A review of securitisation activity over the past seven days
SCI seminars
- SCI's 2nd Annual NPL Securitisation Seminar will be held on 13 May in Milan. For more information or to register, click here.
- SCI's 1st Annual Middle Market CLO Seminar will be held on 26 June in New York. For more information or to register, click here.
Market commentary
European ABS secondary market activity was relatively subdued last week. However, the primary market picked up pace, with a pair of CMBS in focus and a new UK RMBS mandated (SCI 28 March).
"Given the lack of new issuance this year, we are expecting the two CMBS currently in the market - Kanaal CMBS Finance 2019 [SCI 20 March] and Taurus 2019-1 FR [SCI 27 March] - to be successful. For example, guidance for the latter has tightened across the capital structure, with the class A notes now talked at three-month Euribor plus 100bp area," said one trader.
Regarding Cerberus's £3.9bn Towd Point Mortgage Funding 2019 - Granite4 (SCI 25 March), the trader noted that it is "curious" how the bonds were placed, with the almost £3bn senior tranche preplaced at three-month Libor plus 102.5bp DM and the class B through F tranches available upon request from the joint leads Bank of America Merrill Lynch, Barclays and Morgan Stanley.
"I guess the seller and/or leads are concerned about the Brexit headline risk, so opted for a club placement," the trader suggested.
In secondary, there was a focus on continental short-dated paper. "Clients are keeping a defensive view on the sector, given the general negative sentiment that they expect to arise in the second half of the year," the trader observed.
Transaction of the week
Bank of America Merrill Lynch priced a €249.6m European CMBS last week. Dubbed Taurus 2019-1 FR, it is backed by 206 predominantly office properties located throughout France, let by Electricite de France (EDF) (SCI 27 March).
The transaction is a securitisation of a five-year senior CRE acquisition facility advanced by BAML to Colony Capital in the context of a sale-and-lease-back operation between Colony and EDF. The 206 assets securing the senior loan are held by three French borrowers: ColPower SCI, ColPowerSister SAS and ColMDB SAS.
Fitch suggests that the transaction could be constrained by the rating of EDF - the sole tenant in the transaction - which provides 98% of gross rental income for a WAL lease term to first break of six years. The agency notes that the structure of the financing exposes noteholders to collateral risks because senior noteholders could become materially more exposed to properties with the poorest prospects of income-generation, if Colony Capital were to release the better-quality assets.
The agency adds that while the portfolio is used by EDF and ENEDIS to facilitate the maintenance of the local electricity grid, it is unclear which sites are and will remain essential to these operators, exposing noteholders to the potential loss of the current tenant in part of the portfolio. As such, it might prove challenging to attract enough interest among potential alternative occupiers to create rental value in many of the buildings the tenant could elect to vacate.
Rental income from an investment grade tenant for an average of six years provides for significant equity distributions after debt service and, with an all-in LTV of 78.9%, Fitch indicates that the sponsor can be confident of recouping its upfront equity investment prior to loan maturity, regardless of its ability to refinance.
Other deal-related news
- HSBC's Metrix series 2015-1 CLN has suffered another credit event. The issuer received a credit event notice confirming that a bankruptcy credit event occurred on 15 March with respect to a reference entity that is believed to be Interserve, which was recently sold out of administration after shareholders rejected a rescue deal for the company (SCI 27 March).
- Cerberus is in the market with Towd Point Mortgage Funding 2019 - Granite4, backed by prime UK residential mortgages previously securitised within the Towd Point Mortgage Funding 2016 - Granite 1 and 2016 - Granite2 RMBS. The majority (93.1%) of the £3.9bn pool is represented by the assets of Granite 1 - which will be transferred by a true sale - with the remainder represented by the assets of Granite 2, which will be transferred to the issuer by way of English and Scots law declarations of trust (SCI 25 March).
- Prime Collateralised Securities (PCS) has announced its inaugural transaction to be verified as STS-compliant, marking the second European securitisation to receive the STS label. The transaction, dubbed Storm 2019-1, is a €1.1bn Dutch RMBS from Obvion and is expected to close on 12 April (SCI 26 March).
- Freddie Mac has completed exchanges of Freddie Mac Gold PCs for UMBS Mirror Certificates via its Dealer Direct portal, as part of the single security initiative. Specifically, the GSE has conducted exchanges of certain eligible Freddie Mac 45-day payment delay Gold Mortgage Participation Certificates (PCs) and Giant PC securities held in its portfolio for Freddie Mac 55-day payment delay, TBA-eligible Uniform Mortgage-backed Securities (UMBS) Mirror Certificates (SCI 29 March).
- Bank of Ireland has mandated a new Irish buy-to-let RMBS deal. Dubbed Mulcair Securities, the €358m transaction securitises a legacy BTL loan portfolio that was originated by the Bank of Ireland, ICS Building Society and Bank of Ireland Mortgage Bank. The rationale behind the deal is to offload non-performing exposures from the seller's balance sheet (according to EBA definitions) (SCI 29 March).
- LendingHome has completed its first syndicated, revolving securitisation of residential transition loans, issuing approximately US$208m of unrated ABS. The revolving structure facilitates efficient funding for the asset class, as the underlying residential transition loans typically pay off in approximately seven months (SCI 28 March).
- CCR Re has launched the first sidecar domiciled in France, dubbed 157 Re. By accepting a 25% stake in Cat World's Property Cat portfolio, 157 Re is offering a fully collateralised capacity to CCR Re, enabling it to continue its diversification and growth (SCI 28 March).
Regulatory round-up
- The ECB will adopt the new transparency requirements of the Securitisation Regulation (the new ESMA reporting templates) for its collateral framework in the future. The new reporting standards will apply for new securitisation transactions issued after 1 January, providing two conditions are fulfilled: the new ESMA reporting templates have been adopted; and at least one securitisation repository has been registered with ESMA. Three months after both conditions are fulfilled, the new reporting templates will become a requirement for ECB repo eligibility (SCI 27 March).
Data
Pricings
European securitisation issuance ended the quarter on a high, with a trio of prints last week and a number of deals remaining in the pipeline. A pair of Australian RMBS also priced.
Last week's ABS pricings consisted of £500m Driver UK Master Compartment 5, US$209.7m FCI Funding 2019-1, US$38.6m SHREC ABS 1 Series 2019-1 and US$482.6m SoFi Professional Loan Program 2019-B Trust. The RMBS comprised A$600m Resimac Premier Series 2019-1 and A$750m Triton Trust No. 8 Bond Series 2019-2, while a CMBS - €237.1m Taurus 2019-1 FR - also priced. Among the CLO prints were US$589.3m Ares LIII, €456.3m Avoca CLO XX, US$511m Greywolf CLO IV (refinancing), US$404.55m LCM 30, US$503m Madison Park XXXIV, US$410m Maranon Loan Funding 2019-1 and US$745m Oaktree CLO 2019-1.
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