Despite predictions that September and October would be frantically busy, ABS and MBS issuance in Europe was reasonable but not quite the deluge that many were expecting.
Bankers and investors had spent the summer suggesting that with worries looming over Y2K issuers would likely launch a flood of deals at the end of the third quarter or the start of the fourth, but this has not proved to be the case. "Why was it not as busy as we expected?" asked one investor. "Perhaps while spreads have been relatively wide European issuers have not been willing to pay that much and as securitization is usually not core funding for Europeans they can afford to wait for spreads to come in."
One analyst suggested that both sides of the market have been trying to out-think the other. "To an extent investors and issuers have been playing cat and mouse. Investors are afraid that there will be additional widening and are trying to time the market and get in just before the spreads begin to tighten," he said.
However, market experts suggested that the issuance that was slated to come in September and early October will not go away, but may be issued in a concentrated lump between the second half of October and mid- to late-November. "It's on the way and it will be even more frantic when it hits," said one, pointing in particular to several deals that are known to be
coming, including a GBP1 billion ($1.66 million) transaction from Barclaycard, and multi-billion dollar transactions from the Italian pensions agency, Inps, and from Italian bank, Italfondiario.
Perhaps the big question is when the market will close for the year-end, with many suggesting that deals that haven't made it to market by mid-November will be postponed until early next year, and others saying that issuers may brave the early part of December.
One banker suggested that those who haven't been able to launch deals before December will use the fact that deals are structured, rated and ready for launch to get bridge financing at competitive rates pending a deal launch in the New Year.
In a recent research report from Merrill Lynch, ABS analysts Alexander Batchvarov and Genesh Rajendra made the point that the European market is likely to be more sanguine about Y2K compared to the U.S. having already lived through the relatively minor computer and settlement problems posed by the introduction of the Euro.
This may also be accentuated by a "psychological
factor": "Many investors and dealers missed the opportunity to buy cheap ABS towards the end of last year and benefit from the subsequent spread tightening. We believe they are determined not to commit such an error again," the report noted.