A look at the major activity in structured finance over the past seven days
Pipeline
Many of the deals that entered the pipeline last week went on to price by the end of Friday, with only three remaining. These transactions were a US$585m auto ABS (Ally Master Owner Trust 2013-1), a US$604.3m consumer loans ABS (Springleaf Funding Trust 2013-A) and a US$498.5m CMBS (GSMS 2013-KING).
Pricings
There were 11 ABS prints last week, as well as one RMBS, one CLO and three CMBS. Of the ABS, four were auto transactions.
The ABS deals comprised: US$723m Avis Budget Series 2013-1; US$1.045bn CarMax Auto Owner Trust 2013-1; US$200m Navistar Financial Dealer Note Master Owner Trust II Series 2013-1; €600m Red & Black TME Germany 1; US$800m Discover Card Execution Note Trust 2013-1; US$900m Discover Card Execution Note Trust 2013-2; US$375m GreatAmerica Leasing Receivables Funding series 2013-1; US$563.8m Kentucky Higher Education Student Loan Corporation Series 2013-1; US$400m PFS Financing Corp 2013-A; and US$1.24bn SLM Student Loan Trust 2013-1.
The RMBS was A$709m TORRENS Series 2013-1 Trust, while the CLO was US$310m Race Point VIII. The CMBS consisted of: US$1.1bn GSMS KYO, US$1.36bn MSBAM 2013-C8 and £494m Tesco Property Finance 6.
Markets
The European ABS market appears to be entering a period of consolidation, according to ABS analysts at Deutsche Bank, as evidenced by the thin new issue pipeline and recent widening in senior UK prime RMBS spreads. HMI 2010-1X A4 and ARKLE 2010-2X 2A, for example, have widened by up to 5bp this month.
European auto paper was doing the rounds in the middle of the week, as SCI reported on Thursday (SCI 7 February 2013). SCI's PriceABS data shows a number of European auto names covered above par, with credit card paper also in demand.
Real money investors remain on the sidelines of the European CMBS market, as reported last week (SCI 5 February 2013). BWIC supply remains fairly steady as hedge funds continue to sell. One trader suggests that real money investors will wait until primary issuance picks up before they step back into the market.
Meanwhile, the US CMBS market weakened over the week. Strong institutional demand is keeping new issue cash strong, according to Barclays Capital CMBS analysts.
The analysts note: "Generic 2007 dupers gapped out another 10bp this week, to finish at S+110bp; AMs were similarly wider, ending at S+225bp. 2007 AJs, which had enjoyed a 7-10 point rally in the first two weeks of the new year, have now slipped 2-3 points from their highs. Much like last week, the widening trend was not reflected in new issue deals, where spreads continue to hold in."
The US ABS market was mainly focused on the primary space, where almost US$6bn of deals priced. Securitised products strategists at Bank of America Merrill Lynch note that secondary spreads were unchanged over the week, remaining generally tighter than levels at the beginning of 2013.
Secondary supply for the US CLO market was strong last week, spiking on Thursday (SCI 8 February 2013). Senior paper was more popular earlier in the week, but by Thursday junior and mezzanine dominated supply.
A handful of subordinated tranches circulated, such as MTWIL 2007-2X SUB and GARDN 2005-1A SUB, which PriceABS shows were respectively covered in the low-120s and talked at around 112. Another noteworthy name from the session was T2CLO 2007-1X C, following the transaction's recent failure of a portfolio percentage limitation test.
Finally, Wells Fargo US RMBS analysts report that the non-agency market appeared to take a breather last week, with spreads 25bp wider. "Investors are more cautious with high-yield bonds selling off, the 10-year Treasury yield moving higher (hovering close to 2%) and ABX prices drifting lower. BWIC supply trended higher on the week, with more than US$5bn out for bid," they observe.
Deal news
• The restructuring of the €4.33bn German Residential Asset Note Distributor (GRAND) transaction, the largest CMBS ever issued in Europe, is noteworthy for being implemented via a solvent scheme of arrangement (SCI 24 December 2012). But it is also being hailed as the forerunner for restructurings that take the cash price of senior bonds to par in the secondary market, with more examples expected as the year progresses.
• Embedded call features in SNS Bank RMBS are ultimately expected to be honoured, following the nationalisation of SNS Reaal last week. However, two transactions face elevated risks of at least initial redemption interruption.
• Cairn Capital North America is replacing Aladdin Capital Management as collateral manager on Altius III Funding, Altius IV Funding, Fortius I Funding and Fortius II Funding. Cairn took on three other Aladdin CDOs - Altius I Funding, Altius II Funding and Citius I Funding - last year (SCI 21 December 2012).
• Laguna ABS CDO noteholders are seeking to replace the deal's collateral manager, PIMCO, with Dock Street Capital Management.
• BNP Paribas has replaced Bankia as investment manager on Neptuno CLO I.
• The subordinated noteholders of Sorin Real Estate CDO III are proposing to appoint Collateral Management, a wholly owned subsidiary of Torchlight Investors, as successor collateral manager on the deal. At the same time, the issuer is proposing to appoint Collateral Manager as the successor advancing agent.
• Investors who held Federation CDO notes and used ANZ as custodian were last month informed that Lehman had 'joined' ANZ with end holders and investors which Lehman had initiated legal action against in September 2010. End holders will consequently be required to indemnify ANZ in respect of any legal costs and other liability.
• Moody's has downgraded from Aa2 to Aa3 the Euro and US MTN programmes of Links Finance. The ratings remain under review for possible downgrade.
Regulatory update
• Representatives from Calypso Technology and Deloitte discussed Basel 3 and liquidity risk management in Asia Pacific during a live webinar, hosted by SCI in December (view the webinar here). Topics included the impact of the LCR and NSFR on banks, as well as how to align strategy with compliance.
• The US Department of Justice has filed a civil lawsuit against S&P in the District Court for the Central District of California. The complaint alleges that the rating agency engaged in a scheme to defraud investors in RMBS and CDOs by issuing inflated ratings that misrepresented the securities' true credit risks.
• McGraw-Hill and Standard & Poor's Financial Services have filed for declaratory relief in federal court in South Carolina, petitioning the court to declare that the state is precluded on First Amendment grounds from suing S&P for allegedly inflating its ratings of MBS leading up to the financial crisis. The complaint was filed a day after the US Department of Justice sued the rating agency in federal court in California.
• New documents have been filed in New York State Supreme Court claiming that the proposed US$8.5bn figure for the 2011 Bank of America settlement is too low. The submission was made by Triaxx, as well as the Federal Home Loan Banks of Boston, Chicago and Indianapolis.
• Spanish Minister of Economy and Competitiveness Luis de Guindos last week proposed changes to the country's mortgage market that, if implemented, have implications for Spanish RMBS. The proposals chiefly pertain to providing aid to borrowers that are struggling to meet mortgage payments and follow on from the mortgage foreclosure moratorium announced in November last year.
• RBS and its subsidiary RBS Securities Japan will pay around US$612m in penalties and disgorgement as a result of its Libor breaches. The figure includes £87.5m to the UK FSA, US$150m to the US Department of Justice and US$325m to the CFTC.
Deals added to the SCI database last week:
Affinity Water Programme Finance; Cavalry CLO II; MCF CLO I; and WFRBS 2013-C11.
Deals added to the SCI CMBS Loan Events database last week:
BSCMS 2007-PW16; CD 2006-CD3; CD 2007-CD5; CGCMT 2007-C6; COMM 2005-LP5; CSFB 2003-CK2; CSFB 2004-C2; CSMC 2006-C4; CSMC 2007-C2; CSMC 2007-C3; CSMC 2007-C4; CWCI 2007-C3; DECO 7-E2; EMC VI; EPICP CASP; GCCFC 2006-GG7; GECMC 2005-C4; GECMC 2007-C1; GMACC 1998-C1; GMACC 2003-C3; GSMS 2004-GG2; JPMCC 06-LDP7 & 06-CB16; JPMCC 07-LDP11 & GSMS 07-GG10; JPMCC 2005-LDP2; JPMCC 2005-LDP4; JPMCC 2006-LDP7; LBUBS 2003-C1; LBUBS 2003-C3; LBUBS 2003-C5; LBUBS 2003-C7; MESDG CHAR; MSC 2005-T17; MSC 2006-HQ9; MSDWC 2002-IQ3; OPERA CMH; TAURS 2006-3; TAURS 2007-1; TITN 2006-1; TITN 2006-3; TITN 2006-5; TITN 2007-1; TITN 2007-2; TITN 2007-3; TITN 2007-CT1; TMAN 3; TMAN 6; UBSCM 2007-FL1; Various; WBCMT 2003-C5; WBCMT 2005-C19; WBCMT 2006-C24; WBCMT 2006-C26; WBCMT 2006-C29; WBCMT 2007-C30; and WINDM VII.
Top stories to come in SCI:
Outlook for the pub sector
Relative value in US CLOs