A review of securitisation activity over the past seven days
Market commentary
US CLO BWIC activity last week boomed ahead of the market holiday in honour of former president George H.W. Bush (SCI 4 December). Bid-lists were mainly triple-A oriented, whereas demand for triple-B bonds faded and double-B bond prices were 1.5 points worse off.
“People are re-evaluating double-B bonds based on market value (MVOC) and are focusing on high quality,” said one trader.
Meanwhile, several US CLO deals are believed to have been pulled from the pipeline and pushed back to 2019, amid growing concerns over market conditions (SCI 6 December). “What we are trying to do right now is to gauge customer demand,” observed another trader. “We are trying to find out what our customers want and at the moment we are not getting much information from them.”
Price discovery has been difficult over the past few weeks, with the trading schedule broken up by market breaks.
Away from the US, the European primary and secondary ABS markets saw a surge in activity, due to uncertainty over the next quarter (SCI 4 December). “After the high volatility last month, I was expecting a slow-down,” a trader noted, surprised by the activity.
He suggested that market ambiguity around the next quarter is driving it. “The consensus is that things will only get choppy from here on out.”
High volumes of European BWICs hit the market last week, with one ABS/MBS list boasting over 80 line items. “Most of the bonds seem small and scrappy, so they might not do too well,” the trader said. “We have been trying to pick up cheap bonds where we can and moving them around, but we are not taking big risks at this stage.”
In the primary market, the UK government’s second student loan ABS was oversubscribed across all tranches. The trader explains: “It was a good deal from a pricing perspective and the collateral is a lot cleaner compared with the first Income Contingent transaction the government issued.”
The European CLO market seemed stronger than it was the previous week, but still relatively volatile (SCI 5 December). “I suppose good managers get deals done; I think that’s the bottom line,” another trader remarked. “For managers that are perceived to be worse, it is harder now.”
He continued: “November was an expensive month to price new deals in Europe. We saw some opportunities due to that, meaning cheaper deals.”
A notable gap opened up between triple-A and other tranches, particularly relative to double- and single-As. Triple-As currently have a lower spread and a higher price.
Transaction of the week
Permanent TSB has completed its second major transaction to reduce its non-performing loan ratio. The bank disposed of Irish mortgage loans with a €1.31bn GBV (€910m NBV) linked to 6,272 borrowing relationships via the Glenbeigh Securities 2018-1 RMBS (SCI 5 December).
The majority of the borrowing relationships are secured by private dwelling home loans, with 133 secured by buy-to-let loans. The portfolio has been restructured over the last few years, with the aim of helping borrowers rehabilitate to a healthy payment rate on a sustainable basis.
Of the loans, 32.4% were originally being repaid on a capital-plus-interest basis, but now pay on a part-capital-and-interest (PCI) basis. Meanwhile, 67.1% are split loans, one portion of which is considered performing (PL) and the other portion is considered to be warehoused (WL).
The proportion of the split between the PL and the WL varies and is determined by an assessment of the borrower’s affordability status at the time of restructuring. The WL proportion comprises 34.5% of the Glenbeigh mortgage portfolio, while the PL comprises 32.6%, according to DBRS.
Borrowers that are currently in negative equity status account for 39.6% of the mortgage portfolio.
The master servicer for the mortgage portfolio will be Pepper, with the servicing in the first six months from closing delegated to PTSB. The legal title of the loans currently with PTSB is expected to be transferred to Pepper within three months of closing.
Other deal-related news
- Seven new CLO managers are warehousing assets, with European CLO platforms ready to issue in 1Q19. Most of the new entrants are US managers expanding into Europe, but the increasing number of managers has sparked concerns that the European market may be reaching capacity (SCI 7 December).
- Deutsche Bank has refinanced its TRAFIN 2015-1 deal with the issuance of a new trade finance capital relief trade dubbed TRAFIN 2018-1. The US$216.125m five-year CLN references a US$3.5bn trade finance portfolio (SCI 5 December).
- Standard Chartered is in the market with its first global cashflow CLO backed by US$1bn of trade finance exposures, with collateral from across multiple jurisdictions. The senior tranche of the deal – dubbed Prunelli Issuer I (compartment 2018-1) – represents 75% of the assets, with overcollateralisation accounting for the remainder (SCI 3 December).
- Barclays has completed Colonnade Global 2018-2, a US$110m financial guarantee that references a US$1.33bn portfolio of mostly US corporate loans. The transaction is typical of Colonnade Global risk transfer deals in the sense that the credit protection covers both principal and accrued interest (SCI 5 December).
- The US$58.6m Matrix Corporate Center loan, securitised in MSBAM 2013-C11, has been liquidated with a US$46.1m loss. This was the second largest CMBS loss last month. For more, see SCI’s CMBS loan events database.
- Dock Street Capital Management has replaced Deerfield Capital Management as collateral manager for the Buckingham CDO II and III ABS CDOs (SCI 7 December). Under the terms of the appointment, Dock Street agrees to assume all the responsibilities, duties and obligations of the collateral manager under the indenture. For more CDO manager transfers, see SCI’s database.
Regulatory round-up
- The joint European Supervisory Authorities (ESAs) - which consist of the EBA, ESMA and the European Insurance and Occupational Pensions Authority - have published a letter reiterating market concerns over ESMA’s disclosure requirements (SCI 5 October) and Article 14 (SCI 9 July) of the CRR (SCI 4 December). The authorities have also called on EU national regulators to apply a “proportionate and risk-based” regulatory approach when the Securitisation Regulation comes into force next year (SCI 3 December).
- After filing for bankruptcy earlier this year, Sears is now at the centre of a high-profile saga in relation to credit event manipulation affecting its associated CDS (SCI 6 December). Various tactics have now been employed by interested parties to prevent the firm’s liquidation, which could reduce any pay out on the CDS, raising further questions about the instrument’s viability.
- A new European Commission Staff Working Document calls for an “industry body” to be established to issue and enforce “proper” operating and governance rules for European non-performing loan platforms, as well as to oversee their compliance. The paper also recommends that EU institutions and member states should discuss whether further/stronger incentives may be needed to spur seller participation in a European NPL platform (SCI 3 December).
Data
Pipeline composition by jurisdiction (as of 7 December)
Pricings
Auto ABS dominated last week’s pricings, pushing US issuance across the asset class to just shy of US$100bn for the year. It was also a strong week for student loan securitisations, with a trio of deals printing.
Last week’s auto ABS issuance consisted of: US$233.07m American Credit Acceptance Receivables Trust 2018-4, £2.85bn Cardiff Auto Receivables Securitisation 2018-1, US$400m Chesapeake Funding II Series 2018-3, US$701m Hyundai Auto Receivables Trust 2018-B, A$250m Liberty Series 2018-1 Auto Trust and US$1bn Nissan Auto Receivables 2018-C Owner Trust. The other ABS pricings were: US$366.45m CommonBond Student Loan Trust 2018-C-GS, US$258.78m Consumer Loan Underlying Bond Credit Trust 2018-P3, £3.9bn Income Contingent Student Loans 2 (2007-2009), US$511.5m Nelnet Student Loan Trust 2018-5 and US$100m Rosy Blue Carat. Among the other prints last week were the US$892m BBCMS 2018-C2 CMBS and the US$406.1m Marble Point CLO XIV transaction.
BWIC volume
Source: SCI PriceABS