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SCI Start the Week - 3 December

Category: ABS Capital Relief Trades CDO


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A review of securitisation activity over the past seven days

Market commentary
European ABS activity remained subdued last week, with spreads drifting wider, due to concentration of supply (SCI 29 November).

“Investors are using their leverage to dictate terms and push deals as wide as possible. That’s one of the reasons why the pipeline has been brought forward,” said one trader.

He added: “If a deal is struggling, an investor can offer to push it over the edge. If a deal is oversubscribed in the primary market, they can make it price wide.”

In terms of newly-announced deals, the A$750m-equivalent Pepper Residential Securities Trust No. 22 RMBS was in focus due to its euro- and Aussie dollar-denominated tranches designated as green bonds. IPTs stood at 140bp-145bp for the green and non-green Aussie dollar triple-A tranches and 90bp-95bp for the green euro triple-A tranches.

“It will be interesting to see if there is any pricing difference between the Aussie green and non-green tranches,” said another trader. “Green bonds are still a bit of a novelty.”

Away from Aussie paper, the two-year senior notes of Compass Banca’s €900m Quarzo Series 2018 consumer ABS were talked at three-month Euribor plus 95bp (SCI 28 November). However, the transaction is not considered to be well-timed.

“The deal is attractive, but not compared with the yield on Italian government paper,” the trader noted. “It makes no sense to buy Italian ABS now, when you can purchase government bonds, which pay a no-risk 85bp spread. Compared with that, auto loan ABS looks very cheap at the moment.”

On the secondary market, large lists of auto ABS and RMBS bonds were out for the bid last week, including a chunky £34.25m slice of the WARW 2 A tranche (SCI 27 November).

“The question is where the appetite is going to come from,” said a different trader. “I can’t see an individual dealer writing tickets for such a large volume.”

More BWICs were due to hit the market, but many people remained on the sidelines. “Dealers are full-up,” the trader continued.

Meanwhile, US CMBS new issues appeared to be struggling, following market volatility at the beginning of the week (SCI 28 November).

One trader noted: “It seems like the new issue pipeline is struggling to get off the ground and many dealers are having to give concessions in the mezz area in order to get deals done.”

Transaction of the week
Credit Suisse has completed a Swiss corporate and SME significant risk transfer trade from its Elvetia programme, dubbed Elvetia Finance Series 2018-6 (SCI 30 November). The trade printed at tighter levels compared to previous Elvetia corporate and SME deals, due to wide syndication. The transaction was completed under the new securitisation framework, which stipulates thicker tranches and was consequently also a driver of the tighter pricing.

The Sfr156m eight-year CLN references a Sfr2.6bn portfolio and pays Libor plus 7.75%. The weighted average life of the reference portfolio is approximately 1.7 years. Further features include a three-year replenishment period and a three-year non-call period.

The transaction follows a mortgage deal from the same programme in March (see SCI’s capital relief trades database). The mortgage deal, dubbed Elvetia Finance Series 2018-2, was priced slightly lower at Libor plus 7% and was also widely syndicated.

Switzerland implemented the new securitisation framework in January 2018. The lower returns resulting from thicker tranches have previously led Credit Suisse to slice the junior tranches of transactions into thinner ones that offer higher returns.

Other deal-related news

  • The collateral management agreements for the Alesco Preferred Funding X to XVII Trups CDOs have been assigned to Hildene Collateral Management Company (HCMC), an affiliate of Hildene Capital Management (SCI 29 November). Under the terms of the assignments, HCMC agrees to assume all the responsibilities, duties and obligations of the current collateral manager (ATP Management) under the agreements and under the applicable terms of the indentures. For more CDO manager transfers, see SCI’s database.
  • The West Ridge Mall & Plaza loan (securitised in COMM 2014-CR16) has transferred to special servicing (LNR Partners), due to imminent monetary default. Reports emerged in October that Washington Prime Group was planning to turn over the deed to the property. For more on CMBS restructurings, see SCI’s CMBS loan events database.

Regulatory round-up

  • The UK PRA’s latest significant risk transfer guidance is putting UK capital relief trade issuers at a disadvantage compared to their European peers, mainly due to the regulation’s provisions on excess spread and the capital treatment of standardised portfolio transactions (SCI 30 November). The regulation is broadly in line with a consultation from May that sparked a market backlash (SCI 22 June).
  • The Bank of Greece has unveiled a securitisation scheme backed by its deferred tax credits (DTCs) that aims to reduce the country’s large non-performing loan stockpile (SCI 27 November). The plan is seen as a positive development, with any move to introduce a government guarantee on the senior tranches expected to raise the prospects of its success.
  • Regulatory changes coming into effect next year will have a major impact on the way European banks calculate risk weighted assets (RWAs), resulting in a greater incentive for some banks to utilise risk transfer mechanisms (SCI 29 November). However, it is expected that a nuanced picture will emerge, with regulatory changes impacting banks’ RWA calculations differently depending on a range of factors, such as asset class and the calculation model used.
  • The Bank of Canada has expanded the assets it acquires outright to include the purchase of Canadian dollar federal government-guaranteed debt securities issued by federal Crown corporations (SCI 27 November). Under these changes, the bank plans to allocate “a small portion” of its balance sheet for purchasing mortgage bonds on the primary market on a non-competitive basis, commencing in late 2018 or 1H19.

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Pipeline composition by jurisdiction (as of 30 November)

Pricings
There was a distinct international flavour to last week’s pricings. US primary issuance activity has been muted following the Thanksgiving holiday.

ABS prints included the €605m A-Best 16, €958m Alba 10 SPV, €140m Citizen Irish Auto Receivables Trust 2018, €84m Guincho (Hefesto STC), A$293m Metro Finance 2018-2 Trust and €900m Quarzo Series 2018 transactions. A trio of RMBS also priced: €338m EDML 2018-2, €1.3bn Glenbeigh Securities 2018-1 and A$350m Sapphire XX 2018-3 Trust. Finally, among the CLO new issues was the refinanced US$620.5m Carlyle Global Market Strategies CLO 2012-3.

BWIC volume

Source: SCI PriceABS

Podcast
SCI’s latest podcast is now ready for download. Click here to listen to the team discuss divergence in the Australian RMBS market and a new SME ABS with a Spanish flavour.

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