The latest in a series of Spanish SME CLO transactions offers a new twist, prompting some market chatter last week. The deal helped contribute to a busy primary agenda that continues to dominate investor's attention. The unique variation on the 800 million CLO from Banco Pastor is that two tranches will benefit from sureties.

Aside from the Spanish-government guaranty on the 164.6 million class BG, the deal offers a guarantee on the junior notes from the European Investment Fund. At least one ABS researcher reports this may be the first time the fund - mandated to promote SMEs - has put its guaranty on a securitization.

The guaranty ensures a triple-A rating for the 40.4 million Class C, which might have been a single-A otherwise. The 20% risk weighting is an attractive feature, an analyst noted.

The lead managers on the deal, called GC FTPYME Pastor 2, are BNP Paribas and DKW, along with Banco Pastor itself. Price talk, released last week, put the 530 class A, with a 1.7-year average life and triple-A ratings, in the 12 basis point area over three-month Euribor.

The tightest talk - flat to one basis point over Euribor - is on the 5.3-year, triple-A rated class BG, with its guaranty from the Kingdom of Spain. The 42 million class BS, which comes with a 5.3-year average life and double-A ratings, is being talked in the mid-20 basis point area, while the EIF-guaranteed Class C notes, with a 7.3 year average life, are at 10 to 12 basis points over Euribor.

All the tranches are rated by both Standard & Poor's and Moody's Investors Service, except for the 23 million, 7.3-year D class, which comes with a Baa3' rating from Moody's only. Price talk on those notes is in the 175 basis point area over Euribor.

Europe is expecting at least a dozen Spanish SME CLOs in the fourth quarter, and only one has already priced, the 900 million FTPYME Bancaja 3. Lehman Brothers and Calyon Securities managed that deal with Bancaja.

Other Spanish SME CLOs still making the rounds last week included FTPYME Santander 2, a 1.8 billion transaction that Banco Santander is marketing for itself, with help from SG Corporate & Investment Banking. Reportedly close to pricing at press time was the 200 million deal for Banca March, called FTPYME TDA Banca March.

And among those still in the pipeline are a 750 million deal, called FTPYME TDA CAM-2, for Caja de Ahorros del Mediterraneo and a 600 million deal, called IM FTPYME Sabadell 3, for Banca Sabadell.

In fact, all the SME CLO activity reportedly delayed pricing on a 1 billion Spanish auto loan deal for BBVA. The pricing for BBVA Autos 1, originally expected to happen last week, was delayed due to Spanish regulator CNMV, according to researchers at the Royal Bank of Scotland. "The regulator currently faces a heavy workload," the researchers wrote in their market commentary, which said the deal is now expected to price this week. JPMorgan Securities and BBVA are the lead managers on that transaction.

Deals totaling about 4.4 billion had priced as of Thursda's market close, including two large multi-currency U.K. RMBS transactions, Paragon 8 and Leek Finance No. 14.

JPMorgan and Deutsche Bank Securities were the lead managers on Paragon 8, a buy-to-let transaction worth the equivalent of GBP850 million from the U.K. mortgage lender Paragon Group. The one-year, triple-A rated notes priced at three-month Libor plus 11 basis points for both Euro and Sterling denominations. In the 4.7-year A2 class, also rated triple-A, a GBP305 million piece priced at plus 19 basis points, with a 453 million piece at plus 18 basis points. The 6-year B class notes, which have a single-A rating, included GBP65 million at plus 60 and 50 million at plus 65.

JPMorgan and the RBS were leading the Leek deal, which is backed by mortgages from a unit of the Britannia Building Society and worth the equivalent of GBP1.16 billion. It featured five classes, including a $378 million super senior tranche that priced at three-month Libor plus zero basis points. The 3-year, Class A2 notes, worth the equivalent of GBP674 million and divided among U.S. Dollar, Euro and Sterling denominations, all priced at 18 basis points over Libor.

The rest of the notes came with a 5.2-year average life. M class had a Sterling piece pricing at plus 35 and a U.S. Dollar tranche at plus 30. Class B had sterling at plus 65 and euros at plus 60, while the C class had both Sterling and Euro at plus 95.

Merrill Lynch researchers also reported an important moment in the secondary market they said almost went unnoticed. "Last week in the broker market we saw the emergence of CDS on particular ABS tranches. Previously CDS had traded privately, but the emergence of a broker traded CDS on ABS - or ADS - means that the market has grown up."

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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