| Ireland’s unique securitisation industry |
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| Fiona Reddan looks back over the key developments in the Irish securitisation sector over the past 12 months, highlighting important events such as: two issuance firsts – the first commercial mortgage backed securitisation (CMBS) and the first residential mortgage backed securitisation (RMBS) of non-conforming loans; the implementation of the Prospectus Directive and the resulting growth of corporate deals listing on the Irish Stock Exchange; the growth in investment in asset-backed securities (ABS) by Irish based investors to €100 billion; the creation of the Irish Securitisation Forum; and the strong deal pipeline of collateralised debt obligations (CDOs) from Irish based collateral managers. |
It was another year of growth for Dublin’s securitisation sector, which, since its inception in the late 1990s, has gone from strength to strength. A unique jurisdiction in Europe, Dublin caters for every participant in the asset-backed securities (ABS) market, with investors, collateral managers, SPV administrators, listing sponsors, a stock exchange, lawyers, accountants, and conduits all present in the Dublin market.
A key event during the year was the launch, in November 2005, of the Irish Securitisation Forum (ISF), which was led by Financial Services Ireland and the Irish Bankers Federation. The remit of the ISF is to promote Ireland as the premier location for the next wave of asset-backed securities (ABS) issuing and investor vehicles. It is chaired by Deirdre Somers, director of listings at the Irish Stock Exchange (ISE), and has two working groups – the service provider group headed by Darina Barrett, a partner with KPMG, and the investor/issuer group, headed by Neil Ryan, the former managing director of Naspa Dublin.
Ray Wyer is head of ABS with Bank of Ireland, as well as being on the ISF Steering Group, and a member of the Investor Group.
He says that Dublin is a mini-global market in its own right, as the full range of participants in the securitisation sector are present in the city. One of the ISF’s aims is to position Dublin as the second largest securitisation centre in Europe, behind London. Currently Dublin lies around fourth place says Wyer, behind London, Frankfurt and Brussels, although he adds that it’s difficult to say.
The only challenge Wyer sees on the horizon is with regards to the skill-sets of people working in the industry in Ireland. He says, ‘One of the possible drawbacks for Ireland is not the depth of experience, but that there are two few people with this experience’. As a result, the ISF are working with Skillnets on a training programme for people working in securitisation.
Global market
2005 was another record year for the European securitisation industry, with issuance levels setting a record for the seventh straight year. According to the European Securitisation Forum (ESF), the representative body for the industry in Europe, issuance grew by 31.15 percent to €319.2 billion.
However, the level of growth looks set to fall off in 2006, and the ESF predicts that the market is likely to increase by less in 2006, by approximately 15.0 per cent. Most of the increase in the coming year is expected to come from the commercial mortgage-backed securities (CMBS) and CDO sectors.
While RMBS remains the largest sector in Europe, with total issuance of €142.6 billion in 2005, representing an increase of 18.7 percent on 2004, its market share of total issuance decreased from 49 to 44 percent. This trend was the result of a slower UK housing market, as according to the European Mortgage Federation, gross mortgage lending in the UK in 2005 was 3.8 percent lower than in the previous year. This trend looks likely to continue into 2006 say the ESF.
The CDO sector continued to develop and grow throughout 2005, finishing the year as the second largest volume sector with total issuance of €46.8 billion, an increase of over 85 percent on the 2004 total.
Investment
At the annual Finance Dublin International Securitisation Conference in November 2005, which attracted over 200 delegates, Paul Hawkins, vice president, EMEA Asset Based Finance, Securitisation & Principal Transactions, at Merrill Lynch, told the audience that Dublin now ranks as one of the top ABS roadshow destinations in Europe. He added that seven per cent of all European structured products are now bought by Irish based investors. This compares with 31 per cent in the UK, 8 per cent in France, and 2 per cent in Italy.
Issuance
On the issuance side, the past 12 months were very significant for the Irish market, as a ground-breaking deal, in the form of the first commercial mortgage-backed securitisation (CMBS) in Ireland, opened the door for further similar transactions to be conducted in Ireland.
In February 2006, Real Estate Opportunities (REO), a subsidiary of Treasury Holdings, transacted the first Irish commercial mortgage-backed securitisation (CMBS). REO raised €375 million, in a deal which was secured against 16 retail and office properties – 15 in Dublin and one in Cork.
April 2006 saw another first for the Irish market, as Start Mortgages, the specialist mortgage lender, closed the first ever securitisation of non-conforming Irish residential mortgages. The securitisation transaction involved the issue of €370 million of bonds by a special purpose company, Lansdowne Mortgage Securities No. 1 plc, to capital markets investors backed by the cash-flows anticipated from a portfolio of such mortgages.
Non-conforming mortgages are mortgages provided to borrowers who, for various reasons, do not qualify for mortgages from mainstream banks and building societies. On page 11, Niall Corish, chief financial officer of Start, gives his view on the transaction.
Also during the year First Active issued another RMBS under its Celtic programme.
CDOs
Ireland’s collateralised debt/ loan obligations (CDOs/CLOs) managers were again very productive during the year, with a number of issuances from the main players.
Harbourmaster Capital Management, the Dublin based independent collateral manager, transacted three deals over the past 12 months.
Avoca Capital, the firm established by former employees of AIB Capital Markets in 2002, transacted its third leveraged loan CLO in July. Avoca CLO III PLC issued €408 million in floating and fixed-rate notes.
Also, at the end of 2005, AIB Capital Markets launched its fourth European CLO deal, the ?350 million Boyne Valley, B.V. The deal further consolidated AIB’s position as one of the largest players in the European leveraged buy-out market.
However, on the down side, Euro Capital Structures Ltd (ECS), the Dublin based specialised securitisation advisory firm, which was a subsidiary of UniCredito Italiano S.p.A., closed its Dublin operation.
SPVs
Debt listings on the Irish Stock Exchange also posted strong growth during the year. 2005 saw a 49 per cent rise in the number of debt listings over the previous year, increasing from 1170 to 1745. This level of growth has continued into the first quarter of 2006, with a 50 per cent increase in listings over the corresponding period for 2005.
Ireland’s prominence as a centre for special purpose vehicles (SPVs) also grew during the year, with the sector continuing to see complex transactions choosing Dublin as the SPV domicile, such as Scottish Re’s XXX deals.
On the regulatory side, Budget 2006 brought some welcome developments for the industry, as the Quoted Eurobond withholding tax exemption was extended to include registered as well as bearer securities.
Covered bonds
The Irish covered bond, or Asset Covered Securities (ACS) market continues to go from strength to strength, with issuance in the Irish market expected to be up to €16 billion in 2006, and a new issuer, domestic mortgage bank AIB, entering the market, in a significant boost for the Irish market.
In February, AIB received authorisation for its new mortgage bank, AIB Mortgage Bank, as a ‘designated credit institution’ by the Financial Regulator, and at the end of March the bank established a €15 billion ACS programme, which was listed on the Irish Stock Exchange. Its first issue was a €3.5 billion deal.
This development brings to four the number of issuers active in the market – two on the public sector side (Depfa Bank and WestLB), and two on the mortgage side (Bank of Ireland and AIB).
The Irish covered bond legislation, which was introduced in the Asset Covered Securities Act 2001, is due an upgrade. On April 20th, the Minister for Finance Brian Cowen TD, announced that the Government has approved proposals for draft legislation, which will provide for the amendment and updating of the Asset Covered Securities Act 2001. |
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