The outlook for the European corporate securitisation market is unlikely to improve this year as higher pricing, illiquidity and a damping of investor demand triggered by the credit crunch has reduced its appeal as a funding pool for companies.
Standard & Poor’s says that while the underlying performance of most European corporate securitisations is sound, the market remains under pressure. This follows a series of rating cuts to monoline insurers whose guarantees are used to improve the ratings of these bond issues, while the prospect of new issuance also remains constrained by volatile market conditions.
Corporate securitisation is an important funding tool for certain businesses, including real estate-backed companies such as pub chains, as well as regulated utilities. However, investors and bankers are positive about its potential recovery.
“I expect a greater number of companies to use the secured bond market, or put in place a platform off which to issue secured bond and bank debt, as the price and terms of bank loan financing become more onerous,” said Simon Dudley, a managing director in Citi’s Fixed Income group. “That will help boost the market but the fundamental change in monoline insurance will mean that companies that had previously relied on those guarantees to issue debt, will no longer be able to issue.”
Citi and Royal Bank of Scotland earlier this month completed UK airport operator BAA’s £9.3bn ($17bn) securitisation, marking the largest deal of its kind ever done.
As part of that deal, the banks put in place a bond programme which has a maximum size of £50bn, which will allow BAA to raise funds in the corporate securitisation market over the coming decades.
While that one deal meant issuance volume so far this year has far outstripped the whole of 2007, S&P notes that, overall, the number of issues has slowed, with only five other transactions completed.
S&P does not expect to this to change until possibly 2009, adding that pricing this year is unlikely to return to levels that would spur substantial new issuance.
Joe Biernat, Chief Investment Strategist at European Credit Management is bullish on the long-term prospects for the asset backed securities market. “However, we will need general market liquidity to improve before the market starts to accept significant new issues deal flow again.”
By Anousha Sakoui |
