The European securitisation market continued to grow strongly in 2002 despite the weakness of the equity markets and concern about corporate credit quality. Or so says Moody’s Investors Service in its 2002 Review & 2003 Outlook for Europe’s structured finance market.
In 2002, the volume of total risk transferred increased 29% to EUR346.7 billion (excluding structured covered bonds and repackagings) from EUR269.5 billion the previous year. “This strong increase, which outstripped Moody’s own prediction of up to 20% growth, demonstrates the durability, resilience and adaptability of the European market,” says Judit Seymour, a Moody’s Vice President-Senior Analyst and author of the report. “It is particularly impressive in light of the world economic crisis, the record number of corporate downgrades and defaults and a weakening of the larger banks’ credit strength,” the analyst adds.
The growth in volume of issuance was experienced in all asset classes except Asset-Backed Securities, which witnessed a 19% decline as a result of a number of jumbo deals that closed in 2001 and were not repeated in 2002. “The success story of the year was the 37% increase in volumes of Whole Business Securitisations, which was however entirely dependent on four water securitisations, which, due to their jumbo size when aggregated, substantially increased this asset class’s share of the market,” Seymour explains. Although further WBS growth is expected in 2003, its scale is difficult to predict.
Collateralised Debt Obligations – the success story of 2001 – once again experienced remarkable growth in volumes at 42%. Moody’s views this rate of growth as a good indicator for the year to come, predicting ongoing strong growth for this asset class in 2003, as well as for Commercial Mortgage-Backed Securities (which grew 40% in 2002). In addition, the rating agency expects Residential Mortgage-Backed Securities (31% growth in 2002) and Asset-Backed Securities to encounter moderate growth over the next 12 months. “In the case of the latter, this should mark a noteworthy comeback thanks to more synthetic transactions and a resurgence of esoteric deals,” according to the report’s author.
The largest European securitisation market remained the UK, with total credit risk transferred of EUR56.9 billion in 2002. The number two position was once again held by Italy, with EUR36.7 billion, a 15% year-on-year rise. Meanwhile, Germany leapfrogged France and the Netherlands to take its place as the third-biggest European market, with total credit risk transferred of EUR30.1 billion, after witnessing a dramatic 105% increase during 2002, thanks to the domination of larger transaction sizes from repeat issuers and programme-based synthetic deals.