After a quiet first half of the year, Sweden looks set to initiate its public securitization. Possible RMBS transactions are surfacing in the pipelines and are expected to launch before year-end.
"Most activity has been from the conduit market; it's a lot different than the activity we predicted last year," said Par Tysk at Svenska Handelsbank. "Most borrowers borrow quite cheaply from banks, but we are certain that this will change - primarily because return on equity will have to increase and corporates will increasingly find the securitization market a more attractive alternative."
Borrowers haven't been so quick to accept this fate. Many of the banks in Sweden have access to good senior lending, and as long as there is an abundance of capital, securitization is not the best option. The main reason behind this resistance is the financing technicalities that require specialized teams to answer the regulatory requirements of adopting a securitization structure.
At Svenska Handelsbank, though they have not been active in the public ABS market, a team has been set up within to address the growing appetite for securitizations, said Tysk.
"Originators must also consider the classical effects of having gone through a securitization," said Per Tunestam at SBAB, the Swedish National Housing Finance Corporation. "You gain better control of your assets by achieving market transparency and issues certainly gain from that."
SBAB launched an RMBS - SRS II - through Merrill Lynch last year that offers a tranche in euros and one in dollars. Tunestam added that SBAB was amid preparations for its next issue, but it's likely they will wait until next year to come to market.
Last year, the Swedish-approved bill to authorize domestic SPVs came into fruition. It introduced changes to the existing securitization legislation, and dictates that authorization is no longer required to set up an SPV if the business involves an occasional acquisition of debts and the funds are not continuously raised from the public.
Although it's a step in the right direction, it still incorporates limitations that make offshore SPVs a more attractive alternative. In particular, said Tysk, the legislation limits transfers to only three times and there is no tax incentive to opt for a domestic SPV. Under the new legislation, conduits and master trust structures are still not exempted from authorization.
"It technically enables a domestic SPV, but it's not something we will incorporate in the future," said Tunestam at SBAB. "There are still limitations in wording as well as in the terms, and we have found that using a New Jersey-based SPV works fine for us."
The take-off for Swedish ABS has been gradual, but for this fall the market can expect to see a E200million secured loan structure multi-family RMBS transaction from SEB and at least one other RMBS rumored to be on the drawing table.
"It's important to remember that Sweden is also a small market, and the biggest isolated market is the mortgage market," said one market source. "But having said that, in the past there have been ticket receivables deals for the Swedish railway. We are quite sure that securitization will continue its growth in the Nordic region."