After a couple of weeks of mostly auto deals, European ABS has become ‘The Santander Show’.
With a €680m German consumer deal wrapped up last week, the bank is involved in no less than four deals due to price this week: a return for its well known Spanish consumer ABS shelf with Consumo 9; a more complicated Spanish consumer ABS out of a joint venture with department store chain El Corte Inglés; a Spanish mortgage deal via Morgan Stanley; and a UK mortgage deal via Bank of America.
These aren’t small deals either, and there’s something for everyone since the entire capital structure is on offer in each case. The provisional portfolio sizes total over £1bn of sterling paper and over €3bn of euro supply.
Consumo alone is backed by a pool of €1.76bn. It’s received wisdom and common sense that as a deal gets bigger, there’s a compromise to be made on spread.
But for this kind of deal, size might actually be an advantage. 15.5% of Consumo is mezz and junior bonds, plus a 1.5% class ‘F’ note to fund a reserve, which comes out to about €300m in total.
There are six ABS deals up for pricing this week — Together and Auto1 are disturbing Santander’s dominance over the market — as well as at least 10 euro CLOs being marketed.
In such busy conditions, many investors can’t look at everything, so it makes sense to pick the bigger deals in the hope of a decent allocation. That becomes a bit self-fulfilling as more desks looking at a deal makes it more attractive for the enhanced liquidity.
If you have multiple funds or clients with different risk appetites, then full-stack deals can also be more attractive, as each fund can get the slice that best suits them.
That can often lead to a bit of a split in the market around this time of the year. Big names can get big trades away with a full cap stack on offer, but more esoteric deals can struggle despite being smaller.
In ABS at least, the pace feels more manageable this year, so everything is still going down well. How much investors can charge for the quite complicated El Corte Inglés deal compared to the vanilla Consumo offering will be an interesting measure of where the balance of power lies in the market at the moment.
There are lots of interesting things to say about the mortgage deals, and an interesting situation is developing in the US concerning the bankruptcy of an active ABS issuer. We cover all that on the podcast. Indeed, it’s not just El Corte Inglés making a debut this week, as Chad Van Estrop is appearing for the first time on Another Fine Mezz.
