London-based securitization syndicate bankers say timing deals is key this year if the market is to avoid the bottleneck of issuance seen in the fourth quarter, which significantly softened spreads. "In general, we're going to have to be more clever about timing. The fourth quarter saw spreads becoming soft under the weight of new issuance," says Nick Morgan, head of ABS and CDO syndicate at Dresdner Kleinwort Wasserstein in London. "There were too many deals and too many balance sheet deals. Pricing got soft, more so than in previous years," he adds.
With the overhang in deals from last year, banks need to better manage the timing of transactions to avoid a glut of paper in the first quarter, notes says Robert Drutman, London-based head of European Structured product syndicate and product manager at HSBC Bank. Many issuers are taking a wait-and-see approach before launching deals and bankers are trying to decide what appropriate pricing is for this market, he says.
In terms of determining where spreads are headed, the market is waiting for the first deals to emerge, especially the multi-billion residential mortgage-backed securitization from Northern Rock. Most bankers agree Northern Rock is right to kick off its financing program early to take advantage of market liquidity, and additionally think repeat issuers would be wise to follow suit.