Securitization

An enhanced version of the ratings rule 17g-5 would provide additional benefits that would reduce both issuer conflict of interest and the concept of ratings shopping.

German-based Styrolution Group has closed a €500 million ($667 million) trade receivables program, according to a release from Finacity Corp., which helped structured the deal and serves as the administrator.

Spain’s pharmaceutical lobby is negotiating a plan to sell state-guaranteed securities backed by €5.4 billion ($7.1 billion) of unpaid bills, according to a Bloomberg report.

A new SME guarantee scheme announced by the U.K. government could be positive for SME ABS issuance and would align the U.K. with its European peers.

Consumer bankruptcies across the country plunged 17% year-on-year in September, according to the American Bankruptcy Institute (ABI). The total for the month reached 108,517. The drop for the first nine months of the year from the same period in 2010 was 10%.

HSBC Holdings PLC is planning to sell GBP348 million ($500mn) of bonds backed by U.K. credit card receivables from its Turquoise Credit Card program, according to a Moody's Investor Service presale report.

October set off to a promising start for the European securitization market with the launch of U.K. Building Society, Nationwide's RMBS deal from its Silverstone Master Trusts.

European CMBS Maturity Repayment Index changed only marginally during September on the back of full and partial redemptions totaling EUR140.9 million($187mn).

Investors have recently focused on the difficulties encountered by the European banks, which hold huge amounts of troubled sovereign debt. However, I am quite worried over the state of the banking system in the United States. The recent changes to monetary policy by the Fed, the attempt by state attorneys general to coerce an onerous settlement over flawed servicing practices, and a continued litigation feeding frenzy have put the domestic banking system at risk. Whatever the legitimate grievances, the desire to both punish the banks and obtain reparations for past practices risks pushing the financial system into a new and immensely damaging crisis.

Esoteric or nontraditional assets are gaining momentum to claim a bigger piece of the ABS market.

U.S. structured finance players are exploring new frontiers. With ABS issuance volume not as robust as it once was, yield-hungry investors have turned to esoteric assets.

The Dodd-Frank Act's call for the creation a self-regulatory organization (SRO) or other entity to assign new ratings was mostly panned by structured-finance industry participants, but relying on existing Rule 17g-5 - the industry's preferred alternative - may have a fatal flaw.

INTRODUCTION

According to figures as of Sept. 29 from the ASR Scorecards database, $55.96 billion in public ABS was issued year-to-date in 2011.

The adage "Where there's smoke there's usually fire" probably explains the concerns about regulators' queries into whether REITs still warrant an exclusion permitting them to use significant leverage in their business models. The issue is especially relevant since REITs are primary buyers of agency RMBS and many view them as the likeliest buyers of private-label RMBS when that market's health returns .

Among the ideas surfacing as the government works on interest rate and housing policy interventions aimed at bolstering the economy is a plan for financing bulk REO sales for renting to private investors that could be structured in a manner similar to the Term ABS Loan Facility (TALF)/Public-Private Investment Program (PPIP), an approach some securities analysts said recently they are favoring.

The current outlook for September prepayment speeds is for around a 10% increase overall with CPRs on 4s through moderately seasoned 5s increasing between 30% and 50%.

The issue of whether Greece will or will not default has yet to be put to rest. However, the securitization market proved its resiliency in the face of uncertainty as it opened up primary flow last month with a small bang.

Not too long ago, Turkey's Sekerbank was a name with no resonance in the structured finance world. Then, in mid-summer, the bank issued a covered bond deal that broke two barriers. It was the first of its kind from Turkey and the first covered bond globally to be backed by SME loans. Some covered bond purists even questioned whether SME collateral disqualified an instrument from being called a covered bond, which are overwhelmingly secured by mortgage pools. Turkish law has two separate regulations, one for covered bonds backed by mortgages and another for those secured by any of a wide range of other assets.