A review of securitisation activity over the past seven days
Market commentary
Activity levels were high across the European ABS/MBS and CLO markets last week and they looked set to continue (SCI 3 July).
"It's very busy in both primary and secondary," confirmed one trader. "It feels like the usual rush before the summer holidays, but we're also feeling the effects of pent-up issuance from the quiet first quarter. We're seeing lots of new issues with different jurisdictions, collateral and deal types, as well as strong secondary volumes and plenty of bid lists across asset classes."
Despite the hefty supply, new deals and BWICs are trading strongly. For example, Green STORM 2019 priced yesterday with seniors coming in at MS+22bp - 5bp inside initial price talk - and SBOLT 2019-2 seniors came in at one-month Libor plus 120bp, in line with 120 area talk. Meanwhile, yesterday's bid lists went through at or around market expectations, keeping secondary spreads flat to slightly tighter on the morning's open.
Transaction of the week
Santander has issued a rare synthetic securitisation referencing a collateral pool of US prime auto loans. Dubbed Santander Synthetic Prime Auto Issuance 2019-A, the deal comprises CLNs referencing the performance of a static US$1.381bn portfolio of 59,771 auto loans made to high-quality borrowers across the US, for the purchase of new and used vehicles (SCI 2 July).
DBRS and Scope have rated four of the CLNs as A/A on the US$96.7m class Cs, BBB/BBB- on the US$60.783m class Ds, BB(low)/BB on the US$34.536m class Es and B(low)/BB- on the US$23.5m class Fs. Neither agency has rated the class A, B, G or H CLNs.
In the event of a performance-related subordination event related to the reference portfolio, the class A through to class G notes will be paid down sequentially. Likewise, net credit loss amounts on the reference portfolio will be applied on a reverse-sequential basis to the notes, starting with the most subordinate tranche.
Scope note that the "efficient synthetic structure" is a strength of the transaction, which works with "an immediate loss-determination mechanism reflecting Santander's IFRS 9 provisions". This mechanism is in line with the quick realisation of recovery proceeds, due to Santander Consumer USA's repossession and sales processes, in addition to limiting the counterparty exposure to Santander.
Potential transactional weaknesses include pro-rata amortisation and the portfolio of loans having a high average LTV of 96%. Likewise, Scope adds, the deal is weakened by Santander's ability to reclassify bankruptcy and failure-to-pay cases as restructuring - potentially leaving restructured loans in the reference portfolio, adversely impacting transaction performance.
Other deal-related news
- Dutch development bank FMO has signed a pilot bilateral risk-sharing facility under its NASIRA programme, which guarantees portfolios of loans to vulnerable, underserved entrepreneurs in sub-Saharan Africa and countries neighbouring Europe. The agreement is with Jordanian microfinance institution Tamweelcom and will support access to finance for Syrian refugee entrepreneurs (SCI 4 July).
- A notice of discontinuance from Greencoat Investments has been received by Business Mortgage Finance 6, purporting to discontinue its application for an administrative order with respect to the issuer, which had been listed to be heard before a High Court Judge at the beginning of July (SCI 16 April). This hearing has now been vacated and the application struck out with judgment, since the applicant failed to transfer £350,000 by way of security for the issuer's costs (SCI 5 July).
- The servicer of Elizabeth Finance 2018-1 has been notified that the mezzanine lender wishes to make a cure payment in respect of the outstanding loan event of default that occurred as a result of the loan to covenant breach under the Maroon loan. The cure payment has to be made by 16 July (SCI 4 July).
- Lloyds subsidiary Bank of Scotland intends to notify ESMA in respect of the STS designation of the notes in its Penarth Master Issuer credit card ABS programme. The bank has appointed PCS as an authorised third party to assess the compliance of the securitisation funded by the notes with the STS criteria for pre-2019 issuances prior to the originator submitting the STS notification (SCI 4 July).
- Lone Star is prepping a €458.9m RMBS, dubbed ERLS 2019-NPL1, backed by non-performing Irish residential mortgage loans and some first-charge performing loans. The mortgage portfolio to be purchased under ERLS 2019-NPL1 comprises part of the portfolio under ERLS 2017-NPL1 and the remaining from the part of the portfolios of LSF IX Java Investments and LSF IX Paris Investments (SCI 2 July).
Data
Pricings
The Independence Day holiday saw US ABS issuance take a bit of a breather last week. Meanwhile, European ABS began 2H19 with the busiest week in the primary market year to date.
Last week's auto ABS prints included A$500m Pepper SPARKZ Trust No. 1, A$400m Metro Finance 2019-1, €378.5m SapphireOne Auto 2019-1 and €1.25bn Silver Arrow Compartment 10. Other ABS pricings were US$222m CFG Investments Series 2019-1, €750m Limes Funding Compartment 2019-1 and £231.8m Small Business Origination Loan Trust 2019-2.
A handful of RMBS was issued: €388.1m Cartesian Residential Mortgages 4, €635m Green Storm 2019, €332m Shamrock Residential 2019-1, US$519m Starwood Mortgage Residential Trust 2019-1 and £500m Tower Bridge Funding No. 4. Finally, the sole CLO print was €407m CIFC European Funding CLO I.
BWIC volume
Podcast
The latest edition of the SCI podcast is live and includes discussions on recent structural innovations in US CLOs, the challenges firms face when trying to comply with the STS regulation and efforts to attract a broader range of Japanese investors to the US CLO market. Click here to listen, or search for Structured Credit Investor on Spotify or iTunes.