[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.]


For all news added before 9th November, please click here 
For News items added prior 3rd August, 1999, click here
For later news, click here.

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



NEC Japan to securitize office building

NEC Japan has decided to securitise its head office in Tokyo for Yen 90 billion. The building will be sold to Sumitomo Trust and Banking Corp which in turn will finance itself by issue of securities, backed by the ownership of the building. The building will, in turn, be leased to NEC to allow Sumitomo to service the investors.

The transaction will allow the ailing electronics giant to book a profit of Yen 60 billion on account of sale of the building. The transaction is likely to take place with the current fiscal year of NEC ending in March.


Three cheers for securitization industry 
French company proposes securitization of champagne bottles

The constantly expanding asset-classes in securitization transactions must have really got a "kick" as a French company proposed securitization of champagne bottles. Marne et Champgne, the originator, is the second largest champagne producer in France and the transaction seeks to raise euros 396 million through a bond issue that will be backed by 60 million bottles of champagne at various stages of production. The roadshows for the offer began on 17th Jan.

The bond issue is being led by Nomura Securities. It may be noted that Nomura has been responsible for similar innovative asset classes in Europe as pub revenues, TV channel (Formula One) income, etc.

Three types of bond will be issued, all with investment-grade rating. Two of them, accounting for 85 per cent of the total, are rated single-A, with the third triple-B. The proceeds will be used to replace bank funding being used by the company.

This innovative transaction was covered by Wall Street Journal in the following words: "This reflects a new trend in securitized debt, with deals on passenger train companies, Formula One racing teams and future sales of beer. Offerings from so many different sources are spreading across the Atlantic to the US, where companies are also discovering that future shareholder value is best assured by capitalization through the assumption of debt. In the future, corporate financiers might be able to look forward to securitized debt as a means of restructuring and raising finance for acquisitions."

Vinod Kothari comments: The transaction has a few unique features which are noteworthy. First of all, it represents a securitization of physical assets, rather than financial assets. The operating asset of the company, glass bottles though physically with the company still, have been offered as a collateral. In a sense, this amounts to securitization of working capital. If this form of financing is acceptable to investors, it gives a new dimension altogether to the trend towards disintermediation – more companies may substitute bank funding by such securities.

Do you have any comments to offer on this path-breaking transaction? If so, please do write to me and we would gladly publicise your views on this site.

Securitization activity heats up in Canada

The Canadian securitisation market is expected to have lot of activity in 2000. According to data from Dominion Bond Rating Service, the outstanding ABS amount as at end-1999 was C$67 billion, including asset-backed commercial paper. This compares with C$49 billion was outstanding at the end of 1998, C$27 billion in 1997, and C$13 billion in 1996.

The outlook for Canada's asset-backed securities in 2000 is very positive. The first issue to hit the market in 2000 was a C$1-billion deal from Canada Trust named Genesis Trust, seeking to securitise personal line of credits. The deal received a AAA rating. The issue has apparently received strong investor support.

Links: Please do see our Canada country page for more information on Canadian securitisation market.

Chinese bank to securitise

A Chinese bank, Chinese Construction Bank, appears to have lined up with an Australian Bank Macquarie for the former's proposal to securitise loans.

There have been very few securitisation transactions in China – notable was a shipping company's assignment of future flows.

Links Do visit our country profile on China for a detailed account of the legal system in China and why is it difficult to securitise there. Click here to visit.

Philippines economic body moots securitization

Though securitization is yet to catch up in Philippines in a big way, it is on the top of the agenda items of the government. The recently-constituted Economic Coordinating Council has recommended several measures to smart up the housing sector in Philippines. Among these measures is included a suggestion to promote securitisation by the Home Insurance and Guaranty Corp.

In another unrelated development, the State-owned Development Bank of Philippines indicated its resolve to play a larger role in securitisation of mortgage-receivables.

Links – For another news item on securitization in Philippines housing sector, click here.

Hanover Re continues securitisation of non-catastrophe transactions

Securitisation as a tool for alternative risk transfer was mostly limited to catastrophe transactions. However, Hanover Re has been active in non-catastrophe securitisations.

Towards end-December 1999, Hannover Re completed a third securitisation of life and health reinsurance business worth EUR50m ($51m). The deal transfers the acquisition costs of life, health and personal accident reinsurance and was designed for insurers in Asia's emerging markets. Hannover Re has now refinanced EUR230m of life and health acquisition costs in the capital markets.

Links: Our insurance securitization page – click here to access – contains lot of materials on insurance securitisation in both the catastrophe and non-catastrophe segments. There are a number of articles also on this website as well as others.

Europe is gung-ho on securitization prospects in year 2000

Participants at a recent seminar about European securitization appeared greatly enthused about the prospects for year 2000. It was also an occasion to take stock of developments in various parts of Europe.

Several interesting and innovative deals appear to be knocking the door. Paribas Bank is putting together a deal for securitization of rentals receivables from students who stay in the campus of UK's Keele University. Morgan Stanley is expected to securitize a sale and leaseback transaction by a UK retail group. The retailing giant Marks and Spencer has also appointed Morgan Stanley to securitize retail stores.

Securitization of non-performing loans is also likely to hit Europe. Morgan Stanley has bought some 4,000 loans originated by Banca Nazionale del Lavoro, and is likely to securitise them later this year.

In other European markets too, activity is expected to pick up. For example, in Ireland, First Active is expected to launch Celtic 5 in February, selling Eu300m of Irish MBS through Paribas.

In Netherlands, MBS issuer will emerge at the end of the first quarter or early in the second, in the shape of Achmea Hypotheekbank, a unit of the mutual insurance and banking company Achmea Holding. ABN Amro and CIBC World Markets will be joint bookrunners on the Eu500m issue, for which ABN provided funding over the year end.

Links: For a general overview of securitization activity in Europe, see our profile for Europe – click here to visit.

1999 volumes surge in Australia
Year 2000 to be brighter, says Moody's

Year 1999 was a busy year for Australian securitization. A report recently published by the credit rating agency Moody's says that volumes surged in both the asset-backed market as well as mortgage-backed market.

1999 volumes of Australian structured finance securities surged by almost 66 per cent to $A17.2 billion ($US11.28 billion), from around $A10 billion ($US6.56 billion) the previous year, says the report. If one were to look at the asset-backed market alone, the growth was even higher at some 121%. The prime asset-classes in 1999 were auto loans and equipment leases.

Year 2000 promises to be a brighter year, according to Moody's. The factors responsible would be growing need of banks to manage their liquidity as well as their balance sheets, and increased investor appetite for subordinate and below-investment grade securities.

Links: Do visit our Australia country profile for detailed information on securitisation activity in Australia – click here to visit.


Turkish leasing company assigns rentals

Garanti Leasing, an entity of the Garanti Bank Turkey assigned future rentals in favour of IFC Washington and Rabobank to raise USD 51 million. The financing will be accounted for on the balance sheet as a loan.

Within the leasing sector in Turkey, this would be the first case of securitisation. However, Garanti Bank itself has been engaged in some securitisation deals earlier.

Links: For a country profile on the securitisation market in Turkey, go for Turkey on our Index page.

Malaysia's CAGMAS bonds rated AAA

The Malaysian securitisation agency CAGMAS' bonds issued in December 1999 have been rated AAA. The Rating Agency Malaysia has assigned the highest rating to these bonds based on the underlying asset quality, etc.

The bonds have a 3-year tenure and carry a fixed rate of interest. The proceeds of the bonds will be used by CAGMAS to buy mortgages from Malaysian housing finance entities.

Links: For a profile of securitisation market in Malaysia, click on the country profile on our index page. We have been carrying news about Malaysian securitisation market off and on, including that on Cagmas.

1999 ABS issuance in USA declines

The volume of asset-backed securities in the USA in 1999 was lesser as compared to the previous year, basically due to the decline in the last quarter owing to Y2K worries.

A Thomson Financial Services Data release said the total issuance in 1999 including private placements as well as public offers was $260.2 billion compared with $271.1 billion in 1998. The drop was basically because of the 4th quarter dip.

Among investment bankers, Credit Suisse First Boston led the 1999 full year totals with $37.7 billion, while Salomon Smith Barney took second position with marginally over $35 billion. Lehman Brothers took third place for the full year leading $34.6 billion.

Electricity receivables securitised in India

The market does not wait for the regulator. Even as the RBI has suggested wide-ranging legislative reforms to enable securitisation transactions, the market continues to move ahead.

India's first transaction of electricity receivables was announced on 29th December. Newspaper reports [Economic Times 30th Dec.] quoted SBI Caps managing director as stating that a deal for sale of electricity receivables worth Rs 1.94 billion [USD 45 million approx] has been concluded between Karnataka Electricity Board as the originator and Housing and Urban Development Finance Corporation as the buyer. SBI Caps was the structuring and advising agent to the deal.

The deal represents transfer of overdue power receivables of the originator from various government companies. Credit enhancement was provided in form of a guarantee from the State government. The bonds have a 10 year tenure redeemable in 10 equal instalments.

European Securitisation Forum officials appointed

Appointment of officials for the European Securitisation Forum for year 2000 was finalised by the Bond Markets Association recently.

Ms. Tamara L Adler, managing director of the European Securitisation Group at Deutsche Bank, London, has been appointed chairman of the Forum. Joerg Dresen, head of the Fixed-Income Division of AXA Colonia Asset Management GmbH in Koelh, Germany, was appointed vice-chairman.

The European Securitisation Forum is a body of the Bond Markets Association. Website of Forum is located at

Vinod Kothari comments: Would it not be a good idea to have a similar forum for Asia? Any takers?


NewState to issue RMBS in Korea

No sooner than the law permitting mortgage-backed securitisation was passed, NewState Capital Co, the Korean subsidiary of NewState Holdings, has announced plans to securitise residential mortgage loans worth USD 50 million. The issue would be timed in the first quarter 2000 in which NewState will retain servicing rights.

Headquartered in Seoul, NewState has been in home mortgage business since 1994.

The issue will be underwritten by Daewoo Securities. Daewoo is the third largest investment bank in Korea.


Korea passes mortgage securitisation law

The government of Korea recently enacted the Mortgage-Backed Securities Act on December 16, 1999. The Act permits the sale of mortgage loans to third parties without the consent of the borrower.

It may be noted that earlier this year, Korea has enacted a law for general securitisation of assets. The text of the law appears under the Securitisation laws section of our website.

Links: For a profile of securitisation market in Korea, go to country profile on the Index page.

For yet another news item relating to Korean banks securitising receivables, click here.

Working group of RBI in India suggests securitisation-friendly environment

An in-house working group appointed by India's central bank Reserve Bank of India (RBI) submitted its report to the Governor on 29th December. The group has suggested legislative changes to promote securitisation in the country.

The working group has appreciated need to launch securitisation product in India and has spotted immediate potential for securitisation with several financial intermediaries. The group has made several recommendations for legislative changes to support securitisation. Classified into short-term, medium-term and long-term changes, these suggestions relate to a cohesive definition in the Transfer of Property Act, tax law changes, stamp duty relaxation etc.

According to the working group, securitisation SPV structure may be left to the choice of the originator and may be a company, trust, association of persons, but the group recommends a mutual fund structure. The SPV should be registered with the Securities regulator, according to the group.

Here are Vinod Kothari's detailed comments on the working group report.


Catastrophe bonds in 1999 tabulation

Data about the 1999 issues of catastrophe bonds was recently published in Reinsurance:






LIMIT ($m)


Horace Mann






Constitution Re


Cat XL


Risk transfer

St Paul Re/Mosaic Re II


Cat XL


Risk transfer

Kemper Insurance/Domestic Inc.


 New Madrid quake

Cat XL


Risk transfer

Gerling Credit/SECTRS-1


Trade credit


Risk transfer

Sorema/Halyard Re


Aggregate XL-Europe & Japan


Risk transfer

Oriental Land/Concentric Re


Cat XL- Tokyo earthquake


Risk transfer

Oriental Land/CircleMaihama


Cat XL – Tokyo earthquake

100 Contingent capital


Gerling Global Re


Cat XL – US cat


Risk transfer

USAA/Residential Re 3


Cat XL – US hurricane


Risk transfer

Undisclosed insurer


PCS index – New Madrid


Risk transfer

Koch Energy/Kelvin Ltd


US weatherderivative contracts


Risk transfer

Hannover Re


Life & healthacquisition costs


Risk transfer

American Re/Gold Eagle Capital


Cat XL – modelled losses


Risk transfer

Gerling Global Re/ Namazu Re


Cat XL – Japaneseearthquake


Risk transfer


Yet another bank dogged by securitisation accounting losses

Community West Bancshares in Goleta, California, USA was forced to write off USD 8 million of the USD 20 million worth securitisation residuary interests that stayed on its books after the loans it securitised during 1998 and 1999. Consequently, the bank will be reporting a loss of USD 3.8 million for the year.

This may be the n-th instance of arbitrary values in securitisation accounting. Residuary interests are the interests that a securitisation originator retains in assets that it sells: for example, residuary income in the SPV after paying off all external creditors. The FASB 125 requires such interests to be valued and reported on books. There have been several instances where arbitrary or inflated values were assigned to such interests. There have been quite a few cases of banks failing such as First National Bank of Keystone [ see for news on this site].

The bank plans to quit securitisation business.

Links and discussion on Accounting for securitisation : We have been actively pursuing issues relating to accounting for securitisation which we feel is very crucial to securitisation business. Recently, we published Martin Rosenblatt's views on the matter. Shortly we are going to publish more views. If you have any contribution to make, please do write to me.


Housing finance body in India finalises first mortgage-backed securitisation

National Housing Bank (NHB), apex housing finance body in India, has finalised plans for the country's first mortgage-backed securitisation program. This is in fact a pilot project, to draw up a template for such transactions in future. Newspaper reports [Economic Times 28th Dec] quoted NHB's Chairman as stating that there will be more MBS issues in time to come consisting of mortgages originated by several other housing finance companies.

The pilot will consist of mortgages originated by HDFC, one of India's premier housing finance entities. The issue will be arranged by SBI Caps and ICICI Securities.

Vinod Kothari comments: Does this issue mean NHB in future will re-invent itself into a Fannie-mae-kind of avatar? Looks unlikely, as in the present transaction, the role of NHB is more of a facilitator rather than guarantor.

Links: On the news page, we have carried several news items relating to NHB's proposed securitisation transaction as also other securitisation events in India. Readers will find country profile on India to be of great interest – go to the home page and look for India's country profile.

Home loan finance company in South Africa proposes securitisation

Securitisation is set to take off in South Africa next year. SA Home Loans, a non-bank lender that commenced operations in February this year is expected to launch its first securitisation transaction in February 2000.

The R300m deal will comprise some R277.5m of senior notes rated triple-A by Duff & Phelps and Fitch IBCA, R15m of unrated 'B' notes and a R7.5m retained first loss tranche.

Links – See country profile for South Africa on our Index page. The page also gives links to several South African securitisation issuers.

ABN Amro launches Europe's largest consumer loan securitisation

On 10th December, ABN Amro launched Europe's largest consumer loans securitisation: an EU1.376 billion issue representing securitisation of Dutch consumer loans. The collateral is a portfolio of revolving-type consumer loans granted by the Bank. The transaction will revolve for 3 years before it starts amortisation.

Oilfield development in Brazil funded by securitization

ABN Amro bank recently launched USD 200 million notes backed by oil income to part finance the development of an oilfield in the Rio de Janeiro region in Brazil. The issuer is a consortium of a project company called Companhia Petrolífera Marlim and Petrobas.

Links: See the country profile on Brazil – click on the Index page and go to Brazil.

First securitisation of life policy loans in Italy

Alleanza Assicurazioni, Italy's largest life assurance company, recently securitized the loans it granted under its life assurance policies. The transaction was offered on 10th December. Worth Eu278.3m, the deal was managed by Salomon Smith Barney.

The transaction is considered fully secure, as the loans are backed by the surrender value of the policies.

San Giorgio SpA, an Italian SPV, would be acting as a conduit for the transaction. The transaction would enable the assurance company to treat the cash raised by sale as a reserve, and would bolster its capital.

Pakistan issues securitisation rules

Final rules to allow securitisation transactions to happen in Pakistan were notified by the Securities Exchange Commission, Pakistan on 22 Dec, 1999.

The thrust of the new rules is to regulate the structure, functioning and taxation of SPVs. SPVs will be public limited companies, and they will be exempt from payment of income-tax. The securities issued by the SPV will be regarded as term finance certificate, or simply put, as debt securities.

The market has taken the new rules with optimism and it is expected that the country's debt market will get a new lease of life with the new rules. Potential issuers of securitised instruments in Pakistan include leasing companies, financiers, credit card issuers etc.

The draft rules were framed by the SEC in June this year.

For a full text of the new Securitization rules in Pakistan, click here.

For a profile of the securitization market in Pakistan, go the country profile on the Index page.

Italian banks continue to securitize bad loans

Markets World-over seem to have gone for X-mas-cum-new-millennium holiday, but Italian banks are busy cleaning up their balance sheets of bad loans.

In a recent transaction (Il Sole 24 Ore, 21 Dec., 1999), Banca Nazionale del Lavoro (BNL), finalised the securitisation of credits worth L3,500bn. It has chosen JP Morgan & Co Inc of the US to carry out the operation. It will involve the transfer of loans on a non-recourse basis. The bank continues to have negative net worth but this transaction will see it lesser deep in red.

Links – We have carried news items about securitization in Italy several times on this page. Also see the country profile for Italy on the Index page, which also has a write-up on the technique for securitisation of bad loans.

Pricewaterhouse advises India to create securitisation-friendly environment

In a recent report, Pricewaterhouse Coopers (PwC) advised the Indian government to create a legal environment congenial to securitisation transactions. The report related to infrastructure finance.

Stating that the creation of an appropriate legal framework for securitisation transactions was long overdue, PWC pointed out that the impediments in this were widely appreciated and it was necessary to undertake parallel reforms that address these issues.

These issues include the tax status of a special purpose vehicle (SPV) structured as a trust, allowing contractual savings institutions to invest in special purpose vehicles and developing appropriate accounting standards for securitisation transactions, the international consultancy firm said.

Vinod Kothari comments: More important than the legal changes suggested by PwC, which are anyway not any major stumbling block, is a clarity from the Reserve Bank of India, that banks can invest in securitisation transactions and the manner of computing capital adequacy requirements for banks that have securitised.

Hong Kong mortgage co. to securitise mortgages

Hong Kong Mortgage Corporation (HKMC) has plans to securitise HK $ 630 million worth of mortgage-backed securities which will be sold by American Express bank.

HKMC is a Fannie Mae-type body created by the government to activate secondary mortgage markets in Hong Kong.

HKMC has ambitious plans for year 2000 as it plans to come out with KH $ 2-3 billion worth of mortgage-backed securities.

Links: See also our country profile for Hong Kong on the Index page.

Tobacco bonds deal rated as "deal of the year"

Investment Dealers' Digest, a weekly publication in the USA, has selected the tobacco bonds issue as one of the hottest deals of 1999. Eighteen such deals were announced last week by the publication.

The awards are selected from issuance in various sectors such as healthcare, energy, emerging markets, real estate, etc.

The tobacco bonds deal has been selected in the Structured finance category, and the award goes to Salomon Smith Barney, investment bankers to the transaction. Details of the tobacco bonds issued by New York have appeared several times on this page – click here.

GMAC RFC's 1999 volume reaches USD 22 billion

GMAC – Residential Funding Corp., a unit of General Motors, is the largest securitisation originator in the World. It securitised loans worth USD 2.1 billion in November, taking its 1999 volume to USD 22 billion. Large part of loans securitised by the company consist of home equity or subprime loans.

Banca di Roma proposes securitisation of bad loans

Banca di Roma SpA, the Italian bank, has approved a securitization programme for its bad loans portfolio of worth a gross amount of 3.730 trln lire with a net book value of 3.100 trln.

When the securitisation law was passed in Italy earlier this year, Banca di Roma was among the first to launch a securitisation program. Click here for this piece of the news in July this year.

More links: Follow the Italy country page – see country profiles on the Index page.


US bank regulatory agencies issue precautionary guidelines on securitisation

Caveat bankers, say the agencies

This development may well be read as a precursor to tighter controls on securitisation activity of US banks. US banks have been going very optimistic on securitisation but recent failures of some banks attributable one way or the other to their securitisation business have created ripples in the market place, forcing the regulators to take this action.

On Monday, 13th December, the 4 bank regulatory agencies in the USA, viz., Federal Deposit Insurance Corporation, Board of Governors of Federal Reserve System, Office of Comptroller of Currency and Office of Thrift Supervision issued joint press release and guidelines on securitisation. The stance of the guidelines is mainly precautionary. For example, the Guidelines open with the following remark: " Recent examinations have disclosed significant weaknesses in the asset securitization practices of some insured depository institutions. These weaknesses raise concerns about the general level of understanding and controls among institutions that engage in such activities."

The problems pointed out by the agencies are primarily accounting-related problems. The agencies have pointed out the 4 major problems as under: (1) the failure to recognize and hold sufficient capital against explicit and implicit recourse obligations that frequently accompany securitizations, (2) the excessive or inadequately supported valuation of "retained interests," (3) the liquidity risk associated with over reliance on asset securitization as a funding source, and (4) the absence of adequate independent risk management and audit functions.

Full text of the Interagency Guidance has been placed on this site – click here to read (the file will open with Adobe Acrobat reader).

Vinod Kothari comments: We have been expressing concern about the accounting practices on securitisation for sometime on this website. We are also trying to elicit opinions of other experts in the matter, and have constituted a virtual roundtable to discuss this issue. Should you have a contribution to make, do write to me.


Philippines housing finance fund mulls securitization in phases

Philippines housing finance body Home Development Mutual Fund (Pag-IBIG Fund) plans to securitize its P54-billion loan portfolio on a per-project basis. Report in BusinessWorld said, quoting the CEO of the Fund that previous attempts at securitizing failed as the Fund tried taking the entire portfolio at a time. The Fund has about 240000 loans on its books.

Securitization of mortgage loans has become a hotly debated issue in Philippines. Critics lament the inability of the administration to handle housing finance, which they claim should have been a private sector domain. Another unrelated article in BusinessWorld of 1st Dec claims that "If recent developments are any indication, the Estrada administration may be tacitly admitting its mistake in reverting to the failed government interventionist scheme in financing the housing program".

Links: We have carried news about securitization activity in Philippines off and on. Besides, see the country profile on the Index page.

All-Internet loans securitized

Prudential Securities and Internet-based auto loan provider announced on 1st Dec. securitization of auto loans originated entirely on the Internet. The offering of USD 116 million is backed by auto loans originated on the website on PeopleFirst, and marks the first securitization of loans entirely generated on the Net.

The transaction is credit-enhanced by an insurance provided by Financial Security Assurance and is rated AAA by S&P and Moody's. The weighted average coupon is 6.58%.

Do you know anything more on this transaction? Can you make any comments on the unique aspects in the rating of transactions originated on the Net? Your comments will be appreciated and published on this site – click here to write.

Housing finance body in India to securitize early next year

A report in The Economic Times of 30th November says that HUDCO, a premier housing finance body in India will securitize housing loans to the tune of Rs. 10 billion early next year. The deal was in the news for a long time and HUDCO was reportedly shortlisting agencies for the premier housing loans securitization program in India.

The report quoted the CEO of the company as saying that the transaction will be offered in two tranches of Rs 5 billion each.

India's premier financing body readying for mega securitization deal with GE Capital

A report in Financial Express on November 25 said Industrial Development Bank of India (IDBI) was on the verge of stitching together a mega securitization deal with GE Capital where the former will sell off loans worth Rs. 50 billion by way of securitization. This will be the first securitization by any public sector bank or financial institution in India, nay, the first securitization of corporate loans.

IDBI is a premier financial institution in India, created for development finance by the Government. Most of IDBI's loans will be in the nature of corporate project finance.

Vinod Kothari comments: The report does not clarify whether GE Capital is structuring the deal or is buying up the loans itself. If the latter be true, it would be ironical for India's financial sector where domestic banks themselves are flush with funds and the only reason why they would not buy up IDBI's securitised loans would be that the Reserve Bank of India has not clarified whether banks can invest in such deals. GE Capital, on the other hand, might itself borrow from these very banks to invest in the transaction.

Italian government launches unpaid tax bond

Securitisation of government social security dues totals USD 4.8 billion

Deal rated higher than Italy's sovereign rating

Italy made a history in the world of securitization by being the first in the World to securitize government revenues by taxation. A report in Financial Times London said this was a deal that "broke new ground in financial engineering".

We have talked about this deal several times on this site. See the news reports – here, and for further news reports, see links with the news item above.

This deal was offered to capital markets on 24th November by selling USD 4.8 billion worth of bonds. The bonds were over-collateralised (see our securitisation glossary on the Index page) to the extent of 10 times, and thereby, the bonds obtained AAA rating, which is higher than the sovereign rating of Italy.

Financial Times also says that the deal will be watched closely by other European governments as they might be planning similar issues.

According Paribas, lead manager of the issue, the issue was sold mainly to European and Asian banks.

Japan ABS market doubles as assets range from car loans to kimono bonds

Japan was a late entrant to securitization business, but recently, there has been a remarkable spurt in volume.

A report in Financial Times of 25th Nov., quoting practitioners in Japan says that the outstanding issuance in Japan this year has doubled in relation to the previous year to Y 2000 billion, and is likely to double again next year. Domestic investors are taking keen interest in securitisation issues.

Reflecting the variety of asset classes, recently a consumer finance company called Quoq issued bonds backed by kimono loans. Kimono is a traditional Japanese dress mostly populra among women of 40 and above. A kimono costs a fortune, anywhere between Y 200000 to 2 million. Small banks and finance companies grant loans to buy kimonos.

The other asset classes in Japan are 22% in car loans, 32% in leases, about 9% in shopping loans which includes kimono loans as well.

Relevant linksNews reports about Japanese market have been often flashed on the news pages – see this and the other news page.

For a country profile of Japan, see the Japan page – follow the link on the Index page.

There is a fairly detailed article on Japanese securitisation – see the securitisation articles page.

Thailand body buys receivables; to securitize second quarter 2000

Secondary Mortgage Corporation, a Fannie-May-type body set up in Thailand, has started acquiring mortgage loans but would wait till the second quarter next year before it securitises them into the market. A report in The Nation said that the Corporation agreed with Government Housing Bank to buy Baht 400 million loans on 24th Nov.

Securitisation of housing loans in Thailand is a part of the Government's August-package to revive the economy which suffered heavily during the Asian currency crisis but is showing sure signs of revival. The revival of the economy would help the Corporation in being able to offload the mortgages to investors.

Relevant Links: We have covered news about securitisation in Thailand on various occasions – search this and the previous news pages.

The general securitisation environment in Thailand is covered on country profile – check the Index page for a country profile of Thailand.

 Company to use Internet and securitization to eliminate receivables

If this promise sees the light, companies may soon look forward to the day when their balance sheets will be lighter by trillions locked in receivables mainly due to the time the process of receivable posting, tracking, and settlement takes. eTime capital would make use of the Net and securitization of asset-backed receivables to provide companies cash against receivables instantly.

A company release explains the concept as thus: eTime Capital is using the Internet to revolutionize the financial supply chain for trade receivables. eTime Capital uses the Internet to integrate information across the seller, buyer, transportation service provider and financial institution comprising the web of trading parties into a single real-time system. By integrating real-time information with Internet-speed financial services, eTime Capital promises to create a new industry category that will virtually eliminate accounts receivable. Additionally, through its securitization of asset-backed trade receivables, eTime Capital will allow all companies to directly access the capital markets, regardless of their credit rating.

The inspiration for this venture comes from the realisation that "there has been tremendous innovation in the physical supply chain in recent years, yet the financial supply chain is fundamentally unchanged since the rise of modern banking-over 700 years ago".

Yet another bank goes bust on securitisation accounting lapse

A small bank in California went bust on Friday last week. Named Pacific Loan and Thrift, it was a small bank with just USD 118 million in assets. But its failure is expected to cost bank insurance fund some USD 50 million, says a report in American Banker of 23rd November.

The 11-year-old bank originated first and second residential mortgages to subprime borrowers over the Internet and via its 20 loan-production offices in 13 states. It then securitized and sold these loans on the secondary market. By the end of 1998, the institution had 541 full-time-equivalent employees, though the total shrank by more than half this year under pressure from regulators. Virtually all the bank's deposits were in certificates of deposit marketed via telephone.

The reason for the collapse is that a majority of the bank's USD 48 million in Interest only residuals out of loans securitised by the bank are worthless, says the report quoting FDIC officials.

Updation dated 25th Nov., 1999: A further report in American Banker of 24th Nov. says that the assets of the bank included clean-up calls on securitised loans which had been valued at ambitious figure by the bank but which would sell for a pittance. The FDIC it seems had already objected to the valuation and issued a cease and desist order, but an accounting firm ultimately frustrated the FDIC by accepting the bank's valuation based on assumptions about interest rates, etc.

Expressing concern about the method of valuation of retained interest in securitization, an interagency group of bank and thrift regulators wants to change the rules for valuing residuals. Members already agree that financial institutions should be limited in the amount of residuals they may count as capital.

Vinod Kothari comments: We have earlier reported on the failure of First National Bank of Keystone – click here to view.

Accounting for securitisation transactions by banks is apparently fraught with many problems. An article in Business Week in Oct. 1998 put it beautifully: " Securitizations are all about guesswork. First, companies guess how much revenue they can expect at a particular time. Then they guess how much of that money they will need to back their bonds safely. Finally, they guess how much cash will be left over–and book that as profit."

There are some serious issues about FASB 125 that we would like to discuss. We want to constitute a roundtable on this issue. If you have intimate understanding of accounting principles and practices, you are welcome to join the roundtable – by e-mailing me.

Countrywide securitises excess servicing fees on securitised mortgages

You may well call it the second round of securitization, or securitisation of securitised flows – Countrywide of USA has securitized the servicing fees on mortgages already sold to the agencies.

Excess service fees are the originators' residuary interest, normally his spread, in mortgages securitised by the originator but still being serviced by him. It is usual in securitisation transactions to break the servicing fees into normal fees and excess fees, with the latter representing originator profits.

Countrywide would have already raised upfront cash on mortgages at the time of their original sale to the agencies, viz., Fannie Mae or Freddie Mac. Securitisation of service charges would now mean even the profit on such securitised mortgages is being securitised.

A news report in American Banker 23rd Nov on this item said that in a market where new origination was at an ebb, Countrywide had little other choice.

Reverse mortgages securitization holds potential, says KPMG

A recent analysis by KPMG sees a potential in reverse mortgage securitization in US mortgage markets. A reflection of this trend may also be found in the remarks of Fed Chairman Alan Greenspan in a recent speech – see report on this site.

According to the KPMG report dated 19th Nov., the logic is quite simple. " Of the nearly $5 trillion in U.S. home equity today, about $1 trillion is owned by the elderly, a figure that will only increase as baby boomers retire (see story below). And some industry observers see a fundamental change in how retirees will treat that wealth tied to their homes, tapping the equity to supplement rather than leave it to inheritors. That trend could make the reverse mortgage market –and securitizations –explode. "

A reverse mortgage arises when a homeowner 62 years old and older borrows against the appraised value of his home, giving him a set amount each month. Homeowners don't have to make any payments until they die or leave their houses for an extended period of time due to illness. When one of these things occurs, the bank gets the principal and interest back on the loan, along with half the home's appreciated value.

Thus, a reverse mortgage serves as a source of earning for the old, to be repaid by the value of the house after their death.

Since 1990, about 52000 reverse mortgages have been written in the USA but the potential is still huge. The analysis says, quoting experts, that reverse mortgage generation could increase 10% to 15% a year as aging homeowners look for ways to supplement income. The potential market is unlimited: $4.8 trillion in U.S. residential mortgages were outstanding at the end of the first quarter, according to the Bond Market Association.

It is notable that Lehman Brothers was the first investment bank to securitize reverse mortgages in August this year.

In securitization arena, it is hockey bonds now!

About 2 years back, an article in Business Week said: Wall Street can securitize everything. Ever expanding array of asset classes being securitized proves this statement beyond doubt.

Though securitization of sports revenues is not new, this one is a sizeable transaction – New York Islanders proposes to raise USD 200 million by sale of bonds backed by fixed revenue streams the U.S. National Hockey League team gets from television cable contracts and advertisements at its home games. CAK Universal Credit Corp. of New York is said to be underwriting the deal for the New York metropolitan area team, which will be marketed as a private placement, probably in the first quarter of 2000.

Other instances of sports revenues securitization in the USA include the Staples Center in Los Angeles and the Pepsi Center of Denver which raised money through the sale of debt backed by expected revenues from license agreements for luxury suites and "other revenue producing arrangements." The Staples deal totaled $315 million and the Pepsi Center offering totaled $139.8 million. The bonds of both transactions had a life of about 20 years.

Links: For an earlier news item on a UK soccer club's securitisation, refer to this link: click here

 Tobacco bonds a sell out

Tobacco bonds issued recently by New York city sold like hot cake – though the name might sound like adding the smell of tobacco to the cake. A recent article in Business Week of 20th Nov. says that on the very first day of opening of the issue on Nov. 1, investors snapped USD 709 millions worth of securities. There was a huge demand and many investors were left empty-handed.

New York city was the first municipal government to securitise tobacco settlement dues. We have carried several news reports on this deal – click here and for further links, refer to the above-referred news item

The Business Week article also comments on the risks inherent in tobacco bonds. Observers doubt if tobacco companies would remain solvent to pay the settled amount in damages.

Korean banks planning ABS issues

Several banks in Korea have firmed up their plans for go for securitisation issues. A report in The KoreaHerald of 19th Nov. says that the Korea Exchange Bank going ahead with the issuance of 10-year asset-backed securities (ABS) worth 100 billion won. The issue will be backed by the bank's nonperforming loans made to companies under court receivership or bank management control. The issue will be credit enhanced by a deposit of 20 billion won with an SPV.

Meanwhile, Kookmin Bank and H&CB of Korea also plan to securitize their real estate holdings or assets below investment grade.

Links: This site has a special focus page on Korean market – see the Index page and look for the country profile of Korea.

As for bank securitisation, click here to go to the dedicated page on securitisation of bank loans.

Securitisation of non-performing assets has been discussed in the country profile page of Italy.

Japan to have REITs

Come January 2000, Japan will have real estate investment trusts (REITs) as Tokyo Stock Exchange proposes to allow trading in shares of trust funds investing in real estate. Trading in REITs is going to be allowed by the government shortly.

Real estate investment vehicles in corporate form are already being traded on the exchange. The trust form is popular in US markets and several other common law countries where trusts are preferred as they achieve a tax transparent status.

Fitch IBCA on securitisation for finance companies

Fitch IBCA on 15th Nov has put a report on impact of securitisation for finance companies. The report discusses the risks and rewards of securitisation for finance companies.

Fitch IBCA says that securitisation has proved to be a "double edged sword" for finance companies. With its several benefits, there are certain inherent risks for a finance company, particularly the moral imperative to save the transactions securitised by it which may not technically have any recourse obligation.

The foremost advantage of securitization is its use as a resilient mode of funding. Lower-rated companies have better access to securitised funds. However, "there are clear risks for any finance company that is over-reliant on securitization. The market has not been tested in a prolonged economic downturn and should not be viewed as impervious."

Excessive reliance on securitisation is not a wise option for most finance companies. According to the report, investment grade companies should keep options open to a broad array of funding sources and look at securitisation for a "contingency liquidity".

Accounting standards allow upfronting of gains on securitisation, resulting into higher profits for companies that have a consistent reliance on securitisation. In the process, there is a transfer of profits from future to present, which becomes a compulsion for companies resorting to this on a regular basis. In the process, the quality of earnings takes a backseat. If environment becomes unfavourable and securitisation activity declines, this would result into a sudden drop in profitability. [Newcourt Credit is an example.] As a result, many companies have become more conservative in securitisation accounting and have even resorted to changing securitisation structure so as to make it on-balance-sheet.

If regulatory capital relief and achieving reduction in funding costs is an objective, there might be a tendency to securitise high quality assets. "A tendency to securitize high-quality assets may lead to adverse selection, causing an overall decline in the on balance sheet portfolio. Loans that do not conform to standards set by securitization investors, perhaps due to missing documentation or early delinquencies, may be excluded. Issuers also may be tempted to "cherry pick" assets, keeping lower quality assets on the balance sheet to achieve lower securitization costs. A similar phenomenon occurs when issuers purchase underperforming loans out of pools to enhance the securitizations' performance."

Innovative securitisation deal by Italian bank

bank strips and retains credit, parcels the inherent risk

A report in CORRIERE DELLA SERA says that Italian merchant bank Banca Commerciale Italiana (COMIT), the Italian merchant bank, has just concluded a securitization of L8,000bn, the first of this kind in Italy (publication date 14 November 1999). The innovation lies in the fact that it is a synthetic operation, with only the risk being sold while the credits remain in the institution's assets.

Vinod Kothari comments: Credit derivatives are known to achieve transfer of risk: this transaction is a securitised derivative which results into creation of a marketable security representing risk in a portfolio of loans. In this sense, the transaction is application of the cat bonds technology to credit risks, and is an important milestone in development of securitisation. The risk securitisation technique has so far been limited to natural calamities such as catastrophes and weather: its application to credit where the risks are more systematic and definite is an achievement.

Do you have any views on this development? Or are you aware of any more such deals, either in the making or in the market? Please post them either on the securitisation forum [ click here ] or e-mail them to me.

Links: For detailed commentary (in Italian) on Italian securitisation law and markets, go to the articles section – click here. For country profile on Italy, click here. For text of Italian securitisation law, click here. Several news about securitisation in Italy have appeared on this page – browse the news pages.

Pakistan approves securitisation rules

The Securities and Exchange Commission Pakistan has approves rules on asset-backed securitisation. The draft rules were framed and put up for public comment in June this year. The draft rules were placed on our website along with our commentary thereon – see securitisation laws page and our commentary on the country profile for Pakistan.

A report in Business Recorder says that the rules on asset-backed securitisation, called Companies (Asset-backed Securitisation) Rules, 1999, were approved in a meeting on 13th November in Islamabad.

From the report published in Business Recorder, it seems that the broad structure of securitisation rules is the same as in the draft rules earlier posted.

NAIC working on model law for insurance securitisation

In an earlier report on this site, we had reported that the National Association of Insurance Commissioners in the USA was working on a model law on insurance securitisation.

In a recent meeting of the commissioners [ Fall National Meeting in Atlanta, Georgia, on October 2 – 6, 1999] it is reported that quite a headway has been made in formulating the model. It is reported that in the above meeting, the industry interested parties offered a draft Special Purpose Vehicle (SPV) Model Act for those interested in using an onshore SPV structure for catastrophe securitizations. In the draft, the SPV would be defined as an entity not affiliated with the ceding insurer, acting as an intermediary between investors and ceding insurers. The SPV and would be authorized and operated under a simplified and specialized regulatory structure. The SPV would sell securities to investors and be contractually bound with the ceding insurer to pay amounts upon the occurrence of a triggering event. Regulators did not have an opportunity to review the draft prior to the meeting. and are expected to have several questions regarding the draft model which are expected to be discussed in Aan interim conference call will be held to address questions from the Working Group. Additionally, separate tax legislation which is critical to efficient implementation is being developed by the industry Iinterested Pparties and is expected to be available in December. Finally, the American Academy of Actuaries and other interested parties made presentations regarding index-based insurance derivatives in hedging property/casualty insurance transactions.

Italian INPS securitisation going ahead

Deal to be one of the largest in the World

Securitisation by Italian treasury and state pension fund, of the unpaid contributions by companies to the INPS, is proceeding ahead. Key agencies for the transaction have been appointed. Banca Intesa SpA unit Caboto, Merrill Lynch International and Cie Financiere de Paribas will be managers to the unique transaction of its kind world over.

Earlier this year, Italian government announced its plans to securitise these contributions and thereby fill up a part of its budget gap. News about the proposal was flashed on this website – click here.

The securities are likely to be issued by an SPV called Societa di Cartolarizzazione dei Crediti INPS SpA and are expected to have a AAA rating from the four main rating agencies.

The size of the transaction, presently not confirmed, is likely to be around euro 4.5 billion (approx 4.5 billion USD) which would make it one of the largest single deal in the ABS segment.

This website has one of the most comprehensive resources on Italian securitisation. For a country profile on Italy, see the country link on the Index page. For full text of Italian securitisation law, see our securitisation laws page – click here. Lucia Mazzocco has recently contributed an elaborate commentary on the Italian securitisation law – click our articles section here.

 Morgan Stanley to securitise Japanese banks' NPAs

Deal to be first for Japan

Morgan Stanley Dean Witter & Co plans to securitise non-performing loans of Japanese financial institutions for sale to domestic and overseas investors. The US investment bank will be the first to attempt to securitise bad loans in Japan. The deal is expected to offer more than 20 billion yen worth of bonds with real estate as collateral. The terms of the issue are likely to be finalised by mid-November.

On this site, we have earlier carried news about securitisation of non-performing assets in Italy. Click here to visit this news. More about the methodology of securitisation of non-performing assets is available in the country profile on Italy – click on the Index page and go to Italy page. On securitisation of bank loans in general, click here.

For country profile of securitisation in Japan, go to the Index page and see the country profile of Japan. Also, there is an article by Roy True in the articles section.

Links: For securitization of non-performing loans, refer to the special section – click here

Bill Blass sells brand equity: sale funded by ABS

World renowned couturier and designed Bill Blass announced on 8th November the sale of his $700 million design and licensing empire to Haresh T. Harani, Chairman of the company's largest licensee, The Resource Club, Ltd., and Michael Groveman, Blass' Chief Financial Officer.

The sale, for an undisclosed amount, was funded by the apparel industry's first investment grade asset-backed securities. The securities are backed by the company's license fees and trade marks.

Alan Greenspan reviews mortgage financing in USA

In a recent speech [2 Nov., 1999], Federal Reserve Chairman Alan Greenspan reviewed the development and trends in mortgage banking in USA.

US mortgage markets are one of the most developed markets in the World. To quote Greenspan: " Your predecessors, and perhaps even some of you, championed the then-novel lower downpayment, long-term, conventional, amortizing, residential mortgage instrument that has become today's basic foundation of housing finance".

Greenspan reasoned why mortgage banking in time to come will be constrained by the growth rate in purchase of new houses, and will have to depend more on hands changing.

To access full text of Greenspan's speech, click here.

 Major property loan securitisation in France

French bank Paribas has launched a securitisation operation on property loans for UCB, a subsidiary of BNP Paribas, with the creation of the MasterDomos mutual credit fund, which is to acquire some 35,000 property loans for around 1.525 billion euros. Around 51 per cent of the loans are mortgages and 49 per cent depository loans, says a report in Les Echos.

Securitisation in France is growing quite fast, particularly after the recent legislation. See for details of securitisation activity in France our country profile on the Index page.

More news on France was published recently – click here

Do you have more news or materials about securitisation market in France? Send me a mail – I would be obliged for your contribution.

West Bengal reduces stamp duty on securitisation

Stamp duty is still a major hurdle to securitisation transactions in India but states are gradually removing this hurdle. West Bengal, the sleepy Eastern Indian state, became the latest among the 5 which have already reduced stamp duty on securitisation transactions. West Bengal reduced duty from 5% to 0.1%, in accordance to a promise in the last Budget.

The other states are Maharashtra, Gujarat, Karnataka and Tamil Nadu.

A copy of the West Bengal notification dated 7th July was available only recently. The West Bengal notification is generic and does not have the discrepancies found in the Maharashtra and other notifications earlier.

For the genesis of the stamp duty problem in India, see our section on Indian securitisation – click on the Index page for country profile of India.

Securitisation to reopen lending window in Philippines

Securitisation is likely to re-open the lending window in Philippines. The window was shut down by mounting loan defaults resulting from the currency crisis in 1997. " Two years later, securitization comes as a key for the possible reopening of the window and offer housing finance to more consumers." These views were expressed by participants at a recent conference on securitisation in Philippines.

Securitisation in Philippines was initiated in 1994 by State-owned housing finance outfit Pag-IBIG Fund. The Fund issued mortgage-backed securities in P500 million 1994 and then in P 430 million in 1997.

Thrift banks in Philippines have also become active in securitisation. 

Nursing home revenues securitised in Australia

Moran Health Care group, Australia, proposes securitisation of revenues from old age care homes owned and operated by its group companies. It is issuing A$93.6 million fixed-rate senior annuity bonds due Oct. 12, 2027, rated double-'A'; and A$34.3 million fixed-rate subordinated annuity bonds due Oct. 12, 2027, rated triple-'B'-plus. The bonds are backed by revenues from 40 nursing homes (residential aged care facilities), and eight assisted living apartment complexes, located throughout New South Wales, Victoria, Queensland and Western Australia. The facilities are operated by Moran Health Care (Australia) Pty. Ltd. (MHCA, a subsidiary of Moran Health Care Group Pty. Ltd.), and managed by Omega (Australia) Pty. Ltd.

The transaction is the first securitisation of nursing home revenues in Australia.

Lawyers prepare for securitisation of fees in tobacco suits

Deal to be first securitisation of legal fees

Why wait for years if you can eat today? In our age of impatience, who is prepared to wait for years to receive legal fees? The attorneys who are to receive legal fees out of the tobacco suits against 4 major tobacco companies are actively parleying with investment bankers to securitise their fees. Morgan Stanley Dean Witter is working with more than a dozen law firms to securitize a portion of their combined legal fees stemming from the $246 billion settlement reached between big tobacco companies and 46 states. The deal would represent the first securitization of legal fees.

The legal-fee bounty appears ripe for securitization, as the states' lawyers are guaranteed at least $10 billion over the next 20 years-payable in annual sums of $500 million-according to the master settlement agreement signed last November.

This report is based on BondWeek, a publication of Institutional Investor.

Year of securitisation in Korea

A Duff and Phelps Credit Rating report recently described 1999 as the year of securitisation in Korea. Securitisation made a late start in Korea – the first transaction was written only in lat 1998.

The Government in September 1999 passed a law on securitisation. For full text of the securitisation law in Korea, refer to our securitisation laws page – click here. The laws incorporated guidelines for 'true sale' and the ability to set up a special-purpose vehicle (SPV). The procedures for perfecting interest against third parties were simplified through the registration with the Financial Supervisory Commission.

1999 has been an active year for securitisation business in Korea where 16 transactions have been completed by the close of the third quarter. Not all of them can be said to be true securitisations, but they do display characteristics of securitisation transactions, says DCR report.

"Securitization continues to develop as arrangers begin to incorporate traditional elements such as backup servicers and trustees. Due to the sophistication of these ABS transactions, many have had recourse back to the originator or some third party," DCR report says.