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Pipeline Unlikely to Yield Yearend Surge
Asset Backed Alert, Harrison Scott Publications Inc. (October 6, 2006)
The pace of new structured-finance transactions entering the market should hold steady for the next three months.
The prevailing opinion among industry players is that issuance of asset-backed securities, collateralized debt obligations and residential and commercial mortgage bonds around the world will match or slightly exceed the $600 billion of deals completed during the July-September stretch. The result: Full-year volume should top the year-earlier total of $2.1 trillion.
When all is said and done, however, the expansion will almost certainly fall short of the 40%-plus level seen last year. That's partly because 2005's count benefited from issuers that flooded the market with new deals in the final months of the year, as they sought to buy some time before conforming to new SEC regulations. "The days of gigantic growth numbers are over, at least for a while," said Peter DiMartino, RBS Greenwich Capital's ABS-research chief.
At $1.8 trillion, the year-to-date tally is running $317 billion, or 21%, ahead of last year.
Transactions backed by mortgages and home-equity loans, meanwhile, remain the dominant sources of new issuance, especially in the U.S. Indeed, lenders that have already been bombarding the market with such offerings still need funding for huge volumes of floating-rate and extended-term credits they've been writing, despite recent dips in real estate sales and home values across the country. "There's always something that you can refinance into to lower your payments," and that's feeding the ongoing flow of new securitizations, one asset manager said.
Lenders are also securitizing steady streams of loans to homeowners who want to refinance floating-rate mortgages as their low introductory rates expire. "There's nothing fundamentally in the market that will change that over the next few months," RBS Greenwich's DiMartino said.
Securitizations of mortgage-related collateral in the U.S. totaled $819 billion during the first nine months of this year, accounting for 45% of worldwide structured-product issuance, according to Asset-Backed Alert's ABS Database.
Among the bookrunners working on all types of securitizations, Lehman Brothers appears to have a lock on its second consecutive league-table victory. The bank has accumulated $146.5 billion of assignments so far, followed by Deutsche Bank with $134 billion. RBS Greenwich Capital and parent Royal Bank of Scotland are hot on the German bank's heels, with a combined $129.2 billion of transactions.
Among underwriters of U.S. asset-backed securities, Citigroup, Lehman and RBS Greenwich appear to be headed for a close battle at yearend. Citi holds the lead at the moment, with $60.8 billion of underwriting assignments. But less than $6 billion separates it from number-two Lehman and third-place RBS Greenwich.
Some $652.8 billion of asset-backed transactions priced in the U.S. during the first three quarters of 2006, up $20.8 billion from the same period a year ago.
In Europe, Royal Bank of Scotland leads the bookrunner derby with $25.8 billion of deals. It will face plenty of competition for the remainder of the year though, as Barclays Capital, Deutsche and ABN Amro have each topped $23 billion as well.
Merrill Lynch, meanwhile, appears a safe bet to retain its usual title as the world's top underwriter of CDOs. At $37.1 billion, its year-to-date deal tally is $12.1 billion higher than the amount handled by Goldman Sachs, its closest rival.
Asset-Backed Alert's primary structured-finance league table accounts for all securitizations worldwide. But it excludes securities sold through commercial-paper conduits and the derivative portions of synthetic deals.