Volkswagen’s latest prime German auto lease ABS, VCL 37, and Finance Ireland’s RMBS transaction, Finance Ireland RMBS No.5, will be crucial for the fate of the European ABS market in the coming weeks after a pulled French deal on Monday highlighted how fragile market conditions are.
Volkswagen’s €724m deal came to market on Monday, hours before the French auto ABS, Gingko Auto Loans 2022, was pulled due to what the sole arranger and lead manager Crédit Agricole called “extreme volatility” in the secondary market.
In addition, Finance Ireland’s €418m RMBS is expected to price on Wednesday having been in the market since Thursday October 6. At of the latest pricing update on Tuesday, Finance Ireland has tightened the class ‘A‘ notes by 2bp versus initial price thoughts to guidance of 98bp over three-month Euribor, with books 1.4 times covered.
One bank researcher said that the cancellation of the Gingko deal, which could have raised up to €546.4m, appeared to be a case of “unfortunate timing”. But he still felt the decision to pull the transaction left little clarity about the state of the primary market.
“There are [some] conflicting signals here because on the one hand you have this French deal being pulled,” the bank researcher said, “but then you still have an Irish prime RMBS deal and a German auto deal in the primary.”
However, a banker on the Gingko Auto Loans 2022 deal said the volatility in the secondary was making it “difficult to get a clear view on pricing”.
“There is a level [to be found], but it has to also be good for both sides,” the banker said.
He added that spill-over effects in the UK market following the government’s swathe of unfunded tax cuts had made European ABS more unstable, and the Gingko deal therefore more difficult to complete.
“Last week and the week before we had quite a big push on the BWICs, which is not really a transparent process, and then for us it’s quite difficult to manage,” he said.
Both the banker and the researcher were pessimistic about deal flow over the next few weeks, with the banker particular disappointed given the apparent good progress that the market had made in September, with several deals being priced. He said spreads are now wider than in September, which will make convincing issuers to come to market before year-end more difficult.
“The market remains a bit stop and go,” the researcher added. “It depends a bit on the reception of VCL 37 and Finance Ireland. I think we will see some supply here and there, but it doesn’t seem to be conducive for more esoteric collateral.”