Issuers in the UK and Republic of Ireland were the biggest in the European structured finance market in 2002, with Euros 59 billion of securities, says Moody’s Investors Service in its review of the year just ended. However, the ratings agency says 2003 is likely to see flatter growth in the UK and Ireland.
“In 2002, the mature UK securitisation market grew by 5% overall, with continued activity across all asset classes, while Ireland did not record any new issuance,” says Judit Seymour, a Moody’s Vice President/Senior Analyst and author of the report. However, as in 2001, the UK market did not see any synthetic transactions in 2002.
In its review of 2002, Moody’s notes that, after a slow start in UK issuance at the start of the year, investor appetite soon rallied and supported the volumes of issuance throughout 2002. This upturn in issuance was based on investors’ recognition of the UK economy’s continued strength, especially when compared to that of some of its European neighbours, as well as the UK’s well-established legal, regulatory and banking rules governing securitisation.
“In 2003, the UK market is likely to record continued steady growth in Asset-Backed Securities (ABS), Commercial Mortgage-Backed Securities (CMBS) and Whole Business Securitisations (WBS),” predicts Seymour. Indeed, the general levelling of interest in ABS transactions seen in 2002 is likely to be followed by greater volumes of issuance and more esoteric and synthetic deals in 2003 – especially in light of continued investor appetite for more flexible terms and structures. Moreover, Moody’s believes that greater interest from Continental Europe in CMBS and WBS will alter the UK’s market share in these asset classes.
However, Moody’s expects Collateralised Debt Obligations (CDOs) and Residential Mortgage-Backed Securities (RMBS) to show similar volumes in 2003 as those seen in 2002. “The increased diversification and sophistication of CDO portfolios will restrict the growth of the UK CDO market,” notes Seymour.