SCI Start the week - 25 November

Category: ABS Capital Relief Trades CLOs

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A review of securitisation activity over the past seven days

Transaction of the week

Hercules tapped

Alpha Bank is set to securitise a €12bn mixed portfolio of retail secured and unsecured loans, mortgage and wholesale non-performing loans in 1H20. Dubbed Project Galaxy, the transaction protects shareholders from dilution and is one of the first to utilise the Greek government's Hercules asset protection scheme (HAPS) (SCI 11 October).

Alpha Bank's main priority is to accelerate the de-risking of its balance sheet, given that a high cost of risk has been the main driver behind the low profitability of past years. As part of the bank's planned NPL ABS, it intends to tap €3.7bn of HAPS guarantees.

Stories of the week

New ground

For the first time, working interests in oil and gas wellbores have been securitised, marking a new partnership between the oil and gas and ABS industry. These deals have been warmly received by investors and potential issuers, with more transactions expected to follow.

Diversified Gas and Oil (DGO) recently announced an inaugural US$200m securitisation and the first deal backed by operated working interests in wellbores. A different transaction from Raisa Energy also recently closed, marking the first securitisation backed by non-operated working interests.

Dubbed Diversified ABS, DGO's transaction - through its wholly-owned subsidiary Diversified Production - conveys a 21.6% working interest of its 50,000-plus wellbore portfolio in the Appalachian basin. Fitch has assigned a rating to the deal of triple-B minus.

Template concerns

Major risk-sharing transaction investor PGGM has published a position paper on the ESMA securitisation disclosure templates (SCI 1 November). The paper proposes changes to mitigate the unintended consequences of applying true sale ABS reporting standards to balance sheet synthetic trades.

Mascha Canio, head of credit & insurance linked investments at PGGM, explains: "We wanted to highlight these issues primarily because we care about how the risk-sharing market develops. Current proposals, if made into law, will likely cause a disturbance in the market and discourage issuers and investors alike."

She continues: "Initially, our understanding was that the templates would not apply to private transactions, but when it became clear that they would, we shared our feedback on the templates with ESMA and the European Commission earlier this year. I believe other firms have similar concerns, but we're not yet seeing any signs of changes, so wanted to publish the position paper to bring broader attention to the issues."

Growth surge?

The Russian structured finance market has traditionally been dominated by a small number of asset classes and securitised issuance volumes have remained low compared to the US and Europe. This may soon change, however, after regulation introduced last year paved the way for the development of structured bonds which, after a slow start, may see an uptick in issuance as regulation becomes finalised, with several banks on the cusp of launching debut issuances.

Broadly speaking, securitisation in Russia has comprised mainly of transactions backed by mortgage portfolios, with non-mortgage ABS only permitted in the country since 2014. Before this, securitisation of non-mortgage based assets were generally conducted with the involvement of foreign jurisdictions and under the law of these jurisdictions.

Ramping up

Standard Chartered has completed a US$135m CLN that references a US$1.5bn portfolio of US and European corporate revolvers. Dubbed Chakra 4, the deal was carried out for both credit risk management and capital relief purposes.

Other deal-related news

  • The EBA has launched a consultation on specific supervisory reporting requirements for market risk, which are the first elements of the Fundamental Review of the Trading Book (FRTB) introduced by CRR2 in the prudential framework of the EU.
  • Moody's notes that the increasing use of employer-provided payments for employees' student loans will lower the risk of default and is therefore credit positive for ABS backed by such collateral. 
  • More than 80% of market participants polled by Moody's at its recent Asia Pacific Structured Finance Conference in Singapore identified slowing global economic growth as posing a key risk for the Asia Pacific finance sector in 2020.
  • Quilam Capital has launched a new strategic partnership with US investment firm, Wafra Capital Partners. The new venture, Quilam Special Opportunities, will sit complementary to the existing Quilam Capital business.  However, with the support of WCP, the new vehicle plans to deploy several hundred million pounds over the next five years in the UK and European speciality finance markets.


Secondary market commentary from SCI PriceABS

22 November 2019
A busy end to a buoyant week with 33 covers today – 9 x AAA, 3 x AA, 4 x A, 3 x BBB, 11 x BB and 3 x B rated.  All the AAAs had a WAL >4y and trade in a 119dm-140dm range for 2022/2023 RP profiles.  We saw generic >4y WAL AAAs tighten 2bps to 127bps this week despite the heavy supply ($118m in this bracket), note that 110m of this shared the same RP profile of today (2022/2023), if we isolate 2022/2023 RP profiles week on week we have seen 1bp of tightening to 126bps (>4y WAL AAAs 22/23 RPE).  AAs today trade in a tight range 181dm-196dm (2021/2022 RP profiles) whilst generic AA spreads this week are 194bps for 2021-2023 RP profiles.  The single-As today trade in a 230dm-272dm range for 2020-2023 RP profiles whilst we observed generic single-As this week trade 280bps for 2020-2023 RPEs (290bps if we exclude the 2020 RPEs).  

BBBs today trade in a 382dm-439dm range (2021-2022 RPEs) whilst we observed generic BBB spreads from trades this week widen 83bps to 468bps, predominantly due to a number of distressed bonds offered this week. The BBs today trade in a 644dm-826dm range for 2020-2023 RPEs, we observed 6bps of tightening for generic BB spreads to 832bps with $81.5m of liquidity (vs $90m last week), 2022 RPE BBs this week widened 105bps to 873bps whilst 2023 RPE BBs tightened 26bps to 820bps given a number of distressed offers in 2022 RPE BBs this week as noted during the course of the week. There were 3 x single-Bs that traded 898dm-1266dm, the CIFC 2015-3A FR (CIFC) and SHACK 2014-6RA F (Alcentra) both trade ~1250dm with week MVOC 102.52 and 100.84 respectively so these metrics are reflected in the levels for very thin second loss tranches with equity type returns.

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