A look at the major activity in structured finance over the past seven days
Pipeline
Principal Residential Investment Mortgages 1, a €178.6m RMBS, entered the pipeline last week. It was joined by Rhode Island Student Loan Authority 2012A, a US$17.94m student loan ABS. Credit Suisse Asset Management's latest CLO, Madison Park, also began marketing.
Pricings
Several deals priced last week, including two large RMBS transactions. Lowland Mortgage Backed 1, a €3.8bn RMBS, was joined by the US$3.65bn-equivalent Arkle Master Issuer series 2012-1.
The week also saw US$1bn non-prime auto ABS AmeriCredit Auto Receivables Trust 2012-1, US$1bn credit card ABS Discover Card Master Trust 2012-A1, US$547m student loan ABS SLM Student Loan Trust 2012-A and US$400m insurance premiums ABS PFS Financing Corp 2012-A all print. Finally, three CLOs were issued: the US$400m Ares XXIII, US$437m ALM V and US$410m LCM X.
Markets
Last week was another positive one for global secondary structured finance markets amid a broader equity and credit market rally.
In the ABS markets, JPMorgan analysts say they have seen higher volumes and greater investor demand across a broad spectrum of ABS credits. At the plain vanilla end, two-year credit card ABS floaters traded extremely well and "in terms of riskier ABS, investors appear increasingly willing to go for spread pick-up and less worried about liquidity".
Two- to three-year triple-A fixed credit cards and one- to seven-year triple-A credit card floaters tightened by 2bp on the week. Triple-A through single-A subprime auto spreads tightened by 5bp to 40bp, while double-B spreads widened by 75bp.
Triple-A equipment ABS spreads tightened by 4bp to 5bp, with single-A and triple-B spreads tightening by 10bp and 50bp respectively. Stranded asset spreads tightened by 2bp to 3bp across the capital structure. Finally, private student loan ABS also tightened by 25bp to 250bp.
Last week remained very active in the US CMBS secondary market and was characterised by a good two-way flow, according to US CMBS research analysts at Barclays Capital. "Based on the TRACE data, about US$8.2bn in the CMBS space traded, about a 5% pick-up from the prior week," they note.
The Barcap analysts report that generic 2005 dupers are trading in the S+110/115 area, unchanged to about 5bp tighter week-on-week. Generic 2006 dupers are in the S+140 territory, mostly unchanged from the prior week, though some CUSIPs were 5bp tighter.
2007 dupers outperformed, being 10bp-15bp tighter week-on-week. Generic AM and AJ tranches were largely unchanged on the week.
Meanwhile in European CMBS, CRE debt analysts at Deutsche Bank say: "Following the breakthrough in volume last week, activity in the market increased again by 20%. The flows are being driven by the fast money community as money managers are generally watching from the sidelines. Most of the buys are coming on mezzanine tranches from transactions where the senior bond has already rallied."
For example, TMAN 7 class As are up to the low-80s from the mid- to high-70s and the price on class Bs has rallied to the mid-60s from the high-50s.
CLOs too have had a very strong start to the year and last week was no exception. "CLO spreads are tighter across the structure and globally," JPMorgan analysts report.
For example, they note that US triple-As moved in 10bp last week to stand at 200bp and triple-Bs moved in by 25bp to 750bp. In Europe, triple-A CLOs were unchanged on the week, but still 20bp in on the year at 260bp, while European triple-Bs moved 50bp tighter last week to 1400bp.
Activity also remained generally positive in the US RMBS market, according to residential credit analysts at Barclays Capital. They say: "Non-agency prices were higher, with the negam sector leading the way, being up 1.5 points week-on-week. Jumbo and alt-A prices were up 0.25-0.75 points week-on-week. On the other hand, the ABX and PrimeX indices were weaker, with ABX flat to slight higher, while prime fell about 0.5 points."
Deal news
• The latest documents released as part of PJ Alliance's bankruptcy filing reveal a new reorganisation plan, which is expected to be reflected in a modification of the US$475m Alliance SAFD-PJ portfolio loan securitised in CSMC 2007-C2. Although concessions to the sponsors under the proposal appear high, the modification should result in a better-than-expected outcome for CMBS investors.
• The latest Granite UK RMBS investor report shows that the master trust passed a minor milestone in December, by finally completing the top-up of reserve funds to their increased levels following the breach of the arrears and step-up triggers. The completion of this process is said to underscore the improvements in cashflow performance that have been seen over the past year.
• Sainsbury's has disclosed that it may not redeem the Eddystone Finance CMBS on its April 2013 step-up date. How principal will be allocated to the notes post non-call remains unclear, however.
• An auction is being held to liquidate the Duke Funding High Grade I CDO, almost a year after a previous auction failed to attract enough bids. The latest auction is scheduled for 21 February, but its completion is subject to an auction call redemption amount.
• Lloyds has announced an unexpected tender offer for the Candide 2005 class A, Candide 2006 A2 and Candide 2006 A3 notes. The tender offer is at par for the three triple-A rated RMBS bonds.
• Enterprise Inns has sold 15 pubs, located across the west and south east of England, for £23m to Fullers based on a multiple-to-net income of 13.5x. Although Enterprise didn't disclose which part of its capital structure these pubs are being sold from, the company says it will use the proceeds to repay bank debt, or buy back Unique notes or debentures.
• Fitch says that the recent decision by the Versailles court of appeal to uphold the initial 'sauvegarde' protection granted to the borrower - a non-FCT SPV - and its parent behind the loan backing the Windermere XII CMBS is currently reflected in the transaction's ratings.
• S&P has lowered and removed from credit watch negative its credit ratings on all classes of Monastery 2006-I notes. At the same time, it has affirmed and removed from credit watch negative the ratings on all classes of Monastery 2004-I notes. The rating actions reflect what the agency considers to be the transactions' deteriorating credit performance, its analysis of set-off risk as a result of duty-of-care claims and its analysis of counterparty risk in the transactions.
Regulatory update
• HAMP programme guidelines have been expanded, with the intention of helping a broader array of borrowers receive loan modifications. The changes are expected to be potentially significant for modification volumes.
• President Obama has provided more detail on his plan to help spur mortgage refinancing, following his State of the Union address (SCI 25 January). Most elements of the initiative are likely to either require Congressional approval or the FHFA to revisit the work that went into developing HARP 2. The President's plan would introduce a HARP-like refinancing option for non-agency borrowers.
• The agency debt and agency MBS fails charge trading practice recommended by the Treasury Market Practices Group (TMPG) became effective on 1 February. Under the trading practice, a party who fails to deliver securities in a timely manner will incur a charge.
• National Futures Association (NFA) and MarketAxess Holdings have entered into an agreement that paves the way for NFA to perform regulatory services for MarketAxess' planned swap execution facility. The agreement establishes a preliminary framework for the exchange of information and the development of technology standards that will enable the pair to develop, test and launch automated trade practice and surveillance systems, as well as develop procedures and processes necessary for MarketAxess to fulfill its SEF self-regulatory obligations.
Deals added to the SCI database last week:
B-Arena 3
FCT BS CDN ENT 2012
FCT BS CDN PPI
GE Capital Credit Card Master Note Trust series 2012-2
GS Mortgage Securities Trust 2012-GC6
Ibis Re II 2012-1
Storm 2012-I
Valsabbina 1
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