As the market nears the end of the first quarter 2005, European volume is down by about 30 billion ($39.4 billion) when compared to year-over-year issuance volumes of 2004. Market estimates put year-to-date volumes at 27 billion, but analysts at Merrill Lynch argue that the slow-to-develop pipeline this year could be the result of increased demand, as bankers know that investors may snap up deals before they even make it on to the radar.
"The amount of cash looking for a home is overwhelming and as spreads in the corporate bond market remain tight, the attractiveness of the ABS sector is hard to disregard," report Merrill analysts. "Deals are snapped up even before investors get the reds' and the marketing period has contracted to less than a week." As a result, oversubscription is at an all time high, and spreads continue driving tighter. In February, spreads came in about 10 to 15 basis points for triple-As and 30 to 40 basis points for triple-Bs with double-B paper least impacted by the tightening trend.
"Market technicals remain incredibly strong, and are currently reflected in the declining CMBS to U.K. non-conforming to CLO yield pick-up, but also in oversubscription levels and allocations in primary deals," report JPMorgan Securities analysts. Last week the first European leveraged loan-backed deal of the year came in at historical tight spreads and was several times oversubscribed.
M&G Investment Management's 315 million Leopard CLO III B.V priced the senior triple-A tranche at 25 basis points over six-month Euribor, the tightest spread seen for this asset class in Europe, said Deutsche Bank Securities analysts. CLO triple-A classes priced at around 45 to 50 basis a year ago. "Mezzanine and subordinated spreads have also tightened further," added Deutsche Bank analysts. "Interestingly, triple-B cash managed CDO yields - which had lagged the market rally with spreads relative sticky' at around 230 to 240 basis point - looks to have broken the 200 basis point barrier in spectacular fashion. LEOP III triple-Bs cleared at 170 basis points [over Libor]."
About GBP325 million ($427 million) of U.K. non-conforming paper was added to the pipeline via Matlock Bank's Marble Arch Securitization, or MARS, series. It's the third transaction to come from the series and will be managed by ABN AMRO and Barclays Capital. MARS 3 is offering investors stronger pool characteristics when compared to prior issues from the series, however, the deal still looks weaker than some of the more recent deals launched this year, said market sources.
According to market reports, the MARS 2 transaction is currently trading its sterling-denominated A1A and euro-denominated A1B senior notes at 12.5 and 12 basis points, respectively, over Libor and Euribor - a premium over other U.K. non-conforming paper. The recent Kensington Mortgage issue RMS 20, for example, is trading its sterling- and euro-denominated notes at 12 and 11.5 basis points over Libor and Euribor, respectively.
ABN AMRO along with WestLB will jointly manage the new 450 million German and Dutch equipment-lease securitization, dubbed Fast 2005 Ltd. The lease receivables being securitized have been originated by GFKL Financial Service's German and Dutch leasing entities: Universal Leasing GmbH and Transned Lease B.V.
Banco BPI is also expected to bring a 500 million securitization of small and medium-sized enterprises via La Caixa and SG Corporate & Investment Banking. Roadshows for Douro SME Series I will begin this week, added market sources.
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