Robin Hood Finance Limited

benefits - Size of Market

The European securitisation bond market saw a 57% increase in new issues in 2008.


Issuance by collateral type was as follows:


Source: European Securitisation Forum. Figures in EUR bn
NOTE that securitisation, like a lot of markets, has its own jargon. In this case:
RMBS – Residential Mortgage-Backed Securities, i.e. loans to homeowners
CMBS - Commercial Mortgage-Backed Securities, i.e. loans against shops, factories etc.
CDO – Collateralised Debt Obligations. These are usually pools of loans or bonds.
ABS – Asset-Backed Securities. Everything not included in the other categories

Amounts Outstanding
It’s still a highly-rated market. As can be seen from the following figures, over 80% of the €1.7trn of outstanding ABS bonds as at Q4/08, were AAA rated:


(Source: ESF)

Asset-Backed Commercial Paper
There is also an asset-backed commercial paper (ABCP) market. This is where assets are funded via revolving issues of short-term paper, often 1-3 months tenor. European ABCP has fallen dramatically by 76% since its peak in June, 2007, and stood at €67bn at the end of 2008.
The vehicle which buys assets and funds them via ABCP is known as a conduit. Most large banks have at one time had one of these. The hard part for the first-time issuer is comparing, contrasting and deciding which arranger is best.
[slide of typical multiseller conduit structure]
Under Basel I, a liquidity line to a conduit had a 0% capital charge, whilst a AAA bond on a bank balance sheet had a 100% charge. No wonder so many banks jumped on the conduit bandwagon!
RHF’s view has for some years been that, under Basel II, there is little point in conduits, since there is no difference in capital charge, and the funding might be more expensive. The market disruption since the middle of 2007 has accelerated this process.

The replacement for conduits is structuring to a rated standard, then funding via old-fashioned bank syndication or placement with non-bank investors.