While the summer nights of 2004 may be cooler than last year's record-breaking highs, the securitization market continues cranking up the heat. Merrill Lynch is seeing around 40 deals in the pipeline, and the firm estimates volume will reach the 150 billion (US$182.4 billion) mark before the summer respite.

Notably, the triple-A tightening trend seems be reversing on virtually all asset classes. Classes from two new-issue Spanish RMBS, for example, priced on the edge of outside guidance. On the secondary level, triple-A spreads for the Italian government real estate deal SCIP2 widened out.

However, sources at JP Morgan said demand for subordinated paper remains strong. They point to two double-B tranches that priced at 265 over the three-month Libor for Lothian Mortgages and 280 basis points for the Spanish originated IM Pastor. "Noticeable flattening in the credit curve at the beginning of the month has increased further with triple-A softer and mezzanine tranches stable on tightening," explained analysts at Merrill.

Circulating at the moment is a GBP500 million (US$908.85 million) subprime MBS transaction for Southern Pacific, which has already done two deals so far this year. Unlike its past deals, the triple-A notes will not be wrapped with a monoline guarantee. According to market reports, the deal is a result of reverse enquiry and has been placed with a small pool of investors. The capital structure will include GBP200 million (US$363.60 million) of 1.07-year fast pay notes along with GBP231 million (US$420 million) of 4.7-year dated tranches. The provisional pool includes 12% of second ranking mortgage loans, 3.2% of buy-to-let and 5.5% of right to buy loans.

ABN AMRO won the mandate for the latest European auto deal, FACT 2004. The transaction will offer 500 million (US$608 million) of auto loans and leases for Porsche Bank's Austrian subsidiary. These loans and leases are issued to individual and corporate obligors for cars manufactured by the Volkswagen Group. The structure will include a 477 million (US$580 million) triple-A rated piece along with 22.5 million (US$ 27.3 million) of class B notes, dated at 1.4 years and 2.76 years, respectively.

Also new last week was a deal from Norwich Union. This latest transaction, Equity Release Funding No.4, will be backed by GBP404 million (US$734 million) of U.K. mortgages. The deal is being offered only in sterling pounds, unlike the more recent spate of mixed currency denominated tranches seen in the market thus far. According to analysts at Royal Bank of Scotland, lead manager on the deal, along with Morgan Stanley, the mortgages included in the pool differ from standard mortgages, and are akin to reverse mortgages seen in the U.S.

These mortgages are typically offered to older borrowers with interest and principal repaid from sale of the property. The maximum LTV is therefore determined by the borrowers' age and expected life span. The provisional pool will include 7,772 loans with a weighted average borrower age of 69.5 years and a 27.2% LTV.

RBS was also in the market with a subsequent GBP150 million (US$272 million) tap issue from its Artesian program to fund a U.K-regulated water and sewage company, Southern Water. The index-linked FSA wrapped single tranche tap priced at 85 basis points over the 4.125% 2030 one-year Gilt.

At press time, some diversity was occurring in the currently plump Spanish RMBS calendar, with an upcoming strong pipeline of SME CLO transactions. Sources said that at least 13 requests have been petitioned to share a 1.8 billion (US$2.19 billion) guarantee offered annually by the Kingdom of Spain. Deal structuring is expected over the quiet summer season and marketing should commence at the start of September.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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