European securitization in 2004 is set to exceed the issuance record set last year, according to a report from the European Securitization Forum.
In the first six months of this year ?125.6 billion of bonds were issued in Europe, putting the market on course to exceed the ?217.2 billion issued in 2003. In the same period last year ?95.1 billion in bonds were issued, 32.2% lower than this year.
Although mortgage-backed securities (MBS) still dominate the market, accounting for ?70.1 million of the issuance in the first six months of 2004, it is non-mortgage asset-backed securities (ABS) that accounted for the majority of the growth on last year. MBS grew 17.4% from ?59.7 billion in the first half of 2003, while ABS grew 56.8%.
This is good news for corporate securitization, which usually takes the form of ABS rather than MBS. According to a separate report from Standard & Poor’s, European corporate issuance totalled £6.7 billion in the first half of 2004, up from £3.7 billion in the first half of 2003. Of the eight transactions to June this year, six originated in the UK, one in Italy and the other in France.
The ESF report puts the overall increase down to historically low interest rates, which have made issuing any form of debt attractive in the last year. It also points out that the increase occurred despite the number of both securitization and corporate downgrades from the rating agencies exceeding the number of upgrades.
The Forum says it expects the total volume for 2004 to exceed that of 2003 despite fears that rising interest rates, inflation and energy prices could reduce the amount of issuance in the back half of the year. It says the rate and price rises should be balanced out by economic expansion and improved credit quality.
The UK, Spain and Italy continue to dominate the collateral used in the securitization market, accounting for 84.9% of the total and 44.9%, 18.8% and 14.2% respectively. The Netherlands contributes 6.9%, France 3.8% and Germany 1.6%.
Standard & Poor’s report puts the continued strength of the UK market down to the creditor-friendly nature of its insolvency regime. It says insolvency laws in continental Europe tend to prevent noteholders from gaining true control over the assets in the event of an insolvency. Standard & Poor’s take on the insolvency regimes in the UK and France is analysed in the legal brief column of CF’s September issue.
The two reports can be downloaded from:
https://www2.standardandpoors.com/spf/pdf/fixedincome/081104_corpsecSNAP.pdf and
https://www.europeansecuritisation.com/pubs/ESF_Data_Report_Summer_2004.pdf
