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

Pipeline
Another Chinese deal joined the pipeline last week. It was one of six newly announced ABS, while there was also an ILS, four RMBS, four CMBS and one CLO.

The ABS were: CNY2.36bn Bavarian Sky China 2015-1; US$250m CPS Auto Receivables Trust 2015-B; US$410.5m Hertz Fleet Lease Funding Series 2015-1; €100m Highway 2015-I; US$300m Ford Credit Floorplan Master Owner Trust A Series 2015-3; and US$758.2m Navient Student Loan Trust 2015-3.

€150m Azzurro Re I was the sole ILS. The RMBS consisted of US$252.92m Agate Bay Mortgage Trust 2015-4, US$219.78m Citigroup Mortgage Loan Trust 2015-RP2, A$500m Pepper Residential Securities Trust No.14 and A$500m TORRENS 2015-1.

US$290m DBWF 2015-LCM, US$1.59bn FREMF 2015-K46, US$506m JPMCC 2015-FL7 and €191.5m REITALY Finance accounted for the CMBS. Meanwhile, the CLO was US$500m ALM VI.

Pricings
It was a particularly busy week for deals leaving the pipeline. There were 13 ABS prints as well as four RMBS, four CMBS and six CLOs.

The ABS were: US$183m Access Point Funding I 2015-A; US$500m Barclays Dryrock Issuance Trust Series 2015-2; €500m Driver France Two; €1.3bn FTA FADE; US$750m Huntington Auto Trust 2015-1; US$747.76m Hyundai Auto Lease Securitization Trust 2015-B; £594m-equivalent Penarth Master Issuer 2015-2; US$411.9m SoFi Professional Loan Program 2015-B; US$415.5m State Board of Regents of the State of Utah Series 2015-1; €347m Sunrise Series 2015-1; US$425m TCF Auto Receivables Owner Trust 2015-1; US$129.6m Welk Resorts 2015-A; and US$492.8m Wheels Series 2015-1.

RUB3bn Mortgage Agent Vozrozhdenie 4, €795m Orange Lion 2015-11, €342m Prado I and US$425.6m Structured Agency Credit Risk 2015-HQ2 made up the RMBS, while US$1.3bn COMM 2015-LC21, US$984m JPMBB 2015-C29, US$281m LSTAR Commercial Mortgage Securities Trust 2015-3 and US$1bn MSBAM 2015-C23 made up the CMBS.

The CLOs were: US$399m Carlyle GMS Finance MM CLO 2015-1; US$720.25m GoldenTree Loan Opportunities X; US$512m Halcyon Loan Advisors Funding 2015-2; US$757m OCP 2015-9; US$719m Venture XXI; and US$401m Z Capital 2015-1.

Markets
Production coupon US agency RMBS underperformed their duration hedges by 9 ticks last week, according to Citi analysts, "suggesting we were too early to upgrade the basis to neutral last week". The sell-off in Treasuries was once again triggered by bunds.

In US non-agency RMBS, spreads were mostly unchanged. "Market tone seemingly softened as investors are trying to re-evaluate after the latest economic data and look ahead to the June FOMC meetings in two weeks," say Wells Fargo analysts.

The US CMBS market sold off in line with broad rates and equity markets. Barclays Capital analysts say: "In secondary trading of recent issues, LCF triple-A bonds were 2bp wider, to swaps plus 90bp. Further down in the capital structure, more credit exposed single A-rated mezzanine tranches were 5bp wider, to swaps plus 215bp, and triple-B rated mezzanine tranches were 8bp wider, to swaps plus 349bp."

It was a fairly busy week for the US CLO market, where Bank of America Merrill Lynch analysts note BWIC volumes totalled close to US$1.2bn. "The offering in the 2.0 space was concentrated in the mezzanine part of the capital structure while the lion's share of 1.0 paper carried triple-A original ratings. Bidding levels remained overall healthy in the 2.0 space despite the significant spread tightening seen over the past few weeks especially in the mezzanine part of the capital structure," they say.

European ABS and RMBS spreads broadly weakened as BWIC activity was heavy. "While 'Hedge Funds' (more accurately, read, higher yield investors) were the most likely liquidators of collateral during the week, 'real money' investors also joined in the downward spiral," say JPMorgan analysts.

Editor's picks
At a crossroads: The US auto ABS market appears to be approaching an inflection point in fundamentals, with prime auto losses beginning to rise from record lows and subprime losses declining. Such a normalising of credit could help address the negative perception of subprime auto ABS and facilitate investor appetite for the paper...
Rewriting the rules: Spanish legislators have adopted a new securitisation law, bringing the market more in line with the rest of Europe (SCI 28 April). While the changes are positive and should boost the Spanish ABS market, change on a broader level is also required...
TRACE reporting underway: Yesterday (1 June) marked the first day of ABS transaction data reporting via TRACE, which saw 213 trades with total volume of at least US$614m (original face) being reported, according to Bank of America Merrill Lynch figures. These trades consisted of 151 separate securities with an aggregate original face of at least US$412m and current face of at least US$367m...

Deal news
• Nelnet's latest student loan ABS includes a structural feature that should help mitigate the negative effects of slow FFELP pay-downs, says Moody's in its recent Credit Outlook publication. The underlying collateral in the deal, Nelnet Student Loan Trust 2015-3, consists of FFELP non-consolidation, consolidation and rehabilitated student loans.
• GIAC Gestion's recent cashflow CLO is an example of a viable way forward for European SME CLOs in the context of increased bank disintermediation in Europe, suggests Moody's. GIAC OLT II is backed by bonds issued by French SMEs and mid-caps.
• The long running Theatre Hospitals CMBS restructuring closed on 28 May. This was confirmed in an announcement from law firm Paul Hastings, who represented Capita Asset Services in connection with the restructuring of the £1.65bn loan financing, which included a restructuring of the existing swap positions with an approximate value of £600m.
• Moody's reports that in five UK non-conforming RMBS deals where Lehman Brothers Special Financing acted as the currency swap counterparty, the recovery proceeds from the claims on defaulted currency swaps and the sale of the remaining claims were sufficient to restructure the transactions and limit noteholder losses. The transactions that were exposed to currency exchange rate risks after Lehman Brothers filed for bankruptcy in 2008 were Eurosail-UK 2007-5NP, 2007-4BL and 2007-6NC, Eurosail PRIME UK 2007-A and EMF-UK 2008-1.
• Fitch has removed from rating watch positive and upgraded, with a stable outlook, the US$400m Alamo Re series 2014-1 class A notes to single-B plus from single-B. The move follows the resetting of the catastrophe bond's modelled attachment probability to 2.09% from its initial annual attachment probability of 3.80%.
• Nordstrom's recent agreement to sell its existing US Visa and private-label consumer credit card portfolio to TD Bank Group has no immediate impact on the rating of notes issued by the Nordstrom Credit Card Master Note Trust II, according to Moody's. The portfolio currently totals approximately US$2.2bn in receivables.
• Dock Street Capital Management has taken over Delaware Investment Advisors' role as collateral manager to Longport Funding II. Under the provisions of an amended and restated collateral management agreement, Moody's says there will be no adverse action with respect to any of its current ratings for the transaction.
• ISDA's Americas Credit Derivatives Determinations Committee has resolved that a failure to pay credit event occurred in respect of Sabine Oil & Gas Corporation (formerly known as Forest Oil Corporation). The firm filed a Form 8-K on 22 May in respect of its entry into a forbearance agreement and third amendment to the credit agreement, dated 20 May.

Regulatory update
• The ECB yesterday (1 June) published for the first time a detailed breakdown of the ABS holdings under the ABSPP, showing the amount purchased in the primary and secondary markets for each month. Such additional information has been welcomed for bringing the level of disclosure to that the CBPP3, although Barclays Capital European securitisation analysts note that it remains below that of the public sector purchase programme (PSPP), for which a breakdown by country is provided.
• The US SEC's Rule 15Ga-2 takes effect for ABS on 15 June. The rule - which requires issuers or underwriters of transactions rated by NRSROs to publish the findings of due-diligence reports on loan quality undertaken by any third-party review (TPR) firms - is expected to increase transparency around credit quality.
• The Joint Forum has published a report on developments in credit risk management across sectors. The report provides insight into the current supervisory framework around credit risk, the state of credit risk management at firms and implications for the supervisory and regulatory treatments of credit risk.