VW unveils deal to reopen Europe's ABS market

* VW's difficulty will be identifying buyer base - investor

* Likely to fetch spread of 120-170 bps - trader

* Auto deal seen a logical deal type to reopen ABS

* To launch after roadshow beginning Sept. 21

Volkswagen Financial Services AG (VOWG.DE) announced plans on Monday to securitise auto leases in a benchmark-sized public deal that would reopen Europe's asset-backed securities (ABS) market after a year-long freeze.

There have been no European ABS issues for a year since the bankruptcy of Lehman Brothers disrupted the markets on Sept. 15, 2008. VW's finance arm was also the last in Europe to issue ABS on Sept. 12, 2008.

Having been the last before the market closed, VW is keen to open it after the recent rally in spreads, said a source familiar with the transaction.

JP Morgan and WestLB have been named to manage the forthcoming VCL 11 Auto Lease deal and plan a launch following a pan-European roadshow scheduled for the week of Sept. 21, according to the announcement.

This is a classic ABS transaction, said Markus Ernst, a structured credit analyst at UniCredit (HVB).

The VW deal is to be marketed publicly on a standalone basis, Ernst said, as opposed to recent sterling issues from Tesco and Land Securities, which had recourse to Tesco and the UK government as tenants. These were described as a type of intermediate step to a standard ABS transaction.

An auto deal would be a logical type of ABS to reopen the market because auto leases are likely to have short maturities and are a more standardised asset class than mortgages, with a generally sound performance, he added.

The challenge in this deal will be identifying the natural buyer base, said an ABS specialist with a big UK fund manager, adding that money market funds could be likely candidates.

Some ABS buyers such as structured investment vehicles (SIVs) have gone out of business, and others such as many money market funds have shunned the market after significant losses.

THE BUYER BASE?

Because VCL 11 is the first new ABS, the deal's managers plan a roadshow to give investors time to analyse the structure and to ramp up their credit committees again, the source said.

Bankers have probably already lined up enough support from investors to ensure it will succeed, or they would not have announced it, the buy-side specialist said.

If VCL 11 leases are short term and the deal is well received, it could price at spreads of between 120 and 170 basis points, an ABS trader estimated.

By way of comparison, the last ABS deal a year ago -- the 967 million euro ($1.4 billion) VW securitisation of auto loans called Driver Six -- priced at 90 basis points over one-month Euribor for the triple-A tranche.

ABS spreads have tightened over the summer, playing catch-up with this year's rally in corporate bonds, after the market finally absorbed a load of pre-crisis paper from distressed sellers such as SIVs and after a year without new issuance.

The economics of ABS deals are actually starting to make sense now after the whole market went through a repricing of risk, the buy-side specialist said.

Spreads on consumer loans have widened, while spreads of ABS in the secondary market have come back in, he explained. As a result, the yields of underlying loans are high enough to provide the return investors demand for ABS risk.

The VW deal could prove to be the first of a number of new issues, the buy-side specialist said. I imagine there are issuers ready and waiting that don't have access to other funding.

VCL 11 will offer two classes of notes backed by a static pool of auto leases originated by Volkswagen Leasing GmbH, the statement said. Details such as the weighted average life of the underlying leases have not been announced.

VCL 11 will be similar in structure to VCL10, issued in November 2007, the source said. That also had two classes: a triple-A-rated Class A with an average weighted life of 1.4 years and a single-A-rated Class B at 1.75 years.

VW of all the auto ABS originators trades the tightest. It has the most deals and the largest investor following, said the source, adding it had sold ABS through private placements this year. (Editing by Will Waterman) ($1=.6973 Euro)