With the Italian government gearing up to unleash its second, E6.6 billion securitization of real estate assets, Europe looks set to clear issuance expectations for 2002. Interestingly, the Italian treasury came to market this time last year with a series of securitizations that brought year-end volumes to record levels.

According to market sources, the European calendar now stands at E20 billion, and much of the pipeline that has been building over the past months should come to fruition during November. The Italian treasury transaction, SCIP 2, is expected to come to market in three tranches of note: a E5.3 billion, triple-A tranche; a E856 million, double-A tranche; and a E539 million, single-A rated tranche. The underlying pool will contain a mixture of residential and commercial properties. Sources indicate that the single-A tranche is the largest seen in the market so far this year.

This abundance of supply hovering in the market has caused European market spreads to widen, both on the primary and secondary levels. For example, Abbey National's $6.28 billion Holmes 6 - the largest European cash RMBS to date - had difficulty pricing, and had to be reworked in order to appeal to investor demands. The deal priced wider than expected, with the five-year Sterling tranche coming in four basis points wider than original talk of 24 basis points over Libor. "It priced wider than expected due to difficult market conditions as well as low demand from investors, who are becoming a little wary of over-exposure to the Holmes series," said one market source.

UK RMBS has come out six to eight basis points, and the rest of the European market collateral has experienced some widening as well, analysts at Salomon Smith Barney said. They added that the large Italian treasury transaction expected shortly has also driven the Italian government bonds wider. For example, the first real-estate securitization - SCIP 1, issued in November of last year - has experienced a seven basis point widening.

According to Dresdner Kleinwort Wasserstein, single-A and triple-B tranches continue to be driven by investor demand and lack of supply. "In the context of consumer risk related issuance, RMBS is the greatest source of lower-rated paper," reported the bank. Over 88% of RMBS in 2002 year-to-date - approximately $3.5 billion equivalent - has been triple-A rated, meaning that around $4.5 billion equivalent of lower-rated paper has been placed, according to Dresdner. Using this split as a proxy, approximately $1.2 billion equivalent is supposed to hit the market before year's end, and the bank expects this issuance to be absorbed readily, although it anticipates some pressure due to country 1(Italy) concentration. In terms of corporate risk related asset classes, Dresdner indicated that CDOs should be the greatest source given the number of deals presently in the pipeline, but warned that some may disappear before year's end.

New Issues

The Portuguese consumer finance deal, Nova Finance No. 3, priced its E320 million securitization last week, bringing the total of Portuguese issuance up to E1.57 billion, market sources said. BNP Paribas and BCP Investimento lead the deal. This latest deal is structured under the new Portuguese securitization laws that allow for a more simplified structure. The triple-A tranche came in at 28 basis points over Euribor, the double-A notes came in at 40 basis points over, and the single-A note priced at 8 basis points over. "Pricing of the deal was tight, reflecting the demand for non-Italian, non-UK paper as well as the scarcity of Portuguese paper. Fitch has recently reviewed Nova 1, and the deal is currently performing in line with base case assumptions," said Dresdner.

At press time, an additional E1billion of Portuguese paper came onto the calendar with Banco Espirito Santo's Lusitano, backed by prime mortgages originated by Portuguese originators.

Also from the Iberian region is a new E900 million auto loan securitization being marketed for Hispamer - Santander Consumer Finance Spain 2002-1. "We expect the most issuance from Italy, Spain and Portugal from now until year's end," reported Salomon. On the RMBS front, price talks were offered for the Spanish-based Rural Hipotecario 4. The E520 million RMBS originated by five Cajas Rurales has price talk for its triple-A rated tranche hovering at 24 basis points over Euribor. Separately, Spain's largest bank, BSCH, is expected to come to market with a deal that should be well over E1billion, market sources said.

There are several deals building in the pipeline. EloC 12 is expected to come to market before year's end. A single, E300 million French property loan for the Zeus Building Company will back the issue. Tenants include Credit Lyonnais, IBM, SNCF (the French Rail System) and Vivendi.

Subsidiaries of Pubmaster are in the market with a GBP535 million pub securitization led by Barclay's Capital, Lehman and West LB. This is the second deal in a series, and will include the addition of 1,201 pubs located throughout the UK and 59 pubs in Scotland. This addition brings the total portfolio size to 3,100 pubs.

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