A review of securitisation activity over the past seven days

Market commentary
European ABS secondary market activity picked up last week, following a quiet start to the year (SCI 22 January). However, the primary market continued to experience its "slowest start to a year since 2011", as STS and Brexit uncertainty dampened activity (SCI 23 January).

One portfolio manager noted that CLOs have started the year fairly well. "The latest St Paul's CLO has just been announced, and there are a few more already in the pipeline."

Away from CLOs, there is a first-mover disadvantage in taking a view on the new securitisation regulations, he suggested. "There is still huge uncertainty about STS compliance and that is spooking would-be issuers. Then you have issuers, who have the data and are comfortable with compliance, but who cannot find buyers. The banks are skittish and that means issuers do not have certainty that they can place a transaction."

Nevertheless, there is talk of a UK master trust issuer potentially tapping the market. And Pepper is expected to bring a non-conforming RMBS in a few weeks, including short-dated US dollar- and euro-denominated tranches.

Meanwhile, the number of bid-lists hitting the secondary market increased last week, with "light volumes" seen in high quality CLO and short-dated auto ABS paper. SCI's BWIC calendar shows that BUMP 9 B was covered at 99.218 on 21 January, for example, while BABSE 2014-2X A1R was covered at 99.6.

A couple of lists comprising mezzanine non-conforming RMBS bonds also traded well. However, it was unclear whether the paper went to the Street or to end investors.

In the US, CLO spreads tightened last week, with a bulging pipeline and the return of confidence in the market (SCI 25 January). "Investors have been coming back to the market, so spreads have tightened and deals are being done. Triple-B mezz pieces, for example, have been pricing in the mid- to high-300s," another trader observed.

Transaction of the week
Banca Nazionale Del Lavoro has closed a €100m mezzanine guarantee with the EIF (SCI 25 January). Dubbed Minerva, the transaction was completed with funds from the European Fund for Strategic Investments (EFSI) and is expected to release €600m for lending to Italian SMEs. The guarantee is the first SRT transaction that the EIB Group has executed for Italian corporate loans and includes novel features, such as pro-rata amortisation and excess spread.

According to Giovanni Inglisa, structured finance manager at the EIF: "We made use of excess spread because it makes the transaction more efficient for the originator, as it enables us to optimise the size of the mezzanine tranche. This makes the released cost of capital very competitive, which in turn is expected to improve the cost of funding for new SME lending."

The excess spread features were structured in accordance with proposals in the EBA's SRT discussion paper. According to the paper, excess spread should be structured as a trapped mechanism and be commensurate with the expected loss of the portfolio, so that the ledger that is built up over time is not disproportionately large compared to the expected losses (SCI 22 June 2018).

Similarly, pro-rata amortisation renders the transaction more capital-efficient, since the relative size of the tranches remains stable over time. Sequential amortisation frees up less capital as the relative size of the tranches varies over time, in particular for the first loss tranche, which becomes disproportionately larger. A further novel feature is a replenishment mechanism.   

According to the terms of the transaction, the EIB provides a back-to-back guarantee to the EIF and the weighted average life of the portfolio is approximately two years, which is in line with past EIF synthetic trades.

Other deal-related news

• Far East Horizon Corporation (FEH) is marketing a CNY1.865bn securitisation backed by equipment lease receivables (SCI 22 January). The transaction - dubbed Far East Leasing 2019-1 - is the first deal from FEH to be supported by smaller-ticket and more diversified finance lease contracts, as well as being the first that S&P has rated.
• Clifden IOM No.1 has issued a Part 8 claim form, naming the RMAC Securities No. 1 Series 2006-NS1, 2006-NS2, 2006-NS3, 2006-NS4 and 2007-NS1 RMBS issuers, securities holdings, the corporate services provider and the share trustee as defendants to the claim. However, the issuers note that the claim has not, at this stage, been validly served on the defendants. 
• The borrower behind the 375 Park Avenue loan, securitised in the CGCMT 2013-375P and COMM 2013-CR8 CMBS is believed to have reached an agreement with its tenant Wells Fargo, which intends to relocate to its building at 30 Hudson Yards. Under the agreement, Wells Fargo's lease expiration may be accelerated, in return for a US$1.2m fee. For more on CMBS restructurings, see SCI's CMBS loan events database.
• Moody's has upgraded two tranches of Together's debut RMBS, Together Asset Backed Securitisation 1, and affirmed its ratings on the rest (SCI 25 January). The rating agency has upgraded the class B notes from Aa2 to Aa1 and the class C notes from A2 to A1, due to increased credit enhancement, following the addition of a sequential and non-amortising additional reserve fund by Together in November last year.
• The Symphony CLO III and Symphony CLO XI transactions have changed their names to California Street CLO III and California Street CLO XI (SCI 25 January).

Data

Pricings
US new issuance ticked up again last week, with a number of auto, consumer and CLO transactions pricing. However, the European market seems likely to see its first issuance-free (distributed and retained) January since 2003.

Last week's auto ABS prints comprised US$550m Exeter Automobile Receivables Trust 2019-1, US$1.32bn Mercedez-Benz Auto Lease Trust 2019-A and US$1.035bn World Omni Auto Receivables Trust 2019-A. The consumer ABS were US$1.07bn Evergreen Credit Card Trust series 2019-1 and US$213.75m GoodGreen 2019-1.

CLO volumes are also increasing, with US$399.93m Apres Static CLO 1, US$507.05m Ares LI CLO, US$454m Assurant CLO IV, US$601.5m CBAM 2019-9, US$429m Dryden 75 CLO and US$807.75m GoldenTree Loan Management US CLO 4 pricing. Additionally, a US$489m portion of Fortress Credit Opportunities VII CLO was refinanced.

Finally, Freddie Mac issued its US$714m STACR 2019-DNA1 RMBS and US$1.1bn FREMF 2019-K87 CMBS.

BWIC volume