ABS Market Is on a Roll and Promises Yet More

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Byline: Piers Townsend

Buyers and sellers in the European asset-backed securities (ABS) market are used to hearing about new records for the sector. November was the heaviest month of this year, with E13bn ($12bn) of supply, while new issuance in December may exceed E17bn.

Issuance for the year as a whole will also be a record for the European market, at more than E120bn.

The pipeline for December, a month when investors usually close their books, is uncharacteristically large. Deals expected in the next three weeks include Blue Danube, an Austrian residential mortgage-backed (RMBS) deal; two Italian RMBS deals and a commercial MBS transaction by a Lehman Brothers subsidiary.

The biggest deal this month so far was a Dutch loan-backed deal that priced last week. Launched through a special purpose company called Smile 2001, the deal will set its own record at E5bn, since it is the largest individual transaction in the European ABS market. It is the first securitisation of Dutch secured loans to small and medium enterprises, all of which were originated by ABN Amro, and represents around 10% of the bank's portfolio of that type of asset.

Mike Nawas, head of European securitisation at ABN, says: "The year-end peak of issuance is more intense and later than in previous years. We have been doing own-balance sheet deals for a while and we believe that we have the distribution capability to do jumbo transactions without hurting spreads."

ABN also issued Amstel, the largest corporate loan-backed deal (CLO) in Europe. Like Smile, the E1bn Amstel CLO deal is secured on assets originated on ABN Amro's balance sheet - in this case a whopping E12.5bn-worth of loans.

In Amstel's case the risk of the loan pool is transferred synthetically using derivatives. Both deals allow the bank to free up regulatory capital that can be used more profitably elsewhere.

Demand for most types of ABS has been huge.

Nawas says of the bank's Amstel deal: "Investors derive comfort from the quality of ABN Amro's credit policies and the rigorous structure of the securitisation. …