A look at the major activity in structured finance over the past seven days

Pipeline
European transactions dominated the pipeline by the end of last week. It comprised two sizeable RMBS - £9bn Silverstone Master Issuer series 2011-1 and €3.5bn Home Loan Invest 2011 - and the Penarth Master Issuer 2011-2 credit card deal. A European windstorm cat bond, the €100m Calypso Capital, and the A$350m SMART Trust series 2011-3 rounded the pipeline out.

Pricings
Three credit card deals - the US$1bn Gracechurch Card Programme Funding series 2011-5, the US$545m-equivalent Turquoise Credit Card Backed Securities series 2011-1 and the US$1.1bn American Express Credit Account Secured Note Trust 2011-1 - printed last week, along with two auto ABS (US$1.1bn Ford Credit Floorplan Master Owner Trust A series 2011-2 and US$750m Santander Drive Auto Receivables Trust 2011-4). Additionally, two European RMBS priced: €792m Arena 2011-2 and €5.9bn Stichting Green Lion III.

Markets
The primary US consumer ABS market was active last week, with five transactions pricing. At the same time, the FFELP student loan ABS sector saw S&P downgrade 118 tranches that were unable to meet its triple-A stress scenario, with little market impact.
"Investors' focus was definitely more on the primary market this week," say securitised products analyst at Barclays Capital. "As a result, secondary market activity slowed. Sellers continued to outnumber buyers, with most sales occurring in the short end of plain vanilla products as investors looked to extend duration and pick up yield from primary issuance."
The selling pressure and lack of focus on the secondary market served to push spreads wider in many sectors. Fixed rate senior credit card spreads were the only segment to emerge unscathed, but senior floaters were 3bp-5bp wider and fixed and floating rate mezzanine/subordinate credit card paper finished the week 15bp-25bp wider. More off-the-run sectors were also weaker, although trading activity was limited.
At the same time, Bank of America Merrill Lynch ABS research analysts suggest that the rating actions taken by S&P remove some of the uncertainty that has been hanging over the FFELP ABS market. However, they add: "We would have thought S&P would have found mitigating factors for more deals."
Before the rating action, spreads on longer-dated FFELP ABS were 5bp-7bp wider week-on-week and were unchanged afterwards, partly because the announcement took place late Friday and before a holiday weekend. The BAML analysts expect the rating actions to have a minimal impact on FFELP ABS spreads, as the rating actions were largely already priced in.
Meanwhile, US CMBS underperformed the broader markets, according to Barclays Capital US CMBS strategists. "While equities quickly recovered after the mid-week decline, a similar move has not followed (at least yet) in CMBS," they say.
The strategists go on to suggest a number of potential explanations. "We believe that the most significant driver of the current dislocation is lower CMBS liquidity. The upcoming long weekend was likely one of the contributing factors to the lower trading volume at the end of the week, prompting us to believe that there might be some recovery in the 2006-20007 duper space after the holiday. However, since Tuesday will coincide with the upcoming new remittance period, all eyes will be on the new remittance tape, watching for new delinquencies, modifications and watchlist transfers."
On a low volume, 2006-2007 lower quality dupers were about 15-20bp wider week-on-week and more substantial widening occurred in the AM space. The Barcap strategists add: "AJs seems to be finally stabilising in the low dollar-price territory, making them less sensitive to the macro-driven volatility."
Meanwhile, CLO market participants were last week focused on their month-end valuations, with marks expected to be down by three to five points on average across the capital structure. The secondary market remains mixed, albeit with European CLO tranches seeing heightened demand. European CLOs continue to trade at a wide basis to US deals, with the basis becoming wider over the last few months, thereby providing opportunities to pick up cheap paper.

Deal news
• ABPP has confirmed that the total redemption amount (post-swap breakage costs) for EPIC Opera (Arlington) will be £132.3m, following the sale of Reading International Business Park. Due to the net proceeds being below the allocated debt amount for the property, they will be applied pro-rata with the distribution set to take place on the 28 October IPD.
• Nearly a year has passed since modifications to the US$2.7bn Beacon Seattle & DC Portfolio loan were set in motion. However, with concerns over equity shortfalls at maturity and the inability of some servicers to protect senior bondholders' rights, the jury is still out as to whether the restructuring has been - or will be - classified a success.
• An investor notice was released on 6 October advising of a manifest error in the documentation for the recently priced Mesena CLO 2011-1. The error is contained in the sections entitled 'Article 122a of the Capital Requirements Directive' and 'Description of the Portfolio Servicing Agreement' of the prospectus
• Nomura Corporate Research and Asset Management has filed a fifth amended and restated notices of proposed assignment of the investment management agreement for Clydesdale Strategic CLO I and Clydesdale CLO 2005. It has also requested consent from subordinated notes and rated notes, as well as a waiver from the rated notes.
• Dynex Capital says it expects to exercise its option to refinance this month approximately US$74.2m in collateralised financings with repurchase agreement financing in order to take advantage of the lower interest rate environment and reduce its overall borrowing costs. Approximately US$23.7m of the collateralised financings is a CMBS issued by the company in 1998.

Regulatory update
• The European Banking Authority (EBA) has published a set of answers to questions received about Article 122a of the EU's capital requirements directive. In "a huge step forward for the market", the answers build on the CEBS guidelines from December 2010 and clear up many previous uncertainties.
• The US SEC has issued a report on its observations and concerns following an examination of ten credit rating agencies registered as NRSROs. Although improvements were noted, concerns about each of the NRSROs remain.
• Many market participants appear to underestimate the potential impact of Solvency II on European ABS. This has led to a call for the securitisation industry to intensify its lobbying efforts in the region.
• The FDIC is to hold a public meeting on 11 October to discuss the implementation of the Volcker Rule under the Dodd-Frank Act. The rule restricts the proprietary trading and private investment fund activities of US banks and bank affiliates, as well as foreign banks with banking operations in the US.

Deals added to the SCI database last week:
Apidos CLO VIII
CNH Capital Australia Receivables Trust series 2011-1
Credit Acceptance Auto Loan Trust 2011-1
GE Equipment Midticket series 2011-1
Hyundai Auto Receivables Trust 2011-C
Lannraig Master Issuer series 2011-1
National RMBS Trust 2011-2
Panhandle-Plains Higher Education Authority series 2011-2
Series 2011-3 WST Trust

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