A look at the major activity in structured finance over the past seven days
Pipeline
Many deals joined the pipeline last week, with a good number remaining even after several priced before Friday's end. The largest addition was US$1.28bn JPMCC 2013-C10, which was joined by two other CMBS in the shape of US$1.49bn COMM 2013-CCRE6 and US$569m GSMS 2013-G1.
The only new RMBS to enter the pipeline was US$600.2m Sequoia Mortgage Trust 2013-3, while US$387.75m Sound Point CLO II stands as the sole CLO entrant. US$200m Caelus Re 2013 is set to be the third ILS of the year, while the US$170.79m Educational Enhancement Funding Corp Series 2013 and US$187.1m Eole Finance SPC are also soon to join the ABS universe.
Pricings
The number of ABS deals that priced during the week was once again in double figures, with three RMBS, one CMBS and four CLOs hitting the market. Five of the 11 new issue ABS were auto transactions, while two credit card deals and a whole-business securitisation also printed.
The auto ABS comprised: €530.6m E-Carat Compartment No.5; US$1.342bn Ford Credit Auto Owner Trust 2013-A; US$1bn Nissan Master Owner Trust Receivables Series 2013-A; €719m VCL 17; US$1.25bn Volkswagen Auto Loan Enhanced Trust 2013-1; and US$350m World Omni Master Owner Trust Series 2013-1.
The credit card ABS consisted of US$1.15bn Chase Issuance Trust 2013-A2 and US$500m Golden Credit Card Trust Series 2013-1. The remaining ABS were US$1.16bn Nelnet Student Loan Trust 2013-2 and US$271m TAL Advantage V Series 2013-1. The WBS was £750m Arqiva Financing.
The three RMBS prints were US$101.6m BOMFT 2013-8 NPL, A$750m Medallion Trust Series 2013-1 and €1.473bn Orange Lion 2013-9. The CMBS new issue was US$1.49bn UBSBB 2013-C5.
Finally, the CLOs that hit the market last week included: €300.5m Cairn CLO III, US$420m Dryden XXVI Senior Loan Fund, US$400m Figueroa CLO 2013-1 and US$618.35m ING IM CLO 2013-1.
Markets
The European CLO sector picked up after a quiet start to the week, as SCI reported on 20 February. Cairn CLOs were in focus in both the primary and secondary markets early in the week, with one trader noting that the new Cairn CLO III deal priced "quite well".
In the secondary market, bids on CRNCL 2006-1X M were lower than expected. Dealers are trying to sell single-A paper at below 400 DM, although it remains to be seen whether buyers are willing to meet them at that level.
It was also a slow start for the US CLO market because of Presidents' Day, but Bank of America Merrill Lynch securitised products strategists note that volumes picked up as investors sought to lock in gains after the recent secondary spread tightening. They believe the market is now taking a breather to adjust to its new levels.
The number of CDO bid-lists circulating on Wednesday and Thursday was unusually high, althoughSCI's PriceABS archive shows that around 50% did not trade (SCI 21 February). 167 line items from US and European CLOs showed up on PriceABS on Wednesday alone. Many tranches were successfully covered, such as ALM 2011-4X F.
In the new issue space, the Dryden XXVI CLO triple-A tranche priced at 110 DM, a post-crisis tight. The single-A, triple-B and double-B tranches priced at spreads of 272, 367 and 590, versus CLO 2.0 tights of 265, 355 and 540 respectively.
Meanwhile, many recent-vintage tranches appeared on US CMBS BWICs towards the end of the week, as SCI reported on 22 February. Thursday's session suggested that the market was not particularly shaken by the latest minutes from the Fed and a longer-term tightening trend continued to be in evidence.
Non-agency US RMBS led the charge as secondary supply shot up on Wednesday (SCI 21 February). The fixed space was boosted by a liquidation list, while hybrid and subprime supply were also strong.
Subprime attention was largely focused on a liquidation list of 2002-2005 vintage mezz paper. SCI's PriceABS data showed SURF 2006-BC1 A2D and ARSI 2006-W5 A2C talked from the low-90s to low/mid-90s and from the low/mid-30s to 40 respectively.
Barclays Capital MBS analysts note that US RMBS agency paper once again saw up-in-coupon outperform with the basis continuing to lag. Despite the weakness, they observe that lower-coupon technicals remain strong and reassert that Fed MBS purchases will continue until year-end.
"FN 3s underperformed by 6 ticks, while FN 3.5s were down by two ticks. Technicals remain strong despite the weakness in performance, with 3 and 3.5 rolls trading 2-4 ticks special, driven mainly by ongoing Fed purchases. On the other hand, higher coupons continued their upward march, with FN 5s and 5.5s outperforming Treasury hedges by 4 ticks each," they comment.
Deal news
• The US$35m Doubletree by Hilton JFK Airport loan has been transferred to special servicing. Securitised in JPMCC 2012-CBX, the loan represents the first CMBS 2.0/3.0 asset to enter special servicing due to property performance.
• The US$150m JW Marriott Las Vegas Resort & Spa loan, securitised in the CSMC 2007-TFLA CMBS, realised a US$66.9m appraisal reduction this month. The move could shift control of the loan from the junior lender (Galante Holdings) to the class K notes and potentially resolve the ongoing litigation by three CRE CDOs to block it from exercising its fair value purchase option (see SCI's CMBS loan events database).
• Twelve EMEA CMBS loans were added and four were removed from special servicing following work-outs in January. A total of 157 loans, representing approximately 22% of the total outstanding deal volume, were in special servicing at the end of the month.
• Persistent servicer challenges and declining recovery rates are colouring the performance of Sofoles-sponsored transactions. Performance varies across three segments: transactions sponsored by government entities Infonavit and Fovissste perform well; bank RMBS exhibit mixed credit metrics; and non-bank sponsored transactions backed by Sofoles loans remain stressed.
• Morningstar has added the US$42.2m Ballston Common Mall loan, securitised in PCM Trust 2003-PWR1, to its watchlist after it passed its maturity date last month. There has been no indication from the servicer as to the borrower's refinancing plans.
• Dock Street Capital Management has been retained to act as liquidation agent for Davis Square Funding VI. The collateral will be auctioned via four sales on 26 and 27 February.
• The rankings in the SCI league tables for bank arrangers in the structured credit and ABS markets have been finalised for 2012, with RBS and Barclays Capital taking top spot in Europe and the US respectively. The moribund European new issuance market saw a drop in volumes over the previous year, while the US kicked on again from 2011's increased levels.
Regulatory update
• The ECB deadline for submitting loan-level deal data to the European DataWarehouse is the end of March. However, concerns about the legal implications of uploading such data have held some originators back.
• Providing performing borrowers in non-agency RMBS pools with a viable exit from their high-interest mortgages is attracting increasing attention among US policymakers. A couple of options are emerging, but a legislative approach - whereby mortgages are refinanced rather than crammed-down - would be preferable from an investor perspective.
• Competing rating agencies could gain market share due to the US Department of Justice's civil lawsuit against S&P (SCI 6 February). But it is also hoped that ratings standards and ratings transparency will improve as a result.
• The Basel Committee and IOSCO have published a second consultative paper that represents a near-final proposal on margin requirements for non-centrally cleared derivatives. Several features of the proposal are intended to manage the liquidity impact of the margin requirements on financial market participants.
• Recent rep and warranty proposals in new US RMBS deals may expose investors to added risks from weak underwriting and defective mortgage loans. Weaker proposals should be accounted for in the credit enhancement where possible.
• ICE Clear Credit has received regulatory approval to clear the Markit iTraxx Europe CDS indices. Clearing for the contracts will launch on 25 February.
• FASB has issued for public comment a proposal to improve financial reporting by providing a comprehensive measurement framework for classifying and measuring financial instruments. The proposals are expected to reduce volatility from debt value adjustments, as well as increase the transparency of financial institutions' statements.
• ESMA has launched a shortened consultation in connection with formulating regulation on fees for trade repositories (TRs) by a delegated act. The move follows a formal request from the EC to provide technical advice to assist it in this area.
• FIX Protocol Ltd has published recommended best practices and accompanying implementation guidelines for the electronic trading of bonds. The aim is to enable bond market participants to benefit from cost-effective and efficient connectivity to the growing number of bond trading platforms emerging across the US and Europe.
• Steps taken by the US Treasury to wind down the Capital Purchase Program (CPP) could lead to incremental cures in some TRUPS CDOs. 109 issuers across TRUPS CDOs remain participants in the programme, with the exposure reaching 208 issuers at its peak.
• The ECB's change to its repo eligibility criteria for covered bonds is credit negative for programmes with cover pools containing ABS, according to Moody's.
Deals added to the SCI database last week:
Ally Master Owner Trust series 2013-1; Chase Issuance Trust 2013-1; CNH Equipment Trust 2013-A; Ford Auto Securitization Trust series 2013-R1; Galaxy XV CLO; GSMS 2013-KING; Jamestown CLO II; Kentucky Higher Education Student Loan Corp series 2013-1; Nomad CLO ; Race Point VIII CLO; Salus CLO 2012-1; Sheridan Square CLO; South Carolina Student Loan Corp series 2013-1; Springleaf Funding Trust 2013-A; Torrens series 2013-1 Trust; World Financial Network Credit Card Master Note Trust Series 2013-A.
Deals added to the SCI CMBS Loan Events database last week:
BACM 03-2 & BACM 04-1; BRUNT 2007-1; BSCMS 2006-PW12; CD 2006-CD2; CGCMT 2004-C1; COMM 2004-LB4A; CSMC 2007-TFLA; CWCI 2006-C1; CWCI 2007-C3; DECO 2006-C3; ECLIP 2006-2; ECLIP 2007-2; EMC VI; EURO 23; FLTST 3; GMACC 03-C2 & GECMC 03-C2; JPMCC 2006-LDP9; JPMCC 2007-LD11; JPMCC 2007-LDPX; JPMCC 2012-CBX; LBUBS 2003-C7; MSC 2006-IQ11; MSDWC 2002-IQ3; TAURS 2007-1; TITN 2007-CT1; TMAN 6; WTOW 2007-1.
Top stories to come in SCI:
Focus on European CLOs
Progress report on CDS clearing