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SECURITISATION NEWS AND DEVELOPMENTS
[This page lists news and developments in International securitisation markets - please do visit this page regularly as it is updated almost on a daily basis.]
Read on for chronological listing of events, most recent on top:
PECO Energy Company has put up USD1 billion in asset-backed transition bonds, its second securitized financing of debt in the last 14 months. Salomon Smith Barney is the lead underwriter. The AAA-rated Series transition bonds are all non-callable, fixed rate securities. The bonds are split into four classes with expected maturities ranging from 1.1 years to 9.3 years. The weighted average interest rate of the transition bonds is approximately 7.54 percent.
Prior to the present issue, PECO Energy securitized $4 billion of its recoverable stranded costs in March 1999, the largest securitization deal in the USA.
Stranded costs represent the costs incurred by electric utilities in course of their transition into competitive pricing. The issuance of transition bonds is allowed on case to case basis by electricity regulators.
Links For more on securitization by public utilities, click here.
A new book by Stan Davis and Christopher Meyer discusses the enticing new opportunity for musicians and magicians, preachers and performers, authors and artists: securitize your skill and get today what you can only hope to earn in future.
Titled Future Wealth (Harvard Business School Press, 201 pp., $39.95) the book is built around the famous case of securitization by David Bowie (click here for our intellectual property securitization for details). The authors, both of Ernst and Young Centre for Business Innovation in Cambridge, say that the Bowie bond deal may have more replicates in time to come. In an age where talent has become the rarest and most valuable commodity, it won't be long before high fliers from many other walks of life follow Bowie's lead by putting ownership of their abilities up for grabs.
The way intellectual property is being traded on the markets is also influenced by the most important technological event of our time: the internet. The authors assert that the rise of the Internet economy is completely rewriting all the rules governing wealth creation, and this, in turn, will dramatically change the way financial markets function in the future.
A recent write-up by Standard and Poor's [Structured Finance April 2000] reviews the growth of securitization in Latin America.
The report notes the two significant features of Latin American securitization: reliance on third party credit enhancements and development of local markets. Several Latin American issuances in the past have resorted to political risk insurance - for a news item on OPIC's political risk insurance for securitization from emerging markets, click here. These enhancements aim at reducing the sovereign risk associated with these countries. "Nevertheless, there are still hurdles to be overcome. Many major markets lack adequate information about loan perfor-mance and property values, and lenders have shown a reluctance to provide relevant information about borrowers", says the Report.
Reviewing some significant Latin American markets, the report notes that Argentina remains one of the active securitization markets, particularly for RMBS transactions. Argentinean market has a vast potential for securitization: the 10 largest private financial institutions still retain approximately US$9.037 billion in potentially securitizable assets. "However, there are challenges. Banks may be unwilling to share information about their customers with other banks. Also, because the concept of an independent trustee in Argentina is still developing, it can be difficult to find impartial third parties to represent investors," says S&P's report.
Talking about Mexico, the Mexican government housing agency, Financiamiento Bancario de la Vivienda (FOVI), received a loan from World Bank to promote RMBS securitization. FOVI has accordingly designed an inflation-adjusted mortgage securitization instrument. However, Mexican legal system still lacks the required flexibility for securitized transactions.
The report notes that in Brazil, enough securitizations are not done because the volumes are still not large enough. However, the country has allowed faster mortgage foreclosures in a bid to attract securitization investors.
A report by Standard and Poor's recently reviewed European Securitization market. The securitization market is becoming the hottest debt market in Europe with increasing investor appetite.
In terms of volume, the report says the volume slid from the Q1 figure of the previous year: it is USD 14.5 billion this year, but the slide is nullified by two important factors: more deals, and more ecelectic deals. A total of 29 transactions were completed in Q1 of 2000, says Standard and Poor's.
Among one of the very innovative transactions this year was the champagne bottles securitization from France - click here for the news item on this site. Subsequently, the same technology was also used for securitization of stock of wool in France - click here. Both these transactions have used physical assets as a collateral for securities as against the traditional asset classes where receivables or financial assets back the securities.
Standard and Poor's also emphasizes the growth in standard pedestrian asset classes, as these provide the growth engine for securitization in any region. Among the traditional classes, credit card securitization issuance is still much slow in Europe as compared to the USA, but Q1 of 2000 saw Europe's largest deals so far: Royal Bank of Scotland's bumper USD1.6 billion issue sale.
RMBS transactions continue to be the mainstay of European securitization. The quarter registered USD 3.4 billion RMBS issues, with regular names such as Northern Rock PLC. However, notable activity was seen in the CMBS segment, where the first Pan-European issue by Europa One PLC, a ground-breaking US$1.345 billion securitization of assets from five European countries made its mark. Standard and Poor's expects good demand for Pan-European issues.
The report also notes activity in aircraft receivables, ABCP, and high yield CBOs.
[Note: this report is intermixed with my comments - VK]
Financial Times of 25th April reported that the Peoples Bank of China has for the first time permitted issuance of mortgage-backed securities in the country. People's Bank of China, the central bank, had given permission to the China Construction Bank (CCB), one of the "big four" state banks, to start offering mortgage-backed debts.
From a financial policy perspective, permission for mortgage-backed securities opens the door to the idea of recapitalising China's badly impaired bank assets by issuing various types of securities. Non-performing loans in China's state banks account for around 25 per cent of the total.
Besides, mortgage-securitization as a means of promoting housing finance has long been needed in China. Hong Kong is well recognized as the hub of securitization activity. On the other hand, China is yet to initiate the instrument, though the country faces an acute shortgage of housing.
Earlier on of our pages on this site on this site, we have reported the intended securitization in China, which means the deal has been hanging for a very long time.
Links: For more on securitization in China, see our country page - click here.
Banca di Roma of Italy recently launched a massive securitization transaction which includes the largest parceling out of non-performing loans in Italy so far. The Euro 1.7 billion transaction was reported in Il Sole 24 Ore on 14th April.
The four tranches offer partly consists of non-performing loans held by Banca di Roma and its subsidiary Mediocredito di Roma. Of the 4 tranches, class A and class B valued at Euro 850 million, which have been placed on the market. Classes C and D have been retained by the originator
This securitisation deal, named "Trevi 2", is Italy's biggest on-performing loan transfer. Lead manager for A and B tranches are ABN Amro and BNP-Paribas with Banca di Roma as Senior Co-Lead Manager. Classes A and B have been placed with a wide range of European investors. Class C, presently retained by the bank, will be listed at Luxembourg. Class D notes, also retained, will be collateralised by high-grade bonds.
Class A of Euro 650 million, with expected average Life: 3.5 years carries Euribor 6 months + 110 bps, and may be rated AA. Class A is also supported by liquidity line provided by ABN Amro.
Class B of Euro 200 million has expected average Life: 5.4 years and carries Euribor 6 months + 210 bps. This may be rated A-.
Thanks to Mr. Paolo Binarelli of Crops 'n Commodities for contributing this news as also number of other news items relating to Italy. Paolo has been a great help and would be eager to discuss Italian securitization with those interested - his e-mail id is email@example.com
Even while the Financial Accounting Standards Board is re-writing the accounting standard for securitizations, there are more instances of imaginary assets on securitization being written down or written off.
American Banker of 18th April reports that Community West Bancshares of Goleta, California, was forced by bank regulators to revise its accounts for 1998 and 1999 to correct the values recorded for retained assets on securitised loans. The 1998 accounts of the bank initially showed a profit of USD 2.9 million, which was revised down to USD 0.45 million, that is, down 85%, after correct values of assets arising out of securitization were recorded.
Then again, in 1999, the bank showed a loss of USD 1.65 million for the same reason.
While reporting impairment of securitization assets is becoming more frequent, however, form 10-K filed by Conseco Finance recently beats the record. Here are some excerpts from the statement:
"During 1999 and early 2000 the Company reevaluated its interest-only securities and servicing rights, including the underlying assumptions, in light of loss experience exceeding previous expectations. The principal change in the revised assumptions resulting from this process was an increase in expected future credit losses .... We recognized a $554.3 million impairment charge ($349.2 million after tax) in 1999 to reduce the book value of the interest-only securities and servicing rights.
During the second quarter of 1998, prepayments on securitized loan contracts continued to exceed expectations and management concluded that such prepayments were likely to continue to be higher than expected in future periods as well. As a result of these developments, we concluded that the value of the interest-only securities and servicing rights had been impaired, and we determined a new value using current assumptions. ...
In 1997, we conducted a review of the systems, financial modeling and assumptions used in the valuation of our interest-only securities. ...We recognized a $190.0 million impairment charge in 1997 ...."
Some time back, US securitization markets were rocked by concerted exodus of securitization teams from one player to the other. Now, it is Europe. On 14th April, Merrill Lynch & Co. reported having hired seven members of Deustche Bank AG's structured finance team in London. Michael Donahue will join as managing director, while David Mandel, Michael Jinn, Justin Fox, Rolf Steffens and Teimuraz Barbakadze will join as directors. Andrew Jarmolkiewicz will become a vice president.
Even as this news was still hot, on 17th April, Financial Times reported that Credit Suisse First Boston, the investment bank, has poached a team of at least 10 from BNP Paribas to boost its European securitisation business. The top-rated team includes Maarten Stegwee and Adrian Carr in London.
Do you have any views on this matter - write to me and we will be happy publishing your views.
Earlier on this site, we have reported the move by the Japanese govt. to securitize idle land owned by it - click here. The govt. has now identified land for this purpose. Reports in Asia Pulse of 18th April said the Govt. has selected 14 earmarked properties for sale to investors. This will mark the first time state-owned land will be securitized.
The properties, which include a former housing site for civil servants in Tokyo, will bring in an estimated total of about 10 billion yen (USD 95.87 million) through the deals.
The government plans to open competitive bidding to the public in late May.
One of our list members from Italy (see below) has provided us this news feed. The Italian Bankers’ Association (ABI) is working on a very interesting project. Its goal is to create an organized financial market for securitisable assets in which asset owners can sell their assets, and buyers, as financial institutions, can buy either directly or as structured products. ABI believes that with the rapid popularity of securitization in Italy, such a forum will have tremendous scope. A listed and organized financial market for such assets will bring more standardization to the assets themselves and more guarantees for investors. Organized market also implies rated and healthier securities in the marketplace.
It is notable that Italian banks have been particularly vehement in sacking off their non-performing loans - see our country profile on Italy for more details and news items.
ABI, however, is of the strong view that bankers should look at securitization not merely as a cleaning tool but as a funding instrument.
In the meantime, at a conference organised by Business International in Rome on 31st March, Moody’s forecast a great 2000 for Italian securitisation market: up to Euro12 billion, up and almost doubling from euro 6.5 billion in 1999.
[We are grateful to Mr. Paolo Binarelli of Crops 'n Commodities for feeding us with this news. We appreciate his continued support to disseminating important developments taking place in Italy.]
A recent piece in American Banker 12th April says that consumer lawyers and other interest groups can put securitization trustees and investors into problems on account of predatory loan practices of the originators. "A spate of threats over the indirect financing of so-called predatory mortgage loans is the latest volley in a two-decade-long legal war that has put the financial community increasingly on the defensive. By brandishing Truth-in-Lending, fair-housing and anti-racketeering laws as hammers against large financial companies that buy, securitize, or help finance abusive loans, trial lawyers are applying a strategy many experts trace back to a 1980 law that made banks potentially liable for clients' environmental cleanup costs."
Predatory loan practices include unfair or illegal lending activities such as excessive origination fees, prepayment penalties, loan packing, that is, pricing of independent add-on services with a loan, loan flipping, that is, rescheduling of a loan such that it increases the profits of the lender, etc.
Evidently, predatory lending practices, more common in sub-prime lending and home-equity segments, might create legal problems for even the assignee of the loans, that is, the SPV and the trustee for the SPV. By implication, even the investors who buy such loans might be implicated. Under the US Home Owner Equity Protection Act, the assignee or buyer of a mortgage is also liable for the originators' offences. Based on these provisions, on Feb. 16, 2000, a plaintiff won a decision in a Pennsylvania bankruptcy court against the trustee for the securitization and the holder of a loan after the originator went out of business. The plaintiff, sought to rescind the loan, which was originated by Money-Line Mortgage and assigned to CityScape Corp. CityScape had filed for Chapter 11.
There have been more such cases, and a few of them successful. In December 1999 a group of investors in California sued Bank One Corp. and SunTrust Banks Inc. over their role as trustees for securities issued by First Lenders Indemnity Corp. The investors were claiming the banks should be held responsible for losses on what they said was a Ponzi scheme orchestrated by a man who had been convicted of bank fraud.
In another case, Bankers Trust Corp., which has since been bought by Deutsche Bank AG, has been named as a defendant in a class action against Delta Financial Corp. for its role as an underwriter for the subprime lender.
Do you have any comments or experience in the matter? Do write back - we will be happy to publish your comments here.
Insurance securitization community is optimistic that protected cell companies, a new concept that avoids setting up of an SPV for securitization of insurance risk, will make things easier, faster and cheaper.
Links: Click here for an article by John E Langlois on protected cell companiesThe current approach in securitizations is to set up special purpose vehicles in tax haven jurisdictions that provide reinsurance cover to the insurance company and in turn transform the insurance risk into a capital market product.
On the other hand, if protected cell companies are used, there will be no need to set up SPVs for each transaction, as one cell company can have several cells in it and each cell can do a securitization transaction. The basic idea is not to proliferate legal entities.
Protected cell companies, it may be noted, can be used in asset securitization applications
Guernsey has already enacted a protected cell legislation. Some of the US states such as Illinois, Rhode Island and South Carolina have also passed protected cell laws. In fact, the National Association of Insurance Commissioners has also passed a model protected cell companies law. The concept has not been put to use as such but insurance market practitioners expect it would be lapped up by securitisers in due course.
A report appearing in Asset-backed Alert recently says that the Greek government is working with three investment banks to draft a securitization measure that could become law by late summer. Obviously enough the Greek Govt. has drawn a cue from Italy.
Earlier this month, a Greek government agency called IKA hired National Bank of Greece, Paribas and Salomon Smith Barney to help draft legislation allowing for securitization of USD 1.9 billion of overdue social security payments. If the measures pass, the social security deal could hit the European market late this year or early in 2001.
The Finance Ministry is already planning to follow up the IKA transaction with a 1 billion-euro securitization of the country's future lottery receivables. Some of the proceeds of the lottery deal would be used to pay costs associated with Athens hosting the 2004 summer Olympics. A number of other departments of the Greek government are rumored to be interested in securitizing state-guaranteed mortgages and other receivables.
To date, securitization has been a non-starter in Greece. In 1997, Bear Stearns attempted to craft a series of mortgage-backed issues for National Mortgage Bank of Greece, but legal obstacles thwarted that effort.
Links: For more on securitization in Greece, click here.
Cat bonds or other securitized risk products, which seek to transfer an event risk to capital market investors have been around for some time (see our detailed risk securitization page) but insurance markets are coming under increasing influence of capital market devices. Quite close to index-based derivatives in capital markets, recently, a new device of risk transfer was tried by American Re - risk transfer based on an index of insurance industry losses.
In a usual cat bonds issuance, the insurance company transfers risk to losses to be suffered by it on a specified trigger event. However, index-based risk transfer device works on a different basis - here, the risk transfer is based on an index of losses suffered by the insurance industry, not by a specific insurer. The recent issuance by American Re, called Modeled Index-linked Securities or ModILS, is based on Risk Management Solutions' CAT, that is, an index of catastrophe loss value and is powered by the company's Insurance Risk Assessment System (IRAS).
Apart from the basic difference that a normal catbond investor buys the risk of the particular investor whereas a ModILS investor buys the losses of the insurance industry as a whole, ModILS also have another interesting feature. A normal cat bond investor waits for a long time, sometimes years based on the insured event, before he comes to know whether he has lost his money. ModILS, on the other hand, is based on an index movement, and hence returns a loss determination in only 60 days. For this reason, cat bonds are very dificult to sell after some time, except as a heavy discount.
The first ModILS product is a $812 million bond issued by Gold Eagle Capital Limited, a Bermuda-based SPV.
How does the index, IRAS, actually work? IRASis a complex application
that takes variables from a number of different sources, including the
National Hurricane Center, US Geological Service and RMS's database
of insured exposures and calculates losses for events such as a hurricane
or earthquake. IRAS comes up with an industry loss estimate based
on that data. Depending on the extent of the predicted losses, bond
payments may be triggered.
A recent article in Investment Dealers' Digest [3rd April] regards Australian MBS as " prized by a coterie of investors as being perhaps the best quality mortgage securitizations available anywhere". Yet, Australian MBS trade at spreads higher than the US or UK counterparts. Australian MBS still "trades well above U.S. and U.K. mortgage deals and is barely trading through U.S. home-equity loan deals. According to Merrill Lynch & Co., Australian three-year MBS in mid-1999 traded at more than 30 basis points over LIBOR, compared with three-year U.S. credit card deals, for example, which traded at about 15 bps over LIBOR in the same period. Further, Australian six-year MBS in January 2000 traded at least 10 bps higher than comparable deals from Europe or the U.K. And Australian deals still have higher launch spreads than any international competitor and show no signs of tiering between issuers."
What accounts for the high quality of Australian MBS? It is the unique mortgage insurance system, dating back 35 years, which provides a strong level of coverage that makes defaults a rarity and gives lenders the freedom to offer a diverse array of product.
The insurance system, known as Lender's Mortgage Insurance, protects lenders from losses on residential properties, thus allowing lenders to move into offering up to 100% loan-to-value mortgages with the security that the entire venture is insured. As a result, Australian deals require little credit enhancement. Further, delinquencies are quite rare in Australia--less than 1%, according to S&P.
Links For more on securitization in general in Australia, click here.
India's investing institutions, who have been accustomed of living in a all-that-is-not-allowed-is-prohibited syndrome, got a green signal on 7th April to invest in mortgage-backed securities when the Securities and Exchange Board of India (SEBI) allowed mutual funds to invest in mortgage-backed securities. A Board meeting of the SEBI decided to amend mutual fund regulations to this effect. Click here for the full text of the Press Release. The proposal was being talked about for a long time - click here for an earlier report on this site.
Several MBS offers in India appear to be waiting in the wings. Apex housing finance institution, National Housing Bank, has time and again announced its proposed pilot securitization- click here for a news report on this site. Urban infrastructure finance company HUDCO has also been vehemently talking about securitization.
It is not sure whether this was the notification that was blocking the way of securitization deals happening in India, but certainly, the environment in turning positive on securitizations. Recently, a study group of the Reserve Bank of India submitted report on regulatory measures required for development of securitisation market -click here for a report.
Vinod Kothari comments: Where letters rule the law, meaning takes a backseat. As Justice Krishna Iyer said: grammar is a good guide to meaning, but bad master to dictate. Evidently, mutual funds are formed to invest in securities, and securitization issues of all sorts result into creation of "securities" - so, in the first place, why should there have been any room for a confusion at all? Why was an amendment required to allow mutual funds to invest in MBS, while the fact is that they invest in all sorts of unquoted debt instruments which are no more than securitized loans? And the bigger question is: the present amendment allows mutual funds to invest in mortgage-backed securities. By implication, it does not, therefore, allow mutual funds to invest in other asset-backed securities, say, lease receivables backed securities?
A regulatory regime that depends too much on letter-work takes away every time it poses like giving - so the power to invest in MBS is given, and the power to invest in other ABS is taken back!
A report in Financial Express of 3rd April said Global Tele-Systems Ltd has mopped up Rs 1.3 billion (approx USD 32 million) by securitising the receivables of its consumer telecom business to a special purpose vehicle christened Integrated Call Management Centre.
Finance company Tata Finance is the sole investor to the deal and will pick up the pass-through certificates issued by the SPV. The deal, struck last week, has been structured in such a way so as to enable the originator to receive funds from Tata Finance on an upfront basis. The spin-off of assets to the SPV marks GTL's exit from the consumer telecom business managed by the subscriber end terminal (SET) group of the company. Securitising the assets will result in savings of Rs 22 crore in interest costs to the software application and e-commerce service provider.
GTL plans to utilise the proceeds from this deal for developing business-to-business (B2B) applications and for future e-commerce acquisitions.
Vinod Kothari comments: This would probably be the first case of future flows securitization in India. Domestic future flows deals might legally be closer to lending than transfer, particularly in common law countries, but where the framework from which the income would flow is identifiable, such deals make lot of sense. Lot of eclectic future flows deals are likely from emerging markets. [Thanks for Victor Cherian for the news feed.]
Pegasus Aviation Inc., the world's largest privately held commercial aircraft lessor, has raised USD 938 million by securitization of aircraft lease receivables for 28 commercial jet aircraft. The weighted average initial lease term remaining in the portfolio is approximately six years, while the weighted average initial age of the aircraft is approximately 7.5 years. Air Canada, Aeromexico, China Southern, GRUPO TACA, KLM and TWA are among the 22 airlines on four continents to become lessees.
Founded in 1988, Pegasus Aviation Inc. has become one of the top-tier operating lessors by delivering high-specification commercial passenger and cargo jet aircraft to the global airline industry. With more than 200 passenger and freighter aircraft on lease to 60 different airlines worldwide, Pegasus owns one of the largest fleets within the leasing industry.
Links: For more on securitization of aircraft leases or aircraft receivables, click here.
Hong Kong office of Credit Lyonnais recently (31st March) closed the KDBC Leasing Receivables notes of USD 144.356 million in three tranches. The notes are backed by dollar-denominated equipment lease receivables of Korean obligors originated by KDB Capital Corporation in Seoul, Korea. The senior tranche of USD 101.0 million was offered to investors across Asia, Europe and the US while the remaining subordinated tranches were held by KDB Capital Corporation. The coupon on the senior notes was indexed to 3-month Libor with a margin of 140bps and an issue price of par. The Senior Notes have an average life of approximately 1.05 years with an expected final maturity of 2 years. The Senior Notes are rated Baa2/BBB by Moody's and Duff and Phelps.
KDBC is the largest leasing company in South Korea and is majority owned by Korean Development Bank, one of the largest government owned financial institution in South Korea
Sole arranger and lead manager is CREDIT LYONNAIS. Co-lead manager is Deutsche Bank. Co-manager is Bayerische Hypo-und Vereinsbank AG. Mandated in early December 1999, the transaction is one of the fastest completed ABS deals in ex-Japan Asia with both efficient pricing and credit enhancement. [This news was contributed by Gregory Park, Head of Securitization Group at Credit Lyonnais, Hong Kong, and was embellished by a Press Release of DCR, Hong Kong].
IFC Washington's increasing involvement in development of mortgage securitization in developing markets became evident when it recently agreed to buy a 10% equity stake in South Africa's first home loans securitization vehicle, SA Home Loans. IFC Press Release of 3rd April announced the signing of such agreement.
Home loan finance in South Africa has traditionally been the domain of large retail banks. However, SA Home Loans is now purchasing existing home loans which it then securitizes by packaging them into a discrete pool of investment assets. Each pool is then credit rated and sold to investors, such as pension funds, mutual funds, and insurance companies. The process eventually aims at reducing the cost of housing finance to borrowers.
Other shareholders of SA Home Loans are Peregrine Holdings of South Africa, International Bank of Southern Africa (a joint venture of Dresdner Bank and Banque Nationale de Paris) as well as executives of SA Home Loans.
Important links: IFC recently agreed to join a securitization vehicle in Argentina - click here for the news item.
For more on securitization activity in South Africa, click here. This page also provides links to further material on securitization.
The website of Sotta Securitization has lot of details on South African securitization.
Also do not forget to see the details of two forthcoming training events on securitization in South African - click here.
Recent regulatory measures by the US Department of Housing and Urban
(HUD) might restore the interest in reverse mortgage securitization. The HUD has amended the origination-fee guidelines for its Home Equity Conversion Mortgage - another name for what the market calls reverse mortgages - and fixed a cap on the fee that lenders can charge.
Under the change, lenders will be able to charge new borrowers an origination fee not exceeding the greater of $2,000 or 2% of the FHA "maximum claim amount" (an amount that ranges based on the location of the property). Until now, borrowers could be charged an origination fee of any size.
The regulatory change may also propel the growing niche of securitization of reverse mortgage loans. The FHA insures 90% of all reverse- mortgage products, making it an ideal candidate for securitization. Currently, almost the entire volume of FHA-insured reverse mortgages are bought by Fannie Mae.
Links: See our page on reverse mortgage securitization - click here.
The following is an extract from Wall Street Journal of 29th March:
"The need for commercial mortgage-backed securities has fallen dramatically after ten years of strong demand, leading to widespread expectations of an industry showdown as players compete for less business. As companies struggle to attract business, some are making high-risk decisions. Barry Reiner, real-estate financier for First Union Corp. noted: "There are a lot of people taking big bets and originating loans that don't make sense today on the hope that the market comes back their way." However, as sales continue to decline, the big question within the industry is who will decide to stay in the business. Closures and staff reductions have already begun and there is mounting speculation within the industry that most investment banks will decide to pull out of the business. Others believe the CMBS industry will consolidate along the same lines as the single-family home mortgage securitization sector did in the 1980s. The lack of business has been good for real-estate owners and borrowers, however, who have been taking advantage of the strong competition among underwriters. "
Links For more on CMBS transactions, click here.
First in Europe involving telephone revenues
Telecom Italia is planning to raise at least USD 3.88 billion through what will be the first securitization program in Europe involving revenues from telephone calls. The transaction will be accomplished by a master trust which will issue bonds guaranteed by cashflows from call-charges to commercial and retail customers. The bonds might be stratified in several classes.
The deal will allow the highly-geared company to issue new debt with a high credit rating and cut its cost of borrowing. The issue is expected in summer and will be targeted at European investors.
It is likely that Telecom Italia will try to broaden its investor base to North America and Japan in subsequent deals. A report in Financial Times of 29th March said the market expects details about the deal in the current week.
Links: The Italian market has recently been buzzing with securitization -read more news, more articles and features in our country page on Italy - click here. There are links to articles, full text of Italian law and a host of other resources - perhaps the largest collection of material on Italian securitization in English and Italian.
Mexican specialty retailer and consumer financier Grupo Elektra S.A. de C.V. announced that its Elektrafin finance arm planned to securitize Ps. 350 million in accounts receivable through an offer of Ordinary Participation Certificates denominated in inflation indexed units of account. This is Elektra's sixth portfolio securitization carried out through the Mexican Stock Exchange. In line with the short maturity of the receivables, the transaction will revolve for 3 years after which it will be amortised in the 4th year. The issue will be placed by GBM Casa de Bolsa.
Grupo Elektra is Latin America's largest consumer finance outfit. The transaction has been assigned AAA rating (local) by Fitch IBCA. The company will utilize the funds to replace short-term debt.
Links: For more on securitization in Mexico, click here. This link also provides several articles on securitization in Mexico.
OPIC to be more aggressive in insuring emerging market securitization deals
The Overseas Private Investment Corporation (OPIC), a self-sustaining US government agency that sells political risk insurance, project finance and investment funds to American businesses expanding into emerging markets, announced recently that it will develop "bold and innovative" ways to apply its financing and insurance products to housing markets in developing countries. OPIC will take a leadership role in a sector which demands bold steps, declared OPIC President and CEO George Munoz, who pledged that housing now will be one of the agency's top two priority sectors. Securitization is on the top of OPIC-suggested models for development of housing finance.
OPIC is. Societas is an independent, nonprofit organization that provides research, education, and technical assistance services for all aspects of international real estate finance.
Links: For news report on political risk insurance for an Argentinean mortgage securitization, click here. For another news report on political risk insurance by OPIC for emerging market transactions, click here.
Banesto SA, a subsidiary of Banco Santander Central Hispano (BSCH), is gong for a mortgage securitization deal of Euros 759 million involving first and prime mortgages. The transaction will consist of the credits being acquired by SPV fund, which will pay Banesto the corresponding value and then issues bonds guaranteed by these credits. The issue will be in two tranches: the amounts of each individual tranche has not been decided.
The issue will be placed to institutional investors. The issue will be handled by BSCH Titulizacion de Activos.
This will be the second securitization program for Banesto - its first one was worth 759m euros, and took place in July 1999.
Links: For more on securitization market in Spain, do visit our country page - click here. This link also provides a spreadsheet on securitization transactions so far concluded in Spain.
Federal Reserve Bank of New York President William J. McDonough has called for more disclosures by banks about capital, risk concentrations, and transactions involving recourse such as asset securitizations. Asset securitization among other things has been on the top of the regulators' agenda recently following the failure of several US banks on alleged overvaluation of retained securitization interests.
McDonough said that "knowing a company's appetite for risk and its approach to, and methodologies for, managing risk is essential to understanding the risks of being a shareholder, a creditor, or a counterparty."
These remarks were made in a meeting hosted by the Monetary Authority of Singapore.
Securitization disclosures have been taken seriously by US regulators who recently issued revised guidelines for banks into securitization - click here for the news report and the text of the guidelines. Singapore has also indicated seriousness - the Monetary Authority recently issued guidelines for securitization - see here.
Brazilian company to securitize oil sales
A Brazilian company is making aggressive use of securitization, as a part of a slew of funding measures, to raise huge amount of cheaper debt repayable over longer maturities. .
Petrobras, Brazil's oil company, intends to securitise its future sales of oil outside Brazil, raising as much as $500m. The deal is a part of aggressive funding plans of the company to raise some USD 9.5 billion through different sources including sale and leaseback transactions. Petrobas is one of the largest oil companies in Brazil producing some 1.4 million barrels of oil every year.
Securitization of future flows by exporters has been used to raise cheaper overseas funding, by piercing the sovereign rating.
Links For more on securitization markets in Brazil, see our country profile - click here.
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