Corporate Issuers Pile into Asset-Backeds
Ask asset-backed specialists about the benefits of securitisation and you could end up listening to them for hours. Cheaper funding costs, balance sheet management, stand-alone financing, access to a diverse investor base, regulatory capital relief, anonymity, structural flexibility - the list is endless.
Issuance in the European asset-backed market is certainly growing, totalling $80bn (E89bn) in 2000, up from just $10bn in 1995. This year most analysts expect the market to continue its upward trend, hitting $100bn by year-end.
Still, it is not just the overall market figures that are increasing, the range of motivations driving corporates and financial institutions into the ABS market has also been widening. Michael Raynes, head of the European securitisation group at Deutsche Bank, says: "The European ABS environment had previously been dominated by banks that were using ABS purely for balance-sheet management purposes. However, it is now becoming a very credible alternative funding source for corporates across the board."
Like others, Raynes suggests that the rise in popularity of ABS is a by-product of continental European banks' increasing focus on return on capital. As banks have pulled away from less-lucrative corporate lending, so the costs of bank funding have risen for companies, making the ABS market more attractive.
Others point to a follow-on, or "me-too" effect. James St Johnston, head of ABS Syndicate ABN Amro, says: "As ABS have gained in stature, so they has become a more viable funding alternative for all kinds of borrowers. As outstandings increase and the process of putting together a transaction becomes more streamlined, so more corporates and other users will choose ABS."
Despite all the hype about the benefits and widespread uptake, the bulk of issuance still comes from the more mature UK market. But although the UK accounted for 48% of all first-half 2001 issuance, the good news is that in one sector of the market at least, Italy managed to break its lead. According to research by Commerzbank Securities, Italian-originated consumer finance transactions accounted for 51.7% of all European second-quarter issuance - 41.2% of half-year issuance.
The surge in Italian business has come from local banks. A tax break allowing issuers to amortise their losses over a four-year period has created a favourable environment for the securitisation of non-performing loans, encouraging the latter group to shift these off balance sheet. Although the tax breaks came to an end in May, few expect to see a marked decline in the country's usage of ABS, as local banks continue their now habitual use of the ABS market.
Germany, however, is now pegged as the next growth market. Marcus Giancaterino, head of European securitisation at Salomon Smith Barney, says: "While Italy has been the biggest Continental growth market for ABS issuance recently, I would expect Germany to grow more strongly in the future. In particular, as reforms are put in place and the Landesbanken lose their guaranteed status and their funding costs increase, they are likely to be compelled to consider the ABS markets to reduce capital requirements and for overall funding needs."
While most Western European countries have already jumped on the ABS bandwagon, this year has seen one new European entrant: Israel. In late August, a local commodity firm, Makhteshim Agan, launched the country's first public securitisation when Bank of America acted as sole arranger for the agro-chemicals manufacturer's $150m-securitisation programme.
Bank of America's team structured the programme so that the trade receivables generated by the company's subsidiaries in Israel, the US and Europe could all be securitised in their local currencies. Because the regulations of all the different jurisdictions involved needed to be taken into account, the deal took longer to arrange than most others. …