A review of securitisation activity over the past seven days

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Market commentary
The focus in the US CLO secondary market last week was on equity (SCI 21 March). Over US$100m in equity tranches was in for the bid across US and European CLOs, according to one trader.

Of note, a large (US$31m current face) control equity piece did not trade on 19 March. SCI's PriceABS archive shows that the AMMC 2014-15X SUB bond had been talked in the mid- to high-60s.

"Usually there is a premium for control rights, but the bids for this piece were several points back than is normal. The market seemed unwilling to pay up in this instance, possibly reflecting uncertainty over where loans will be later in the year - although the hit ratio of DNTs is typically higher for equity tranches than for investment grade bonds, as they are more opportunistic plays," the trader observed.

Transaction of the week
The first publicly rated securitisation of Irish and Spanish equity release mortgages (ERMs) has hit the market (SCI 20 March). The €256.4m SMI Equity Release 2018-1 RMBS is backed by 2,233 loans originated by Seniors Money Ireland and Seniors Money Spain (collectively known as SMI).

The loans are generally seasoned more than 10 years and the properties are predominantly located in Ireland (accounting for 94% of the pool), with the remainder in Spain. The Spanish properties all have UK obligors.

Within Ireland, the portfolio is overweighted within County Dublin (44.9%), although KBRA notes that this is not out of line with other Irish RMBS portfolios. The agency points out that unlike traditional mortgages where borrower defaults and regional property market stress are correlated, ERM repayments remain largely a function of mortality, regardless of the prevailing property market environment. Accordingly, it did not add an additional geographic concentration factor to its property value decline assumptions for the portfolio.

The weighted average age of the youngest active borrower age in the pool is approximately 76 years. KBRA notes that as a result, mortality and morbidity events will tend to be more back-loaded and therefore allow for a longer accrual period on the loan balance and increased crossover risk. In addition, the back-loaded nature of these events provides potentially less liquidity and deleveraging to the rated classes than a similar pool with a higher average borrower age.

Due to the seasoned nature of the loans, a portion of the portfolio (7.8% at cut-off) is inactive and is expected to be liquidated within the next four quarters. This provides an early source of liquidity relative to newly originated equity release mortgages or pools without inactive loans, according to the rating agency.

Other deal-related news

• Insurance firms are targeting mezzanine tranches in dual-tranche capital relief trades as banks warm up to unfunded insurance structures, given the lower cost of protection and the relative safety of the mezzanine tranches in these deals (SCI 10 January). Indeed, benchmark unfunded trades have already been completed (SCI 22 March).
• The Italian government has introduced a successor to the GACS scheme. The replacement guarantee features a longer extension period that provides more certainty for banks, raising the prospects for non-performing loan securitisation issuance going forward (SCI 22 March).  
• Goldman Sachs is in the market with a Dutch CMBS secured by 17 predominantly office and retail assets. Dubbed Kanaal CMBS Finance 2019, the €278.35m transaction is backed by two uncrossed limited recourse, first-lien mortgage loans - the €138m Maxima loan and the €140.3m Big Six loan - sponsored by Marathon Asset Management and Castlelake respectively (SCI 20 March).
• No further disbursements are expected for the DECO 2007-C4 CMBS, following a final recovery determination for the transaction. Duff & Phelps has been instructed to assist with the liquidation of the issuer, to which the trustee DTCL does not intend to object, unless instructed otherwise by noteholders. For more CRE-related news, see SCI's CMBS loan events database.
• Cerberus has confirmed that it plans to exercise its portfolio purchase option in connection with the Towd Point Mortgage Funding 2016-Granite1 and 2016-Granite2 transactions, ahead of their first optional redemption dates (SCI 18 January). If the portfolio purchase option is exercised, the RMBS notes will be redeemed on their first optional redemption date (SCI 22 March).

Regulatory round-up

• The Japanese Financial Services Agency has published its final rules on regulatory capital requirements applicable to Japanese banks and other institutions that invest in securitisation transactions (SCI 16 January). The rules allow certain exemptions from risk retention for open-market CLOs, provided investors demonstrate due diligence for the underlying loan collateral - a positive development for US CLOs, given the significant involvement of Japanese investors in the market (SCI 20 March).
• The US Fed has confirmed it intends to continue to allow its holdings of agency debt and agency MBS to decline, consistent with the aim of holding primarily Treasury securities in the longer run. Beginning in October 2019, principal payments received from agency debt and agency MBS will be reinvested in Treasury securities, subject to a maximum amount of US$20bn per month (SCI 21 March).
• PCS has confirmed its authorisation as a third-party verification agent by the UK FCA. The move enables it to provide verifications for European originators of the STS status of their securitisations in line with Article 27 of the STS Regulation (SCI 21 March).

Data

Pricings
The highlight of last week's new issue securitisations was the first STS-eligible ABS, from VW. As well as auto-related deals, a number of consumer ABS and CMBS priced.

The consumer ABS prints comprised £700m DLL UK Equipment Finance 2019-1, US$1.85bn DB Master Finance series 2019-1, US$330.31m Foundation Finance Trust 2019-1, A$301m Flexi ABS Trust 2019-1 and US$922m MMAF Equipment Finance 2019-A. The auto ABS pricings were US$321.86m Carvana Auto Receivables Trust 2019-1, US$1bn Chesapeake Funding II Series 2019-1, US$1.63bn Ford Credit Auto Owner Trust 2019-A and €960m VCL 28.

The CMBS new issues comprised US$833m BANK 2019-BNK17, US$1.15bn BMARK 2019-B10, US$503.5m Cloverleaf Cold Storage Trust 2019-CHL2 and US$900m RETL 2019-RVP. Finally, the sole RMBS print was US$608m STACR 2019-DNA2.

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