A timeout was in order for the European market participants as more than 3,000 of them were in attendance at the recent Barcelona Global ABS conference. By last Monday, however, things were back to pace, which is expected to hasten in anticipation of the customary summer lull.

According to reports, the late June and early July pipeline should bring over 12 billion (US$14.6 billion) in transactions, with at least 9 billion (US$10.9 billion) accounted for by RMBS paper.

The week's activity began with the pricing of one of the largest CMBS European transactions to date. The 952.7 million (US$1.15 billion) Castanea One transaction for Allgemeine HypothekenBank Rheinboden AG (AHBR) was jointly led by Commerzbank and BNP Paribas. The class A1 notes priced at 38 basis points over Euribor and the split rated double-A plus/ triple-A notes came at 50 basis points. This is the first synthetic CMBS structure of the year. According to research analysts at Dresdner Kleinwort Wasserstein, the deal priced at tighter spread levels at both the double-A and single-A levels when compared to synthetic CMBS deals that priced in the last quarter of 2003. At the single-A level the deal priced at 38 basis points, 20 basis points tighter than Global Commercial Two and 10 basis points inside Europa Three, also a synthetic CMBS led by Commerzbank. The deal still pays a premium at the double-A and single-A levels over a diversified true-sale CMBS structure that priced earlier in the year, said market sources.

"This may reflect the continued demand from CDO managers and, in our opinion, could be justified by the generally more favorable deal features than its comparables," wrote analysts at Dresdner. They note the one-year replenishment period, which would make loan repayments beneficial, plus a tight definition of exchange rate resets. Dresdner does point out that there is a high proportion of second lien mortgages.

The pool references 115 commercial mortgage loans. AHBR, and in certain cases the relevant agent bank, act as servicer of the underlying reference loans.

AHBR utilizes a combination of credit derivatives and credit-linked notes, in conjunction with a public sector guarantee, to transfer the credit risk of 733.7 million (US$893.5 million) to the investors. The guarantee enables AHBR to include previously non-eligible parts of commercial mortgage loans in the public sector cover pool. These translate to 60% LTV and allow AHBR access to long-term funding at a lower cost. Otherwise, the lender would have been funded under its more costly medium-term note program. AHBR is rated triple-B. Unlike prior synthetic CMBS structures, the main objective behind this deal is funding rather than capital relief. As a result, AHBR retains the "threshold amount" of 219.0 million (US$266 million).

The structure was first employed under Europa Three. Industry sources said the structure is likely to be employed going forward, particularly by lower-rated entities. In this case, because AHBR is a German-based bank, it exemplifies the route that the country s troubled banking sector has investigated. "Germany is one of the more extreme situations," said one source. "These lower rated mortgage lenders have really focused on how to manage their businesses; transactions like this are made possible through this effort. It's exemplary of how pledged German banks are to better managing their balance sheets."

Out of the RMBS sector, the Spanish new issue calendar is expected to grow to 4.4 billion (US$5.35 billion). According to market reports, Banco Sabadell is expected to issue 1.2 billion (US$1.45 billion) over the coming weeks. Bancaja is also in the market with a 2 billion (US$2.4 billion) transaction that will include 150 million (US$182.4 million) of 1.4-year and 1.67 billion (US$2 billion) of 5.9-year triple-A rated notes. The provisional pool had a 67% weighted average CLTV and 15 months seasoning.

Rural Hipotecario VI contributes an additional 950 million (US$1.15 billion) of Spanish RMBS to the calendar offering investors a 5.6-year triple-A class sized at 909.1 million (US$1.10 million). Single-A and triple-B classes are also included in the capital structure. Twelve cooperative banks originated the mortgages, having a 66% weighted average LTV and 16 months seasoning.

On the consumer loan front, the first publicly placed issue for 2004 Italian consumer loan deal began marketing last week. Bipelle Ducato's 500 million (US$608 million) transaction will offer investors exposure to a pool of new and used auto loans as well as general consumer lending loans. The pool will include approximately 80,000 loans with 7.4 months of seasoning and a 64% Southern Italian concentration. The triple-A notes are being talked at 20 basis points over Euribor and the class B notes are talked at the mid 50 basis point level. According to analysts at Dresdner, three-year and five-year consumer loan spreads have tightened since the start of the year to 14 basis points from 26 basis points and 18 basis points from 33 basis points, respectively. These levels are close to where prime RMBS paper trades.

The BBC is back in the market with a new CMBS deal. Its single tranche offering is expected to finance the broadcasting company's Scotland headquarters in Glasgow and will include a single GBP130 million (US$236.5 million) unwrapped, double-A rated tranche with a 23.4 year average life.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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