Europe's fourth-quarter ABS pipeline is building, with analyst reports saying up to 76 ($94.4 billion) in issuance is already in the works.
Merrill Lynch researchers said the pipeline includes 37 billion ($45.9) of RMBS, 10 billion ($12.4 billion) of CMBS, 13 billion ($16.1 billion) of ABS and 16bn ($19 billion) of CDOs, including a dozen Spanish SMEs.
Aside from the usual asset classes, such as U.K. RMBS, sectors that have been inactive so far this year are expected to heat up, according to BNP Paribas researchers. They cited the Spanish SME CLOs, as well as Italian leases, among the returning sectors.
In fact, both asset classes contributed to the steady supply of deals last week.
A 2.5 billion ($3.1 billion) Italian lease deal for Locat was said to be in pre-marketing at press time Thursday, along with two Spanish SME CLOs, a 200 million ($248 million) deal for Banca March, called FTPYME TDA Banca March, and a 900 ($1.1 million) deal for Bancaja, called FTPYME Bancaja 3. Calyon was among the managers on both CLOs, with Lehman Brothers and Bancaja also joining on the latter deal.
The Italian lease deal, called Locat Securitization II, was being led by HSBC, SG Corporate & Investment Banking and UBM. It was reportedly structured in two tranches, 2,374 million of triple-A rated Class A notes with a 5.3-year average life and 126 million of single-A rated Class B notes with a 12.2-year average life, both benchmarked to three-month Euribor. The deal is backed by 35,828 leases - 68% real estate, 20% autos and 12% equipment.
Auto paper also hit the market last week, with both auto loans and auto leases to choose from. There was a 1 billion ($1.2 billion) auto loan deal for the Spanish bank BBVA and a 998.75 million ($ 1.2 billion) auto lease deal for Volkswagen Financial Services.
JPMorgan Securities and BBVA itself were marketing the auto loan deal, called BBVA Autos 1. It included 950 million of Class A notes with triple-A ratings and a 3.4-year average life. Two other tranches had a 5.4-year average life, with 23 billion in the double-A rated Class B and 27 million in the single-A rated Class C.
The Volkswagen deal, called VCL No. 7 Ltd., was being offered in two tranches, a 940.0 million 1.5-year Class A, rated triple-A, and a 29.9 million 1.9-year Class B, rated A-plus. Citigroup Global Markets and SG CIB were leading the deal.
Several RMBS and CMBS deals also were in the market, including a 325 million ($403.9 million) deal for Shurgard backed by self-storage properties in several European countries. That deal, called Self-Storage Securitization, was being led by Citi as well.
In total, researchers at the Royal Bank of Scotland said more than 6 billion ($7.4 billion) in issuance was being actively marketed by the middle of last week. They anticipate the steady primary supply will continue into October, given the building pipeline.
Among the deals expected in the market soon were a 280 million ($247.9 million) trade receivables deal for the Irish packing company Jefferson Smurfit via JPMorgan and another auto loan transaction via SG CIB.
Numerous researchers noted that strong demand is tightening ABS spreads. A Merrill Lynch report said that the theme for the month of September was "spread tightening across the board." The Merrill Lynch researchers attributed some of the tightening to a dramatic drop in corporate bond supply, which freed significant amounts of cash and redirected it to structured products.
That tightening was evident in several pricings last week.
Analysts said a multi-currency Australian RMBS deal from Resimac, worth the equivalent of A$1.5 billion, priced inside the tight end of guidance. Deutsche Bank Securities and SG CIB led the deal, called Premier Euro Trust 2000 4-2E.
Its 1A1 piece, worth 494 million, finished at 17 basis points over three-month Euribor, while the 1A2 piece, worth A$200 million, came in at BBSW plus 31basis points. Both pieces are rated triple-A with an average life of 2.9 years.
A six-year, GBP156 million piece, also rated triple-A, priced at 20 basis points over three-month Euribor. The Class B notes, worth A$56 million, priced at three-month Euribor plus 60 basis points.
A U.K. CMBS deal called Epic (Caspar) from the Royal Bank of Scotland also benefited.
The GBP532 million ($963.8 million) debut transaction under the bank's Epic program was ultimately backed by the rental income on 61 properties, which Henderson Global Investors lets to more than 300 tenants.
The triple-A tranche, which came with a 7.7-year average life, priced at 22 basis points over three-month Libor - which BNP Paribas researchers said is the tightest launch spread seen for U.K. CMBS, despite the equivalent of 4 billion more in U.K. CMBS waiting to price.
The 8-year Class B, C and D notes priced at three-month Libor plus 39 basis points, plus 62 basis points, and plus 104 basis points, respectively.
Although the exact numbers varied, researchers pegged issuance at roughly 170 billion ($211.2 billion) so far this year. Merrill Lynch registered 167.3 billion ($207.9 billion) in issuance as of Sept. 24, a 37% increase over 2003.
BNP Paribas said 2004 is on target to be the biggest year yet for European ABS, with 85% of last year's total already priced.
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