Securitization

Moody’s Investors Services' downgrade of twelve U.K. financial institutions could indirectly support U.K. RMBS, according to Deutsche Bank analysts.

A sample of comments in response to the SEC's rating agency reform proposals suggests the market could find itself in a situation where the government must balance its interest in oversight and control with its plans to avoid more responsibilities and liabilities. It also may need to balance its aim to restrict conflicts of interest with another reform goal involving more sharing of information and transparency.

Auto ABS continues to lead consumer ABS volumes and the latest deal to emerge in the pipeline comes via Honda's $1.0 billion Honda Auto Receivables 2011-3 Owner Trust.

The Royal Bank of Scotland priced its £3.6 billion ($5.5 billion) U.K. RMBS transaction called Arran Residential Mortgages Funding 2011-2 plc, which issued tranches denominated in dollars, euro and British pounds.

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 .