SCI Start the Week - 22 October

Category: ABS Capital Relief Trades CLOs

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A review of securitisation activity over the past seven days

Market commentary
European primary ABS activity continued to be robust last week. The BPCE Home Loans FCT 2018 print and the announcement of Porsche’s Austrian auto ABS were among the highlights (SCI 18 October).

“A variety of asset classes are represented in the primary market at the moment,” said one trader. “Spreads are well supported – we’re seeing good levels for the most part and nothing appears to be oversubscribed [SCI 17 October].”

Refinancing remains an ongoing feature of the European CLO market, but new issue deals are starting to emerge. “There are a couple of new CLO deals coming out,” the trader added. “There are rumours that a Spanish SME CLO - which has been talked about for ages - might see the light of day, but I’ll believe it when I see it.”

With a slew of new issues pricing, investors were putting their energy into primary rather than secondary markets. Nevertheless, issuance activity remained fairly muted among Southern European names and spreads appear rangebound for now (SCI 19 October).

“Because we are in the last few months of the year, people know that whatever they have done so far, they will have to stick with,” the trader concluded. “They cannot change their numbers. At this point, people are forcing themselves to be fine with the positions they have.”

Transaction of the week
Sumitomo Mitsui Banking Corp (SMBC) is prepping a €20bn dual-recourse structured covered bond programme, marking the emergence of a new name and a new jurisdiction to the market (SCI 15 October). The cover assets comprise triple-A rated Japanese RMBS originated by the bank and the deal features an innovative total return swap (TRS) mechanism.

Moody’s has assigned a provisional long-term rating of Aaa to SMBC’s residential mortgage loan covered bond programme, which is expected to benefit from a ¥186.8bn cover pool. There is an LTV cap of 80% for assets included in the pool, to bring the transaction in line with typical European covered bond structures.

Under the programme, the issuer will make all payments of interest and principal on the covered bonds using payments received from SMBC as TRS counterparty. In case of a TRS default event, the issuer will have access to the proceeds from the cover assets (Japanese law-governed senior trust certificates) via either a direct sale of the RMBS or a sale of the underlying residential mortgage loans backing the RMBS to fulfil its obligations under the programme.

The 8,894 mortgage loans backing the RMBS are secured by residential properties in Japan and are mainly floating rate (accounting for 95.4% of the pool), with a WA current LTV of 90.1%, WA seasoning of 0.5 years and a WA remaining term of 31.7 years. The RMBS is issued for the benefit of the issuer and denominated in Japanese yen, while the covered bonds are intended to be issued in foreign currency with bullet maturities, according to Moody’s.

Other deal-related news

  • Santander and NatWest have completed two commercial real estate risk transfer transactions and the market is expecting another CRE deal in 4Q18 (SCI 15 October). This marks the second wave of synthetic CRE transactions, which distinguishes itself in the sense that the market may be returning to more traditional capital relief trade structures and investors (SCI 13 July). 
  • The US$200m South Plains Mall loan, securitised in CGCMT 2015-GC35, GSMS 2015-GS1 and CGCMT 2016-GC36, is the largest CMBS exposure to the Sears bankruptcy. Sears is set to close at the location as part of its Chapter 11 reorganisation. For more on CMBS restructurings, see SCI’s CMBS loan events database.
  • Fitch has issued an unsolicited comment on Galton Funding Mortgage Trust 2018-2, indicating that the prime RMBS allocates greater credit risk to senior bondholders (SCI 18 October). A key structural feature of the transaction is a non-standard risk allocation of unpaid interest on non-performing loans, which is incurred concurrently by all classes through a pari passu reduction in defined bond coupons.
  • Ex-LendingClub president Renaud Laplanche’s new firm is in the market with its first unsecured consumer loan securitisation (SCI 18 October). The US$286.39m Upgrade Receivables Trust 2018-1 comprises four classes of notes and is expected to close on 30 October.
  • The UK government is readying a £3.88bn securitisation backed by English plan 1 income-contingent loans granted to students whose repayment date fell between 2007 and 2009, the second public transaction of its type (SCI 14 December 2017). Dubbed Income Contingent Student Loans 2 (2007-2009), the deal is characterised by the loans being written-off once the borrowers reach the age of 65 (SCI 17 October).
  • Wells Fargo has priced its first post-crisis prime US RMBS (SCI 15 October). Named Wells Fargo Mortgage Backed Securities 2018-1 Trust, the US$441.25m deal securitises 660 first lien residential mortgage loans.
  • S&P has downgraded the class D notes issued by the Halcyon 2012-1 and 2013-1 CLOs to single-B from double-B (SCI 18 October). At the same time, it has raised its ratings on the class B notes from the 2012-1 deal and the class A2A, A2B, B and C notes from 2013-1. The upgrades reflect paydowns to the class A1 notes of both transactions, which improved overcollateralisation ratios for all classes except the class Ds.


Pipeline composition by jurisdiction (as of 19 October)













Auto ABS prints once again dominated the market last week. A reasonable mix of CLOs, RMBS and CMBS also priced.

The auto-related prints comprised: US$550m Avis Budget Rental Car Funding Series 2018-2, US$1.5bn CarMax Auto Owner Trust 2018-4, US$1.05m Ford Credit Auto Owner Trust 2018-B, US$238.44m GMF Floorplan Owner Revolving Trust Series 2018-3, US$667.63m GMF Floorplan Owner Revolving Trust Series 2018-4, US$750m Nissan Auto Lease Trust 2018-A, US$1.25bn Santander Drive Auto Receivables Trust 2018-5 and €958m VCL 27. The other ABS pricings consisted of: US$344m Ascentium Equipment Receivables 2018-2 Trust, US$118m BXG Receivables Note Trust 2018-A, US$626m Navient Private Education Loan Trust 2018-D, US$200m PFS Financing Corp Series 2018-E and US$200m PFS Financing Corp Series 2018-F.

Among the CLO refinancings issued last were: US$373.25m Arch Street CLO, US$628.3m CIFC Funding 2014-IV-R, US$427.3m Cutwater 2015-I, US$467m Jay Park CLO and US$616.4m Man GLG US CLO 2018-2. The CLO new issues included US$510m BlueMountain XXIII CLO, US$410m LCM 28 and US$614.5m Venture 35 CLO.

€1.13bn BPCE Home Loans FCT 2018, A$1bn Firstmac Mortgage Funding Trust No. 4 Series 3-2018 and US$1bn STACR 2018-HQA2 made up last week’s RMBS prints. Finally, US$1.07bn DBGS 2018-C1 was among the CMBS pricings.

BWIC volume



Source: SCI PriceABS

SCI's second podcast episode is now live! This month the team discusses the features which will appear in the next edition of the SCI Magazine, including a profile of the African Development Bank's Room2Run capital relief trade, the role of fintech in marketplace lending ABS and the changing use of credit derivatives. Access it here, or by searching for 'Structured Credit Investor' in Apple Podcasts or Spotify.