A look at the major activity in structured finance over the past seven days
Pipeline
The mix of deals added to the pipeline last week was skewed towards CMBS and CLOs. Only one ABS (US$1bn Volkswagen Auto Lease Trust 2013-A) and one RMBS (US$440m NRP Mortgage Trust 2013-1) began marketing, with five CMBS and four CLOs joining them.
The CMBS comprised: US$600m CGBAM 2013-BREH; US$1.54bn FREMF 2013-K29; US$1.3bn GSMS 2013-GC13; US$70m JPMCC 2013-ACMZ; and €1.409bn WFCM 2013-LC12. The CLOs were: US$500m Golub Capital Partners CLO 16; US$400m Highbridge CLO 2013-2; US$400m Ocean Trails IV; and US$407.5m Tall Tree CLO 2013-1.
Pricings
A more even distribution of deals printed last week, however. New issuance comprised three ABS, three RMBS, one CMBS and four CLOs.
Those ABS came from Australia, the US and Europe: A$400m CNH Capital Australia Receivables Trust Series 2013-1; US$842.31m Santander Drive Auto Receivables Trust 2013-4; and €606m SC Germany Auto 2013-2. All of the RMBS (€1.765bn Hypenn RMBS I, €1.917bn Lowland Mortgage Backed Securities No.2 and €2.2bn Marche Mutui 6) were European, as was the CMBS - the £260m Debussy DTC 2013.
Finally, the CLOs were: US$500m Ares Enhanced Loan Investment Strategy IR; €1.569bn Berica PMI; €309.26m Cadogan Square CLO V; and US$362.7m Telos 2013-4 CLO.
Markets
The US agency RMBS market largely outperformed last week. Wells Fargo RMBS analysts note that the belly and top of the stacks soundly beat their hedges.
"Down-in-coupon conventional 30-year 3.0s and 3.5s fared the best, followed by solid tightening in the belly production coupons. Conversely, the more HARP-exposed up-in-coupons - 5.0s and higher - actually lagged and underperformed mildly versus Treasuries and swaps," they add.
The non-agency RMBS market started the week quietly before coming back strongly on Tuesday, as SCI reported on 10 July. Supply for Tuesday's session was elevated across fixed, hybrid and subprime paper.
US CMBS spreads also recovered strongly mid-week, after encouragement from Federal Reserve chairman Ben Bernanke. Generic 2007 vintage dupers and AMs ended Thursday 5bp tighter than the previous week's close, at plus 125bp and plus 245bp respectively, according to Barclays Capital analysts.
BWIC volume was up in the US CLO market, meanwhile, with about US$570bn of bonds circulating. Bonds offered ranged from triple-A down to single-B, say Bank of America Merrill Lynch analysts, with around 20% not trading.
"The market tone improved towards the end of the week, with a wide variety of accounts coming into the market to look for cheap bonds. Tightening was seen in single-A to double-B tranches and 1.0 spreads concluded the week at 120bp, 160bp, 240bp, 325bp and 575bp," they say.
Spanish tranches remained popular in the European CLO market, while an ABS CDO BWIC on Thursday also had participants talking, as SCI reported on 12 July. SCI's PriceABS data shows a range of names from that BWIC, including CAVSQ 1 A2 and RENOR 1 IN.
Deal news
• The GSEs began liquidating their holdings earlier this year (SCI passim), with Freddie Mac selling around US$1bn in private label RMBS in May and Fannie Mae unloading about US$2bn in CMBS. Another US$1.1bn RMBS list - thought to be from Fannie or Freddie, although no formal announcement has been made - traded on 11 July.
• Total FNCL pay-downs fell by 9% month-on-month in June to US$40.5bn at 24.6 CPR, according to Barclays Capital figures, as two fewer processing days and a decline in HARP activity overwhelmed a modest decline in driving rate. The focus is now expected to turn to the July/August reports, where a cumulative 100bp increase in US mortgage rates will likely force prepayment speeds sharply lower.
• Fitch has released an unsolicited comment on NRP Mortgage Trust 2013-1, Nomura Corporate Funding Americas's new prime RMBS. The transaction has insufficient credit enhancement to achieve a triple-A rating, according to the agency.
• Australian lender Pepper has announced an unsolicited bid for RHG (formerly RAMS Home Loans), which is currently in wind-down. Moody's suggests that a takeover by either Resimac or Pepper would be credit positive for outstanding RHG RMBS.
• Specialty finance company Horizon Technology Finance Corporation has completed its debut securitisation. The US$90m Horizon Funding Trust 2013-1, backed by venture capital debt, is rated A2 by Moody's and was arranged by Guggenheim Securities.
Regulatory update
• The US Fed, the FDIC and the OCC have proposed a rule to strengthen the leverage ratio standards for the largest, most systemically significant US banking organisations. At the same time, the FDIC approved an interim final rule and the OCC approved a final rule identical in substance to the final capital rules issued by the Fed on 2 July (SCI 3 July).
• The US Fed, the CFPB, the FDIC, the FHFA, the NCUA and the OCC have issued a proposed rule that would create exemptions from certain appraisal requirements for a subset of higher-priced mortgage loans. The proposed exemptions are intended to save borrowers time and money, as well as promote the safety and soundness of creditors.
• The recent Flagstar (SCI 4 April) and Countrywide (SCI 7 May) rulings indicate an increased willingness of courts to allow statistical sampling as evidence of pool-wide breaches of MBS representations and warranties. However, the cases also open up many questions regarding statistics and evidence, according to NewOak Capital.
• ESMA has released a discussion paper in preparation for the regulatory technical standards (RTS) that will implement provisions of EMIR regarding the obligation to centrally clear OTC derivatives. The aim of the consultation is to determine which classes of OTC derivatives need to be centrally cleared and the phase-in periods for the counterparties concerned.
• The EBA has launched a public consultation on draft regulatory technical standards (RTS) that set out the requirements related to prudent valuation adjustments of fair valued positions. The objective of these draft RTS is to determine prudent values that can achieve an appropriate degree of certainty while taking into account the dynamic nature of trading book positions.
• ESMA has published a discussion paper dealing with the implementation of the CRA3 Regulation, which entered into force last month (SCI 19 June). ESMA is required to draft regulatory technical standards (RTS) regarding: disclosure requirements on structured finance instruments (SFIs); the European Rating Platform (ERP); and the periodic reporting on fees charged by rating agencies.
• Covered bond programmes from CIBC and RBC have become the first to be registered under the Canada Mortgage and Housing Corporation's (CMHC) new legal framework for covered bonds. Their approval follows updates on 27 June to CMHC's regulations for covered bonds.
• The Chartered Institute of Internal Auditors (IIA) has published a new code designed to enhance risk management within financial institutions. In line with the recent report of the UK Parliamentary Commission on Banking Standards the code aims to improve the overall effectiveness of the internal audit function, helping it play a more active role in preventing future problems in the financial services sector.
• The European Banking Authority has launched a second consultation on draft regulatory technical standards (RTS) for credit valuation adjustment risk. The aim is to further specify how a proxy spread should be determined for the calculation of own funds requirements and to provide additional details on a limited number of smaller portfolios.
• The Basel Committee has published its first report on the regulatory consistency of risk-weighted assets (RWAs) for credit risk in the banking book. This study is a part of its wider Regulatory Consistency Assessment Programme (RCAP), which aims to ensure consistent implementation of the Basel 3 framework.
Deals added to the SCI database last week:
Albion No. 2; COMM 2013-CCRE9; Horizon Funding Trust 2013-1; Mona Lisa Re series 2013-2; Orange Lion 2013-10 RMBS
Deals added to the SCI CMBS Loan Events database last week:
BACM 2004-1; BACM 2006-4; BSCMS 2007-BBA8; CD 2006-CD3; CSMC 2006-C3; CSMC 2007-C4; CSMC 2007-C5; DBUBS 2011-LC2; ECLIP 2006-3; ECLIP 2007-1; EPICP AYTN; EPICP DRUM; EURO 25; EURO 27; GCCFC 2005-GG5; GECMC 2004-C2; GMACC 2003-C3; GRF 2006-1; GRND 1; GSMS 2004-GG2; JPMCC 2005-LDP4; JPMCC 2006-LDP8 & JPMCC 2006-CB16; LBUBS 2006-C7; MLMT 2007-C1 & BSCMS 2007-PW17; MSC 2005-IQ10; OPERA CMH; TITN 2007-2; WBCMT 2007-C32
Top stories to come in SCI:
CLO structuring innovations
Basel 3 developments