A look at the major activity in structured finance over the past seven days
Pipeline
Four transactions remained in the pipeline at the end of last week: the US$1bn Freddie Mac SPC Series K-15 CMBS; the €1.5bn IM FTPYME Sabadell 9 SME CLO; and two RMBS - Permanent Master Issuer 2011-2 and the A$500m Series 2011-1 SWAN Trust.
Pricings
European RMBS dominated issuance last week, with the €296m Carismi Finance 2011, €724m Grecale RMBS 2011, €935m FCT Domos 2011-A and €1.1bn FCT Domos 2011-B all printing. Two credit card ABS also priced: US$300m Cabela's Credit Card Master Note Trust 2011-IV and £610m Arran Cards Funding 2011-A. An auto lease ABS (€861m FCT Ginkgo Sales Finance 2011-1) and two CLOs (€1.36bn Empresas Banesto 6 and US$407.1m Atrium VII) rounded out the new issues.
Markets
Activity in US ABS was fairly limited at the start of the week, with many market participants attending the ABS East conference. But trading picked up as investors returned to their desks during the latter half of the week, according to ABS analysts at Bank of America Merrill Lynch. "Participants at the conference seemed more interested in discussing market technicals, rather than fundamental issues," they note.
Trading focus remained on benchmark sectors, although news of Citigroup's decision not to sell its private label card business renewed interest in the notes issued by COMNI, the BAML analysts add. After the news, spreads on COMNI notes tightened by 40bp for longer dated floating- and fixed-rate classes.
Spreads on short-dated senior and subordinate cards and autos were mostly unchanged during the week. Spreads in the FFELP ABS market were flat to tighter by 2-5bp.
On the week, US CMBS spreads reflected a preference for safety as 2010-2011 triple-A paper tightened, while legacy paper remained flat, according to Wells Fargo structured products analysts. Specifically, ten-year 30% credit support paper from the 2011 vintage tightened by around 5bp to 160bp over swaps. Spreads on agency CMBS paper also improved, with ten-year Freddie Mac K-deal bonds coming in by 9bp to 74bp over swaps.
In European CMBS trading activity was again muted last week, though BWIC volume (€80m) was higher than the prior week, according to CRE debt analysts at Deutsche Bank. "Prices in general were flat, with a sizeable list on Tuesday covering at levels at or even slightly above price talk (though admittedly some of the weaker names did not trade), which we would expect should inject some confidence into the market. There were also stronger signs of stabilisation for mezzanine tranches than recent weeks," they say.
Meanwhile, the near-term outlook for the CLO markets was once again clouded by macro and policymakers' decisions, according to BAML CLO analysts. But, they add: "With the relative value backdrop improving fast and with fundamentals still relatively steady, we continue to find sufficient value on a medium-term basis in parts of the capital structure to suggest slow and gradual accumulation of yield in quality bonds, if and when they can be sourced."
CLO analysts from JPMorgan concur: "The gain in leveraged loan prices has led to improved relative value in CLOs. US loans price 4.5 points higher than CLOs' weighted-average price, up from barely 1.3 points in mid-August, and European loans now price 7.4 points higher than CLOs."
Deal news
• Innkeepers USA Trust has reached an updated agreement with Cerberus Series Four Holdings, Chatham Lodging Trust and other related parties, thereby settling the litigation initiated in August (SCI passim). Innkeepers says the agreement clears the way for the sale of 64 Innkeepers hotels to a Cerberus-Chatham joint venture for approximately US$1.02bn.
• The final payment on Epic (Industrious) was made on the 20 October IPD, resulting in a loss on all classes of notes. In particular, it represents the first time that a European formerly-rated triple-A securitised bond has suffered a principal loss.
• The Devonshire Square whole loan, securitised in ELoC 26 (Triton), has been extended to 23 April 2013. A business plan has been agreed that includes a covenant by the borrowers to market the property or otherwise refinance the loan by no later than 22 April 2013.
• Two ABS CDOs are due to be liquidated on 26 October: Dalton CDO and Kent Funding II. VCAP Securities and Stone Tower Debt Advisors respectively have been retained to act as liquidation agent for the sales.
Regulatory update
• The increase in reporting requirements and the use of trade repositories under the European Market Infrastructure Regulation (EMIR) is expected to boost transparency and allow regulators to keep tabs on systemic risk, according to a new Celent report. Given that a high proportion (68%) of interest rate swaps is already cleared via a CCP, the regulation is anticipated to have the greatest impact on the CDS and FX markets in Europe.
• The European Commission is proposing to revise the Markets in Financial Instruments Directive (MiFID). The new framework will increase the supervisory powers of regulators and provide clear operating rules for all trading activities, it says.
• MEPs have voted to ban naked CDS trading, with the sole exception of an option for a national authority to lift the ban temporarily in cases where its sovereign debt market is no longer functioning properly. Both the European Council and the full Parliament must now ratify the agreement.
• The Hong Kong Monetary Authority and Securities and Futures Commission have issued a joint consultation paper on the proposed regulatory regime for Hong Kong's OTC derivatives market. The bodies have been working together since G20 commitments were made in 2009.
Deals added to the SCI database last week:
Agorazo 2011-1
Ally Master Owner Trust series 2011-5
American Credit Acceptance Receivables Trust 2011-1
Arran Residential Mortgages Funding 2011-2
Autokinito
First Investors Auto Owner Trust 2011-2
Golden Bar 2011-2
Grecale RMBS 2011
Home Loan Invest 2011
Honda Auto Receivables Owner Trust 2011-3
Silverstone Master Issuer series 2011-1
SMART Trust 2011-3
SMHL Securitisation Fund series 2011-2
Spiti
Top stories to come in SCI:
Prospects for Trups CDOs
Australian/Asian CLN demand
US auto ABS issuance
RMBS servicing
Development of European loan-level data
CRE refinancing trends