The European short-term asset-backed market is likely to see an increase in extendable note issuance, more single-seller conduits and a shift to multi-liability funding in 2005, according to Jean Dornhofer, senior v.p. at Moody's Investors Service in London. She summed up the conclusions of a panel at Moody's second annual Asset-Backed Commercial Paper/Structured Investment Vehicle conference last week in London.
Almost half the arrangers and issuers polled at the conference expect to sell extendable commercial notes (ECNs) in the next 12 months, while a third of the investors present said they would definitely buy them and another third might. To date only one conduit in Europe, Tulip Funding, has issued ECNs, but many more borrowers are lining up to follow ABN AMRO's lead. ECNs were introduced in the U.S. several years ago and now constitute 13% of the CP market.
Europe's mortgage and credit card originators are also expected to turn to so-called single-seller conduits to fund their loans. These borrowers are typically highly-rated banks which have historically enjoyed either low cost of funds from lending banks and/or good liquidity in the term asset-backed securities market. Of the 60 or so conduits in Europe, only one is of the single-seller variety and it is backed by trade receivables, not mortgages or credit cards.
Finally, market participants expect conduits to better match their asset and liability maturity profiles as liquidity dries up in the market. This would lead to issuance of a greater diversity of liabilities, with borrowers combining commercial paper with triple-A medium-term notes, repurchase agreements and ECNs.
