Moody's: Basel II fuelling growth in collateralised debt

Basel II was a “key driver” behind over €100 billion of collateralised debt issuance in Europe, the Middle East and Africa during 2006, according to rating agency Moody’s. Collateralised debt issuance in the region increased by 78% from 2005.

Khalid Howladar, Moody’s vice president, said Basel II had encouraged banks to securitise assets even where not required by the regulations, as they were forced to gather the necessary data anyway. Around 50% of collateralised debt issuance in the region consisted of balance sheet collateralised loan obligations (CLOs) in 2006, according to the agency.

Moody’s predicts the focus on balance sheet securitisations will continue in 2007, as supply and demand for CLOs remains strong. In a report published last week, it said demand would spill over into the synthetic loan credit default swap market, and bankers would be working hard on bespoke and standardised index-based products.

More real-estate collateralised debt obligations (CDOs) will also emerge as a result of increasingly liquid markets, capital market demand and Basel II regulations, the agency said.