SCI Start the Week - 29 October

Category: ABS Capital Relief Trades CDO

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A review of securitisation activity over the past seven days

Market commentary
The US secondary CLO market saw heightened activity last week, with bid-lists circulating containing up to 68 line items (see SCI’s BWIC calendar).

“We are seeing a clean-up of triple-A to single-A notes. There is also a large double-B block out today; a mixed bag of names,” says one trader (SCI 26 October).

He continues: “I am not sure if those are going to trade well. The way they are treated will provide a good indicator of risk appetite.”

At the same time, push-back from equity investors is increasing, according to another trader (SCI 25 October). “Many potential issuers are weighing up whether it might be better to wait until 1Q19. Earlier in the year, it was a no-brainer to do a reset, but now that is slowly starting to drop off. It looks like we might be getting to the end point.”

Meanwhile, the European CLO market appeared to soften, reflecting the high volumes out for the bid in the US secondary market (SCI 24 October[). “The theme of the week could be that good CLO managers are faring a lot better than bad managers,” one trader observed. “That was not the case six months ago.”

He added: “It is a lot easier to get a deal done at the moment if you have connections with Asian investors. The significant Asian bid for triple-A paper continues.”

Invesco, GSO Capital Partners and Och-Ziff all added European CLOs to the pipeline last week (see SCI’s deal pipeline). Overall European CLO spreads remained unchanged to slightly wider (SCI 26 October).

In the European ABS market, there appeared to be less interest in triple-B and single-A paper, whereas demand for triple-A and double-B notes increased. “A lot of buyers are buying and holding paper because everything is clearing in the primary market,” a trader stated. “New issue talk and prices are both widening. There was a big sell-off last week and it looks like we might be in line for another one in two to three weeks’ time.”

Transaction of the week
Greystone Bridge Lending Fund last month completed its second CRE CLO (see SCI’s primary issuance database). Dubbed Greystone CRE 2018-HC1, the US$300m transaction is unique in that it is 100% secured by healthcare properties (SCI 24 October).

“The Greystone CRE CLO is the first-ever CRE CLO to be backed entirely by CRE loans secured by healthcare properties,” says Clifford Chance capital markets partner Steven Kolyer. “It represents another milestone in the re-ascendance of the market for CRE CLOs.”

The transaction is backed by an initial US$249.2m portfolio of commercial mortgage healthcare assets and a US$50.8m reserve for additional healthcare assets to be acquired during the ramp-up period. The closing pool is collateralised by 20 whole loans secured by 25 healthcare facilities.

CRE CLOs are viewed by lenders like Greystone as a more flexible financing tool than CMBS. CRE CLOs also tend to be of a shorter duration than CMBS and have larger assets on an individual basis.

“The typical CRE assets in a CRE CLO are CRE bridge loans, which are loans to borrowers that are renovating, refurbishing or repositioning commercial properties,” explains Kolyer. “The loans are generally floating rate, for a period of three to five years.”

Other deal-related news

  • The African Development Bank and the African Trade Insurance Agency have completed a landmark US$500m credit insurance deal, covering approximately 22% of the bank’s US$2.3bn outstanding portfolio of non-sovereign operations in Africa (SCI 23 October). The deal is intended to protect the bank against non-payment of loans made to around 30 African financial institutions, across all major regions on the continent.
  • Blackstone is in the market with a €292.79m pan-European CMBS secured by 89 logistics and industrial assets (SCI 23 October). Dubbed Arrow CMBS 2018, the transaction is the first European post-financial crisis CMBS with a large French asset exposure.
  • The Kinston Portfolio loan – securitised in the CD 2018-CD7 CMBS - has transferred to special servicing, after the Hampton Inn hotel property was flooded in the aftermath of Hurricane Florence. The hotel will be closed for four months while it is refurbished and the borrower has requested a payment reduction for the period. For more on CMBS restructurings, see SCI’s CMBS loan events database.
  • Moody's has downgraded the ratings of 123 tranches, placed on review for upgrade two tranches and affirmed 34 tranches in 84 Italian RMBS, auto ABS, consumer loan ABS and consumer CDQ ABS deals (SCI 26 October). The rating actions were prompted by the rating agency's lowering of Italy's local-currency bond ceiling to Aa3 from Aa2, which follows the downgrade of the Italian government's bond rating to Baa3 with stable outlook from Baa2 under review for downgrade. As a result, Italian structured finance ratings are now capped at Italy's local currency bond ceiling of Aa3.

Regulatory round-up

  • The New York State Court of Appeals last week held that contractual attempts to extend the statute of limitations for causes of action involving breaches of contract are unenforceable because they violate New York law and public policy (SCI 22 October). In the case at issue, the plaintiff (Deutsche Bank National Trust Company) argued that the accrual clause in Harborview Mortgage Loan Trust 2007-7 created a substantive condition precedent and that the accrual clause expressed the parties’ clear intent to delay accrual of a breach of contract cause of action until the specified events had occurred.

ABS accounted for the majority of last week’s pricings. A mix of assets from a number of jurisdictions were on offer.

The non-auto related ABS prints comprise: US$61.75m Credibly Asset Securitization Series 2018-1, US$95m Enova 2018-A, US$200m Hercules Capital Funding Trust 2018-1, US$300m Lendmark Funding Trust 2018-2, US$376m-equivalent NewDay Funding 2018-2, US$426.7m PHEAA Student Loan Trust 2018-1 and US$286.39m Upgrade Receivables Trust 2018-1. The auto ABS pricings consist of: US$731m Capital Auto Receivables Asset Trust 2018-2, US$850.2m Enterprise Fleet Financing 2018-3, US$550m Exeter Automobile Receivables Trust 2018-4, €556m FACT Compartment 2018-1, US$634m Securitized Term Auto Receivables Trust 2018-2, £395m Turbo Finance 8 and US$183.06m Veros Auto Receivables Trust 2018-1.

Among the CLOs that were issued last week are €412m Contego CLO VI, US$611.9m Nassau 2018-II, US$509m Oaktree CLO 2018-1 and €407m Rockford Tower Europe CLO 2018-1. Finally, the US$1.1bn FREMF 2018-K82, US$436m FREMF 2018-KI03 and US$246m GSMS 2018-HART CMBS priced.

BWIC volume

Source: SCI PriceABS