A review of securitisation activity over the past seven days

Transaction of the week
Fair Oaks recently priced its debut European CLO, Fair Oaks Loan Funding, backed by an ESG-compliant portfolio. Between marketing and pricing, the €332.6m transaction underwent some structural changes, ultimately receiving a wide range of participation across the capital stack - including US and European investors (SCI 10 June).

Tyler Wallace, portfolio manager at Fair Oaks, comments that, overall, the transaction has been a success - although it was delayed by a "few weeks", as a result of an early Easter and public holidays. The deal has also undergone some changes from the original structure.

These include the introduction of unrated €2m class Z notes and €1m class M notes, which he says are "generally a result of the originator model we use. The Z and M notes are essentially fee notes, which you put in note form - they're not offered."

As well as this, the class A tranche has been split in two, with the new, smaller, class A2 notes now having a Euribor cap. This, he explains, benefits the equity and is generally cheaper than issuing a fixed-rate tranche.

Additionally, Wallace comments that the transaction has a two-year reinvestment period, which "made sense from an equity perspective, given the steepness of the triple-A curve." He continues: "It also isn't surprising that the class A notes are looking to price circa 20bp inside the last debut Euro CLO, which had a 4.5-year reinvestment period. The equity retains the option to reset or refinance after one year."

In terms of investor reception, Wallace says that the ESG element of the transaction was a conversation starter with investors, particularly attracting more attention from European firms. It didn't, however, impact the pricing of the deal.

Other deal-related news

• Managers' desire for greater flexibility - in order to navigate the current challenging credit conditions - is spurring innovation across the US CLO market. While alternative structures - such as MASCOTs - may have the most staying power, other features appear to be more opportunistic (SCI 10 June).
• Expectations for the return of meaningful equity release mortgage securitisation volumes remain high. Life insurance companies could play a significant role in the development of the sector, as both issuers and investors (SCI 13 June).
• Freddie Mac is expanding its K-deals CMBS programme with securities designed to meet the needs of investors seeking green bonds. The new KG-deals will exclusively securitise workforce housing loans made through the GSE's Green Advantage platform, which requires borrowers to make energy and water efficiency improvements to their properties (SCI 12 June).
• Dock Street Capital Management has been appointed successor collateral manager to Sorin Real Estate CDO III (SCI 12 June). The CRE CDO was previously being managed by Torchlight Investors subsidiary Collateral Management, which assumed the responsibility from RE CDO Management in February 2013 (see SCI's CDO manager transfer database).
• AFME's 1Q19 Securitisation Data Report shows that €32.4bn of securitised product was issued in Europe in the first quarter, a decline of 63.4% from 4Q18 and 44.7% from 1Q18. Of the amount issued, €16.5bn was placed (representing 50.9%), compared to the 39.9% of issuance placed in 4Q18 and the 55.1% of issuance in 1Q18 (SCI 10 June).
• The Colony IV Portfolio loan, securitised in JPMCC 2006-LDP9, has been liquidated with a 66% loss severity on the original US$171.4m balance (or 78% on the current balance of US$144.1m). For more CMBS-related news, see SCI's CMBS loan events database.

Data

Pricings
Auto-related ABS once again accounted for the majority of last week's pricings. A mix of aircraft ABS, whole business securitisations, CLOs and RMBS made up the remainder.

The auto-related ABS prints comprised: US$553.58m ARI Fleet Lease Trust 2019-A, US$1.21bn Drive Auto Receivables Trust 2019-3, US$300m Navistar Financial Dealer Note Master Owner Trust II Series 2019-1, US$1.5bn Toyota Auto Loan Extended Note Trust 2019-1 and US$1.2bn Westlake Automobile Receivables Trust 2019-2. The aircraft ABS issuance consisted of US$354.90m AASET 2019-1 and US$517.1m Business Jet Securities 2019-1, while the whole business deals were US$335m ME Funding series 2019-1 and US$1bn Wendy's Funding Series 2019-1.

Among last week's CLO prints were US$402.03m Ballyrock CLO 2019-1, US$559.40m Carlyle US CLO 2019-2, US$403.05m Hayfin Kingsland XI and €285m Tikehau CLO II (refinancing). Finally, a sole RMBS priced - A$1.5bn Kingfisher Trust 2019-1.

BWIC volume

Upcoming SCI event
Middle Market CLOs, 26 June, New York