Monday 8 February 2021 12:40 London/ 07.40 New York/ 20.40 Tokyo

A review of securitisation activity over the past seven days

Last week's stories
Beware the ides of March
The end of mortgage forbearance schemes is ominous for MBS
Big Brother Biden
Democrat control of key committees puts securitised market on alert
Origination innovation
Fintechs, specialist mortgage lenders gaining traction
Euro CLO shift
Primary market comes into focus
A buoyant start to the year for the European CLO market has been supported by strong secondary market activity driving spreads to new tights in January. Meanwhile, the primary market got off to a slow start, but over the past week has begun to attract increasing attention.  

"The overall recovery in the European CLO market from the Covid-driven price collapse has been remarkable in its speed in comparison to 2008 and it seems to keep accelerating," says one CLO investor. "It wasn't that long ago we were talking about 10% defaults and now it's 2% and the belief in rising rates is pushing the appeal of floating rate assets, such as CLOs. So, we're suddenly back to a par market, with demand outstripping current supply."

So far this year, secondary has been doing all the heavy lifting, with healthy activity underpinning a strong rally and spreads throughout the stack now comfortably inside 2020 tights. However, last week saw a dip in BWIC volumes and some softening in spreads, particularly for weaker names. See SCI's Daily Cover or PriceABS for more detail.

Conversely, the European primary market got off to a slow start in 2021, with the first deal not pricing until 20 January, but has picked up speed to month-end. Even so, year-to-date it has only seen three new issues, two resets and three partial refinancings.

The new deals were consecutively RRE 6, Henley CLO IV and Avoca CLO XXII, which saw their triple-As print at +87bp, +90bp, +83bp, respectively, much tighter than the 105bp level seen for deals at the end of 2020. Meanwhile the resets, for Penta CLO 5 and Euro-Galaxy V, came in at +95bp for the top of the stack and the triple-As for the latest partial refi, Contego CLO IV, printed last Friday at +64bp.

"For now, if you bring a deal you're pretty much guaranteed to get good pricing. In fact, what we're seeing is a bit of a bun fight for paper," notes the investor.

He continues: "But the big difficulty for issuers is that loans are very strong at the moment, so they need to see liabilities widen. That has slowly begun to happen in the past week and should lead to increased issuance."

Indeed, the visible pipeline of soon to be priced deals now contains a further four CLOs - Anchorage Capital Europe CLO 4, Neuberger Berman Loan Advisers Euro CLO 1, Oak Hill European Credit Partners VIII and Palmer Square European CLO 2021-1. In addition, over 20 deals have already released cleansing notices this year, indicating their intention to reset or refi and dozens of warehouses are already underway.

However, as the investor concludes: "One cautionary note for CLOs is that while demand is there now, can it be sustained for more than a few weeks when 10 or more deals have been priced and there are so many more in the pipeline? That could cause some overall softening in the market, especially if secondary picks up on the back of primary activity and rotation trading."

Mark Pelham

Other deal-related news

  • The EIB Group has completed its first synthetic securitisation in Romania with a financial services partner (SCI 1 February).
  • Net purchases by the ECB's ABSPP totalled only €1.1bn in full-year 2020, the lowest annual tally since the start of the programme in 4Q14, according to JPMorgan international ABS analysts (SCI 1 February).
  • NewDay became the first European securitisation issuer to publicly market a US dollar-denominated SOFR-linked bond with its latest UK credit card ABS, Newday Funding Master Issuer - Series 2021-1 (SCI 1 February).
  • Multi-strategy life sciences investment firm Catalio Capital Management has launched a credit opportunities strategy to meet the growing demand for non-dilutive growth capital within the biomedical sector (SCI 2 February).
  • GoldenTree Asset Management has closed US$725m in commitments on a second CLO strategy, dubbed GLM II, under its GoldenTree Loan Management programme (SCI 4 February).
  • Aon Securities 4Q20 ILS Update notes that US$11bn of property catastrophe bond limit was placed last year, the highest total on record, versus US$5.4bn placed in 2019 (SCI 4 February).
  • The cumulative collection ratio for the DUERO 1 non-performing loan securitisation has consistently breached its trigger level for an interest subordination event - which is set at 90% - since the April 2020 reporting period (SCI 5 February).

Company and people moves

  • DSW Debt Advisory has appointed Lynn Li as manager (SCI 1 February).
  • AGL Credit Management has appointed David Preston as head of structured credit research (SCI 1 February).
  • Bob Sherman has joined Marble Point Credit Management as global director of strategic development, a newly created position (SCI 1 February).
  • Canadian pension investment manager Public Sector Pension Investment Board and Pretium have launched a joint venture that will initially invest US$700m in single-family rental properties across major markets in the southeastern and southwestern US (SCI 1 February).
  • CQS has recruited Bob Paterson as a portfolio manager (SCI 2 February).
  • Conor Downey has joined Gunnercooke as real estate finance partner, based in London (SCI 2 February).
  • Hayfin Capital Management has appointed Daniel Bird as a portfolio manager in the private credit team (SCI 2 February).
  • AXA XL has promoted Niraj Patel to lead alternative capital activities as head of AXA XL ILS Capital Management (SCI 2 February).
  • Cairn Capital Group is set to acquire and merge with Bybrook Capital, a specialist distressed credit manager based in London (SCI 3 February).
  • UK specialist motor insurer ERS Group is set to launch an integrated ILS offering as part of its plans to progress its commercial expansion(SCI 4 February).
  • Funds managed by Stone Point Capital and Insight Partners are to acquire all outstanding shares of CoreLogic for US$80 per share in cash, representing an equity value of approximately US$6bn and a premium of 51% to CoreLogic's unaffected share price on 25 June 2020 (SCI 5 February).
  • Intermediate Capital Group has appointed Lionel Laurant as md, co-head of special situations and co-portfolio manager for its Recovery Fund II (SCI 5 February).

Data

Recent research to download
Greek CRTs - January 2021
Insurer Involvement in SRT - December 2020
CLO Case Study - Autumn 2020

Upcoming events
SCI's 2nd Annual Middle Market CLO Seminar
25 February 2021, Virtual Event
SCI's 5th Annual Risk Transfer & Synthetics Seminar
March 2021, Virtual Event
SCI's 3rd Annual NPL Securitisation Seminar
May 2021, Virtual Event


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