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Read on for chronological listing of events, most recent on top:
Feb., 02...Dec., 01.…Nov, 01 .… Oct.,2001., Sep.,2001., Aug 2001… July, 2001, .June, 2001, May, 2001,… April 2001… March 2001 ..Jan. and Feb.2001 Nov. and Dec.2000 Sept. and Oct. 2000 July and August 2000 May and June 2000 April 2000 Feb and March 2000
Will Enron be another LTV Steel?
Added on Jan 30, 2002
As Enron's bankruptcy proceedings get into mix of socio-political issues, the market is worried that the Courts may not go into true sale aspects of Enron's off-balance sheet funding.
Fitch cautions investors on sale/ leaseback CMBS
Added on Jan 30, 2002
Rating agency Fitch cautions against a trend where potentially bankrupt companies try to securitise their commercial real estate by sale and leasebacks.
US ABCP volumes rise in 2001: expected to rise further
Added on Jan 30, 2002
The asset-backed commercial paper market continued its unabated growth in 2001, and as per a S&P survey, it will keep rising over 2002.
US CMBS strong with upgrades: S&P
Added on Jan 30, 2002
Rating agency S&P has noted several upgrades in CMBS sector, and it sees the sector doing well on the whole.
Some emerging market securitisations may be affected by global economic developments: S&P
Added on Jan 29, 2002
Rating agency Standard and Poor's recently analysed emerging market originated deals to list those that might be affected by 9-11 and subsequent economic sloth.
Japan begins securitization of bad loans
Added on Jan 28, 2002
In a major clean-up drive, the Japanese government has begun securitization of bad loans with a Yen 100 billion issue to begin with.
Business Week article hard hits off balance sheet financing
Added on Jan 21, 2002
Enron debacle has brought accounting standards under fire and that a social opprobrium is building against off-balance sheet financing is clear from the latest Business Week article.
US ABS: more defaults in one year than in 16
Added on Jan 16, 2002
Rating agency S&P reported 18 ABS defaults in 2001 alone, while defaults over 16 year period from 1985 to 2000 add up to 11.
ABS downgrades fueled by collateral performance reach new peak in 2001
Added on Jan 16, 2002
Rating agency S&P published an article analysing rating downgrades of ABS over year 2001. We also give link to full text of the article.
Auto majors increasingly look to ABS
Added on Jan 16, 2002
US auto majors having suffered rating downgrades are increasingly looking at securitization markets.
Non-US CMBS to continue growth
Added on Jan 15, 2002
Non-US CMBS almost doubled in 2001 and is expected to maintain the growth of global CMBS even as US activity may slow down.
CDOs: the asset managers' cash cow
Added on Jan 10, 2002
Asset managers are raking in moolah managing CDOs, with a growin CDO market in the United States, says an article in Pension and Investments.
Japanese securitisation to grow 40% in 2002
Added on Jan 10, 2002
Falling economy may pressure banks to clean up their balance sheets and transfer risks, meaning more CDO activity in 2002, says S&P.
Low interest rates, enabling legislation to boost activity in Mexico
Added on Jan 10, 2002
Mexican securitisation gew 290% in 2001. Rating agency Standard and Poor's expects securitisation activity in Mexico to shoot up on low interest rates, permissive legislation, etc.
Spanish securitisation market grows 52% in 2001
Added on Jan 9, 2002
The securitisation market in Spain grew at 52%, according to data by a local trade body.
Citi tops 2001 league tables as largest ABS underwriter
Added on Jan 9, 2002
Citibank's Salomon Smith Barney ended up with top position on ABS league tables for year 2001.
Alternative investment CDOs to be strongest growth idea of 2002: S&P
Added on Jan 8, 2002
Fund of funds, or CDOs aimed at investing in hedge funds and private equity will be the strongest growth idea of 2002, says S&P.
Auto ABS may continue to grow in 2002: S&P
Added on Jan 8, 2002
With the downgrades of the 3 US auto majors, automobile ABS should continue to grow in 2002, says rating agency S&P..
Australian RMBS market looks promising: Fitch
Added on Jan 8, 2002
In a recent report, rating agency Fitch held high hopes for the Australian RMBS sector.
Korean ISP's revenues securitised in a notable future flows deal
Added on Jan 8, 2002
In a notable deal, one of the first of its kind in Asia, a Korean ISP's future revenues were securitised to raise Won 120 billion.
ABS one of the best performing investment of 2001, say analysts
Added on Jan 8, 2002
Amid faltering stock markets and deteriorating corporate credit, ABS turned out to be one of the best investment options in 2001.
Lehman commits USD 1 billion for Philippine securitization and rejuvenation activity
Added on Jan 3, 2002
As per news on several Philippine media, Lehman Brothers has committed USD 1 billion for Philippine Recovery Fund which will also invest in securitisation activity in the country.
Securitization: 2001 ends on high note, high hopes for 2002
Added on Jan 3, 2002
As year 2001 has ended with impressive securitization volumes on both sides of the Atlantic, market players are optimistic for 2002.
In Asia, Korean securitisation shows exemplary growth
Added on Jan 3, 2002
Securitisation has been slow to catch up all over Asia, except Japan, but Korea has been under a spotlight in 2001.
Can Enron be another LTV Steel?
Can the true sale issue raked up in LTV Steel bankruptcy raise its head in the Enron bankruptcy proceedings? In the LTV Steel proceedings, LTV had filed motion seeking to rewind the transfers of inventory and receivables made by it to subsidiaries from where on the assets has been securitised. While the case shook the securitization industry, there was no final verdict on the motion. See details on our site here.
An article in Private Placement Letter of 21st Jan analyses similar concerns around the Enron debacle.
Enron is a much larger issue, both in amounts involved, ramifactions and the social and political noise it has created. Structured finance market exposure on Enron is substantial, partly direct and partly indirect. There are CMBS deals with Enron office space exposure, CDOs referenced to Enron, substantial ABCP exposure adding upto about USD 1 billion at the time of bankruptcy, etc. Securitization pros are concerned that if true sale of these assets is questioned, it might lead to a backlash to structured finance market. One person is reported to have said: "There's some systematic risk to securitization markets stemming from this. There was a lot of concern in the market last year from the LTV case. It's hard for me to imagine that, for something as large as Enron, there won't be some noise".
Rating agency Fitch has cautioned investors against CMBS created out of sale and leaseback of commercial real estate owned by potentially bankrupt companies. A typical such scheme will be one where a company, on the brink of financial distress, sells its commercial real estate and takes it back on the lease, and the leasing unit securitises the lease receivables.
In a recent press release, Fitch says it has reviewed several sale/leaseback transactions – where a company sells its commercial real estate assets and then leases them back so that the new owner can securitize the resulting pool of mortgages. This is particularly so if the company is pursuing this financing strategy on the brink of its bankruptcy and may subsequently shut its doors. "In these instances, CMBS investors may have to weather delinquencies and defaults because of an insufficient assessment of the risks involved', cautions Fitch. The deals where a red flag should go up would be ones of sale/leaseback transactions where investment-grade rated proceeds exceed a highly stressed value of the property. Vacant properties are typically sold at a fraction of their original value
In CMBS deals in general, if the assets are not easily fungible or are located in unattractive markets, the investor of CMBS bonds could hold, as collateral, empty buildings for a long period of time. This risk is exacerbated in sale and leaseback transactions due to arbitrary valuations.
Links: For more on CMBS, see our page here.
The US asset-backed commercial paper conduit market continues to rise, and is expected to grow further in year 2002. The ABCP market ended 2001 with about USD 745 billion in commercial paper outstanding, up 16% from USD 641 billion at the start of 2001. In year 2002, rating agency Standard and Poor's, based on a survey of ABCP administrators, expects the market to rise another 13%.
The four major constituents of the ABCP market include: autos representing roughly 18%, trade receivables at 17%, equipment leases and loans at 16%, and credit card receivables at 10% of new commitments. Other constituents include time shares and franchise fees.
The major administrators surveyed by S&P included: Citigroup N.A, ABN-AMRO Bank N.V., Banc One, N.A., JP Morgan Chase, General Electric Capital Corp., Westdeutsche Landesbank Girozentrale, Rabobank Nederland, Liberty Hampshire Co. LLC, Societe Generale, Bank of America National Trust & Savings Association, Canadian Imperial Bank of Commerce, Barclay's Bank PLC, Credit Suisse First Boston, First Union National Bank, Charlotte, Bayerische Landesbank Girozentrale, General Motors Acceptance Corp., Firstar Bank, N.A., and Dresdner Bank AG.
Links For more on ABCP, see our page here.
In a report on U.S. CMBS rating transitions in 2001, a report released by Standard and Poor's shows upgrades outstripping downgrades by a large margin, with the outlook for rating upgrades in 2002 remaining favorable. U.S. transaction volume in 2001 totaled USD 74.3 billion, almost reaching the record USD 74.5 billion brought to market in 1998.
It may be noted that 1998 was the peak in US CMBS market after which volumes started declining consistently until the last year, largely due to a decline in conduit activity and general sloth in CRE sector.
The S&P report says that undercurrents of weakness began emerging towards the end of 2001, which did not show up in the year-end report.
Rating agency Standard and Poor's recently analysed the several emerging market transactions rated by it that may be affected by global economic scenario pursuant to 9-11. For the purposes of this analysis, emerging market deals can be classified into: asset-backed deals, tourism-dependant future flows, commodity future flows, and remittance based future flows.
One of the most significant reasons for weakness of several emerging market deals, unrelated to 9-11, is Argentinan economic crisis. Several of the rated securitization deals originated from Argentina, both existing asset and future flows, are liable to default owing to the peso-to-dollar exchange announced by the Government as also other measures.
Among tourism-related flows are airline ticket sales and credit card voucher payments, both of which are related to travel volumes. The rating agency feels that the transactions backed by sufficient collateralisation may not be affected.
Various commodity-backed transactions backed by export receivables have suffered due to declining prices of commodities.
In a major drive to clean up the creaking banking sector burdened with bad debts, the Japanese government has appointed Goldman Sachs and Mitsubishi Trust Bank to securitise loads of bad loans. To begin with, the exercise begins with securitisation of Yen 9.6 billion rated paper, but the deal will go upto Yen 100 billion (USD 744 million) of non-performing loans in what is believed to be the country's first securitisation of bad bank credits. Of course, Morgan Stanley has earlier securitised bad loans bought from Japanese banks, but this is a deal directly aimed at creating a secondary market in bad loans.
The Japanese government had constituted the Resolution and Collection Corp (RCC) on the structure of the Resolution Trust Corp, USA to take over bad loans of Japanese banks and restructure them.
Class A of the 4-tranche notes was rated AAA by Standard and Poor's, on factors such as the mortgage quality, subordination, cash reserves and the sound legal structure of the deal.
The asset-backed bonds are to be placed privately at a total price of about Y10bn.
The collapse of Barings Bank sent accounting standard setters into making a spate of new accounting standards that gave the World IAS 39 and FAS 133; Enron's debacle will certainly lead to review of some major accounting standards including those on consolidation and off-balance sheet financing.
That a major social opporbrium is building against off-balance sheet financing is a clear indication from the latest article in Business Weekthat hard hits attempts of corporate America in achieving off-balance sheet funding. "Hundreds of respected U.S. companies are ferreting away trillions of dollars in debt in off-balance-sheet subsidiaries, partnerships, and assorted obligations, including leases, pension plans, and take-or-pay contracts with suppliers. Potentially bankrupting contracts are mentioned vaguely in footnotes to company accounts, at best. The goal is to skirt the rules of consolidation, the bedrock of the American financial reporting system and the source of much its credibility", says the Special Report in Jan 28 issue of Business Week.
The article titled "Who else is hiding debt" scorns the use of special purpose vehicles to move away debt. "Because of a gaping loophole in accounting practice, companies create arcane legal structures, often called special-purpose entities (SPEs). Then, the parent can bankroll up to 97% of the initial investment in an SPE without having to consolidate it into its own accounts. "
If you are wondering which accounting rule is the article referring to, it is EITF 90-15 and EITF 97-1.
Link The full text of the Business Week article is available here.
You are free to ask: is the beginning, or the end, or the end of a beginning or the beginning of the end. But looking at the number of defaults in asset backed securities, year 2001 has overshadowed 16 years of strong performance of securitized classes. Rating agency S&P has reported 18 defaults in 2001, compared to 11 defaults over a 15 year period for 1985 to 2000. As 1985 was the year when non-mortgage-backed rated securitization made a debut, it is all history on one side, outweighted by a single year.
The 18 defaults composed of synthetic securities (six), franchise loans (nine), retail credit cards (two), manufactured housing loans (one). The 6 synthetic defaults had one name to blame: Enron, whose bankruptcy triggered claims on credit default swaps against the investors. It is notable that in synthetic transactions, the investors are protection providers or guarantors through securitised swaps.
The data excludes two other notable defaults of 2001 – Hollywood Funding and LTV Steel. Hollywood Steel is recognised by S&P as a UK ABS. In LTV Steel, securitization funding was replaced by DIP funding, which is counted as an exchange and not a default by S&P.
- For full text of the S&P article, click here.
- The LTV case is covered by our news items here and here.
- Several other ABS defaults including Hollywood Funding and sad episodes are covered on our page here.
Standard and Poor's has recently published a rating migration report for ABS ratings for year 2001. While this report reflects a murky scenario with downgrades reaching all time high, the rating agencies are still going strong on the fact that ABS issuance has for the first time waded through a recession, and most of the downgrades relate to performance of the collateral.
Out of a total of 320 rating changes by S&P (which is less than 7% of all outstanding classes), there were 245 downgrades and 75 upgrades, compared to year 2000, where there were 183 downgrades and 63 downgrades. However, S&P underscores the fact that most of these downgrades related to collateral performance (by the way, there are not too many other possible reasons for a downgrade, other than credit enhancer or counterparty downgrade).
S&P says that the major downgrades this related to synthetic securities [84 downgrades] where corporate downgrades worst affected the ratings of the synthetic securities, referenced to such corporates. Next in order were CDOs where the subordinate classes could not escape a downgrade, once again due to downgrade of the constituent corporates.
Links For full text of the S&P article, click here.
The key feature of the US ABS market for the first two weeks of 2002 has been increasing presence of auto majors for new ABS issuance. Last week, Ford Motor company jumpstarted the market with a USD 5 billion ABS deal. This week, General Motors Corp. and Toyota Motor Corp. have joined the fray.
Everyone in the market was expecting increased supply of auto paper, since the rating downgrades of the manufacturers has pushed up their costs of corporate bonds. Asset backed deals, on the other hand, provide them cheaper and easier access to funds.
European papers have also reported plans by several European auto majors to package auto loan ABS rather than to look at unsecured corporate bonds.
Links For more on auto loan ABS, see our page here.
Commercial MBS volumes originating in the USA have been steadily declining since 1998, and non-US CMBS volumes have been growing fast. During year 2001, issuance outside the USA grew 87% from USD 12.1 billion in 2000 to USD 22.7 billion. As for year 2002, analysts expect the growth rate in non-US CMBS to be maintained.
Europe In the non-US market, Europe is seen as the growth engine. In UK alone, in year 2001, volume more than doubled to USD 10.7 billion, bolstered by some mega CMBS issues such as Canary Wharf and British Land. There was substantive activity from Italy as well, primarily comprising of a mega issue from the Italian government.
In year 2002, European activity will see a spike as some jumbo deals likely to be priced in the first quarter will add up to a volume of USD 5 billion. Moody's also concurs that the growth rate in European CMBS will continue in year 2002 – press release of 4th Jan.
Japan The Japanese CMBS market did very well in year 2000 when the issuance tripled over 1999, but in year 2001, the volume grew by meagre 20%. In year 2002, there might be a number of real estate NPL securitisations by banks, but CMBS as such may continue the same way as in 2001. Number of JREITs have been formed this year, which may get active in the CMBS market.
Rest of the world: Analysts expect CMBS debutante deals in South Korea, South Africa and New Zealand this year.
Links See for more on CMBS our page here.
An article in journal Pension and Investments 7th Jan 2002 says CDOs are asset managers' latest money machine as they rake in fixed income over a substantially leveraged asset base. With the growing CDOs volumes and diversity in CDO classes (for example, see below about hedge fund CDOs), asset managers continue to make their moolah out of CDOs.
CDOs continue to attract well-known asset managers. In 2001, Guardian Trust Co., Nicholas-Applegate Capital Management and Pareto Partners were among the firms that launched CDOs. Sources said other big-name firms, including Fidelity Investments, are also planning to join the bandwagon.
The typical CDO fees are 40 bps with an additional 10 bps linked to performance. However, the equity stake usually required is only 5% and managers have to contribute only a part of it. True, there are more risks in managing CDOs as there are several triggers and ratios to keep track of.
US CDO volumes have continued to grow, despite the jump up in high-yield default rate from 6.3% to 8.9%.
There may be lessons to learn, but volumes will continue to grow: S&P
A press release of 9th Jan by S&P says that despite all problems and all critique, there might be lessons to learn, but the CDO volumes in 2002 will continue to rise. Transactions originated in 2002 will continue to incorporate structural innovations and mechanisms to further protect investors from pronounced credit deterioration within the portfolios.
Specifically, lessons learned from earlier-vintage CDOs include the need for longer warehouse facilities, less aggressive equity assumptions, and longer ramp-up periods for managers to accumulate collateral post closing. But chief among the observations made is the need to prevent excess spread from leaving a transaction upon early signs of credit deterioration.
Links: For more on CDOs, see our page here.
Inspite of a falling economy, Japanese securitisation volume may grow 40% in year 2002, as regulatory pressure will continue to force banks to reduce their balance sheet risks. Total issuance in 2001 was estimated at JPY3.2 trillion.
S&P expects that if 2002 proves to be a repeat of 1998 and 1999 when a banking crisis forced companies to look to the securitization market as a source of funds, issuance may reach JPY5 trillion.
Growth will likely be focused on bank repackagings of loans to create cash and synthetic CDOs. Bank CLOs may increase due to regulatory pressures on banks who may look at these as a means of balance sheet management, and risk management in the form of credit default swap transactions. In addition, issuance in 2002 will also include its share of debt backed by real estate assets and securitization of various loans in the consumer finance sector.
Consumer finance securitization was the highlight of 2001 as finance companies found it to be a very effective means of funding. Consumer finance securitization accounted for about 17% of total ABS issuance in 2001, compared with less than 3% in 2000.
In MBS segment, there has been substantial CMBS activity fired by real estate portfolios of failed insurance companies, notably Chiyoda Life and Daihakyu Life. In year 2002, there may be lot of non-performing real estate loans being securitised. The work of Japan's Resolution and Collection Corp. to liquefy some of the defaulted real estate assets it has purchased from Japanese banks, as well as balance sheet management by some financial institutions, will contribute to the increase in NPL securitizations. Meanwhile, some of the repositioned real estate assets from the insolvent insurance portfolios will be purchased by sponsors of the newly formed J-REITs as they seek to amass their real estate portfolios.
Links For more on securitization in Japan, see our country page here.
According to a S&P press release of 9th Jan, llow interest rates and legislative measures should assist Mexico's domestic securitization market to grow over year 2002. Year 2001 was a record year in terms of volume, with 290% spike over 2000.
For year 2002, the rating agency expects securitizations within a diversified pool of asset types, including federal tax participation flows, partial credit guarantee, construction bridge loans, and mortgages, as well as commercial real estate. As far as tax participation flows are concerned, recent legislation has allowed Mexican states and cities to securitize their federal tax participation flows through bond offerings.
The low-income housing industry is another sector that will continue to be an active issuer of structured finance debt in 2002. Both construction companies and mortgage banks ("Sofoles") have made great efforts to start addressing Mexico's estimated 6-million-unit housing deficit, and the need for additional funds is becoming more pressing. To overcome this need, issuers will continue securitizing construction bridge loans such as the one issued by Corporacion GEO, as well as other bridge financing like Hipotecaria Su Casita's issuance, until they have generated enough assets to make mortgage securitization feasible.
In addition, the creation in October 2001 of Mexico's federal mortgage bank will foster the development of primary and secondary mortgage markets in Mexico during 2002 and in the years to come.
Driven by Mexico's macroeconomic conditions, the dynamics of the commercial real-estate market are bound to change. Transactions that have typically been financed by private investments will most likely begin to be financed by debt issuances as market interest rates continue to be a competitive alternative for developers and construction companies. Therefore, commercial real-estate securitization will develop in the short term. It is very likely that these issuances will find an appetite among institutional investors who require instruments with tenors similar to the ones of traditional commercial real-estate securities.
Links For more on securitization in Mexico, see our country page here.
Securitisation volume in Spain in year 2001 added up to Euros 17.673 billion, which is 52 per cent higher than the volume last year. This data was published by AIAF, the Spanish association of financial asset brokers.
According to the trade body, this year has been one of the best for the sector, which has seen the volume of issues increase more than fourfold since 1998, when this stood at Euros 3.96 billion. Securitisation has benefited from not being closely linked to stock markets and from its attractiveness to companies. Thus, difficulties in the equity market have not percolated down to the ABS markets.
In terms of composition, of the total securitised asset issues this year, 5.112bn euros correspond to securitised mortgage bonds; 6.684bn euros to other securitised assets and 5.876bn euros to securitised bonds. The securitisatio activity has benefited from a new law which allows assets other than mortgages to be securitised, which has opened up the sector to institutions other than financial ones.
Links For more on securitisation in Spain, see our country page here.
It was a close one-on-one between Citigroup and Credit Suisse First Boston, but Citigroup finished as the top underwriter for 2001, for the second year in a row. According to data published by Thomson Financial [Investment Dealer’s Digest, Jan 7], Citigroup's Salomon Smith Barney ended up with a total underwriting volume of USD 49.232 billion, while CSFB added up to USD 48.793 billion. These numbers take into account public offerings as also rule 144A, including asset-backed and CDO deals.
The two top underwriters between them share about 30% of the US ABS market. JP Morgan Chase ended up with USD 43.4 billion.
CDOs that invest in private equity and hedge funds are going to be strongest growing CDO segment in 2002, says S&P. In a Press Release of 7th Jan, S&P expects alternative investment CDOs to be be the strongest growing segment in CDOs.
"In 2002 our biggest growth will come from alternative investments," said Soody Nelson, managing director of Standard & Poor's Structured Finance market value group in New York. "Specifically, the growth will be from securitizations of private equity fund of funds and hedge fund of funds, otherwise known as alternative investment collateralized debt obligations."
Such investments are an alternative to the capital markets, which include the public bond and equity markets and are generally open to all investors. The chief difference is that the capital markets are regulated and transparent and offer investors the same opportunities, while the private equity and hedge fund industries are opaque and unregulated, creating the opportunity for greater returns, though matched by greater and structured risks.
In the first half of 2001, Prime Edge became a notable CDO to invest in private equity. We covered this development in our report here. Subsequently, both S&P and Fitch came out with rating methodologies for such vehicles. Bouyed by the fast-growing hedge fund industry, the rating agencies are trying hard to push CDOs of hedge funds. The creation of hedge fund or private equity fund CDOs allows creation of debt investments that go into riskier equity investments.
One of the majors drivers of the growth in ABS market in 2001 was the strong performance of the auto ABS – see our story here. Looking at 2002, rating agency S&P projects that "Current conditions in the auto asset-backed securities market should result in 2002 being another record year for the sector, with as much as a 7% rise in issuance over 2001 to $74 billion".
The Big Three automakers, General Motors Corp., DaimlerChrysler AG, and Ford Motor Co., were downgraded in late 2001 Resultingly, their cost of borrowing in regular debt markets went up, forcing them to look increasingly at the ABS market..
The securitization market also benefited from robust car sales in 2001 – the second best year ever, with sales supported by rebates and low-rate financing. The Big Three engaged in fierce competitive pricing, including the 0% financing deals designed to maintain or recapture market share. Zero-percent financing deals offered post Sept. 11 will also likely accelerate new car purchase decisions for many consumers and may cause auto ABS issuance to be front-loaded in 2002.
The current windfall will surely taper off as the reality of recession sets in, but would not have a detrimental effect on securitizations. Although the economy will put a damper on car sales and loan growth will likely decline, issuers will have a greater incentive to make securitization a larger share of the funding mix. Also, subvention, or below-market rate financing, popular among captive finance companies in a down market, should stimulate additional loan origination. Subvention rate financing will also attract loan obligors who may have otherwise made a cash purchase and improve the obligor mix, thus, at least, partially offsetting the adverse effects of a weaker economy.
Links For more on auto ABS, see our page here.
Australian ABS market continues to be predominantly focused on RMBS, and the rating agencies project that in 2002, there may not be too much of non-RMBS activity, but RMBS holds a strong promise. RMBS issuance in 2001 added up to some USD 11.89 billion.
2001 witnessed historically one of the lowest interest rates in the country.. As the domestic economy begins to pick up over 2002, interest rates are likely to rise and that will probably dampen demand for new home loans. However, Fitch believes any reduction in the demand for new home loans will be offset by more of them being securitised thus ensuring 2002 issuance is comparable with 2001 levels.
Offshore issuance is expected to continue to be the dominant factor in the market, although new entrants are unlikely at present. RMBS is also expected to benefit from changes in withholding tax, which will enable Australian owned offshore companies to repatriate more dividends locally, should help the RMBS market also.
In the non-RMBS market the outlook is a little more cautious. CMBS and ABCP may not be quite as popular as the RMBS. The CMBS market is expected to struggle Australian investors are not comfortable with low-rated CMBS tranches. The ABCP market is expected to be maintained with corporates accessing it to facilitate funding requirements, accessing arbitrage opportunities and watching balance sheets. While the market is expected to grow there is concern about the depth in the market which may lead to the establishment of some US dollar ABCP.
Links: For more on securitisation in Australia, see our country page here.
The strong current of activity in Korean securitisation market [see our story below] was kept going by a remarkable future flows deal where an ISP's future revenues were securitised to raise Won 120 billion.
Korea Thrunet Co., Ltd. ("Thrunet"), Korea's largest cable modem broadband Internet-access services provider and a major provider of enterprise network services, has issued in Jan 2002 asset-backed securities in adding up to Won 120 billion. Bank of America's Asian Asset Securitization Team in Hong Kong acted as structuring agent, while Hyundai Securities privately placed the ABS amongst Korean institutional investors.
The securities are backed by Thrunet 's future receivables from certain corporate customers in the Enterprise Network Business for the next three years and were offered to domestic institutional investors. It is not known if the deal was rated.
Thrunet is a major provider of broadband Internet access services and enterprise network services in Korea. The first to offer broadband Internet services in Korea, with 1,267,516 paying end-users at the end of November 2001, Korea Thrunet's network currently passes over 8.3 million homes. Thrunet service features "always-on" Internet access at speeds up to 100 times faster than traditional dial-up Internet access.
There have not been many future flow deals in Asia so far – so this one is a remarkable precedent and adds up to the bevy of deals originating from Korea.
Amid faltering markets and deteriorating corporate credit, investing in asset-backed securities was one of the best investment option in 2001. A Financial Times [Jan 7] story by Jenny Wiggins says investors ended up with some 10 per cent return on asset backed investments, which is slightly less than what could be expected out of corporate bonds, but in a year of overall uncertainty, the protection that asset-backed investments provided held a strong appeal with the investors. That is how 2001 ABS volumes ended with a strong performance – see story below.
There have been some weak spots in 2001. One of the most disturbing features was the rate of downgrades. According to rating agencies, most of the downgrades came from 3 sources: CDOs, franchise loans and manufactured homes segment, and airlines related securities. Several EETCs based on aircraft funding have been downgraded recently. The downgrades in CDO tranches are obviously connected with declining corporate credits.
Credit card delinquencies are rising, but so far, the performance in this sector has been quite strong. Barring the bankruptcy of Heilig-Myers [see our page here], there were no defaults duing the year.
All said and done, investor demand for ABS continues to be strong.
Your views please As a participant in the structured finance industry, how do you see the ABS market behaving in 2002? Write your views.
Links There are several articles on investing in ABS on our articles page – see here.
Philippine media quoted House Speaker Jose de Venecia, Jr. as saying that Lehman Brothers has committed to invest USD l billion in a Philippine Recovery Fund will invest in securitisation of mass housing projects in the country, as also acquire the non-performing assets of the commercial banking system. The Fund would be used to participate in the securitization of the Malampaya natural gas and housing mortgages and to finance new housing projects and new economic development programs of the government.
If this proposed investment materialises, it will surely be a major boost to the government's ongoing efforts to introduce securitisation in the troubled economy. Efforts are on to implement a securitisation law in the country -see our news report here.
BusinessWorld (Philippines) of Jan 2 also notes the progress of the securitization bill. The Philippine Stock Exchange has reportedly supported the Bill. The House economic affairs committee is conducting hearings on House Bill 2733, which provides for a legal and procedural framework for securitization. In addition, the stock exchange has also recommended tax incentives for investors investing in the securities.
In an otherwise insecure world, securitisation continues to prosper. Year 2001 ended with impressive growth in securitisation volumes on both sides of the Atlantic, and market players have rung in the new year with the same optimism.
Website abalert.com which tracks securitization data regularly reported a total (US and non-US) issuance of USD 418.3 billion for 2001, as compared to USD 354.5 for 2000. The US volume grew from little over YSD 270 billion in 2000 to above USD 306 billion in 2001.
A news report in Financial Times of Jan 2 quotes market practitioners who expect the US volume to reach USD 365 billion in 2002, inspite of pressures on credit quality and corporate earnings. As to general decline in credit quality, in auto receivables segment, rating downgrades of the auto majors only increased their presence in the securitisation market to reduce costs.
Most impressive growth in global securitization in 2001 was achieved in Europe where volumes grew by 126% to Euros 42.1 billion. With more European governments passing pro-securitization laws, the growth may only accelerate in 2002.
The primary drivers of growth in Europe were a near tripling of volume in the Italian market, strong performance from France, Germany and Portugal, and some particularly large new transactions in the Netherlands, Greece and Austria.
Asian markets are also expected to wake up 2002, as more investment bankers realise arbitrage opportunities and banks use securitisation as a tool to tidy their balance sheets.
The growth of securitisation in Asia, minus Japan, has been tardy – everyone agrees. And everyone also agrees that the news emanating from Korea is very heartening. Korea has been at the centrestage of Asian securitisation scenario over 2001. In an article in AsiamoneyNov. 2001, Fiona Haddock reviews the developments in Korean market and remarkable deals in the recent months.
In October 2001, Hanvit Bank deal was brought into the market by ABN Amro bank. This USD 216 million deal was the 10th securitisation deal by the originator, and was the first Korean ABS issue to be backed by documentary credits granted by the bank to its manfacturing clients. Remarkably, this deal also included certain non-performing loans granted by the originator, and unlike the deals in the past, there was no third-party guarantee to back up the deal. The three tranche deal's senior class was rated AA and was sold 20 bps above likeable corporate bonds. The second and third class were rated BB- and B- respectively and were sold at 12% and 13% respectively. The main investors were pension funds, investment trust companies and two life insurance companies.
A little later, Morgan Stanley brought a real-estate NPL deal to the market. This Won 174.9 billion Korean deal was issued through the Resurgence Korea One special purpose vehicle. The underlying assets consisted of a pool of loans and properties purchased from Kamco. Morgan Stanley, it is notable, has bought non-performing loans in Japan for securitising them, and they have been doing it Italy as well. This was the first securitisation of non-performing loans bought on a commercial basis for securitisation. The AAA tranche of this deal was sold at 5.57%. See article by Rob Davies on this deal here.
Investment banks in Korea are upbeat on future prospects as more cross border investors indicate appetite for Korean assets.