A review of securitisation activity over the past seven days

Transaction of the week
Waterfall Asset Management is marketing the first publicly-rated RMBS backed by reverse mortgages since 2007. Dubbed Cascade Funding Mortgage Trust 2018-RM2, the US$571.8m transaction is backed by 915 active, proprietary reverse mortgage loans originated between 2002 and 2008 (SCI 2 November).

The underlying loans were originated by eight legacy reverse mortgage lenders and subsequently aggregated by Cascade and Waterfall-controlled entities. This was over a period of eight years via an acquisition of assets from Aurora Loan Services, Merrill Lynch, Lehman RE, SASC 2005-RM1 and Financial Freedom.

The majority of the loans in the transaction are adjustable rate based on six-month Libor, with a weighted average margin of 3.57. Over half (491) of the loans have future draw availability in an aggregate amount of US$37.8m, or 6.6% of the current outstanding balance.

Currently, around 83.5% of the portfolio is serviced by CompuLink Corporation and approximately 16.5% is serviced by Reverse Mortgage Solutions. Waterfall Asset Management serves as asset manager, providing servicer oversight in addition to other obligations.

Like all reverse mortgages, the assets are negatively amortising, with interest payments capitalised to the loan balance over time. The class A notes are paid interest when due, but the subordinate notes accrue and capitalise interest over time.

The weighted average youngest active borrower age in the pool is approximately 84 years. As a result, mortality and morbidity events will tend to be more front-loaded and therefore serve as a mitigating factor for the current LTV of the loans, of around 63.8%.

Other deal-related news

• Fannie Mae has priced its first credit risk-sharing RMBS notes to be issued as REMICs. Dubbed Connecticut Avenue Securities (CAS) 2018-R07, the US$921.89m deal references a pool of 98,657 prime fixed-rate mortgages, totalling approximately US$24.3bn. The transaction is designed to promote the continued growth of the credit risk transfer market by expanding the potential investor base for these securities, including by attracting REIT investors (SCI 30 October).
• Arch Mortgage Insurance has completed a capital relief transaction on a €3bn subset of an ING DiBa residential mortgage loan portfolio (SCI 2 November). The firm says the transaction is the first of its kind in Europe and is designed to support mortgage lending in Germany, representing a “valuable new tool” for financial institutions in managing their regulatory capital.
• Morningstar Credit Ratings has identified 28 CMBS loans, representing an allocated property balance of US$2.17bn, with exposure to stores that will close as part of Sears Holding Corp’s Chapter 11 bankruptcy filing (SCI 30 October). Sears’ departure is expected to be more detrimental to malls in secondary or tertiary locations where performance has already deteriorated, as these locations will be less desirable to prospective tenants.
• The Chapter 11 trustee has filed a third amended joint plan for Acis Capital Management and a notice confirming a court order that: conditionally approves its disclosure statement; schedules a combined hearing regarding final approval of the disclosure statement and confirmation of the plan; and sets related deadlines. The plan contains an injunction barring Highland Capital Management and its affiliates from liquidating the ACIS CLO 2013-1, 2013-2, 2014-3, 2014-4, 2014-5 and 2015-6 deals, except through reset transactions pursuant to the plan (SCI 2 November).
• In the latest development in the Fairhold Securitisation saga (SCI passim), Clifden’s permission to appeal the court order has been refused by the court of appeal on the basis that it had no real prospects of success (SCI 2 November). Meanwhile, correspondence has continued to be sent by or on behalf of Clifden to the issuer, the note trustee and other parties in the Fairhold Securitisation structure, premised on the assumption that acts done or purportedly done by Bowell and Coakley in their purported capacity as administrators are valid and effective. The issuer has consequently issued another application to the court, seeking further declaratory and other relief in order to put beyond doubt the effect of the order and to further restrain Clifden.
• The Acropolis Garden loan, securitised in the CSAIL 2017-C8 and CSAIL 2017-CX9 CMBS, is in payment default and headed for foreclosure. The cooperative housing corporation that owns the building is suing the borrower and property manager, alleging fraud and failure to remediate safety issues. For more on CMBS restructurings, see SCI’s CMBS loan events database.
• Analytics firm TheNumber has run the cashflows for Freddie Mac’s STACR 2018-DNA3 30-year securitisation through a custom credit option-adjusted spread model developed specifically to incorporate historical weather data, along with 24 different hurricane simulation models published by the National Oceanic and Atmospheric Association to estimate the impact of hurricanes on credit risk transfer deals. The firm found that there are no likely scenarios where a single event, or even a single bad year of weather, would result in any meaningful impact to bondholders in isolation (SCI 30 October).

Regulatory round-up

• The updated Delegated Regulation for the liquidity coverage ratio (LCR) has been published in the EU Official Journal, making STS designation compulsory for ABS exposures - in addition to various requirements relating to liquidity, rating and quality – in order to count as HQLA (SCI 2 November). The changes will be introduced on 30 April 2020 and there is no grandfathering included for the STS requirement.
• The European Council's position on capital requirements applying to banks with non-performing loans on their balance sheets has been approved (SCI 2 November). On the basis of a common definition of non-performing exposures, the proposed new rules introduce a prudential backstop, with different coverage requirements applying, depending on the classification of the NPLs as unsecured or secured and whether the collateral is ‘movable’ or ‘immovable’ (real estate).

Data

Pipeline composition by jurisdiction (as of 2 November)

Pricings
ABS accounted for half of last week’s pricings, across a range of jurisdictions and asset classes. RMBS and CLOs made up the rest of the prints.

Last week’s auto ABS new issues comprised €600m Auto ABS French Leases 2018, US$722m Bank of the West Auto Trust 2018-1, US$250m Foursight Capital Automobile Trust 2018-2, Sfr280m Swiss Car ABS 2018-2 and US$1.25bn Toyota Auto Receivables 2018-D Owner Trust. The other ABS pricings consisted of US$613.14m AASET 2018-2 Trust, US$100m DRB Capital Securitization Series 2018-A and US$322.3m World Financial Network Credit Card Master Note Trust series 2018-C.

£600m Finsbury Square 2018-2, €951m Saecure 16, A$1bn Series 2018-1 REDS EHP Trust and £293m Together Asset Backed Securitisation 2018-1 made up the RMBS pricings.

Among the new issue CLOs were US$474m Cent CLO 28, US$602m Golub Capital BDC CLO III and US$508m THL Credit Wind River 2018-3. Finally, the US$408m OHA Credit Partners XI CLO was refinanced.

BWIC volume

Source: SCI PriceABS

Conference
SCI’s 4^th Annual Marketplace Lending Securitisation Seminar is being held on 14 November, at 250 West 55^th Street, New York. Hosted by Arnold & Porter, among the topics that the event will explore are how new technologies are impacting the ABS market, how marketplace ABS structures have evolved and relative value opportunities across the asset class. Keynote speakers are Senator Christopher J Dodd and Congresswoman Carolyn Maloney. Click here for more information and to register.