perspective, a successful launch of both transactions can be viewed as a further step forward in terms of recovery of the public securitization market in Europe."
However, European investors are still risk averse and, similar to the CMBS sector, only the very best originators have been able to place deals.
"The success of the deal depends very much on the quality of the sponsor," a market source said. "Investors don't want too much of the story, so it works best if it's a frequent issuer, that type is favored more than the bespoke issuer."
Sovereign debt concerns have caused periods of general risk asset price volatility, which has spilled over into ABS markets. The Securities and Exchange Commission's fraud case against Goldman Sachs has once again brought the subprime topic back into the news with litigation and contagion risk for financials being still high also for European players. Goldman coupled with the continued deteriorating scenario in Greece are clearly adding to risk aversion and uncertainty on credit markets.
According to Unicredit analysts, yields on Greek government bonds rose to more than 10% in the 3Y bracket and to 9% for the 10Y after Eurostat revised Greece's deficit for 2009 to 13.6% and said it may revise it even higher to 14.1% due to uncertainties about Greek economic data.
Following the release of the revised figures, Moody'sdowngraded Greece's rating by one notch to 'A3' negative, which is likely to lead to further rating actions in Greek financials as well as in Greek securitization deals.
"Restructuring Greece's debt to help the country would remove some of the debt burden without seriously hurting investors who currently own the government bonds, particularly banks," Unicredit analysts said. "Markets also hope that any restructuring measures will leave the Greek banking system basically intact, as a systemic crisis here would affect another
