A review of securitisation activity over the past seven days

Market commentary
European ABS traders continued to focus on the secondary market last week, as the market waits for regulatory clarification (SCI 15 February).

"In European RMBS, we are focusing mainly on secondary paper," said one trader. "The transactions that appeal at the moment are those with a shorter WAL of one or two years, mainly in senior or mezz."

The trader added that any deals with a larger step-up in coupon are trading fast. "The most interesting ones in this regard are the Hawksmoor or TPMF deals."  

Notwithstanding light primary issuance volumes, another trader highlighted Lanark 2019-1 as a stand-out transaction, which displayed "very strong execution". He said: "The deal was a good return for UK prime RMBS, which has been in dismay after the long stream of UK non-conforming/buy-to-let transactions. The lack of any substantial new issuance in January - in terms of core paper - made for a thirsty real money community."

Meanwhile, away from RMBS, the Aurium CLO V also caught the market's attention, as it was the only deal recently without an anchor investor. The CLO pipeline "remains heavy", but other transactions are also awaited, including a rumoured Italian telecom CMBS.

Transaction of the week
Fintex Capital has completed a structured finance transaction within its UK real estate lending business, Fintex Confluence. The transaction involved the refinancing of a portfolio of property loans - warehoused by Fintex - with senior financing provided by Europa Capital Debt Investment (ECDI) and junior financing by Fintex, with additional monies invested by Europa and Fintex to finance a further expansion of the programme (SCI 14 February). The transaction is one of only a few privately placed tranched deals.

Robert Stafler, ceo at Fintex, explains: "It's similar to an RMBS because every portfolio loan is executed and documented in the same way. The significance of the transaction is that it's one of the few privately placed tranched deals and the returns are more attractive compared to comparable public deals."

He continues: "However, the investment is not illiquid because it's not long-term. Nevertheless, given the strong credit integrity of the portfolio, we are very comfortable with the lack of daily liquidity. Investors in public markets pay a large premium for liquidity, but often don't find much of it when they need it most. Consequently, we are willing to surrender this perception of liquidity to capture better risk-adjusted returns."

Brexit has been another driver behind the transaction. Stafler notes: "With so much Brexit uncertainty, it's not easy to do deals in the UK, which is why many investors currently remain on the side-lines. However, if you would like to put capital to good use, residential is safer than commercial property, and granular portfolios are safer than concentrated ones. This is why we opt to continue growing this structured asset-backed residential debt portfolio."

Technology plays a major role in the firm's strategy, since managing a large portfolio requires several legal documents and valuations; the proprietary technology tools ensure that everything is in place. "This creates a culture of lending discipline, which is very important, given our manager role for both the senior and first-loss piece of the deal," says Stafler.

The underlying portfolio consists exclusively of senior loans secured by UK residential properties. These residential assets were independently valued at between approximately £250,000 and £800,000 per property, with an average property value of approximately £500,000.

Other deal-related news

• The first ABS backed by oil and gas royalties could hit the US market this year. The diminished availability of traditional funding sources is leading to increased reliance on securitisations to supplement traditional reserve-based lending facilities (SCI 15 February).
• Banca Nazionale del Lavoro has completed a €968m (GBV) non-performing loan securitisation of both senior secured and unsecured loans. Dubbed Juno 2, the transaction has a short weighted average life for collections, compared to other NPL securitisations rated by Scope (SCI 11 February).
• Bank of Cyprus has signed an agreement for the sale of a retail unsecured non-performing loan portfolio with APS. Dubbed Project Velocity, the transaction is a test case that may further fuel future NPL transactions by the bank (SCI 15 February).
• Praetura Asset Finance Group has closed a £75m securitisation facility with NatWest Markets. The rated facility will allow PAF Group to expand its origination capacity, enabling growth in its loan book to provide up to £200m to SMEs across the UK (SCI 14 February).
• The LUXE 16 loan, securitised in the RCMF 2018-FL2 CRE CLO, turned 30-days delinquent last month. The sponsor has made some payments since then and intends to refinance the loan in mid-March. For more CRE-related news, see SCI's CMBS loan events database.
• US agency CMBS volume has risen at an average clip of 50% per year post-crisis, hitting a record US$107.9bn of issuance in 2017. A new Trepp study suggests that the sector's growth has come at the expense of private-label multifamily origination (SCI 13 February).
• Leopalace 21 Corp has disclosed that additional construction defects have been discovered in apartment buildings that it built (SCI 29 June 2018), which Moody's says are credit negative for the four ABS transactions it rates that are backed by apartment loans on properties built and managed by the firm. The agency warns that the defects could lead to lower rents or higher vacancy rates in the affected buildings (SCI 14 February).

Regulatory round-up

• The Italian Competition and Markets Authority (Autorità Garante delle Concorrenza e del Mercato) recently fined nine captive auto finance companies a total of over €678m for distorting the Italian auto finance market. DBRS believes the move should not materially affect Italian auto ABS, although the agency notes that prepayments could increase as borrowers seek to terminate early with improved competition (SCI 15 February).

Data

Pricings
A mixed bag of transactions priced last week, with ABS, RMBS and CLO issuance picking up. A retained RMBS and a CLO represented the only European prints.

Last week's auto ABS pricings consisted of: US$402.5m Credit Acceptance Auto Loan Trust 2019-1, US$1.25bn GM Financial Automobile Leasing Trust 2019-1, US$710.57m Hyundai Auto Lease Securitization Trust 2019-A, US$1.043bn Santander Drive Auto Receivables Trust 2019-1 and US$1bn Westlake Automobile Receivables Trust 2019-1. The non-auto ABS pricings were: US$647m Navient Private Education Refi Loan Trust 2019-A, US$553.6m SoFi Consumer Loan Program Trust 2019-1, US$185.87m Upgrade Receivables Trust 2019-1 and US$562.5m World Financial Network Credit Card Master Note Trust 2019-A.

The US$336m Deephaven Residential Mortgage Trust 2019-1, US$223m Galton Funding Mortgage Trust 2019-1, €3.5bn Home Loan Invest 2019 (retained), A$300m Medallion Trust Series 2014-1 (refinancing), US$222m Residential Mortgage Loan Trust 2019-1 and A$3bn Series 2019-1 WST Trust accounted for the RMBS prints. Among the CLOs to price last week were the US$350m ABCPI Direct Lending Fund CLO V, €447.75m Aurium CLO V, US$506m Barings CLO 2019-I, US$506.15m BlueMountain XXIV CLO, US$606m Octagon CLO 40, US$403m TCW Asset Management CLO 2019-1 AMR and US$398.7m Voya CLO 2019-1. Finally, the US$825m GPMT 2019-FL2 CRE CLO, as well as the US$276m BBCMS 2019-CLP and US$756m GSMS 2019-GC38 CMBS were issued.

BWIC volume