A look at the major activity in structured finance over the past seven days
Pipeline
Among the deals that entered the pipeline last week are: the C$535m Ford Auto Securitization Trust 2011-R3 auto ABS; the US$375.2m Sequoia Mortgage Trust 2011-2 private label RMBS; and the US$1bn JMPCC 2011-C5 CMBS. Additionally, Goldman and Citi are said to be in the market again with the US$1.7bn GS MST 2011-GC4, the CMBS they pulled last month.
Pricings
ABS issuance last week surged back to life after several weeks of minimal activity. Three of the new issues that printed were in the auto ABS sector: US$650m CarMax Auto Owner Trust 2011-2; US$1.25bn BMW Vehicle Owner Trust 2011-A; and US$500m Ally Master Owner Trust 2011-4. Two were credit card deals (US$800m Discover Card Master Trust 2011-A3 and US$858.2m GE Capital Credit Card Master Note Trust 2011-3), one was an equipment ABS (US$875.84m CNH Equipment Trust 2011-B) and another was a stranded asset transaction (US$207.16m Entergy Louisiana Investment Recovery Funding I). The US$1.5bn Morgan Stanley Capital I Trust 2011-C3 CMBS and £2.4bn-equivalent Holmes Master Issuer 2011-3 - of which over 80% was US dollar-denominated - were also well-received.
Secondary market
Primary issuance overshadowed the US ABS secondary market last week, with nine deals pricing - see above. The market was able to absorb this supply without too much trouble, according to ABS analysts at JPMorgan. However, they add that some of the deals issued later in the week did suffer from lower demand, as they were last to market.
The JPM analysts say that themes in the secondary ABS market were generally unchanged. Supply in secondary remains a limiting factor and technicals should help stabilise spreads from here, they suggest.
The US CMBS secondary market saw a significant pick-up in trading volume, however. There was about US$1bn in BWICs, compared with only US$0.5bn for the past several weeks, according to Barclays Capital US CMBS strategists. Most of the increase could be attributed to a pick-up in BWICs related to several CRE CDO liquidations.
CMBS spreads took direction from the strong demand displayed on the new issue MSC 2011-C3 deal, according to Citi securitised product analysts. The 30%-enhanced A4 class was many times oversubscribed and tightened twice during the marketing process. It ultimately priced at 185bp over swaps, 15bp tighter than the DBUBS 2011-LC3.
While cash market activity picked up, CMBX saw volumes drop again, according to Deutsche Bank CRE debt analysts. "With near-term resolution for the Greek crisis likely on the horizon and potential good news from Bernanke next week, prices bounced off of their lows," they report.
US CLO secondary activity continued to be fairly muted last week, with spreads wider especially in mezz. About US$700m in BWICs circulated, but a couple of lists at the beginning of the week did not trade well.
Meanwhile, the volatility of broader markets has been matched by decreasing activity within the European ABS space, especially in the primary market. While secondary market liquidity has also diminished, there hasn't been any significant spread widening in the most liquid ABS sectors, suggesting that most investors are simply waiting for the sovereign situation to play out.
Deal news
• The US Bankruptcy Court for the District of New Jersey has denied Hildene Capital Management's motion to dismiss the ZING VII involuntary Chapter 11 case (SCI 28 July). Hildene has filed a notice of appeal.
• S&P has issued an RFC on proposed changes to its criteria for rating UK RMBS. It details changes that align the agency's criteria for UK RMBS closely with those for global RMBS.
• CapLease has confirmed the sale of CapLease CDO 2005-1 to NRF Cap, an affiliate of NorthStar Realty Finance Corp (SCI 19 August).
• Solutus Advisors has replaced Hatfield Philips as special servicer for the Brunel loan, securitised in DECO 6 - UK2X.
• Two ABS CDOs are to be liquidated: Kent Funding II, while Rockville CDO I collateral will be auctioned in two sales taking place on 27 September.
Regulatory update
• The Independent Commission on Banking released its final report on 12 September, recommending the ring-fencing of retail activities. Regulators will prohibit ring-fenced retail banks from investing in certain types of securities, but will allow them to originate and retain portions of their own securitisations. The Commission estimated that banking system annual pre-tax costs could rise by £4bn-£7bn, with at least half of the increase from curtailing the implicit government guarantee on bank funding. The report suggests implementation by the beginning of 2019, aligned with Basel 3.
• SIFMA has submitted comments to the US SEC in response to a Dodd-Frank mandated study the Commission must undertake related to the assignment of credit ratings to structured financial products. The association says it strongly opposes the implementation of the 15E(w) system because it would represent an unprecedented intrusion of government control into a private financial market. Rather, it supports the alternative proposed by the SEC that Rule 17g-5 satisfy the requirements of Section 939F.
Deals added to the SCI database last week:
Ally Auto Trust 2011-4
AmeriCredit Auto Receivables Trust 2011-4
Huntington Auto Trust 2011-1
Santander Drive Auto Receivables Trust 2011-3
Top stories to come in SCI:
Covered bonds versus European RMBS
CRE note auctions
Collateral management as a new investment discipline
Alternative ways of addressing contingent capital needs