European issuers priced the first publicly syndicated securitization since the market virtually came to a standstill last summer. But despite some encouraging signs of interest from the buyside, some say, the relatively small-size issue won't be enough to give the market a good sense of where pricing stands in the aftermath of the subprime debacle.
There has been little printed in Europe since the end of July, with most activity either reserved for private placements or bonds printed and retained by issuers. According to Deutsche Bank, primary issuance volume during October tallied up to around GBP16 billion ($23.07 billion) with most of it, excluding GBP700 million, being retained or fully preplaced. That's quite a different story from the GBP74 billion printed this time last year.
Last week's deal, dubbed E-MAC NL 2007-4, was reportedly oversubscribed, showing encouraging appetite from buyers. Investors bought GBP703 million of bonds backed by Dutch mortgage, originated by GMAC-RFC's Dutch-based arm GMAC-RFC Nederland. Joint book runners on the transaction were ABN AMRO, Deutsche Bank and Royal Bank of Scotland.
According to market reports, the tranche priced within price guidance. The GBP654.85 million triple-A-rated tranche priced at 50 basis points over the three-month Euribor, after guidance, was set at 48-50 basis points over Euribor. The GBP16.8 million double-A-rated tranche priced at 80 basis points over Euribor, compared with guidance of 75-80 basis points. The single-A-rated, GBP12.6 million tranche priced at 125 basis points over Euribor, compared with guidance in the low 100's, and the GBP15.75 million triple-B-rated tranche priced at 250 basis points over Euribor, compared with guidance in the low 200's.
"While the GBP703 million deal was fully placed, its closing pricing spreads were much wider than secondary levels recently reported, which given the small size of the deal, shows current market conditions make it difficult to anticipate many issuers coming back to the market," said analysts at Societe General in a recent report.
Analysts at Societe General reported that the wide spreads offered by E-MAC 2007-4 sewed secondary spread levels. Up until the issue, prime triple-A RMBS paper had been changing hands at levels as tight as 25 basis point over-much lower than the 50 basis point offered by E-MAC's senior tranche. Traded volumes remained light last week as a result, despite several bid lists circulating. "Sellers sought tighter prices than buyers were willing to accept," explained Societe General analysts. "Spreads were generally wider on the week for all asset classes, with triple-A paper pricing at 5 basis points to 120 basis points."
As for the primary issuance pipeline, a scant handful of structured finance-dependant platform deals are expected to hit the market shortly. Last Monday, Lehman Brothers began marketing its Eurosail Prime-UK 2007-A, a GBP225 million prime RMBS backed by loans originated by Alliance & Leicester. Along with Lehman's Eurosail platform RMBS deal, news of two platform CMBS transactions began to circulate last week. Barclays Capital is rumored to be finalizing Business Mortgage Finance 7, an approximately GBP300 million-size CMBS of nonconforming loans.
Price talk emerged on VCL No 10, the GBP970.5-million German auto-lease ABS from originator Volkswagen Leasing. The triple-A-rated 1.4-year Class A notes were suggested at about 40 basis points, and the single-A plus-rated 1.8-year Class B tranche at 100 basis points over 1-month LIBOR.
"Aside from the few structured finance-dependent platforms, there is little sign at this stage that the benchmark bank issuers of old will be coming to market this side of the New Year," reported analysts at Deutsche Bank in a recent report. "The total issuance of GBP188 billion in Q4 of 2006 now looks out of reach for this year, despite signs of a modest resumption of primary deal flow."
"In this respect, Europe contrasts somewhat with other jurisdictions such as the U.S., Japan and Australia, which have experienced a quicker rebound in primary volumes following the credit crisis," they said.
The analysts added that the delay in volume recovery among European players is likely due to the fact that European issuance is dominated by highly rated banks that have access to other forms of wholesale funding in a time of crisis. While the analysts suspect that these issuers might return to the market slowly, they nonetheless believed that securitization would continue to form an integral funding role for these banks going forward. "We expect securitization to continue to play a key-albeit, less compelling-role in bank off-balance sheet asset financing going forward," said the Deutsche Bank analysts. The bank, however, acknowledged that there is little urgency for banks to utilize such funding channels.
Further, the head of asset-backed securities trading at a Paris-based investment bank said that many investors still seemed to be "spooked," at the widening spreads. "They're used to buying at 25, so they won't buy at 35," he said. "It feels like we are still in the grip of some sort of self-fulfilling prophecy."
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