Market pundits doubting the efficiency of the German True Sale Initiative need only reference Volkswagen Bank's latest auto-loan securitization, Driver One GmbH. The deal, which priced last week, marked the first time auto paper has broken through the single-digit spreads in the European securitization market.

Sources close to the deal said it was well oversubscribed and increased by 157 million ($209 million) to 1.2 billion during the sales process (see ASR 11/22/04). The triple-A senior tranches priced at six basis points and flat to one-month Euribor, respectively, and the single-A plus tranche priced at 23 basis points over Euribor.

"We were pleased beyond our wildest dream," said David Schulz, the director of securitization for Volkswagen. "The deal priced inside our VCL program, so we were very pleased that regarding the structure investors and [rating] agencies felt confident that we had done our homework." Schulz said that at least two of the three tranches could have garnered 100% more interest without cheapening.

Volkswagen views its bank programs as strategically important and has participated in the securitization market as a true-sale issuer via a Jersey-based SPV since 1998. Schulz said the company views securitization as key to its funding needs. "We have taken well over a year to prepare this latest program," he said. "Everyone was wondering if [the True Sale Initiative] would add any value to our issuance. We didn't need to do it, but, judging by the end result it was a good decision."

Industry reports said that the deal could set a new benchmark for European auto ABS issuance in the future. Schulz added that the Driver One module would give German issuers a standardized platform and documentation. The German solution could also be applied to some of smaller players looking to access the market and deals as small as 200 million to 500 million could be launched going forward.

"In this structure we did not have a revolving feature," added Schulz. "That would have substantially spread out the fixed costs and would have dropped all in costs by at least six basis points. In order to be prudent, we decided on the single-amortizing structure, but in future deals we will of course employ a revolving structure to make it more economical." Going forward, Schulz said that Volkswagen is considering term transactions in two to three other jurisdictions utilizing the True Sale Initiative.

In the interim, the initiative said it would continue lobbying for new insolvency legislation that would no longer require banks to register mortgage loans separately. Instead, banks will enter the securitized mortgages under a central register. In the event of the originating bank's insolvency, the registered mortgages will be deemed to be outside the insolvency estate of the bank, explained researchers at Deutsche Bank Securities. A new draft is now in the works and industry sources expected the topic to be handled by the spring of 2005.

The Initiative also reiterated its commitment to broaden the scope of eligible users of its new platform to include non-bank issuers in the future. "At the moment, the corporate tax privilege is only given to securitization of bank receivables," said one source. "In the future we want it to apply to other receivables as well, but at the moment its uncertain how soon regulators will begin to tackle the tax issue." The source said it expected anywhere from 5 billion to 10 billion in issuance for next year.

In the market this week...

The Free Mobility 3 German auto transaction priced this week as well, via UBS. The 227 million true sale transaction priced its triple-A notes at twelve basis points over one-month Euribor, four basis points outside the secondary levels of the Class A2 notes of the Driver One deal, noted industry sources.

New on the calendar is Paragon's GBP300 million second-lien RMBS deal, which will include a GBP231 million A class with an average life of 4.77 years, and a GBP42 million single-A rated B class and a GBP27 million C class.

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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