SCI Start the Week - 4 July

Category: ABS CDO CLOs

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

Additions to the pipeline were limited once again last week, although two large Chinese deals added variety. The week's three ABS were CNY3bn Driver China Four Trust, US$340.5m Engenium Capital Equipment Dollar Trust and US$1.169bn Verizon Owner Trust 2016-1, while the only RMBS was CNY3.8bn Jiamei 2016-1 and the sole CLO was €359m Accunia European CLO I.

There were markedly fewer prints than there had been in the previous week. Last week there were three ABS, three RMBS, two CMBS and one CLO.

€1.1bn Silver Arrow 7, US$141.75m Tax Ease Funding 2016-1 and US$250m Top Commercial Auto I were the ABS. The RMBS were US$412.7m JPMMT 2016-1, RUB5.65bn JSC Mortgage Agent BFCO and US$209m Nationstar HECM Loan Trust 2016-2.

US$115m Cherrywood SB Commercial Mortgage Loan Trust 2016-1 and US$737m SGCMS 2016-C5 constituted the CMBS. The CLO was US$503.4m Mariner 2016-3.

US ABS activity picked up last week, having slumped on the prior Friday as the UK's EU referendum result came in. Citi analysts note that trading picked up from US$300m on that Friday to roughly US$550m-US$650m each day last week. They add: "Auto ABS dominated flows since last Friday, at 31% of dollar volume and 36% of trades. Several marketplace ABS traded this week on the heels of the Midland decision in line with pre-Midland spreads."

The US CLO market also began to rebound last week, as the dust from the Brexit vote settled, as SCI reported on Thursday (SCI 30 June). "Equity has been strong - prices haven't dropped much," says one trader. "It is a sign of the sector's robustness, which is particularly evident in the stronger names."

Editor's picks
Damage control: The UK's vote to leave the EU has caused untold damage to the recovery of the European securitisation market. Not only will issuance volumes suffer, but reform of the European capital markets via the CMU has also been set back significantly - both of which could limit the role that securitisation can play in economic regeneration and the reshaping of the financial system...
Recruitment rocked: The recruitment outlook for structured finance took a potentially big blow when the UK decided to leave the EU last week in its referendum vote. With hiring activity already at a moribund pace this year, concerns about immigration limits and capital outflows are weighing further on human resources both in Europe and the US...
Credible values: Alternative investment fund managers are facing a number of uncertainties following the UK's vote to leave the EU. Their immediate attention will be focused on how to reflect the Brexit result in their mid-year valuation reports. Longer term, UK-domiciled managers will be evaluating the prospects of relocating operations to a country within the EU...
False alarm?: The Basel Committee caused somewhat of a stir in June when it warned banks against increasing their use of capital relief trades. However, portfolio risk-sharing transactions are not expected to be affected...
Countrywide cash benefits 'broad': Holders of 512 legacy Countrywide deals receiving allocated shares of US$7.7bn in settlement proceeds are not the only beneficiaries of that settlement, say Morgan Stanley analysts. The massive paydown has also put many more bondholders into better positions in terms of credit enhancement and outstanding principal balance...
Reclassification challenges outlined: A number of financial institutions have reclassified their structured finance books in accordance with IFRS 9, in order to carry out parallel runs in 2017. Although the formal implementation of IFRS 9 is not due until 2018, firms hope that the early implementation of infrastructure and audit trails may eliminate capital management and volatility of provisioning risks, which are more likely given the unique structures and idiosyncratic risk profiles found in structured finance securities...

Deal news
• Engenium Capital is in the market with a cross-border Mexican equipment ABS. Dubbed Engenium Capital Equipment Dollar Trust, the US$340.5m single-tranche deal is backed by a revolving pool of equipment leases and loans originated in Mexico with the notes denominated in US dollars.
• Fitch has assigned preliminary ratings to the first securitisation to be backed by cell phone contracts in the US. At the top of the capital structure, the US$1bn of class A notes in Verizon Owner Trust 2016-1 have been assigned an expected triple-A rating.
• Hyundai Commercial has completed the first cross-border cash securitisation of auto loans to obligors in Korea. The US$250m Top Commercial Auto I ABS has two equally-sized tranches of floating rate notes, each rated Aaa by Moody's.
• Postal Savings Bank of China (PSB) is prepping a RMB3.82bn RMBS called Jiamei 2016-1. The transaction is backed by 9,441 first-ranking Chinese full-documentation mortgage loans with a weighted average loan-to-value ratio of 57.8%.
• Fitch has affirmed Acorn Re Series 2015-1's US$300m class A notes at double-B. The rating agency believes the notes and indirect counterparties are performing as required and adds that there have been no reported early redemption notices or events of default, nor have there been any reported covered events within the risk period.

Regulatory update
• The US Supreme Court has denied certiorari in the Madden vs Midland Funding case, electing not to review a Second Circuit decision that found state usury laws applied to debt that had been purchased from a national bank (SCI passim). The decision is expected to prolong the legal uncertainty related to the marketplace lending and securitisation industries.
New York Governor Andrew Cuomo last week signed a series of laws that could have a sweeping impact on the foreclosure process in the state of New York, according to Morgan Stanley RMBS strategists. In particular, the legislation establishes a pre-foreclosure duty to maintain on mortgagees and creates an expedited foreclosure process for vacant and abandoned houses.
ESMA has released a peer review which pinpoints areas for greater EU harmonisation among national securities regulators. The review notes that regulators are sufficiently resourced and have approved prospectuses within legal deadlines, but suggests further convergences would be beneficial.

Deals added to the SCI New Issuance database last week:
1828 CLO; Anchorage Capital CLO 8; Ares XXXIX CLO; Cabela's Credit Card Master Note Trust Series 2016-I; Caixabank Consumo 2; Elara HGV Timeshare Issuer 2016-A; Ford Credit Auto Owner Trust 2016-REV2; FREMF 2016-K722; GoldenTree Loan Opportunities XII; Green Storm 2016; Harbour Aircraft Investments Series 2016; Navient Student Loan Trust 2016-4; North Mill Equipment Funding 2016-A; NRZ Advance Receivables Trust Series 2016-T1; Oportun Funding III 2016-B; Private Driver UK 2016-1; SBA Tower Trust series 2016-1C; SCF Equipment Trust 2016-1; Seven Sticks CLO ; Sierra Auto Receivables Securitization Trust 2016-1; Silver Arrow Compartment 7; SoFi Consumer Loan Program 2016-1

Deals added to the SCI CMBS Loan Events database last week:
BAML 2015-UBS7, CSAIL 2015-C3 & MSC 2015-UBS8 ; COMM 2007-C9; COMM 2013-CR9; CSAIL 2015-C2; DECO 11-C3; DECO 2007-E5; DECO 2012-MHL; DECO 2014-GNDL; EURO 25; EURO 28; GSMS 2012-GCJ9; INFIN SOPR; MSC 2007-HQ11; MSC 2007-HQ12; TITN 2006-1, TITN 2006-2, TITN 2007-CT1 & TITN 2007-2; TITN 2006-5; WBCMT 2004-C11; WBCMT 2006-C26; WBCMT 2007-C32; WFRBS 2011-C3