A review of securitisation activity over the past seven days

Market commentary
The news that Volkswagen's VCL 28 auto lease ABS is the first securitisation to be awarded the STS label was well-received last week (SCI 14 March). However, one trader said that while the market has expressed a lot of "noise" about the transaction, one deal since the beginning of the year is "not meaningful."

The trader added that as the deal "is coming out with strong technical factors", the STS label "doesn't change anything" in terms of investor appetite. Given the bulk of the VCL deals trade in the 15bp-20bp range, the trader expects the deal to price in line with them.

De Lage Landen's newly mandated UK equipment lease ABS was another bright spot in the European securitisation market last week (SCI 12 March). "The DLL deal is a bit different and brings some much-needed diversity to the market, since the majority of the pool consists of hire-purchase agreements. Nevertheless, the timing of the deal is interesting, with Brexit around the corner," one portfolio manager said.

He added: "The market feels a bit fragile, with so many uncertainties remaining. The dealer community doesn't seem to be stepping up either."

While secondary trades were being executed at reasonable levels, volumes had dried up somewhat, after the market digested the £1bn original face of bonds auctioned on 28 February (SCI 21 February). "Paper is being traded, but there is no buzz," the portfolio manager noted.

He continued: "Sellers are tidying their books and putting scraps out for the bid. With high yield spreads tightening, some are looking to exit short, stable ABS positions and rotate into other assets."

Transaction of the week
A Maltese first-time issuer, Polymath & Boffin, is preparing a €166m securitisation, referencing a pool of Italian CRE loans valued at approximately €300m (SCI 11 March). Dubbed Polymath & Boffin REMS Italian Real Estate Securitization, the transaction is backed by a diverse portfolio of 58 Italian mainly-commercial properties, with four classed as unlikely to pay (UTP).

Global Access Capital is acting as financial adviser on the transaction and Sharon Ephraim, md and coo at the firm, comments that the loans are backed by a variety of property types. These include hotels, assisted living properties, shopping centres and some residential properties.

She adds that, of the UTPs, "it's important to note that these loans are restructured or re-performing. They are therefore no longer non-performing, and there is an expectation of repayment at some point in the future."

A strong feature of the portfolio, says Michael Macaluso, chairman and ceo of Global Access Capital, is that it's diversified across loan types, spread across northern, central and southern Italy and Sardinia - a feature towards which investors have expressed positivity. He adds: "The transaction has received a lot of investor interest and we're confident it will place in the market. It will likely have a European investor base, comprised of institutional investors, including several funds and some banks."

In terms of structure, the transaction is currently a single asset-backed note issuance, but "is certainly a securitisation in every respect", says Macaluso, adding that "it has the ability to be tranched, should investor demand develop." He notes that the deal "isn't as much about innovation as elbow-grease, with the issuer working to include a diverse portfolio of good quality assets, to appeal to a wide investor base."

Other deal-related news

• The first third-party hedged UK RMBS with Sonia-linked notes has been issued by Principality Building Society. The £523.08m transaction, dubbed Friary 5, is backed by residential mortgage loans to 4,472 borrowers in the UK (SCI 15 March).
• In support of the single security initiative, Fannie Mae will begin accepting forward Uniform Mortgage-Backed Security trades with a trade date on or after 12 March and settlement dates on or after 3 June. Freddie Mac is also set to issue its first 55-day TBA-eligible UMBS on 3 June and will no longer issue new Gold PCs with a 45-day payment delay after 31 March. Beginning 7 May, it also plans to offer holders of 45-day TBA-eligible and non-TBA-eligible PCs and Giants the option to exchange their eligible 45-day securities for 55-day Freddie Mac mirror securities (SCI 12 March).
• The Spanish non-performing loan market is reaching maturation, with the first securitisations from the sector expected this year. Developing an appropriate servicing capacity in the country has played a key role in facilitating this process (SCI 15 March).
• The UK mortgage market is changing, with an ageing population driving increased issuance of equity release mortgages (SCI 5 June 2018). Speculation that a post-crisis iteration of equity release securitisations could soon appear in the UK has been fuelled by UKAR's sale of an equity release portfolio last year (SCI 15 March).
• A group of investors led by Värde, Guber and Barclays have acquired an approximately €734m GBV non-performing loan portfolio originated by 22 mutual, rural and cooperative Italian banks. The transaction is unusual for an Italian NPL securitisation, given that it has been achieved through mutualisation, as opposed to relying on a GACS guarantee (SCI 15 March).
• Carvana, an online platform for buying used cars launched in 2012 by DriveTime Automotive Group, is marketing an inaugural auto loan securitisation. The US$338m transaction, dubbed Carvana Auto Receivables Trust 2019-1, is backed by fixed rate instalment loans made to prime and subprime borrowers (SCI 15 March).
• The LUXE 16 loan, securitised in the RCMF 2018-FL2 CRE CLO, has been purchased out of the deal by a subordinate noteholder. The loan was reported 30-plus days delinquent during the January 2019 remittance period. For more CRE-related news, see SCI's CMBS loan events database.
• Moody's has published the first in a series of semi-annual updates on European non-performing loan securitisations, which shows that six out of eight Italian NPL securitisations it has rated that have performance history are exhibiting cumulative gross collections around or below those anticipated by their business plan, while two exceed it. Cumulative gross collections for the Evora Portuguese NPL securitisation have also exceeded servicer projections (SCI 14 March).

Regulatory round-up

• The first European ABS that looks set to receive STS verification, by True Sale International's STS Verification International, is being marketed by Volkswagen. The €719.9m auto lease ABS transaction is dubbed VCL 28 and is provisionally rated by Moody's and Fitch. STS Verification International has released a preliminary verification report for the transaction, which is expected to close on 25 April (SCI 13 March).
• The CFPB has issued an advance notice of proposed rulemaking on residential PACE financing, seeking information to support regulations for the sector that "carry out the purposes of" the Truth In Lending Act's ability-to-repay requirements for mortgages and apply TILA's civil liability provisions. In crafting the regulations, the CFPB is required to take into account "the unique nature of PACE financing", according to a recent Morrison & Foerster client briefing (SCI 11 March).

Data

Pricings
ABS accounted for the majority of new issuance last week, split evenly between auto-related and consumer securitisations. A handful of CLOs and a sole RMBS also priced.

The auto ABS prints consisted of: US$800m BMW Vehicle Lease Trust 2019-1, US$1bn Enterprise Fleet Financing 2019-1, US$736.88m OneMain Direct Auto Receivables Trust 2019-1, US$463.9m OSCAR US 2019-1, US$1.02bn Santander Drive Auto Receivables Trust 2019-2 and A$1.18bn SMART ABS Series 2019-1 Trust. The remaining ABS pricings were: US$283.46m Avant Loans Funding Trust 2019-A, US$300m Driven Brands Funding Series 2019-1, US$700m Kabbage Asset Securitization Series 2019-1, US$241.45m Mill City Solar 2019-1, US$550m Navient Private Education Loan Trust 2019-B and US$400m Sierra Timeshare 2019-1 Receivables Funding.

Among the CLOs that priced last week were: US$510m Ares XXXIX (refinancing), US$506.75m Bain Capital 2019-1 CLO, US$508.05m Barings CLO 2019-II, US$407.5m Golub Capital Partners CLO 41(B) and US$444m LCM XIX (refinancing). The RMBS print was US$268m Bunker Hill Loan Depository Trust 2019-1.

BWIC volume

Podcast
SCI's latest podcast is available for download. This month, we explore the topic of control rights within the capital relief trades market and take a closer look at Domivest's debut securitisation of buy-to-let loans - a first for the Dutch market. Click here to listen to the episode via our website. Alternatively, you can listen on Spotify by searching for 'Structured Credit Investor' and it is also available on iTunes.