A look at the major activity in structured finance over the past seven days
Pipeline
A mixed bag of transactions joined the pipeline last week. Four ABS, three RMBS, one CMBS and three CLOs remained by Friday.
The newly announced ABS comprised: US$101m Alterna Funding I; US$230.5m CarFinance Capital Auto Trust 2014-2; US$243.85m Louisiana LCDA System Restoration Bonds Series 2014; and US$593.31m Tobacco Settlement Financing Corp (Rhode Island) Series 2014. The RMBS consisted of: CSMC Trust 2014-IVR3; US$312.7m Silver Bay Realty 2014-1; and £311m Thrones 2014 No.1. The sole CMBS remaining in the pipeline is US$1.037bn MSBAM 2014-C17, while US$512.5m ALM XI, US$1.25bn Ares XXXI CLO and Northwoods Capital XII account for the CLOs.
Pricings
Last week saw a slew of deals price, including a couple of esoteric transactions. The prints comprised 11 ABS, six CMBS, one RMBS and four CLOs.
Among the ABS new issues were: US$1.3bn CCCIT 2014-A6; CNY800m Driver China One; US$1.5bn Ford Credit Auto Lease 2014-B; €259.7m German Mittelstand Equipment Finance No.2; US$500m Global SC Finance II Series 2014-1; US$300m HOA Funding Series 2014-1; US$387m MHEAC 2014-1; US$1.2bn OMFIT 2014-2; US$202m SolarCity Series III 2014-2; US$277m State Board of Regents of the State of Utah; and US$175m UACST 2014-1. The US$1.3bn COMM 2014-UBS4, US$284.1m CVS Lease-Backed Pass-Through Series 2014 Trust, C$312m IMSCI Series 2014-5, US$430m JPMCC 2014-DSTY, US$800m MSCI 2014-CPT and US$1.24bn WFRBS 2014-C21 accounted for the CMBS prints.
The sole RMBS to price was A$1.5bn SMHL Series 2014-1, while US$666.5m Dryden Senior Loan Fund XXIV, US$351.4m Saranac CLO III, US$402.3m Shackleton I-R CLO and US$500m Sound Point CLO VI rounded out the CLO issuance.
Markets
A number of BWICs circulated in the European secondary market last week, comprising paper ranging from peripheral RMBS and UK non-conforming RMBS bonds to CMBS and CLO names across senior and mezzanine positions. European securitisation analysts at Bank of America Merrill Lynch note that the paper met with strong demand and participants appear to have shrugged off BES concerns.
"Spreads appear softer on average in the core and stable in the periphery and high-beta sectors," they add.
The tone in the US non-agency RMBS market also remained positive last week, following the absorption of a second large list sized at US$4.4bn on Tuesday, which traded at a premium to market pricing. "While the large list traded well, it did not reset the market at higher levels, as trades and lists on the follow continued to execute at prevailing market levels prior to the list," BAML RMBS analysts observe.
Meanwhile, roughly US$1.2bn of US CMBS was out for the bid last week - almost half of which was comprised of AJ names, as investors took profits following the recent market rally. Although many of the bonds were met with good retail demand, spreads ended the week unchanged.
US CLO secondary activity was modest, however, with BWIC volumes totalling about US$450m and concentrated in the senior legacy space. "As senior 1.0 paper continues to roll down the curve, we are seeing very tight levels into even the 50s DM context for shorter-WAL transactions," note BAML CLO analysts.
Finally, US ABS spreads were generally flat last week, with secondary trading volumes increasing significantly over the previous week's levels. Through the first four days of the week, trading volumes averaged US$2.5bn per day versus US$1.4bn during the same period the previous week and significantly higher than the US$1bn traded each day on average last month, according to Barclays Capital figures.
Deal news
• Hertz has received a waiver from ABS bondholders in connection with its potential lease event of default, restoring the structure's revolving functionality (SCI 8 July). The move is said to demonstrate that the securitisation market can be responsive when technical consents are necessary.
• Bonds with lower factors are increasingly common on US non-agency RMBS bid-lists. As it becomes more difficult for investors to find large enough bonds to meet reinvestment demand, a pricing premium on larger blocks is developing.
• The UK non-conforming RMBS sector has benefitted greatly from the low interest rate environment. The timing, frequency and magnitude of rate rises are set to be the next key drivers of future performance.
• US CLO deals refinanced so far this year have typically had only 12-15 months left in their reinvestment period, but Carlyle Investment Management earlier this month refinanced the entire debt of Carlyle Global Market Strategies CLO 2012-2 with two years left in the reinvestment period. The market is said to be moving into "interesting territory", where a host of transactions are exiting their non-call period with two full years left in the reinvestment period.
• The recapitalisation of European CRE lenders through non-performing or non-core CRE loan sales should provide a supply of new opportunities. This, in turn, could potentially fuel increased European CMBS issuance.
• A group of eight Italian SME water utility companies have, under the auspices of the EIB, completed a structured financing backed by their own mini-bonds. An SPV dubbed Viveracqua Hydrobond 1 subscribed to €150m of mini-bonds on a cross-collateralised basis, before issuing the same amount of ABS notes.
• InterMoney has opened a competitive portfolio sale of repossessed properties backing the IM Pastor 2, 3 and 4 Spanish RMBS. The sale is believed to be credit positive for the three transactions.
• Harbourmaster CLO 3 mezz tranches defaulted at the deal's legal final maturity. The transaction differed in several ways from typical legacy European CLOs, but appears to have primarily succumbed to a lack of credit enhancement.
• A divergence in performance of Spanish RMBS loans between foreign borrowers and Spanish borrowers is emerging. Performing loans to foreign obligors appear to have a significantly higher rate of migration into delinquency than those to Spanish obligors.
• The US SEC has charged three Morgan Stanley entities with misleading investors in a pair of RMBS that the firms underwrote, sponsored and issued. The bank agreed to settle the charges by paying US$275m to be returned to harmed investors.
• Punch A and Punch B noteholders voted overwhelmingly in favour of Punch Taverns' covenant waiver requests at meetings convened on 18 July. All 16 meetings were quorate and the waivers will now expire on 19 November.
• Total return swaps on investment grade and high yield credit indices in Europe and the US have seen moderate success over the past two years. However, the recent extension of Markit's suite of TRS to include leveraged loans is expected to garner more attention - both in terms of addressing loan market hedging demand and helping CLO managers and other investors improve cash management.
• Appetite for transactions backed by restructured or re-performing loans is increasing in the Spanish housing market. The rapid deterioration of market in recent years has forced banks to avoid repossessions in favour of one-to-one solutions, leading banks to refinance or restructure loans to mitigate the increase in repossessions and non-performing loan levels.
• US CLO managers are divesting bonds in their portfolios in anticipation of rising interest rates and to realise gains. The replacement of some bond holdings with second-lien loans is said to be credit neutral because both asset types are expected to have similar recovery rates.
• Dock Street Capital Management has been selected as the replacement collateral manager for the Kleros Preferred Funding V CDO. There are no changes to the responsibilities, duties and obligations of the collateral management agreement.
• Bank of New York Mellon, as trustee for the Preferred Term Securities XII CDO, has retained Stifel, Nicolaus & Co as liquidation agent for the Trups collateral pool. An auction is scheduled for the transaction on 1 August, with settlement to occur on 6 August.
• Bemo Securitisation and FFA Private Bank have closed SS-FUND 3 SIF, a Lebanese revolving trade receivables securitisation. Backed by a diversified US$8.24m portfolio of trade receivables granted by CTC to mainly dealer clients, the transaction comprises US$5m of class A notes and US$2m of class B notes.
Regulatory update
• The US SEC has adopted final amendments to Rule 2a-7 under the Investment Company Act of 1940. The amendments are designed to make money market funds (MMFs) more resilient by increasing the diversification of their portfolios and - given that MMFs are significant investors in ABS - are set to impact the securitisation market.
• McGraw Hill Financial has filed a Form 8-K with the US SEC acknowledging that it received a 'Wells Notice' stating that the Commission has made a preliminary determination to institute an enforcement action against S&P. The notice alleges violations of federal securities laws with respect to S&P's ratings of six CMBS issued in 2011 and subsequent public disclosure made by the agency regarding those ratings.
• A single, numerical public credit scale should serve as a yardstick of the quality of structured credit instruments in the US, not the current ordinal scale, according to a recent Brookings paper. 'A Real Fix for Credit Ratings' highlights that little has been done by regulators to date to reform credit rating agencies, despite criticism over their failure to warn investors of the risks entailed by the subprime mortgage securities they rated.
• ISDA has published an updated analysis of how made-available-to-trade (MAT) determinations under the SEF regime have affected OTC derivatives trading activity. The association says the findings reveal that the market for euro IRS continues to grow more fragmented.
Deals added to the SCI New Issuance database last week:
Avis Budget Rental Car Funding Series 2014-2; BAMLL 2014-ICTS; BBVA RMBS 13 FTA; CAS 2014-C03; CGCMT 2014-GC23; Chase Issuance Trust 2014-6; CIT Aviation Finance III series 2014-1; Citigroup Mortgage Loan Trust 2014-J1; Colony American Homes 2014-2 Trust; COMM 2014-CCRE18; COMM 2014-KYO; COMM 2014-SAVA; Consumers 2014 Securitization Funding; Dell Equipment Finance Trust 2014-1; Galaxy XVIII CLO; GE Dealer Floorplan Master Note Trust Series 2014-1; Gracechurch Card Programme Funding series 2014-1; JGWPT XXXII Series 2014-2; JP Morgan Mortgage Trust 2014-2; JPMBB 2014-C21; JPMCC 2014-BXH; JPMCC 2014-INN; Moda 2014; Navient Private Education Loan Trust 2014-CT; Neuberger Berman CLO XII (refinancing); Sequoia Mortgage Trust 2014-2; TCF Auto Receivables Owner Trust 2014-1; TICP CLO II; Triton Trust No.2 Bond Series 2014-1; WinWater Mortgage Loan Trust 2014-1; World Financial Network Credit Card Master Note Trust Series 2014-B.
Deals added to the SCI CMBS Loan Events database last week:
BACM 2006-2; BACM 2006-3; BSCMS 2006-PW12; BSCMS 2007-PW16; BSCMS 2007-PW17; BUMF 2; CGCMT 2006-C5; CSFB 2004-C1; CSMC 2006-C5; CSMC 2007-C2; CSMC 2007-C5; DECO 2007-E7; DECO 8-C2; DECO 9-E3; ECLIP 2005-4; EMC VI; EPICP CULZ; EURO 27; JPMCC 2006-CB14; JPMCC 2006-LDP9; LBUBS 2005-C7; MLCFC 2007-9; TITN 2006-3; TITN 2006-5; TITN 2007-1; TITN 2007-3; TMAN 5; TMAN 6; WBCMT 2003-C7; WBCMT 2005-C17; WBCMT 2006-C24; WBCMT 2007-C34; WFRBS 2011-C3; WINDM X; WINDM XIV; WTOW 2007-1.