A look at the major activity in structured finance over the past seven days
Pipeline
New deals have begun to be announced for the first part of the year, with seven transactions joining the pipeline last week. There was a mix between the different ABS sub-sectors, ILS, RMBS and CMBS.
The ABS deals entering the pipeline comprised: US$940m Capital Auto Receivables Asset Trust 2013-1 and ¥25bn Driver Japan Two in the auto space, as well as CARDS II Trust Series 2013-2 (a Canadian credit card securitisation) and US$540.55m State of North Carolina State Education Assistance Authority Series 2013-1 (a FFELP student loans deal).
The ILS was US$150m Vitality Re IV and the RMBS was US$398m Sequoia Mortgage Trust 2013-1. The CMBS deal was US$1.4bn WFRBS 2013-C11.
Pricings
A number of deals have priced already. Three CMBS deals printed last week, as did a couple of ABS.
The CMBS new issues consisted of US$1.45bn FREMF 2013-K24, US$1.35bn MSBAM 2013-C7 and US$600m Queens Center Mortgage Trust 2013-QC. Meanwhile, the ABS prints were US$1.35bn Nissan Auto Receivables Owner Trust 2013-A and US$1.25bn Santander Drive Auto Receivables Trust 2013-1, both auto deals.
Markets
Secondary US RMBS supply increased over the week, as SCI reported on Thursday (SCI 10 January). Agency and non-agency volume in the middle of the week was considerably higher than it had been a week earlier. Notable from Wednesday's session was a couple of sizable tranches circulating, not least a US$45.9m piece of BSARM 2007-1 3A1, which SCI's PriceABS data shows was covered at 83.
It was not all one-way traffic for the US CMBS sector, however, whose rally paused and saw some widening on Tuesday (SCI 9 January). The session was the first time in four days that CMBS spreads had not fallen "smartly", according to Trepp, with legacy super seniors mostly wider.
After BWIC activity reached only US$44m in the first week of the year, the US CLO market started to gain traction last week with a more impressive US$400m in volume. Bank of America Merrill Lynch securitised products strategists note that the primary pipeline also looks very healthy.
"This week the CLO market caught up to the sharp moves that were seen in other securitised products markets starting last week. Triple-A levels were in about 5bp, while triple-B and double-B were 50bp and 100bp tighter respectively," they add. New issue spread price talk is around 130-135 DM for triple-As.
Finally, it has also been an auspicious start to the year for US consumer ABS, believe Citi analysts. They say: "The ABS market begins the year on a high note, with several new issue announcements totaling more than US$2bn, good secondary trading flows and some modest spread tightening. There appears to be a lot of interest in improving yield and willingness to consider more esoteric asset types."
Deal news
• Markit CMBX Series 6 is due to launch on 25 January (SCI 8 August 2012), featuring a new sub-index. Given increased demand for a transparent hedging tool referencing newer CMBS issuance, the index is expected to be actively used by both issuers and investors.
• Bank of America has reached a US$10.3bn settlement to resolve outstanding repurchase agreements on residential loans sold to Fannie Mae. BofA will pay approximately US$3.6bn in cash and will repurchase around US$6.75bn in mortgage loans sold to Fannie Mae to extinguish existing repurchase requests and all future rep and warranty claims for loans sold from 1 January 2000 to 31 December 2008.
• Further details have emerged on the resolution of the 110 East 42nd Street loan, securitised in WBCMT 2007-C33, which had been modified via an A/B note split. At the loan's retirement, the B-note failed to recover any principal (see SCI's CMBS loan events database), serving as a warning to the wider market.
• Argo Group International has formed Harambee Re 2013-1, its debut sidecar transaction. Unlike other sidecars, which typically write either reinsurance or retrocession business, the vehicle is believed to be the first to support both a reinsurance and an insurance portfolio.
• A New York federal judge has denied a motion to reconsider a decision which allowed the FHFA to proceed with a number of fraud claims against Ally Financial and other banks in connection with losses suffered by Fannie Mae and Freddie Mac. However, a few claims based on owner-occupancy and LTV ratios were dismissed.
• Morningstar has added the US$123m IRET Portfolio loan, securitised in the CGCMT 2006-C5 CMBS, to its watchlist due to a decrease in DSCR and occupancy. Two of the nine properties in the pool are occupied by single tenants, with lease expirations for the largest tenant in each property fairly well-staggered over the next few years.
Regulatory update
• The Consumer Financial Protection Bureau (CFPB) has adopted a new rule to protect buyers from irresponsible mortgage lending. Clarification as to what will constitute a qualified mortgage (QM) has also been provided.
• The inclusion of RMBS in the Basel 3 Liquidity Coverage Ratio (SCI 7 January) has been welcomed as a resounding positive for the market. Together with the postponement of the full implementation of the LCR and a reduction in the overall level of required liquid assets, the news has sparked the beginning of what is expected to be a gradual tightening in spreads as a result.
• A number of mortgage servicing companies have reached an agreement with the OCC and the Federal Reserve Board to pay more than US$8.5bn in cash payments and other assistance to help borrowers. The sum includes US$3.3bn in direct payments to borrowers and US$5.2bn in assistance, such as loan modifications.
• The Reserve Bank of India has reviewed its guidelines on CDS, based on feedback received from the market and the suggestions of the Technical Advisory Committee on Money, Foreign Exchange and Government Securities Markets. In addition to listed corporate bonds, CDS contracts are now also permitted on unlisted but rated corporate bonds.
• IOSCO has published a consultation report on financial benchmarks seeking comment on policy issues. Meanwhile, ESMA and the European Banking Authority (EBA) have also moved to strengthen Euribor and benchmark rate-setting processes and launched a European consultation of their own.
Deals added to the SCI database last week:
Asti RMBS; BBVA PYME FTA 9; BPL Mortgages series 5; Lakeside Re III; SMA Portfolio series 2012-LV1.
Deals added to the SCI CMBS Loan Events database last week:
FLTST 3; FUBOA 2001-C1; GRND 1; LBUBS 2006-C7; LBUBS 2007-C2; MESDG CHAR; OPERA CMH; REC 3; RIVOL 2006-1; SMPER 2007-1; TITN 2005-CT2; TITN 2006-2; TITN 2007-1; TITN 2007-CT1; TMAN 7; WINDM X; WINDM XII; WINDM XIV.
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2013 ILS outlook