A review of securitisation activity over the past seven days

Market commentary
The European ABS primary market saw a lull in activity last week, which left some traders uncertain as to what the final quarter of the year will bring (SCI 3 October). “I’m seeing a little bit of primary market activity, mostly dealer to dealer or seller to dealer,” said one trader. “It’s pretty quiet; I’m not really sure why.”

However, supply is anticipated to be heavy for the remainder of the month (SCI 5 October). A new RMAC UK non-conforming RMBS has been announced, while the BPCE Home Loans 2018 deal is expected to be sized at almost €1bn.

“The RMAC 2 deal will set the tone for the European ABS market going forward,” said another trader. “There may be a few more RMBS announcements as well.”

Meanwhile, up to 30 CLO transactions were being prepped in the US primary market last week, with four or five also seen in the European market (SCI 4 October). “In the US you might have maybe 15 transactions at a time and a couple in Europe,” said one portfolio manager. “Twice that number in both markets at this time of year is going to distract investors from anything else.”

“The problem is that there is so much to look at that [investors] are not focused on any secondary activity,” the portfolio manager concludes.

Transaction of the week
Atom Bank last week priced its debut UK prime RMBS – Elvet Mortgages 2018-1 – with the £486.2m senior notes printing in line with guidance at three-month Libor plus 75bp and a coverage ratio of 1.25x. The step-up margin was increased to 2x from 1.5x prior to pricing.

The transaction is believed to be the first to securitise loans originated via a mobile phone app interface (SCI 2 October). The bank developed the app to streamline the underwriting process by automating validation, allowing it to compete with more traditional lenders.

“Atom’s app is not used as a direct origination tool, as applicants cannot apply in this way,” said Duncan Paxman, director of European structured finance at Fitch. “Instead mortgages are all originated via an intermediary, which is a common channel for the UK market. The app is used for managing the lending process after application; it is unique – we do not rate any other transactions where an issuer uses the same technology.”

Other deal-related news

• Santander has completed Fitzroy 2018-1 CLO, a financial guarantee and significant risk transfer transaction that references a £1.12bn portfolio of UK project finance loans (SCI 3 October). Regulatory clarity over acceptable structures could pave the way for further project finance CRT issuance in the future.
• The remaining property (the Microsoft UK headquarters in Reading) securing the Mapeley Beta loan, securitised in DECO 8-C2, has been purchased by Valesco Group and AIP Asset Management for £100m. Completion is expected to occur in four to six weeks, after which a final recovery determination will be issued. For more on CMBS restructurings, see SCI’s CMBS loan events database.
• UK Asset Resolution (UKAR) has concluded a competitive sales process for an £860m portfolio of approximately 6,200 UK equity release loans from the legacy books of NRAM, Bradford & Bingley and Mortgage Express to Rothesay Life (SCI 5 October). UKAR says the overall price achieved for the portfolio is at the “upper end” of the likely valuation range and the mortgages were sold for a price above their book value.

Regulatory round-up

• ESMA’s regulatory technical standards (RTS) regarding securitisation disclosures are expected to boost compliance costs for private deals, given the tight implementation timeframe of the Securitisation Regulation. Market consensus points to a transition period as one potential fix, but that option is fraught with its own challenges (SCI 5 October).   
• The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry last week released its interim report, detailing numerous findings from its first six rounds of inquiries (SCI 5 October). Moody’s anticipates that regulatory and compliance supervision will become more interventionist and more litigious as a result, with significant penalties being recommended in the final report.

Data

Pipeline composition by jurisdiction (as of 5 October)

Pricings
New issue activity picked up ahead of the Columbus Day holiday in the US, with a number of consumer ABS pricing. CLO volume was strong as well.

Last week’s consumer ABS prints comprised: US$900m Discover Card Master Trust 2018-5, US$300m Discover Card Master Trust 2018-6, US$341.4m ECMC Group Student Loan Trust 2018-2, US$209.5m Elm 2018-2 Trust, US$299.28m JG Wentworth XLII Series 2018-2, US$1.3bn-equivalent Penarth Master Issuer Series 2018-2, US$600m Trillium Credit Card Trust II 2018-2 and US$1.6bn Verizon Owner Trust 2018-A. A trio of auto ABS were issued too: US$570m Canadian Pacer Auto Receivable Trust 2018-2, US$288m GLS Auto Receivables Issuer Trust 2018-3 and US$1.25bn GM Financial Consumer Automobile Receivables Trust 2018-4.

The CLO refinancings included: US$460m Carlyle US CLO 2016-4, US$461m Cedar Funding CLO  6, US$531.5m Greywolf III, US$517m HPS Loan Management 5-2015, US$372.5m ICG US 2015-1, US$500.5m OCP 2016-12, US$533.95m Sound Point CLO 2014-3, US$512m Vibrant CLO III and US$230.75m Wellfleet CLO 2015-1. Among the new issue CLOs were €385.3m Bain Capital Euro CLO 2018-2, US$613.2m BlueMountain CLO 2018-3 and US$408m Tralee V.

The £547m Elvet Mortgages 2018-1 and A$600m-equivalent Pepper I-Prime 2018-2 Trust RMBS, as well as the US$547m BX 2018-EXCL CMBS rounded out last week’s issuance.

BWIC volume

Source: SCI PriceABS

Conference
SCI’s 4^th Annual Capital Relief Trades Seminar is taking place on 16 October at One Bishops Square, London. Hosted by Allen & Overy, the event will explore how regulatory change is being reflected in deal structures, as well as examine issuance trends and how the market could expand further in the future. For more information on the seminar, or to register, click here.