Monday 18 August 2014 11:31 London/ 06.31 New York/ 19.31 Tokyo

A look at the major activity in structured finance over the past seven days

Pipeline
Only a handful of deals joined the pipeline last week amid the summer lull. Of these transactions, two were CMBS - US$355m BBCMS 2014-BXO and AYR Issuer. The other newly announced deals were US$285.69m Macquarie Equipment Funding Trust 2014-A (an ABS) and US$350m Monroe Capital CLO 2014-1 (a CLO).

Pricings
ABS accounted for the majority of pricings last week. A couple of CLOs, CMBS and RMBS also printed during the week.

The ABS new issues comprised: US$1.4bn Applebee's Funding/IHOP Funding Series 2014-1, US$1bn Honda Auto Receivables 2014-3 Owner Trust, US$250m Miramax Film Library Securitization 2014-1, US$501.5m South Carolina Student Loan Corporation (1996 Indenture) 2014 Series, US$253.55m Susquehanna Auto Receivables Trust 2014-1, NZ$283.25m Q Card Trust and US$1.25bn Volkswagen Credit Auto Owner Master Trust Series 2014-1. The CLO pricings included US$415mn Arrowpoint 2014-3 and the refinanced US$350.75m Race Point VI CLO, while the US$1bn BHMS 2014-ATLS and US$1.9bn COMM 2014-CCRE19 accounted for the CMBS prints. Finally, US$229m Morgan Stanley Residential Mortgage Loan Trust 2014-1 and US$342.67m ARP 2014-SFR1 rounded out the issuance.

Markets
US non-agency RMBS
cash prices remained stable last week, although trading activity moderated, with daily volumes averaging less than a billion dollars. Notably GSE risk transfer bonds reversed 20bp-30bp of the past few weeks' widening.

US CMBS spreads also appear to be stabilising after a sharp sell-off the week before last. 2007 duper last-cashflow and AJ bonds were unchanged at swaps plus 84bp and plus 477bp respectively. Barclays Capital CMBS analysts note that secondary trading volumes were down, with US$1.4bn in bid-lists circulating, compared with US$2bn the previous week.

Meanwhile, agency CMBS spreads widened last week, after holding up better than conduit CMBS the previous week. Freddie K senior A2 tranches widened by 5bp to swaps plus 40bp, while Fannie DUS loans widened by 6bp to plus 48bp.

US ABS secondary spreads generically moved 1bp-2bp higher across the traditional triple-A sectors, with trading volumes also lower week on week. An average of US$1.16bn of ABS traded during the first four days of the week, compared with US$1.27bn over the same timeframe the previous week.

Similarly, secondary US CLO activity dialled down last week, with BWIC volumes totalling only about US$250m. "CLO 1.0 deals continued to see strong bids, as they roll down the curve. CLO 2.0 and 3.0 deals, on the other hand, saw some softness - especially among mezzanine tranches - following the weakness in the leveraged loan market over the past couple of weeks," Bank of America Merrill Lynch CLO strategists observe.

Overall US CLO 1.0 spreads remained unchanged from the previous week's levels, while 2.0 and 3.0 double-A and single-A spreads widened by 15bp to about 230 and 330 DMs respectively.

Activity was also low in the European CLO secondary market, with around €50m appearing on BWIC lists - mainly composed of items lower in the capital structure. Some CLO 2.0 double-B bonds traded within a range of around 610bp-630bp, while a few late-vintage legacy equity line items traded broadly in line with expectations at IRRs of around 10%.

Deal news
• The FHFA has released a request for input on the proposed structure for a single security that would be issued and guaranteed by Fannie Mae or Freddie Mac. The initiative aims to improve the overall liquidity of GSE MBS by creating a single security that is eligible for trading in the TBA market.
• With FN 4.5s prices nearing their all-time highs, the US agency RMBS sector appears to be at a tipping point from a rates perspective. So far, mortgage production and refinancing concerns have remained well contained, but market dynamics could change if rates rally by another 25bp.
• Private RMBS has traditionally only constituted a small part of Canadian residential mortgage funding. However, with the dominant government-backed RMBS programme being scaled back, the sector has room to grow.
• The US$6.2m Langtree Ventures Portfolio loan - securitised in GSMS 2013-GCJ14 - has been resolved with a 1% loss severity, becoming the second-ever CMBS 2.0 loan to liquidate. The payment distribution was consistent with the CMBS 2.0 waterfall, in contrast to the first 2.0 liquidation - The Cove at Southern, securitised in JPMCC 2011-C5 - which resulted in a surprising interest shortfall reimbursement to the class NR notes (see SCI's CMBS loan events database).
• The US$50m Ridgeview Apartments loan - securitised in DBUBS 2011-LC2A - was fully defeased in June, but workout fees continue to accrue. This is said to be due to a prior technical modification.
• The average US CLO triple-A spread for transactions rated in July 2014 was 1.51%, similar to the average triple-A spread for 2012 vintage transactions that are currently exiting their non-call periods. Although current triple-A spreads would appear to limit opportunities for CLO refinancing, rating agencies are receiving a steady stream of such requests.
• The lending environment remains strong for CRE and take-out activity continues to be seen in CMBS 2.0 collateral. Some early payoffs are taking place shortly after expiration of the lock-out period, with borrowers paying the premium of yield maintenance to take advantage of the persistent low interest rate environment.
• Around 85% of rating changes for European CLOs so far this year have been upgrades. The positive rating trend has been in force since 2011 and means that many tranches are now at or close to their original ratings once more, particularly at the top of the capital structure.
• Fitch has downgraded 10 and affirmed three tranches from three BBVA RMBS deals, after it found that the volume of distressed loans in the underlying portfolios was understated in the regular reporting for the transactions. The notes were placed on rating watch negative in May, pending analysis of the information provided by the management company Europea de Titulizacion.
• The controlling class of Cedarwoods CRE CDO II is proposing to replace Angelo Gordon with Torchlight affiliate Collateral Management as collateral manager. Moody's has determined that the proposed collateral management assignment and assumption will not impact the current ratings of the notes.
• An auction has been scheduled for RFC CDO II on 29 August. The securities shall only be sold if the proceeds are greater than or equal to the auction call redemption amount.

Regulatory update
• Under the latest revisions to Solvency 2, capital charges for type 1 securitisation positions rated double-A, single-A and triple-B are set to be reduced by 29%, 46% and 41% respectively. The changes appear to be targeted at the issuance of securitisations backed by residential mortgages, consumer loans and particularly SME lending from southern European countries that cannot achieve triple-A ratings and were disproportionately disadvantaged by the previous capital charges.
• Santander Consumer USA disclosed in its latest 10-Q filing that it has been issued a civil subpoena by the US Department of Justice requesting documents relating to the underwriting and securitisation of non-prime auto loans since 2007. Based on what has been announced so far, increased regulatory scrutiny is not expected to represent a major risk to the credit fundamentals of outstanding subprime auto ABS deals.
• The focus of US financial crisis-related litigation activity is turning towards the trustee community. The fundamental issue at stake in this new breed of dispute is who's going to pay.
SEBI has released for comment a concept paper regarding the introduction of a standardised term sheet for securitisation transactions. The aim is to rationalise, clarify and enhance various aspects of the Indian market, such as eligibility criteria, roles and responsibilities associated with securitisation trustees.
• The US Fed, the OCC and the FDIC have warned that banks found to have unsound practices - based on leveraged lending guidance released in 2013 - could be subject to enforcement actions. Such actions are expected to have a mixed impact on CLO investors.

Deals added to the SCI New Issuance database last week:
Atrium VII (refinancing), Avoca CLO XII, CarMax Auto Owner Trust 2014-3, CIFC Funding 2012-1 (refinancing), CIFC Funding 2014-IV, Cronos Containers Program I Series 2014-1, Enterprise Fleet Financing Series 2014-2, First Investors Auto Owner Trust 2014-2, GSMS 2014-GSFL, Invitation Homes 2014-SFR2 Trust, JPMBB 2014-C22, KKR CLO 9, Navient Student Loan Trust 2014-2, Navient Student Loan Trust 2014-3, Navient Student Loan Trust 2014-4, Navient Student Loan Trust 2014-5, Navient Student Loan Trust 2014-6, Navient Student Loan Trust 2014-7, NYCTL 2014-A Trust, Oaktree EIF II Series A1, OFSI Fund VII, Orange Lake Timeshare Trust 2014-A, OZLM VIII, Silver Spring CLO, Silver Bay Realty 2014-1 Trust, SMB Private Education Loan Trust 2014-A, St Paul's CLO V, THL Credit Wind River 2014-2, 2014 Popolare Bari SME CLO and Toro European CLO 1.

Deals added to the SCI CMBS Loan Events database last week:
BACM 2008-1, BSCMS 2006-PW14, CD 2006-CD3, CD 2007-CD4, Cedarwoods CRE CDO II, CMLT 2008-LS1, DBUBS 2011-LC2, DECO 2006-E4, ECLIP 2006-2, ECLIP 2007-1, ECLIP 2007-2, EURO 23, EURO 25, EURO 28, JPMCC 2005-LDP1, JPMCC 2006-CB14, GCCFC 2006-GG7, GSMS 2006-GG6, GSMS 2007-GG10, GSMS 2012-GCJ7, GSMS 2013-GCJ14, LBUBS 2006-C1, MESDG CHAR, MLCFC 2007-7, MLCFC 2007-9, MLMT 2005-CIP1, MSC 2005-T1, TAURS 2006-3, TAURS 2007-1, TITN 2007-1, TMAN 5, TMAN 7, WINDM VIII, WBCMT 2007-C32 and WFRBS 2012-C8.


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