The week started off slow for European ABS market activity, but by midweek a number of deals hit the pipeline, promising an uptick in volume from the slowdown experienced since Easter. Demand for mezzanine and subordinate ABS, driven by investors looking for incremental pickup to historically tight triple-A spreads, continues to be strong.

"We still think moving down in credit and into yieldier sectors such as CMBS, nonconforming RMBS and CDOs of ABS is the appropriate strategy in the current market," said analysts at JPMorgan Securities. "In fact, we believe that mezzanine tranches from these sectors (although not in benchmarks like cards and RMBS) offer some of the best value in the market." Double-A CMBS tranches with a five-year maturity are currently trading at mid-40 basis points over three-month Libor, noted JPMorgan. At these levels, the paper still offers an attractive pickup when compared to double-A corporates or financials, which are both in the low 20 basis point area.

"Given the relative scarcity of mezzanine paper in the secondary market, we expect these spreads to tighten in the coming weeks," said analysts. The Nordea CMBS deal priced its double-A notes inside its double-A rated unsecured debt. Also, the 475.2 million (US$564 million) CMBS deal for AyT Promociones, which priced at 26 basis points over Euribor the beginning of the week, had already tightened by three or four basis points by mid-week.

Dealers finished roadshowing the 400 million (US$474 million) issue of Dutch CMBS Vesteda Residential Funding I. A single, triple-A rated class A4 tranche is offered. The three-year notes were talked at 18 to 20 basis points over. Vesteda funds a portfolio of 38,000 residential units in 372 properties in the Netherlands, but the transaction is being treated as a CMBS because the income generated by the deal is derived from a loan to Vesteda Woningen, a Dutch mutual fund. The loan has bullet maturity, and its principal repayment is funded from refinancing.

Citigroup Global Markets is arranging a 800 million (US$950 million) sale and leaseback of property for U.S. private equity firm Blackstone Group. The deal is backed by 51 properties throughout nine European jurisdictions, with the majority of assets based in Germany. The deal is expected later this quarter.

RMBS won't stop...

After a quiet spell, RMBS deals are making an appeal once again, and hungry investors are still willing to listen. The pipeline was filling up with an expected 10 new deals circulating from Spain and the U.K.

Last week, new Spanish RMBS from UCI 10 was expected. The 700 million (US$830 million) deal for Union de Creditos Inmobiliarios is offering 679 million (US$805 million) of triple-A paper that is being talked at 16 to 17 basis points and 21 million (US$25 million) of single-A minus notes talked at 50 to 55 basis points. The portfolio has a weighted average seasoning of 21.6-months and a weighted average LTV of 60.44%. The maximum LTV permitted is 79.97% and ensures a 50% risk weighting for the deal in Spain as any exposure to loans with LTVs in excess of 80% bumps the weighting up to 100%.

UCI's last deal priced in June of last year, offering a similar structure, its 5.8-year Class A notes pricing at 27 basis points over Euribor. The triple-A notes of UCI 9 are currently trading at around 15 basis points (3.5 year WAL, based on an updated CPR of 20%). Bancaja is prepping an MBS transaction via JPMorgan and Societe General. Bancaja was last in the market with Bancaja 6 in December 2003 with the largest Spanish public RMBS yet seen at 2.08 billion (US$2.46 billion).

Also from the Iberian Peninsula is a 500 million (US$593 million) RMBS from Banco de Valencia. The transaction will offer 434 million (US$515 million) of class A notes. The provisional pool had an average 37 months seasoning.

From the U.K came two prime RMBS transactions - a Northern Rock issue expected to come in at GBP3 billion (US$5.30 billion) and Standard Life's Lothian Mortgages III. Paragon Mortgages is also expected to return to a market with a buy-to-let transaction via the Royal Bank of Scotland. Dutch RMBS is also expected in the mix of the coming weeks from Aegon Levensverzekering with Saecure 4 via ABN AMRO. Aegon's last deal priced in November offering 1.2 billion (US$1.42 billion) of notes, including 4.9-year triple-A rated notes at 24 basis points over Euribor.

A GBP500 million (US$883 million) deal, backed by credit card receivables from Egg Banking's Pillar Funding securitization program, is also expected in the busy lineup. Pillar 2004-1 will offer both sterling- and dollar-denominated tranches. The roadshow was expected to start last Friday and will run into this week. The deal is scheduled for an early May launch. The last trade in the series was the GBP500m Pillar Funding Series 2003-1 in May 2003 via Deutsche Bank Securities and Banc of America Securities. The five-year tranches priced at 25 basis points for he euro-, sterling- and U.S.

dollar-denominated triple-A rated notes.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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