[This page lists news and developments in

global securitisation markets – please do visit

this page regularly as it is updated almost on a

daily basis. Join our mailing list for regular

news fed direct into your mailbox]

Read on for chronological listing of events, most recent on top:

Previous newsletters

Nov.,2001.Sep.,2001., Aug 2001… July, 2001.June, 2001May, 2001,… April 2001…  March 2001 ..Jan. and Feb.2001 Nov. and Dec.2000  Sept. and Oct. 2000  July and August 2000 May and June 2000  April 2000   Feb and March 2000   
For all news added before 21 January, 2000, please 
click here   
For all news added before 9th November, please 
click here   
For News items added prior 3rd August, 1999, 
click here.


Moody's foresees more CDO downgrades

Rating agency Moody's put up on 19th Oct a report titled CDO Rating Transitions; Year-To-Date Review — August 2001. Apart from reviewing the downgrades in the CDO sector upto August, the report also gives the agency's views on likely downgrades following the Sept. 11 incidents. This is what the rating agency has to say:


  • The events of September 11h will further stress the CDO market. The extent and duration of the stress will depend primarily on the economic impact resulting from those events.
  • Several market value CDOs have seen their overcollateralization and/or minimum net worth test cushions erode to the point of violating or just barely passing these tests. Yet other market value deals had been repositioned earlier this year to a more defensive posture. Those deals continue to have a cushion in these tests.
  • Should the economy deteriorate in the wake of the disaster, CDOs on Watchlist would be most vulnerable to rating downgrades, while deals that are on the cusp may be pushed over the edge. CDOs exposed to cyclicals, especially those industries that have been the hardest hit, will undergo the greatest deterioration in credit quality in the current environment.
  • Lack of liquidity in the high-yield market could also pressure CDOs, should investors continue to lighten their allocation to high-yield.
  • Should the U.S. economy — or the high-yield market — prove to be resilient, the spread-widening of the past couple of weeks will be viewed as a buying opportunity. Furthermore, some argue that there has been some dislocation in the market thereby offering potential relative value opportunities for some managers.

Vinod Kothari adds: A Deutsche Bank publication of 10th October has also gone into the ABS and CDO downgrades in the 3rd quarter. Deutsche Bank analysts say: "With over $50 billion in negative rating actions [this is for ABS and CDOs together] in the third quarter (a record we are not proud to advertise), it seems like ancient history to talk about ABS as immune to rating volatility. But to be fair, that reputation was built in the days when the market was smaller and more concentrated in a handful of asset classes, such as autos and cards, which performed exceedingly well in good times and bad. The structured products market of the 21st century is not as homogenous as it once was."

Links For more on CDOs, see our page here.

European securitisation activity continues surge: Italy and Spain in focus

Recent surveys put up by rating agency Standard and Poor's show impressive performance by Italy and Spain in a surging European securitisation market. The third quarter issuance in leading European countries is given in our page on Europe – click here.

In Italy, volumes surged to a record USD 15.4 billion at the end of the third quarter 2001; almost three times the USD 5.5 billion tally recorded in the same period last year. S&P expects the market to hit USD 20 billion by year-end. The asset-class-based break up of volume during this 9-month period is as under:

Table 1   Italian Issuance Breakdown (1999–2001)

($ Bil.)
  1999 2000 Q3 2001
ABS 5.800 4.500 6.7
CDO/CLO/CBO 0.857 3.040 1.7
CMBS 0.102 1.084 2.5
Repak 0.000 0.000 0.0
RMBS 0.087 1.500 4.6
6.900 10.500 15.4

In Spain, the issuance upto Sept 2001 has been USD 5.7 billion which is marginally lower than the USD 6.0 billion recorded over the same period last year, but S&P says that looking at the depth of the pipeline, the issuance could well exceed USD 10 billion for the whole year. "Standard & Poor's expects to see increased growth in the use of fondos de titulización de activos (assets securitization funds, under Royal Decree 926/1998) to securitize loans to corporates and loans to small to midsize enterprises (SMEs), as well as the expansion of the securitization of consumer loans, future flows, and trade receivables."


Links For more on securitization in Europe, see our Europe page here. See our page on Italy here and Spain here.

Life Insurance securitisation to look up

With terrorism and anthrax scares and all that stuff, life may not be all that secure, but analysts are talking optimistically about life insurance securitisation. In a recent interview with KPMG Industry Insiders, Brian Lo, associate director of Swiss Re New Markets spoke of the prospects of life insurance securitization.

Insurance securitization itself, though a very promising innovation, has not had any significant volumes over the last 6-7 years, and has mainly been concentrated in catastrophe insurance segment. However, life insurance securitization works with a different motive. Brian Lo says that a life insurance company is looking at life premium securitization essentially from the viewpoint of funding and capital relief, similar to banks and other fund-based securitisers.

The method of premium securitization is, however, different from the usual transfer of receivables. Brian says that an insurer cannot sell premium receivables directly out of the operating company, therefore, it is often most efficient to use a reinsurer as an intermediary, typically offshore. If reinsurance is used, risk transfer must be demonstrated. Also, if the issuer goes insolvent, state regulators effectively shut down the company, making it difficult to secure an interest in the assets backing the policies.

Brian expects that the market will see two or three deals next year.

Links For more on risk securitization, click here.

Cat bonds issuance to shoot up

The increase in reinsurance costs due to Sept.11 events, and the insistence of corporates to seeking full fledged insurance cover would prop up the demand for catastrophe bonds, expects rating agency Fitch.

In a press release of Oct. 15, the agency said that the next year's issuance may even exceed USD 2 billion mark. Cat bonds were a wonderful innovation of risk transfer, but their issuance never got off to a commercial start due to prevailing lower costs of reinsurance.

Cat bonds are alternative risk transfer tools, and they compete with the traditional reinsurance markets. The desirability of cat bonds versus traditional insurance depends primarily on insurance rates, insurance capacity and the perceived financial strength of (re)insurers versus the reliability of funds held in trust with cat bonds. Fitch expects significant increases in traditional insurance rates, significant declines in available capacity and modest declines in perceived insurer financial strength as a result of the disaster. The changes in these three factors will tend to make cat bonds a more competitive alternative, quite simply because traditional insurance is becoming more expensive and less available.

On the pricing front however, bond spreads have also increased in the wake of the disaster, which partially offsets the increase in (re)insurance prices. Cat bonds tend to trade at wider spreads than traditional corporate bonds with similar credit ratings. This premium (to compensate for the exotic or esoteric nature of the bonds) has increased since the disaster and reflects the general market trend of a flight to quality. Fitch believes rising rates in the cat bond market will somewhat dampen sponsors' enthusiasm but, overall, the forces behind increased cat bond issuance outweigh the forces against it.

Further, Fitch expects the higher spreads offered by cat bonds relative to similarly rated alternatives will attract additional investors, especially since it is the 'smart' money that understands the fundamentals of property risk related to wind and ground shake have not changed as a result of recent events. Fitch notes that the share prices of publicly traded property/casualty insurers have risen markedly as investors anticipate higher returns from rising premium rates. Fitch believes investors will similarly be drawn to the cat bond market in anticipation of these higher returns.

One important item to note is that Fitch believes the potential surge in cat bond issuance relates only to property exposed to natural catastrophes such as earthquake or hurricane risk. In order for cat bonds to work, independent modelers must be able to estimate a probability of loss that both the sponsor and investors accept as reasonable. Such models for earthquake and wind risk are well accepted and have been in use by both the traditional insurance and cat bond markets for a number of years. However, Fitch believes it is nearly impossible to credibly model the human behavior element as it relates to events like those of Sept. 11.

Links For more on insurance risk securitisation, see our page here.

Fitch analyses impact of Sept.11 aftermath on RMBS deals

Just as the whole world is busy analysing the variegated effect of the Sept. 11 attack on their respective piece of business or life, Fitch has come out with a comment on the likely impact on RMBS transactions. RMBS is not directly involved in the World Trade Center tragedy, but since the aftermath might have broad-ranging impact on the US and global economy in general

In a Press release of 15th Oct., Fitch said economic repercussions will be varied across the country but the adverse affects on residential mortgage-backed securities (RMBS) ratings would be limited, and short term. Contractionary forces including the immediate disruptions in travel and business operations and the dramatic declines in consumer confidence are leading to reductions in consumer spending, less certain corporate spending in response and an anticipated softening of the housing market. Counterbalancing these effects are the U.S. government's fiscal and monetary policies, relief agencies, insurance proceeds and declining mortgage rates.

Some RMBS pools may be affected by a combination of vulnerable industries and real estate markets. Vulnerable industries include aircraft and parts, air transport including ground services, travel agents and tour operators, hotels, passenger car rental and amusement parks. Metro areas with the highest exposures to these industries combined with overheated real estate markets prior to the attacks include Las Vegas, Orlando, Seattle, San Francisco and Miami. In terms of RMBS pools' exposure to these regions, the Northern California/San Francisco area represents the most significant concentration in prime jumbo RMBS, approaching 20% of mortgaged properties in typical pools.

Fitch will closely monitor outstanding RMBS default rates and losses in these areas as well as the in greater New York City area during the next year.

Going forward, credit enhancement requirements for pools with relatively high exposure to regions at risk will be moderately higher at speculative-grade ratings and potentially slightly higher for lower investment-grades.

Links: For more on RMBS, see our page here.

UK property company launching Britain's mega CMBS

According to a report dated 14th Oct., on, Land Securities, Britain's largest quoted property company, is planning to issue CMBS adding to GBP 1.8 billion, which is among the largest single CMBS offers in UK so far. The purpose of the CMBS is reportedly to fund its acquisition of 6,700 properties owned by BT.

Canary Wharf and British Land are known for their mega CMBS offers in UK market. The present proposed deal will be a close rival to the largest reported CMBS so far – that by Welsh water company Glas Cymru, which raised just under GBP 2 billion bn earlier this year.

At the present juncture, the complete blue print is not available but reports suggest the the originator will seek a monoline insurance wrap to get a AAA rating on the senior tranche.

Links For our report titled European CMBS getting activeclick here. For a report on British Land's securitisation of commercial property, click here. For securitisation markets in UK, click here. For general coverage on CMBS, click here.

Workshops For details of Vinod Kothari's 3-day workshop on securitisation in Europe, click here.

First securitisation deal in Italy

According to a report in Jesualem Post 15th Oct., Bank of America and agrochemicals producer Makhteshim-Agan Industries have closed a securitization deal for securitising the latter's accounts receivables. This is reportedly the first securitisation deal to originate from Israel.

The USD 150 million transaction is based on the revolving transfer of the accounts receivables of the originator. The accounts are generated both in Israel and other marketing locations in Europe and global subsidiaries. It is not clear from the report whether the deal will be sold to international investors or to domestic ones. It is also not clear whether the offer will be rated or not.

Car rentals, airlines-related ABS may suffer

Air travel may be a casualty of the post Sept 11 developments; car rentals which are related to air travels are very likely to suffer, as per experts.

Deutsche Bank's Securitization Monthly for Oct 2001 discusses the impact of the recent global disturbance on car rentals industry. The genesis of the problem is air travel, which has reportedly already suffered by something like 30%. USA has already begun its military offensive, but as things stand, it does not seem like international business travel, apart from travels to and from certain locations in Asia, is directly affected. Therefore, the 30% dip in passenger traffic may not worsen, and may take sometime to restore partly. Analysts expect the restoration to be only partial: to an extent, air travel will remain affected.

During the 1991 gulf war, air travel showed a substantial negative growth: however, the Gulf War ended after some 45 days, and air traffic remained affected for some 6 months. The current conflict, as being predicted by the politicians as well as others, may last longer. Therefore, a milder but more long lasting effect is being predicted on air travel.

A large part of car rentals are directly connected with air travel, and therefore, might suffer as well.

India sees a flurry of securitisation activity

A lot of noise, and some deals coming to the market – this describes the Indian securitisation scenario post Sept-11.

The most significant noise, in terms of the decibel volume it carries, is the one that has been heard 50 times over the last several years: securitisation of electricity dues, and power sector funding. The power sector needs a funding of Rs. 800 billion [approx USD 17 billion] over the next 10 years, and securitisation has been named as one of the key funding devices by several experts.

At a recent meeting of Indian Electrical & Electronics Manufacturers Association, a Power Ministry official said central power utilities have been directed to securitise their delinquent receivables from the State electricity boards. This adds up to some Rs. 35 billion.

Among the deals that recently came to the market was a Citibank-arranged securitization of auto loan receivables originated by Ashok Leyland Finance. Worth Rs 630 million, this was claimed to be the first deal where POs and IOs have been sold separately. Citibank has used its conduit Peoples Financial Services as the SPV for this securitisation, as also for several of its earlier securitisations.

The other deal that is reportedly in offing is CLO by ICICI –see below.

Links For more on securitisation in India, see our country page here.

Securitisation a key tool for Philippine economic re-ignition

According to reports in Manila Bulletin of 7th Oct., Philippine House Speaker Jose de Venecia announced yesterday a strategy to relaunch the government's mass housing program and re-ignite the economy through a large-scale securitization program and the creation of an SPV that would convert non-performing loans and assets into development capital. The Speaker said he has already submitted to President Gloria Macapagal Arroyo his proposal for the country's first large-scale Securitization Act and the Special Purpose Vehicle measure as part of the strategy to turn around the economy.

In essence,what the Philippine government is proposing is two unrelated things but both have a common factor – the securitization methodology. Residential housing being promoted by securitisation is by now an established fact and many governments have used secondary mortgage markets as the basis for fulfilling the housing needs of citizens.

The other target is securitization of non-performing loans held by banks. The Philippine government sees role models in Korea, Thailand and Mexico.

Links For text of a 1998 securitization law in Philippines, see our laws section.

ICICI is all set to launch India's first CLO

According to reports in Financial Express of 8th Oct., premier term lending institution ICICI is all set to mop up some Rs 4.75 billion (approx USD 100 million) from the market by securitisation of its term loans. This would be the first CLO in India and the first transaction to use a bond structure instead of a traditional pass through structure.

The tenure of the bonds may be like 4-5 years and the pricing may be around 11 per cent, which, in view of the likely AA- rating is quite a good spread for the investors. From the newspaper report, it appears as if ICICI itself will be the trustee for the investors, which seems unlike the independent-SPV and indpendent-trustee structures globally used.

With the demand for fixed income securities increasing, there is certainly a very good potential for a new breed of fixed income securities in the market. This would be the first CLO in India: previous securitisations have used either residential mortgages or car loans as the collateral.

Not only balance sheet CLOs, India apparently has a very good potential for arbitrage CDOs as well, with a wide variety of corporate bonds in the market. However, the regulatory structure for reinvestment-oriented SPVs is not yet clear, not to speak of the tax treatment of such SPVs. A draft securitisation bill is gathering dust as more politically sensitive matters continue to occupy the attention of the government.

Links For more on securitisation in India, see our country page here. For more on CLOs and CDOs, see our page here.

Accounting charges in 3rd quarter may pare securitiers' income

Call it paring or plundering, but if Conseco's 3rd quarter write downs are any representation of what is in store for other frequenters to securitisation market, it is going to be a very quarter indeed.

October 2, Gary Wendt of Conseco Finance wrote his customary investor memo, in which he listed two major items of write downs – the values of IOs and CDOs aggregating to about USD 350 million.

Under securitisation accounting standards, the values of IOs are based on assumed rates of default, prepayments and other credit sensitive factors. Declining interest rates, increasing rates of default, etc would have led to reassessment of the values of IOs for Conseco. The revalued IO would reduce the balance sheet value for Conseco from USD 459 million to USD 193 million, that is, a write down of 58% in just 3 months! This results into a charge of USD 225 million on the income statement.

The other item of write down is the value of the CDO portfolio, which is subject to accounting rule EITF 99-20. The outlook is not certainly positive: "The downturn in the economy increases the likelihood of default in certain types of CDOs. We also will write down certain below-investment-grade securities, primarily fixed maturities, which in our view are especially susceptible to the expected downturn in the economy".

The last quarter also saw substantial write downs in CDO portfolio by many securitisers, notably American Express – see our story here.

Italian securitisation may reach Eur 30 billion this year, says Moody's

It is going to be a record upsurge in the history of European securitisation, and given the fact that Italian securitisation is practically only 3 years old, it is a remarkable development. A Moody's report titled "Veni, Vidi, Securitizi: Crossing the Market's Rubicon: The Italian Structured Finance Market First Half 2001 Review" lauds the market development in Italy.

As against 25 deals worth EUR 10.1 billion in year 2000, some 60 deals crossing Eur 30 million are expected by the end of the year, says Moody's. While during the first six months of 2001, 30 publicly rated term deals closed, valued at EUR 11.6 billion, breaking all Italian structured finance records and placing Italy just behind the United Kingdom, as the number two European securitisation market. And since July, another seven transactions closed, worth an estimated EUR 4.9 billion.

Mortgage portfolios of banks and NPA deals are big drivers of the market. However, NPLs as a percentage of the total securitization volume is declining as the related tax benefits expired this May.

Vinod Kothari adds: The government is already on record putting securitization on the priority list for liquidation of the government's real estate holdings, and reduction of budgetary deficits.

Links For more on Italy, see our page here.

Expert cautions against risks in intellectual property securitisation

In Oct 2001 issue of Credit Management, a journal of the Institute of Credit Management, Peter Banyard has cautioned against the risks of investing in complicated and contentious cashflows such as intellectual property securitisation.

"At some stages over the last few years I have dealt with the securitisation of debt. If you have a good, reliable income stream from your lending and need to realise that asset, it can make sense to sell it", says the author. However, if the cashflows are as complicated as in intellectual property securitisations, investors could be heading in for trouble.

"The first problem is working out how much intellectual property is worth. Then there is the problem of finding a buyer and, if all goes well there, working out the legal side of things." The author says: " Securitisation may be easy enough if it is uncomplicated; perhaps the income from a straightforward contract or loan. It's fiendishly difficult when it comes to little legal quarrels over who owns what and, in the case of IP, there are usually a number of claimants to a share in it."

Talking of David Pullman's appetite in promoting intellectual property securitisation, the author says that the celebrities in intellectual property securitisation have a number of lawsuits around them. "My own advice to anyone thinking that negotiation by lawsuit is a reasonable way of doing business is to think again. Unless you have Mr Pullman's unusual gifts I feel sure it will prove a bitter and disagreeable experience", says the author.

Link For more on intellectual property securitisation, click here.

S&P sees vast potential in hedge funds CDOs

If there are enough takers for rating agency Standard and Poor's recent release that it is prepared to rate CDOs of hedge funds, or "fund of funds" as it has been called, the world of CDOs might increasingly see new brand of collateral – hedge fund investments. There have already been on state some CDOs to invest in private equity and hedge funds – see our reports here.

S&P release of Oct 1 says that it is developing criteria for rating debt secured by the market value of hedge funds of funds. Prima facie, the rating of hedge fund CDOs will use the same approach as it has used for other CDOs. The release says the approach will be the same as for market value collateralized debt obligations (CDOs), in which the rated debt is backed by the market value of "eligible assets" discounted to reflect their inherent riskiness. This approach requires that the portfolio of assets conform to strict valuation, documentation, reporting, and monitoring guidelines.

In rating these transactions, Standard & Poor's will review the fund of fund's investment strategies, underlying asset characteristics, risk measurement and management processes, and level of liquidity. Particularly important will be the level and quality of management, the correlation of returns among underlying funds or strategies, the use and extent of leverage, and the structure of ownership in the underlying funds.

S&P is optimistic of hedge fund CDOs as it sees securitization potential in the $300 billion hedge fund market. There are takers already: the release says that it is already examining some of these proposals.

There are estimated to be as many as 5,000 hedge funds worldwide holding in excess of $300 billion in assets. Many of the funds of funds participating in this vast market may find securitization an attractive option. Standard & Poor's Micropal, a funds analytic system, contained information on 1,362 hedge funds as of May 31, 2001. At that time, 964 of these funds had reported combined net assets of $152 billion within the last quarter. This comprised about $126 billion in actual invested assets — a figure that excludes the net assets of the 233 hedge funds of funds.

French Ruling casts doubt on future flow securitization

A ruling by French Supreme Court has cast doubt on assignment of future flows, which in turn forms the basis of a number of securitization deals known as future flow securitizations. A future flow deal is distinct from an existing asset deal as the receivables in the former case do not exist on the date of the transaction; and will be created and transferred in future. Several legal systems regard a future flow as a future asset, transferable only in future, though the promise for its transfer can be made now. Hence, if the transferor, before completing the transfer goes bankrupt, it is questionable as to whether the transferee will have claim over such receivables which had not been created and transferred before bankruptcy.

Legal experts contend that the French law, Articles L 313 to 23 of the French Monetary and Financial Code (also known as the Dailly Law) specifically permits this. However, in a decision of April 26 2000 the commercial section of the French Supreme Court held that a transferee of receivables assigned under the Dailly Law was not allowed to recover the sums due by the transferor's debtors pursuant to the continuation of an ongoing contract after the opening judgment of insolvency proceedings against the transferor.

There have been similar fears based on an Italian supreme court ruling and an old English case law – see our site here.

Links For more on the above ruling, see article by Gide Loyrette Nouel here. Also see our page on future flow securitization here.

First securitization deal concluded in Bolivia

Nacional Financiera Bolivianan (NAFIBO) through an SPV labeled COBOCE-NAFIBO 001, on September 26 sold in the Bolivian market for the first time in country's history a securitization deal worth USD 4 million, according to a news contributed by NAFIBO's securitization manager.

The cash flow securitisized comes from 60 promissory notes issued by the municipality of Cochabamba. NAFIBO is a second tier bank located in La Paz.

The originator from this deal is Cooperativa Boliviana de Cemento (COBOCE). On this deal COBOCE sold to the SPV the 60 promissory notes, which in turn were securitisized an sold in the market. The deal was rated AA- by FITCH. The securities sold have a maturity of 3.5 years and yield 10%. Interest is paid every 90 days and capital starts amortizacing every three months starting on month 18.

UK football club securitises future ticket sales

According to reports in Financial Times of 1st October, Latham & Watkins has closed a GBP 60 million securitisation for Leeds United FC by assigning their future ticket sales.

It is the biggest securitisation of its kind by a Premier League football club. The club issued two tranches of bonds secured against 25 years of ticket sales.

The present deal has been talked about for quite some time and we put up a report earlier on this site. There have been other football securitizations in UK by Ipswich Town and Southampton football clubs, but this one is the largest and the most remarkable.

Investors get jittery on trophy property securitisations

The commercial real estate industry had come to rely heavily on securitisation transactions, but the Sept. 11 event has hit it, at least to the extent investors are far more shy today than ever before in investing in "trophy" property securitisations, that is, where one prime commercial property formed all or a substantial part of the collateral for a transaction.

The lease of WTC itself was funded by two major securitisation deals, reported on this site before. The Rockfeller Center is funded by some more than USD 1 billion of securitisation money. Though, in case of WTC damage, rating agencies have been holding that the insurance claims will take care of investor paydown, it is clear that being paid out of insurance proceeds was not something that the investors aimed at.

The market expects investors will be more choosy about the composition of the CMBS portfolio in time to come and it will be difficult to sell trophy asset securitisations. In Europe, where this trend was only catching up of late has already seen some of the major securitisers deferring their plans. CMBS spreads have gone up by some 10 bps post Sept. 11.

Links For more on CMBS in general, see our page here.