A look at the major activity in structured finance over the past seven days
Pipeline
Last week saw four new deals enter the pipeline and remain there on Friday. Banco Santander is in the market with Santander Empresas 11, a €3.392bn SME CDO. The transaction was joined by a US$195m drug royalties CDO from DRI (Drug Royalty 1 series 2012-1), as well as a Sfr300m auto lease ABS from GE Money (Swiss Auto Lease 2012-1) and a UK non-prime RMBS from GMAC RFC (ALBA 2012-1).
Pricings
Like the week before it, last week saw over a dozen prints. The largest deal to price was Domino's whole business securitisation (US$1.575bn Domino's Pizza Master Issuer Series 2012-1).
That was joined by two auto ABS deals (US$1.814bn Ally Auto Receivables Trust 2012-2 and US$500m SMART Series 2012-1US) and two FFELP student loan ABS deals (US$824m SLM Student Loan Trust 2012-2 and US$391.5m Edsouth Indenture No.2). One stranded asset ABS (US$800m AEP Texas Central Transition Funding III) and one heavy equipment ABS (US$642m Volvo Financial Equipment Series 2012-1) were also issued.
In addition, three RMBS deals (€1.067bn Pelican Mortgages 6, €425m Spoleto Mortgages 2011 and €178m Principal Residential Investment Mortgages 1) and a single CMBS (US$1.07bn Morgan Stanley Capital I Trust 2012-C4) hit the market. Finally, the issuance was rounded out by a pair of CLOs (US$510m Carlyle Global Market Strategies CLO 2012-1 and US$413m Madison Park Funding VIII).
Markets
In secondary US ABS trading, spreads continue to grind tighter with every new issue transaction pricing, according to consumer ABS analysts at Barclays Capital. "Investors continue to chase yield, resulting in selling pressure among shorter average life paper in a bid to move into longer paper with incremental spread pick-up. At least some of this selling is related to positioning for new issue transactions," they say.
"Demand for auto and credit card subordinate classes remains high, as these are two of the only sectors in generic consumer ABS that offer compelling spread, in our view. Slightly more off-the-run asset classes, including dealer floorplan, fleet leases, rental fleet and timeshare ABS also continue to trade well, as investors continue to hunt for yield," the Barcap ABS analysts add.
Last week US CMBS pricing held on to gains made the previous week, say CMBS & CRE analysts at Wells Fargo Securities, with on-the-run 30% ten-year paper changing hands at 105bp over swaps. On-the-run triple-B paper at 550bp is 175bp tighter from 1 January levels, while A4 bonds from the 2007 vintage are trading at a range of 155bp-220bp over swaps depending on the credit quality.
Meanwhile, Deutsche Bank CRE debt analysts say that the European CMBS market picked back up again last week, with trading volumes tripling from the prior week and now back in line with average volumes from earlier in the year. "Execution continues to remain strong and we saw some banks selling mezzanine classes, but that supply was easily absorbed by fast money. The €12.7m block of GRND 1 As traded in the low-mid 90s on Monday's list," they report.
In the US RMBS market non-agency cash prices did not display any up-down moves and were flat on the week, according to residential credit analysts at Barclays Capital. "Synthetic indices fell along with the broader market, but lagged in the recovery, with the ABX 07 triple-A indices down 1-2 points week on week and the PrimeX indices lower by 0.5 point over the same timeframe," they add.
In secondary CDOs, JPMorgan CLO analysts say that after February's record US$5.8bn BWIC volume, March is already running at a US$3.7bn pace. On the week spreads moved slightly tighter or stayed flat in the US, with double-As and above coming in 5bp and no week-on-week change lower in the capital stack. In European CLOs triple-As were unmoved but double-As, single-As and triple-Bs tightened by 25bp, 75bp and 50bp respectively.
Deal news
• Substantial progress has been made in discussions between Deutsche Annington (DAIG) and the ad hoc noteholder group over restructuring the GRAND CMBS. A plan to extend the transaction through a solvent scheme of arrangement is "near finality" and is expected to be proposed to all noteholders in the coming weeks.
• Empirasign has filed a successful Freedom of Information Act request and obtained the contents of the secret auction of Maiden Lane II securities that took place on 19 January. In a highly unusual move, participants in this auction were required to sign a non-disclosure agreement to keep the list contents and execution prices confidential for one year.
• Gagfah and the City of Dresden have agreed an amicable settlement to end the legal dispute over the WOBA loan securitised in Windermere IX and DECO 14 - Pan Europe 5. The settlement is subject to approval by the City Council of Dresden and clearance by the City's legal supervision authority, which is expected to be finalised by 15 March.
• A decision by the Supreme Court of Kazakhstan to prevent the indexation of mortgage balances to the US dollar has highlighted the continuing legal and currency risks involved in emerging market securitisations, particularly during time of economic stress. Meanwhile, prospects for new cross-border RMBS from Russia and the CIS remain dim, but the domestic market continues to progress.
• ISDA has launched the 2012 US Municipal Reference Entity CDS Protocol. The purpose of the Protocol is to make similar changes to US municipal CDS transactions to those made to corporate and sovereign CDS under the 2009 'big bang' protocol (see SCI 15 April 2009). It is intended to align the US municipal CDS market with the corporate and sovereign CDS markets.
• The UK Environment Agency has put the South East of England on drought status, with reservoir levels in the region already 20% lower than normal. To help fund additional capital expenditure - both to mitigate the impact of the drought and to manage long-term operating costs - a number of water companies are expected to tap the securitisation market this year.
• The difference in average CDS recoveries and average bankruptcy recoveries is four points, according to credit derivative strategists at Morgan Stanley. They point to the frequent misconception that CDS settlement represents the true 'recovery' for a corporate entity, when in fact credit events settle fairly early in the typical lifecycle of a bankruptcy workout.
• The negative rating outlooks for many banks that serve as trustees on CLOs raises the possibility that at some point certain counterparties may no longer be eligible to service CLOs and will have to be replaced by the deal's issuers. In Moody's latest CLO Interest publication, the rating agency notes that a change in trustee could lead to servicing delays and operational mistakes - although it also says potential mistakes would ultimately be correctible.
• NIBC has restructured its Sound II RMBS, effective as of 2 March. Moody's confirms that the restructuring will not result in a reduction or withdrawal of the current ratings on the notes.
• Prudential Mortgage Capital Company has transferred to Prudential Investment Management its duties and responsibilities under the collateral management and servicing agreements for ROCK 1 - CRE CDO 2006. Moody's has determined that the assignment won't cause the ratings of the notes to be reduced or withdrawn.
Regulatory update
• A new marked-up version of CRD IV has sparked hopes that high quality RMBS will be included as an eligible asset under the liquidity coverage ratio (LCR) after all. A version of the draft directive published in late January contained language that, while initially raising optimism about the prospect, ultimately caused confusion.
• The CFTC has issued under the Dodd-Frank Act its final rules requiring FCMs and derivatives clearing organisations (DCOs) to segregate customer collateral with respect to cleared swaps. The CFTC adopted the legal segregation with operational commingling (LSOC) model, which prohibits FCMs and DCOs from commingling customer collateral with their own funds, but permits FCMs and DCOs to commingle customer collateral in accounts with other cleared swap customers.
• President Obama has announced changes to the FHA streamlined refinance programme, which the market has been expecting for some time. The changes are intended to spur refinancing by exempting borrowers from certain payment requirements.
• A series of higher regional court decisions regarding loan handling fees for German consumer loans could expose securitisations to additional set-off risk. The court rulings invalidate administration fees that were charged to set up a loan. The risk to German ABS transactions is that borrowers will claim this money back by setting off handling fees they have already paid to the lender against loan repayments that have been securitised.
Deals added to the SCI database last week:
Cabela's Credit Card Master Note Trust 2012-1
COMM 2012-LC4
Ford Credit Auto Lease Trust 2012-A
Freddie Mac SPC series K-017
Gracechurch Card Programme Funding series 2012-1
Huntington Auto Trust 2012-1
Hyundai Auto Receivables Trust 2012-A
Mystic Re III 2012-1
Orange Lake Timeshare Trust 2012-A
TruckLease Compartment No. 2
VCL 15
Deals added to the SCI CMBS Loan Events database last week:
CSFB 2005-C5; CSMC 2007-TFL2; ECLIP 2005-2; ECLIP 2007-2; EURO 27; GRND 1; JPMCC 2007-LDP12; LBUBS 2007-C7; MSC 2006-IQ12; NEMUS 2006-2; TITN 2007-3; TITN 2007-CT1; Various (Mills); WBCMT 2006-C27; and WINDM XIV.
Top stories to come in SCI:
Focus on German multifamily CMBS
Impact of principal reduction across European RMBS
US CLO issuance trends