The European securitization market is in for a busy last four months of the year, said market sources, with a number of transactions across all asset classes slated for pricing before the close of the year.
According to Dresdner Kleinwort Wasserstein, though issuance in August has remained true to tradition - not beating the historical summer slowdown - overall numbers for 2003 already exceed the e100 billion (US$112.7 billion) mark. And the positive growth in deal flow has led a number of investment houses to reconsider year-end volume predictions, plumping up figures by at least 10%.
August has not entirely lulled the market to sleep, as there's still some activity from the Italian side with Banca Intesa's e214.4 million (US$240 billion) CMBS deal. Cab- oto Intesa and Morgan Stanley will co-manage this transaction, with a capital structure that includes five tranches issued under a senior credit default swap. The deal is a partially funded synthetic securitization of a single commercial mortgage loan secured on a portfolio of real estate that was purchased from Telecom Italia. According to market sources, Telecom Italia is the largest tenant, providing at least 89% of rental income streams.
Telecom Italia's deal is indicative of the revival of CMBS transactions, which have slowly trickled into the market. Still, the revival does not match last year's prediction that volume would be more robust. But it looks like the floodgate for CMBS issuance still has a chance to be turned, as long as issuers are willing to pay the premium skittish investors currently demand (see ASR 8/4/03). "There are various deals prepping in the market at this point, but CMBS has to face up to the new market environment," said one market source. "Spreads have not moved significantly and it's not a function that the market won't absorb risk; it's more about the price issuers are willing to pay to get it done."
According to sources who still maintain there is an ever-growing demand for CMBS paper, on the issuer side, despite faltering price fundamentals, there is still a desire to get these transactions done. The pent-up supply suggests that healthy issuance will emerge before the end of the year. A buoyant last four months are expected but it still remains to be seen if the buoyancy will extend itself to spreads.
RMBS market fundamentals will maintain strong market appeal. A September pipeline is already shaping up, which includes a new transaction under the Granite master trust, as well as a talked-up issue under Preferred Mortgages. Volume should be sustained by a range of products, such as prime RMBS issues and the newly created U.K. structured covered bonds. Here, the market could see a sequel to last month's HBOS transaction. From the continent, a e600 million (US$674 million) Spanish RMBS backed by a prime mortgage pool is rumored to be slated for a September launch, and sources say new deals from the Netherlands may also enter into the 2003 lineup.
As for consumer-related transactions, there's potential for deals on the Italian front, with a transaction rumored to be at least e5 billion (US$ 5.6 billion) in size. Credit card issuance should provide more mass to the growing volumes in the sector. A new Portuguese B-More transaction should also come shortly in September. Industry analysts added that as market fundamentals improve in the auto industry, the auto loan sector could also see a pick-up in issuance during the end of the year. According to researchers at the Royal bank of Scotland, Renault's RCI Banque is expected to launch a e1 billion (US$1.12 billion) French auto loan-backed deal.