The first securitization deal from the Central and Eastern European (CEE) region - a 280 million ($408 million) auto leasing deal for Raiffeisen Leasing Polska, the Polish leasing subsidiary of Raiffeisen International - closed earlier this month.
Although Roof Poland 2008-1 was privately placed, it should still spark some optimism that appetite for paper from riskier regions still exists.
"Generally speaking, placing deals from this region has never been easy, not even during good times, which means that players like us are already used to dealing with difficult market conditions," said Georg Feldscher, head of strategic portfolio management at Raiffeisen International.
The transaction is a refinancing of the Roof Poland transaction that closed in January 2006. It is the fourth transaction from a CEE country that Raiffeisen International has done under its Roof securitization platform in the past two years. Feldscher said that the latest deal follows basically the same format as past deals with all tranches pre-placed ahead of closing. "You effectively have to keep in close contact with the investor and listen to what they want and need to make sure that the deal gets done," he added.
Roland Mechtler, deputy of strategic portfolio management, said that Poland has - as have the rest of Central and Eastern Europe - to a certain extent been affected by global liquidity constraints. An effect of this has been that some investors haven't been as receptive to deals in terms of volume. However, Raiffeisen International's main buyers have always been banks, institutional investors and ABCP conduits. "These buyers who look at our paper have always been more cautious and more conservative, and with the latest deal we spoke to the same people who are happy with the risk in our structure," he said. "We see that these investors find comfort in our securitization platform Roof under current market constraints."
While Eastern Europe hasn't totally escaped the financial turbulence that has rocked the markets lately, Feldscher said that Poland and other CEE countries are at an advantage because they have not gone through a mortgage bubble. Thus the slowdown that other markets are experiencing has had a relatively modest impact for the region. "The fact that investors can look at the history of completed deals and see no change in performance means that this market can offer some stability and real diversification opportunities during these times," he said. "CEE markets are not correlated to Western Europe or the U.S. in terms of risk."
Feldscher and Mechtler said that deals from the CEE have always paid a significant premium, some 50 to 60 basis points above where Western European ABS deals have historically gotten done. "This deal priced in line with other deals from our platform, which means that this premium has almost fully disappeared when compared to the expensive pricing that is happening in Western European deals," Feldscher said.
Despite the current market volatility, Feldscher is confident that investors will continue to find value in CEE product and he believes it could emerge as a hotspot for buyers looking for diversification in quality issues that add value to portfolios. "We don't like to tempt fate, but we are relatively close to executing a similar transaction," Feldscher said.
In a related event, a recent Moody's Investors Service report on the European emerging markets cited potential growth in other areas of the CEE. For instance, Russia, which in 2007 saw approximately 560 million in securitization issuance, could see volumes continue to increase with the mortgage market expansion in the country, according to the report (see next page).
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