A review of securitisation activity over the past seven days
Market commentary
A stronger tone emerged in the ABS market on both sides of the Atlantic last week.
Mezzanine CLO tranches, in particular, saw a tightening trend (SCI 5 March). "We were seeing a Norinchukin bid of around 130bp versus a non-Norinchukin bid of around 145bp, making it difficult for any spread tightening to occur. However, the market has returned from Vegas and we're now starting to witness some tightening across the mezzanine part of the capital stack, driven by the recognition that CLOs offer relative value," one trader observed.
For example, double-B rated tranches have tightened to around 650bp from the high-600s/low-700s in the US and to the high-500s/low-600s from 650bp-675bp in Europe, depending on spread duration and the manager. "CLOs have lagged the tightening seen in investment grade and high yield, with mezz paper offering around a 300bp pick-up on an OAS basis. Although dealers don't have a whole lot of inventory on their books at present, there has been good demand for shorter spread-duration discount securities," the trader explained.
Meanwhile, another trader suggested that a number of issuers in Europe are "ready to go", but are holding back as they await clarification around STS (SCI 8 March). He added: "Investors are not willing to sell paper, as they are waiting for new issuance to come alive." At the same time, "they don't want to buy paper that may or may not be verified as STS."
The trader noted, however, that the tone in UK securitisation has been very positive with strong trading of the Finsbury Square 2019-1 RMBS. In general, the deal has good quality collateral and the spreads are quite attractive, according to the trader.
There is, overall, strong demand for UK paper, which also suggests that "people aren't particularly bothered about the uncertainty regarding Brexit".
Transaction of the week
Bancorp is in the market with an unusual static CRE CLO dubbed Bancorp 2019-CRE5. The US$518.3m transaction is structured as a REMIC trust, with no ramp-up or reinvestment provisions and a third-party investor acquiring the first-loss position (SCI 7 March).
The securitisation's cashflow waterfall is similar to those in CMBS pass-through deals and does not employ interest coverage or overcollateralisation cash diversion tests. The holder of the horizontal risk retention piece is BIG CRE5, an affiliate of BIG Real Estate Fund I.
The transaction is collateralised by seven floating rate whole loans (accounting for 13.6% of the pool) and 54 pari passu participations (86.4%), secured by the fee simple interest in 75 properties. Of the participations, 38 (80.7%) have a related companion pari passu participation that represents an unfunded future advance obligation. The aggregate unfunded amount of all future advance obligations is US$72.8m, which is held outside the trust by Bancorp.
Further, 17 assets (6%) have a pari passu companion participation that is collateral for Bancorp 2017-CRE2, Bancorp 2018-CRE3 and Bancorp 2018-CRE4. One loan (4.1%) has existing mezzanine debt, while another four (2.5%) have preferred equity interests with debt-like provisions.
The collateral generally contains transitional and non-stabilised properties. The sponsors for each of the assets have plans to increase cashflow, which may include upgrading elements of the properties to attract tenants and/or re-lease space to attain higher rents.
The pool's property types include multifamily (82.4%), office (5.8%), lodging (5.4%), retail (5.2%) and mixed-use (1.2%). The multifamily exposure consists of 55 properties located in 16 states - representing a mix of primary (39.2%), secondary (25.1%) and tertiary (14.1%) markets - with a large concentration in the Houston MSA (11 properties, or 20.4%).
Other deal-related news
- Domivest is preparing the first securitisation backed entirely by Dutch residential buy-to-let mortgages. The transaction is likely to be sized at around €250m and is expected to close around April or May of this year, depending on market conditions (SCI 5 March).
- Scope has determined that the performance of Banca Popolare di Bari's last significant risk transfer transaction with the EIF (SCI 17 August 2018) has remained within its expectations. The sequential deleveraging of the transaction offsets the loss potential from a growing delinquency pipeline for the rated tranche, according to the agency (SCI 6 March).
- The NGP Rubicon GSA Pool loan - securitised in the WBCMT 2005-C20 and WBCMT 2005-C21 CMBS - is reported as 'performing matured', following the sale of the Lakewood property. Proceeds from the sale were used to repay advances and bring debt service current. For more CRE-related news, see SCI's CMBS loan events database.
- Judge Jennifer Frisch of the Minnesota District Court, Second Judicial District, has denied Goldman Sachs' motion to dismiss the claims asserted against it by Kasowitz Benson Torres, on behalf of its client, Astra Asset Management, seeking termination of the Abacus 2006-10 synthetic CDO. The case is proceeding with discovery, with trial scheduled for October 2019 (SCI 8 March).
Regulatory round-up
- The FHFA has issued a final rule requiring Fannie Mae and Freddie Mac to align programmes, policies and practices of TBA-eligible MBS, with the aim of improving the predictability of cashflows to MBS investors ahead of the introduction of the Uniform MBS. The final rule addresses feedback expressed by the market on the Notice of Proposed Rulemaking by refining alignment requirements to assure market participants that the enterprises will maintain consistent cashflows and makes explicit the potential consequences to the enterprises for misalignment (SCI 5 March).
- An ISDA working group has been discussing proposals to amend the 2014 ISDA Credit Derivatives Definitions to address issues relating to narrowly tailored credit events. The definition of the failure to pay credit event will be amended to add a requirement that the relevant payment failure result from or in a deterioration in creditworthiness or financial condition of the reference entity. This requirement would apply to corporate and financial reference entities but would not apply to sovereign reference entities. ISDA is asking for responses to the proposals by 27 March (SCI 7 March).
Data
Pricings
Auto ABS dominated last week's prints, as new issuance gathered pace post-SFIG Vegas. A number of CMBS and RMBS also priced.
The auto ABS prints comprised: US$254.52m American Credit Acceptance Receivables Trust 2019-1, US$1.19bn AmeriCredit Automobile Receivables Trust, US$437.35m NextGear Floorplan Master Owner Trust Series 2019-1, US$1bn Nissan Master Owner Trust Receivables Series 2019-A, Sfr250m Swiss Auto Lease 2019-1 and US$814m World Omni Automobile Lease Securitization Trust 2019-A. A handful of non-auto ABS were also issued: US$1.01bn John Deere Owner Trust 2019-A, US$453m SMB Private Education Loan Trust 2019-A, US$750m Synchrony Card Issuance Trust Series 2019-1 and US$1.2bn Verizon Owner Trust 2019-A.
The RMBS pricings were US$1bn CAS 2019-R02, £535m Finsbury Square 2019-1, €629m Jepson Residential 2019-1 and US$2.1bn Seasoned Credit Risk Transfer Trust Series 2019-1, while the CMBS were US$515m CALI 2019-101C, US$1.2bn FREMF 2019-K88, US$837m FREMF 2019-KF59 and US$934.9m MSC 2019-L2. Finally, last week's CLO prints included €409.79m Bilbao CLO II and US$501.85m Octagon Investment Partners 41.
BWIC volume
Conference
SCI's 3rd Annual Risk Transfer & Synthetics Seminar is taking place tomorrow, 12 March. Hosted by Clifford Chance at 31 West 52 Street, New York, the event features for the first time two workshop sessions - one on creating structural common ground between capital relief trade investors and issuers; the other on how Basel 4 capital floors influence business models, pricing and profitability. Panels cover mortgage risk transfer, the regulatory and investment landscapes, emerging trends and the US perspective, with a cocktail reception rounding off the day. For more information on the seminar or to register, click here.