A look at the major activity in structured finance over the past seven days
Pipeline
Further details of Credit Suisse Asset Management's latest CLO - the US$365.5m Atrium VII - emerged last week. Also entering the pipeline were the US$136.6m LEAF Receivables Funding 7 series 2011-2 equipment ABS and the US$75m Queen Street IV Capital catastrophe bond.
Pricings
Three jumbo European RMBS printed last week: the US$5.5bn Arran Residential Mortgages Funding 2011-2, the US$3.4bn-equivalent Silverstone Master Issuer 2011-1 and the €4bn Home Loan Invest 2011. A consumer ABS - €950m Golden Bar 2011-2 - rounded out issuance in Europe.
US pricings comprised of auto ABS: US$709.86m Ally Master Owner Trust 2011-5; US$100m American Credit Acceptance Receivables Trust 2011-1; US$90.33m First Investors Auto Owner Trust 2011-2; and US$1.48bn Honda Auto Receivables Owner Trust 2011-3.
Markets
The primary US ABS market continues to churn out transactions, although a short break in issuance is likely during the ABS East conference. However, the pipeline is expected to resume flowing steadily thereafter to Thanksgiving.
Top-tier benchmark spreads were mostly unchanged last week, with the exception of triple-A fixed rate prime auto bonds tightening by 1bp, according to ABS analysts at JPMorgan. At the same time, the bottom tier continues to weaken.
For example, off-the-run private credit student loan ABS spreads leaked wider in secondary trading. Lower tier FFELP names have also been soft amid negative rating action.
Despite strong rallies in the equity and credit indices, CMBS continued to underperform the broader market at the beginning of last week, according to US CMBS strategists at Barclays Capital. "After taking a day off on Monday, the CMBS market was expected to catch up with the broader markets on Tuesday; however, the trading volume that day was anaemic and spreads hardly moved. Wednesday certainly felt like a return to the good old days, with a strong two-way flow and the participation of a broader base of accounts. However, trading volume subsided again on Thursday," they note.
Overall, 2007 LCFs tightened by 5bp-10bp over the week and generic AMs from the same vintage remained nearly unchanged at around 780bp over swaps. Volumes remain well below the nearly US$2bn per week seen in the early part of the year, averaging less than US$800m per week over the past month, as most investors look to remain on the sidelines and wait out any short-term volatility.
Volumes are similarly light in the synthetic CMBS space, according to CRE debt analysts at Deutsche Bank. Looking at the new TRX.II index, they say: "Volume is low during this lull in issuance. After widening on its first day of trading, the index has retraced back to its launch levels. This has caused December settlement spreads to tighten as well, but the longer-term contracts have steepened relative to the shorter ones due to increased uncertainty over the next year."
Equally, the Deutsche analysts say that CMBX volume continues to remain depressed. This, they attribute to "a lack of conviction" among accounts that are not using the index as a macro hedge, noting that most of the index activity seems to be related to short covering.
The European primary ABS sector, meanwhile, saw far more activity than in secondary last week. Although confidence remains fragile, one trader reports that recent news has served to boost the ABS market.
Given encouraging comments emanating from Brussels as well as Berlin and Paris, the market believes that politicians are starting to get to grips with the problems that have beset Europe. Even if it does not mean those problems will be solved immediately, the trader notes that acknowledging them is a good start.
"It is not so much that there has been a lot of good news, but there has been a run of not-negative news, which has given participants hope," he says.
Meanwhile, the European CLO market continues to see pockets of activity without quite building any momentum. BWICs are still struggling to trade as investors remain cautious, although senior paper is seeing increased activity. However, last week saw little activity in mezz and equity tranches.
Deal news
• The issuer of Taurus CMBS (UK) 2006-2 has determined that the sequential payment trigger will not be breached if the sale of the St Katherine Dock property is completed successfully and the loan is prepaid prior to the October IPD.
• Henderson Global Investors held an auction for Avebury Finance CDO, comprising primarily of US assets, in Dublin on 12 October. The liquidation realised US$105.79m compared with an outstanding balance (including PIK interest) of US$121m. The trustee accepted bids for all of the collateral, but the assets of the issuer are expected to be sufficient for distributions to be made only to class A-1B noteholders and prior ranking creditors.
• The projected timetable regarding a restructuring of the GRAND CMBS is to be delayed slightly. DAIG says it intends to launch a scheme during this calendar year, with the expectation that it will be implemented during the first quarter of 2012.
• KBC has confirmed that it unwound the Fulham CDO at the end of last month and investors were paid back the full amount of capital invested and would receive a final coupon.
Regulatory update
• The advent of Basel 3 has significantly changed the way in which financial institutions address counterparty credit risk and credit value adjustment (CVA). While a small number of banks are geared up for the regulatory changes and are actively managing CVA, the complexity and cost of implementing the necessary infrastructure remains a daunting task for the majority.
• The SEC is to propose rules that lay out the process by which security-based swap dealers and security-based swap participants must register with the Commission.
• The Financial Stability Board (FSB) has published its second six-monthly progress report on the implementation of OTC derivatives market reforms. The report notes that, with just over one year until the end-2012 deadline for implementing the G20 commitments, few FSB members have the legislation or regulations in place to provide the framework for operationalising the commitments.
Deals added to the SCI database last week:
American Express Credit Account Secured Note Trust 2011-1
Arena 2011-2
AyT Novacaixagalicia Hipotecario I
Ford Credit Floorplan Master Owner Trust A series 2011-2
Gracechurch Card Programme Funding series 2011-5
Santander Drive Auto Receivables Trust 2011-4
Stichting Green Lion III
Turquoise Credit Card Backed Securities series 2011-1
Top stories to come in SCI:
Prospects for Trups CDOs
ABS recruitment trends
The role of CMBS LTV covenants
Australian/Asian CLN demand