LONDON - Last week at the Morgan Stanley ABS & CDO Research Roadshow here, panelists signaled a thumbs-up on the future of European securitizations, estimating that projected volumes will soar above 2001 figures. In line with the flourishing volumes seen in the past three years, researchers predicted volumes at the $145 billion mark, up from the $121 billion recorded last year.
Listed among engines of growth are the increasing numbers of sovereign securitizations that are expected to generate an approximate $20 billion of future supply, with countries such as Italy and Greece still counted as leaders in the mix. However, this year, expect to see new faces on the government-related front, panelists said, as more states begin to contemplate securitization as a funding alternative that adequately addresses the Maastricht debt criteria levels (see ASR 12/3/01). Spain is listed as a possible contender for this year's market.
The rush of asset-backed supply, of course, will not stop there. Whole business deals are also expected to take on a new vigor this year, stimulated by last year's non-U.K. breakaway deals from Tenovis and Dutch Care. Despite the fact that the market is in a recessionary period, credit problems within the whole business sector remain fairly limited and no consumer asset deals have been downgraded due to collateral performance. "We remain quite comfortable in terms of consumer related deals," said Robert Paterson, vice president of the securitized products group at Morgan Stanley.
In the U.K. there are two water company deals lining up, with Southern Water expected to come to market in the coming months, followed by Anglican Water. On the Pub securitization front, panelists said there were at least three pub portfolios waiting in line for securitization. Market participants expect to see debut appearances from new countries and said Spain is a likely candidate, with a Morgan Stanley-led operating company securitization similar to Formula One already in the pipeline.
However, a slim new-issue front has led to some transactions pricing at tight levels - perhaps, said panelists, a little too tight. "The pipeline has built up, so hopefully we will see some sanity return. But for investors who sat out, they may see they have to buy at tighter levels than they wanted," said Paterson. "The issuance has been coming into market and because of the previous lack of issues, people won't chase spreads in - investors should give up a bit of yield in the triple-A class."
Nonetheless, the market will continue to grow, analysts said, pointing to a growing investor base represented in the conference. One participant mentioned that five years ago, the investor base was largely limited to 20 participants, with many of them being banks. "There has been a new growth in asset managers, insurance companies and the U.S. investor base," said Steve White, executive director of the securitized products group at Morgan Stanley.
Along with the Spanish operating company securitization, Morgan Stanley expects to concentrate on a number of CMBS transactions, with a deal from Electricite de France (EDF), the French electric utility, expected to be next in line. The bank is also working on another French-based deal, as well as a U.K.-based transaction originated within the ELOC series. Outside of CMBS, White said that Spain and Italy would most likely be the next issuers his group brings to market.