The securitization market is still making the case for sterling despite the strengthening euro fundamentals that have increasingly led corporate borrowers to Euroland. But despite a decline in sterling- based corporate borrowing, sterling- based ABS paper still maintains its appeal to a broadening investor base, said industry sources.
From a credit perspective, the market is perennially open to longer dated fixed-term ABS, said one analyst. Historically, sterling paper has dominated the longer end, but as the euro market matures, corporates led by improving long-term fundamentals are increasingly tuning to the euro markets as a cheaper alternative. "As far as corporates go, the reason you may have seen a decline in sterling paper is because they have a wider range of markets to issue in," said one industry trader. "But on the securitization side, the euro market for 10-year plus fixed issuance [still] tends to be a thinner market."
But the increase in sterling-denominated paper may be tracked down to simple coincidence and just a case of issuers simultaneously launching deals that in some case have been marketing for over a year and a half. In terms of structuring, it's easy to understand that with more favourable insolvency legislation, the U.K. would naturally lead in volumes for whole business related deals. In the past month alone, a number of deals have priced, most recently the GBP245 million (US$393 million) nursing home deal, Craegmoor Funding.
"These deals tend to be property- and revenue-linked, which lend themselves to longer-dated fixed- income paper," explained one market source. The market maintains a high confidence that the advent of longer-dated fixed sterling paper is likely to continue to flourish. "With the downturn in the corporate credit cycle, it may be fair to say that more corporates might be willing to consider securitization as a flexible funding option going forward," added the source.
Away from corporate ABS securitizations, the market may see an increase in sterling-denominated fixed-rate tranches seep into mortgage-backed capital structures, said one source.
"It's harder to predict what sort of issuance volumes the whole business side will generate because the execution time can be rather lengthy for some transactions," he said. "Nonetheless, there has been talks of an additional pub deal following the latest Spirit Funding tap and maybe a deal via Network Rail, but that's likely to be seen early next year."