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Barclays Readies Full-Scale European CMBS Conduit

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Barclays Capital in London is preparing its inaugural commercial mortgage-backed securitization and plans to establish a full-scale conduit program through which it will issue about £2 billion of bonds this year, according to Christian Janssen, director in European CMBS.

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Barclays Capital in London is preparing its inaugural commercial mortgage-backed securitization and plans to establish a full-scale conduit program through which it will issue about £2 billion of bonds this year, according to Christian Janssen, director in European CMBS.

The first deal of up to five this year is expected to be announced as soon as this week, but Janssen would not discuss any specific transactions in the pipeline.

While Barclays is an active player in other areas of the collateral-backed bond market, this will be its first deal backed by commercial mortgages originated by the bank. "Given that Barclays is one of the major real estate lenders in Europe, it makes sense to leverage the bank's existing origination infrastructure and securitize assets on the bank's behalf," said Janssen.

Several banks established CMBS conduits in 2004 and Barclays is the latest to join the party. "The spread margin between commercial loans and CMBS makes it attractive for banks to set up conduits," observed Adam Toft, senior v.p. in CMBS at Moody's Investors Service in London, pointing out that the cost of doing a deal has dropped by up to 50% in the past year given the spread compression on bonds.

Morgan Stanley was the first dealer to establish a European conduit, in 1999 and since then Lehman Brothers, Merrill Lynch, Credit Suisse First Boston, Deutsche Bank and Royal Bank of Scotland are among those that have followed suit.

The CMBS sector experienced the most growth in the European securitization market in 2004 and growth this year is expected to be even higher, with Moody's calling for total issuance of about €30 billion.

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