Contents

Structured Finance

Winter freeze setting in

The slow end-of-year shutdown of the European ABS market has continued over the last week. Issuance is limited and very targeted as banks deal with other priorities, with a pick-up not expected now until 1Q12.

"Santander did a private Fosse placement a couple of days ago, mainly in dollars but with a euro tranche as well," reports a trader. "Sterling issuance is so dry because the basis swap is always in favour of the other currencies right now that it makes a lot of sense for UK issuers to target those currencies [see also SCI 30 November]."

He adds: "The Fosse deal was very targeted and looked like a reverse-inquiry type of issuance. We were not even contacted on that one and I think it just happened between Santander and a few select players."

The trader saw no further primary issuance and says that secondary market activity has also been quiet. Although the supply of BWICs has not dried up, he does not think many bonds are being bought off them.

The trader continues: "BWICs are more useful further down the capital structure for bonds that do not trade very often. They are useful for sellers getting an attachment point for the value, but I think they are less useful for buyers because in the end a lot of the bonds do not change hands."

Given the proximity of year-end, which is effectively a fortnight away for many participants, the trader is not surprised by how quiet things have become. However, he does not only attribute it to the time of year.

"There is also the fact that some of the large banks are busy doing liability management exercises. There have been several exchanges and tenders brought by a number of banks," he says.

He continues: "Treasurers are trying to clear out some of those liabilities, taking advantage of the fact that prices are very depressed. The buy-side may be a little unhappy with the terms, but treasurers are doing what they have to."

Liquidity was dry before, but has become drier. Judging by events in the wider markets, the trader believes that not only is medium-term funding a concern, but that overnight funding has also become a real issue for European banks.

He says: "The rumour is that one bank had real trouble finding overnight funding and that is what prompted the significant dollar funding cheapening action. I think these guys have more immediate concerns than trying to come up with new issuance right now."

Finally, although the European ABS market is quiet at the moment, the trader is sure that the situation will change when 2012 begins. He concludes: "Once the Christmas lull is over and we are into next year - and hopefully we have avoided Armageddon - I expect steady issuance, particularly from the UK players."

JL

CMBS

US CMBS still strong

The US CMBS primary and secondary markets have both remained active, with a raft of new issuances capturing investors' attention. Spreads have continued to tighten and the market is already looking forward to a flurry of new deals as 2012 begins.

"Generally the market is slower at the moment, but there was a US$300m short triple-A CMBS bid-list out today," reports one trader. "Everything on the list is short, with less than one-year average life. But a couple of deals are marketing as well, so there is activity."

The trader points to the recently priced JPMCC 2011 MST 2011-PLSD, a US$375m single-borrower deal. Encouragingly, the A2 class on that deal printed at 195bp over swaps, which was tighter than the price guidance of 215bp over.

"Also in the market is Cantor's deal, CCFRE CMT 2011-C2. It is sized at US$774m and backed by 51 loans and 72 properties; 45% is in retail, 18% in office and 15% in hospitality. Barclays Capital and Deutsche Bank are co-leads, along with Cantor on the transaction," says the trader.

He continues: "The deal includes three loans from Credit Suisse, which has shut down its CMBS origination business. Price guidance just came out for it, with the 9.5-year triple-As being touted at around 145bp-150bp over swaps."

Also out in the market is UBS 2011-C1, a US$674m deal from UBS, which is expected to conclude issuance for 2011. The trader notes: "The transaction pools 32 loans from 38 properties originated by UBS and Natixis. It has just come out and is probably going to be the last deal for the year."

While that may be the market's lot for this year, there are already a few deals queued up for the start of 2012. January is expected to see a US$1.2bn deal from Goldman and Citi, while JPMorgan is also underwriting a US$400m non-performing loan deal for Rialto.

Finally, spreads have continued to slowly tighten. GG10 A4s are trading at about 300bp over swaps, in from around 380bp back in October. New issue triple-As have also tightened, from 220bp-230bp over swaps a couple of months ago to 145bp over now.

"Most investors are focusing on triple-A and AM bonds. It is hard to gauge spreads below those because there is very little liquidity, especially with Basel 3 and FDIC stress tests going on. Banks just do not want to take any lower-rated bonds and it is tough for people trying to sell below investment grade," the trader concludes.

JL

ABS

Galaxy acquisition positive for pub WBS

Heineken has acquired the Galaxy pub estate - comprising 918 pubs - from RBS, which it had previously managed through its Scottish and Newcastle subsidiary, for £412m. The move is expected to have a positive impact on senior and mezz Unique and Punch bonds.

The sales price implies a multiple of 7.2x trailing 12-month EBITDA of £52m on the estate, according to securitisation analysts at Barclays Capital. The acquisition was on a debt-free basis.

"This is the first transaction of tenanted/leased pubs of size since the credit crisis began and we think this should be a positive catalyst for some senior and mezzanine tranches in the Unique and Punch A/B securitisations," the analysts note. "Although we are cautious about reading too much into one transaction, we think it does at least provide some market evidence that recoveries in these bonds in a forced sale scenario could be above current bond prices in the Unique class As and class Ms, Punch A class A and M and Punch B class As."

They suggest that a read-across from the Galaxy portfolio to the securitised tenanted estates is possible, with some caveats, because: the estate comprises various packages of disposals from several other pub groups; there is a reasonable proportion of pubs in the South East; no vendor finance was provided by RBS; and, given that the management contract was due to expire in December 2012, this would not have been the main driver behind Heineken's purchase. The caveats include the fact that Heineken has detailed knowledge of this portfolio, having managed it for the last 10 years or so, and that there appear to be more high-quality pubs in the portfolio which have high alternative use values than in Punch and Enterprise.

CS

Structured Finance

SCI Start the Week - 5 December

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

Pipeline
Three auto ABS transactions entered the pipeline last week (¥25bn Driver Japan One, €912.3m FTA Santander Consumer Spain Auto 2011-1 and ¥8bn NBL-1112). There were also two US CMBS deals (US$774m CCFRE CMT 2011-C2 and US$374m JPMCC MST 2011-PLSD) and two Atlas catastrophe bonds (US$100m Atlas VI Capital series 2011-1 and €75m Atlas VI Capital series 2011-2). Additionally, JGWPT XXIV - a US$198m deal backed by structured settlements - began marketing.

Pricings
Last week saw a few ABS prints, with the largest deal to price being Foncaixa Consumo 1, a €3bn SME securitisation that had only entered the pipeline the week before. A large US$1.6bn Fosse Master Issuer 2011-2 global RMBS was issued, as well as US$400m Miramax Series 2011-1 Film Library Asset-Backed Notes and US$275m Compass Re (film rights and insurance-linked deals respectively). Also pricing were four European RMBS deals (€883m Quadrivio Finance 2011-1, €1.38bn Stichting Orange Lion 2011-6, €29m Goldfish 20211-1 and €942m Berica Residential MBS 10) and one CMBS (€2.131bn Siena SME 2011-1).

Markets
Risk aversion appeared to fall sharply in some parts of the structured finance secondary markets last week. The most significant driver of this move was the coordinated action taken by the Fed and five other central banks to reduce US dollar funding costs for European banks, according to securitised products analysts at Barclays Capital. Furthermore, they note that risk appetite was bolstered by strong employment data, successful European bond auctions and strong US holiday sales data.
The positive tone in broader markets, carried over to the ABS markets, the Barcap analysts add. "Investor interest remains relatively strong in higher spread/yield product, as well as in generic consumer ABS sectors. The renewed appetite for high-quality consumer ABS has resulted in generally stable spreads across the sector," they say.
Senior retail auto, credit card and FFELP ABS spreads were unchanged on the week, with the exception of three-year FFELP paper, which widened by about 3bp. On the subordinate front, spreads on single-A and triple-B rated auto ABS were generally unchanged.
The same holds for mezzanine and subordinate classes of credit card ABS. Similarly, spreads of the more off-the-run sectors of the consumer ABS arena remained relatively flat.
In contrast, Deutsche Bank CRE debt analysts say that performance in the US CMBS market was rather slow for most of the week. However, Friday morning's employment report sparked some activity. On the week, generic LCFs were 10bp tighter and AMs were 25bp tighter, they report.
Meanwhile, in European CMBS BWIC volumes were around €20m (current face), but - with few names trading - it was another quiet week, according to the Deutsche analysts. "The cover of around 350DM on REC 4 A1 (a retail park where British Land is the largest unit holder in the sponsor) a few weeks ago remains the best barometer of where 'super clean' CMBS is currently trading. Unfortunately, the tone in the market did not improve dramatically in the face of this week's broad-based rally," they say.
Equally, the Barcap securitised products analysts observe that though fundamentals in the non-agency RMBS space continue to be attractive, risk appetite remains muted, as heightened volatility and year-end liquidity concerns are keeping some investors on edge. They note: "Prices were relatively stable w/w, despite the sharp rally in the broader equity and corporate credit markets. The lone exception was with option ARMs, which were up a point. Synthetic indices, on the other hand, participated in the rally to some extent, with ABX and PrimeX indices generally higher by 0.5-1.5 points w/w."

Deal news
• The auction process for Uni-Invest Holdings, which had progressed to the second phase of due diligence, has been suspended. Difficulties of raising debt in the current economic climate against properties similar to those securing the remaining loan in the Opera Uni CMBS were cited as the reason.
• Following the update to Fitch's Dutch NHG-backed RMBS criteria (SCI 6 July), all the affected issuers have confirmed that they intended to restructure the 13 impacted deals. Fitch says it has been provided with updated pool cuts, historical NHG claims submitted to the stichting WEW, historical foreclosure data of the NHG-backed loans and set-off risk assessments.
• Heineken has acquired the Galaxy pub estate, which it had previously managed through its Scottish and Newcastle subsidiary, from RBS for £412m. The move is expected to have a positive impact on senior and mezz Unique and Punch bonds.
• The New South Wales Supreme Court has allowed the restructuring - as approved by its security holders and senior lenders on 22 November - of the Centro Properties Group to proceed, thereby paving the way for the firm to refinance its underlying syndicates and meet the scheduled obligations to Centro CMBS 2006-1 by 20 December.
• Aurelius Capital Management on 30 November gave written notice of its resignation as collateral manager for Aurelius Euro CDO 2008-1. Omicron Investment Management proposed its appointment as successor collateral manager on the same date.
• C-III Asset Management intends to transfer the CDO collateral asset management responsibilities for the ARCAP RESECURITIZATION 2003-1, ARCAP RESECURITIZATION 2004-1, ARCAP 2004-RR3, ARCAP 2005-RR5 and ARCAP 2006-RR7 CRE CDOs to C-III Investment Management. The key employees and technology infrastructure are expected to remain in place.

Regulatory update
• The Reserve Bank of India has implemented guidelines relating to the introduction of CDS for corporate bonds effective from 1 December.
• The OCC has proposed a rule to remove references to credit ratings from its non-capital regulations and related guidance to assist national banks and federal savings associations in meeting Dodd-Frank due diligence requirements in assessing credit risk for portfolio investments.

Top stories to come in SCI:
2012 outlooks: Asian ABS and structured credit; European ABS; US ABS; CLOs; CMBS and credit derivatives.

CMBS

CMBS modification trends examined

Modifications will remain a key workout method for troubled CMBS loans amid an increasingly challenging lending environment, according to a new report from Citi securitised products analysts. Consequently, the analysts highlight some of the noteworthy emerging trends seen in recent modifications.

The Citi analysts suggest that servicers will likely provide shorter extension periods, but mods will continue to include many additional terms beyond simple maturity extensions. Indeed, complex modifications remain prevalent, as recent notable mods suggest.

"We can now see nuanced, multi-term mods on loans with balances below US$100m," they observe. "Great Wolf Resorts and 2600 Michelson are recent examples. Complexity no longer characterises just mods for multi-billion dollar or hundreds-of-millions dollar loans, such as Beacon Seattle & DC Portfolio, Villas Parkmerced or World Market Center. The latter three are examples of major notable mods of the past year that attracted considerable market attention. Mod complexity continues to require very detailed analysis when assessing the mod impact on bond cashflows."

The report notes that there was an abundance of new modifications over the past few months, as the analysts expected earlier in the year. "Special servicers still preferred modifications over liquidations in many cases, even as some servicers seemed to be shifting to an aggressive liquidations strategy late last year. Softening CRE lending in 2H11 and still-challenging fundamentals in some sectors likely rendered liquidations relatively less appealing in such cases," the analysts say.

Since the beginning of the year, nearly US$10bn of loans was modified, maintaining a trend that started in late 2009. However, compared to 2010, the number and volume of modifications somewhat decelerated later this year. The elevated 2010 mod level is partially due to the significant impact of the GGP modifications, executed late last year.

The analysts identify three noteworthy trends seen in recent modifications. First, they are seeing more split A/B modifications - albeit they are expected to become less common in light of senior bondholder concerns over the practice.

Second, extension periods vary. Extension options, which are based on the borrower meeting certain conditions, are also becoming more prevalent.

Third, the Citi analysts suggest that mod reporting timing and breadth is inconsistent. "In general, quite a bit of sleuthing is still required for tracking mods."

The current total fixed-rate modified loan balance is US$38bn (accounting for 6.5% of the fixed-rate CMBS universe), including the US$9.8bn of modified GGP loans.

MP

CMBS

Opera Uni firesale anticipated

The auction process for Uni-Invest Holdings, which had progressed to the second phase of due diligence, has been suspended. Difficulties of raising debt in the current economic climate against properties similar to those securing the remaining loan in the Opera Uni CMBS were cited as the reason. Bidders were unable to meet the expectations of the special servicer, Eurohypo, to secure a sale of the portfolio.

The special servicer now intends to consult with the class A noteholders regarding the disposal strategy. Class A noteholders are invited to contact Cairn Capital, financial advisor on the deal, if they would like to participate in the steering committee.

The CBRE valuation figure for the asset - a portfolio of 204 properties - released in June is €633.6m. The optimal, downside and fire sale valuations are €719.5m, €444.1m and €400m respectively. This compares with the Uni-Invest loan's outstanding balance of €606.57m.

Assuming the fire sale valuation is achievable and taking the outstanding balance of the liquidity facility into account, structured finance strategists at Chalkhill Partners expect class A noteholders to choose that route as it would provide them full recovery. The yield for the class A bonds at a price of 90 (assuming a 12-month disposal period) would be around 10.7%, noting the swap expiring at loan maturity (February 2012). It now appears certain that the bonds will default at this time.

CS

CMBS

Navigating CMBS

Dan Smith, president and ceo of Four Point Alliance, answers SCI's questions

Q: How and when did Four Point Alliance become involved in the CMBS market?
A: Four Point Alliance (FPA) is a commercial real estate advisory firm specialising in expert witness testimony in CMBS and other types of commercial real estate lawsuits, CMBS loan servicing and asset management. I formed the firm in 2009 to assist borrowers, lenders and CMBS servicers in navigating the CMBS servicing process. Indeed, the four points referred to in the firm's name represent our four client groups - borrowers, investors, lenders and third-party providers.

FPA is allied with Hart Advisors Group, which specialises in CRE equity portfolio management, loan restructures, loan assumptions and due diligence. The alliance involves referring business to each other: I refer asset management work to Hart Advisors and they refer litigation support work to FPA.

I previously led RBC's CRE lending group and after the bank closed it down, I was asked to work as an expert witness in a CMBS case. I realised that this might be a good niche to move into, especially given that - at the time - it was apparent that CRE lending probably wasn't going to pick up for a while.

Q: What are your key areas of focus today?
A: At present, I'm mainly focused on CMBS expert witness work. So far, I've been involved with many cases, the majority of which have been settled without going to trial.

Primarily the alliance with Hart works on behalf of investors that are in litigation with CMBS issuers, but I've also been involved in suits between servicers and borrowers. The work ranges from consulting to testifying, which entails scrutinising legal documents at time of occurrence, as well as any electronic communication and the underwriting files prepared by the lender.

I then produce a report supporting my findings for the judge and undergo a deposition. If the case goes to trial, I have to testify in court.

Most cases concern deals from 2005-2007, but by the time I'm involved they'll usually have been in dispute for over a year. The focus of the cases is usually on reps and warranty issues or a bankruptcy plan.

Q: Which challenges/opportunities does the current environment bring to your business and how do you intend to manage them?
A: I also work with borrowers who are late with payments or are experiencing non-monetary defaults or undergoing assumptions. Special servicers are extremely busy at present and don't have time to manage borrowers through the process. For many borrowers, it's the first time that they've been involved with a loan modification, so I essentially guide them through it.

The process is complicated and involves talking to the special servicer about their decisions and then liaising with the borrower. Sometimes it's a matter of getting files together with relevant information, such as data about the property, cash flow and what has caused the distress.

In many cases, property values have declined so much that the borrower can't refinance - this is particularly the case now that there are fewer lenders around. Those that are lending aren't lending to the LTVs needed. At the same time, cap rates have also risen.

When dealing with servicers, it is very important for borrowers to bring equity to the table. We can provide access to equity if a borrower needs it, but this isn't an area of our business that we market strongly.

Finally, in terms of the asset management side of the business, we'll advise on ways to grow operating income, as well as on the improvements process, and negotiating with tenants and vendors.

Q: How do you differentiate yourself from your competitors?
A: There aren't that many expert witnesses in the CRE/CMBS industry, so I don't have much competition. It's somewhat of a confrontational business, so many professionals stay out or have conflicts. However, if there's a conflict of interest, I'll refer business to someone else.

Q: What major developments do you need/expect from the market in the future?
A: Looking ahead, the CMBS market needs to stabilise: volatility in underwriting has to decrease and lenders need to develop a longer-term view on the sector.

Part of the problem is the paucity in available hedging strategies; not everyone is comfortable using synthetic indices, for example. I don't think we'll see many US$1bn-plus pools emerging any time soon because of the warehouse risk.

Instead, issuers will go to the market more frequently with smaller pools, teaming up with other banks in the process. To be successful, these partnerships need to embrace consistency in underwriting and a similar philosophy in terms of leverage levels and property types.

It would help investor acceptance if CMBS structures included reserves for maintenance and operational repairs, as well as reserves for shortfalls incurred while leases are being renewed or improvements are made. We're beginning to see these reserves included in deals, but not as frequently as investors would like.

While underwriting is becoming more homogeneous now, accumulation of collateral remains an issue because the market is so volatile. We've seen many instances of differing interest rates at time of application and execution, which has ultimately lengthened the pipeline.

Nevertheless, I expect a modest increase in CMBS volume next year. We're on target to hit US$30bn of issuance this year, so 2012's tally will probably be in the region of US$40bn-US$50bn.

Certainly, we'll see growth if the markets stabilise - after all, there is significant need for financing, with the magnitude of loans coming due over the next few years. Insurance firms will continue to play a significant role next year, albeit at not a particularly high enough percentage of the total refinancing necessary. Ultimately, the CMBS sector needs increased investor acceptance at both senior and subordinate levels.

CS

ABS

ABS sales md moves

Benita Levy has joined Mesirow Financial's institutional sales and trading department as md. She reports to senior md Dominick Mondi in Chicago and will focus on ABS, residential and commercial mortgage bonds and CDOs.

Levy has previously worked for Salomon Brothers (and its successor Citigroup) and FTN Financial. Her most recent role was at MF Global, which she joined in June this year.

ABS

British bank builds SF team

Aldermore has recruited a structured finance team, to be led by Ian Flaxman. The team will develop flexible and bespoke structured funding solutions for small and medium sized businesses throughout the UK.

Flaxman joins from Credit Agricole Commercial Finance as head of structured finance. Before that he was managing partner at Yorkshire Bank.

Simon Maddocks and Peter Raybould also join the team. Maddocks joins from Barclays Corporate Finance where he was sales director, while Raybould joins from specialist business recovery firm FRP Advisory.

"There is no doubt that British firms are finding it increasingly difficult to secure finance with a single funding partner which will enable them to leverage the value of their balance sheets. Aldermore's new structured finance team will be developing an integrated asset-based lending solution for SMEs," says Flaxman.

Structured Finance

Emerging markets vet charged with fraud

The US SEC has commenced enforcement actions against three separate advisory firms and six individuals for various misconducts, including improper use of fund assets, fraudulent valuations and misrepresenting fund returns. Among the individuals charged is Michael Balboa, co-founder and managing partner of ARAM Global, for his previous involvement with the Millennium Global Emerging Credit Fund.

The SEC's complaint alleges that Balboa, formerly the portfolio manager of Millennium Global Emerging Credit Fund, schemed with two European-based brokers - including Gilles De Charsonville of BCP Securities - to inflate the fund's reported monthly returns and net asset value by manipulating its supposedly independent valuation process. Separately, the US Attorney's Office for the Southern District of New York has arrested Balboa and simultaneously filed a criminal action against him.

According to the SEC complaint, from at least January to October 2008, Balboa surreptitiously provided De Charsonville and another broker with fictional prices for two of the fund's illiquid securities holdings for them to pass on to the fund's outside valuation agent and its auditor. The scheme caused the fund to drastically overvalue these securities holdings by as much as US$163m in August 2008, which in turn allowed the fund to report inflated and falsely-positive monthly returns. By overstating the fund's returns and overall net asset value, Balboa was able to attract at least US$410m in new investments, deter about US$230m in eligible redemptions and generate millions of dollars in inflated management and performance fees.

According to an ARAM Global spokesperson, Balboa has had no management responsibilities at the firm for over 18 months and did not work for the regulated business units. The firm stresses that the current complaint against Balboa relates to his employment at Millennium Global, where he was employed from 2005-2008. Balboa is on leave of absence until the resolution of the complaint.

The advisory firms involved in the SEC enforcement action are LeadDog Capital Markets, Solaris Management and ThinkStrategy Capital.

The charges were made under an initiative, dubbed the Aberrational Performance Inquiry, to combat hedge fund fraud by identifying abnormal investment performance. Under the initiative, the SEC Enforcement Division's asset management unit uses proprietary risk analytics to evaluate hedge fund returns. Performance that appears inconsistent with a fund's investment strategy or other benchmarks forms a basis for further scrutiny.

CDO

CRE CDO transfer due

Sandelman Partners is set to assign the collateral management agreement for Sandelman CRE CDO I to Petra Capital Management. Consent to the assignment from both the majority of the controlling class and the majority of the preferred shares holder has been obtained, as required by the transaction documents.

Established in 2006 as a private Delaware REIT, Petra is headquartered in New York and currently has a staff of 13 professionals that manages approximately US$800m through its CRE CDO platform. Led by Andrew Stone, Petra's senior management team has more than 25 years experience in the CRE industry.

Fitch has determined that Petra's capabilities are consistent with the current ratings assigned to the notes of the transaction.

CDO

ABS CDO manager replacement proposed

Aurelius Capital Management on 30 November gave written notice of its resignation as collateral manager for Aurelius Euro CDO 2008-1. Omicron Investment Management proposed its appointment as successor collateral manager on the same date. The replacement is subject to rating agency confirmation, as well as the consent of the controlling class and 50% of subordinated noteholders.

CDS

Fund management reshuffled

Highland Funds Asset Management (HFAM) will take over as investment adviser and administrator to Highland Credit Strategies Fund, effective 15 December. HFAM is an affiliate of the fund's current adviser and administrator, Highland Capital Management.

HFAM is assuming investment management and administration responsibility for Highland Capital's retail business as part of an internal reorganisation. HFAM has substantially the same ultimate ownership as Highland Capital and the new administrative services agreement with the fund will include substantially identical terms to the current agreement. There will be no change in the identity of the fund's portfolio managers.

CDS

CDS ceo named

Charlie Longden has joined LCH.Clearnet as ceo of CDSClear. He will report to group ceo Ian Axe and divide his time between London and Paris.

Longden joins from Markit, where he was fixed income md, and will lead the development of LCH.Clearnet's CDS clearing service within the constantly shifting regulatory landscape.

Longden has over 20 years of credit experience. He joined Markit from ABN Amro, where he was global head of credit trading and eco-markets and helped establish iBoxx Notes, the forerunner of iTraxx and CDX.

Axe comments: "Charlie's extensive industry expertise, coupled with his deep understanding of clients and their concerns, make him ideally placed to head up this important service for the next phase of its development. We are thrilled to have him on board."

CLOs

CLO transfer proposed

Deerfield Capital Management is proposing to transfer its rights and obligations under the investment management agreement of Gillespie CLO to BNP Paribas. The transfer requires the consent of the controlling class (the class A1 and A2 notes together) and the subordinated noteholders, each acting by ordinary resolution.

Deerfield has sought the consent of these parties by way of a written resolution. Noteholders are requested to approve it by 5 January 2012.

CLOs

CLO novation sought

Plemont Portfolio Managers has entered into a transfer deed with respect to Kintyre CLO I, pursuant to which it has agreed to transfer the role of portfolio manager to BNP Paribas by way of novation. The move is subject to the satisfaction of a number of conditions, including the consent of the controlling class (class A noteholders) by extraordinary resolution.

RMBS

FGIC files rep and warranty complaints

FGIC has filed three complaints in the Supreme Court of the State of New York against Residential Funding Company (RFC), GMAC Mortgage (GMACM) and certain of their respective affiliates in connection with four FGIC-insured RMBS. The transactions are: GMACM 2006-HE1, RFMSII 2005-HS1, RFMSII 2005-HS2 and RAMP series 2005-RS9.

The first complaint alleges that GMACM fraudulently induced FGIC's agreement to provide insurance through wilful and material misrepresentations and omissions concerning the nature of its business practices and the credit quality of the mortgage loans securitised in the 2006-HE1 notes. GMACM is accused of knowing that those mortgage loans were far different - and demonstrably worse - than GMACM had represented them to be.

The second complaint alleges that, since the closing of the 2005-HS transactions, it has come to light that RFC's representations and warranties were false and that RFC has materially breached - and continues to materially breach - those representations and warranties and other essential terms of its agreements. The third complaint alleges that, since the closing of the 2005-RS9 transaction, it has come to light that RFC's representations and warranties were false and materially breached when made and that RFC has breached other essential terms of its agreements with FGIC.

FGIC anticipates that it will file additional complaints with respect to other FGIC-insured RMBS transactions sponsored by RFC or GMACM in the near future.

RMBS

Mortgage banking team poached

Ballard Spahr has created a mortgage banking group. A team of four attorneys has joined the firm from the Washington DC office of Patton Boggs.

Richard Andreano, John Socknat and Michael Waldron join as partners and will serve as practice leaders for the new mortgage banking group. Reid Herlihy also joins as associate.

Firm chair Mark Stewart says: "Acquiring this group of superbly talented lawyers fills out our consumer financial services group in an important way by adding attorneys whose focus is on residential mortgage regulatory work - a need we've been aware of for some time."

ABS

Strong US auto ABS performance continues

Prime US auto loan ABS performance remained strong in October as seasonal weaknesses trended lower than usual, according to Fitch.

Delinquencies edged lower in October month-over-month, while losses crept up at a slow pace relative to prior years. The solid wholesale vehicle market continues to contain loss severity on repossessed vehicles, the agency notes.

The September-October period did not exhibit a pronounced seasonal weakness as is normally experienced at this time of the year. The average prime annualised net loss (ANL) rate during these two months was 0.58% this year, the lowest level in over seven years. Delinquencies of 60+ days averaged 0.52% during these two months, also the lowest in the past seven years.

Prime 60+ day delinquencies dropped to 0.48% in October, representing a 14% decrease from September. The improvement was consistent with prior years, with delinquencies typically declining during the month of October. October delinquencies are well within levels recorded in 2005-2006 and 17.2% improved over October 2010.

ANL were relatively flat in October, only marginally rising to 0.57%, which represents a 1.8% increase from September. Year-over-year, ANL were 31% lower in October 2011 versus the 0.89% recorded in October 2010 and the lowest level ever recorded during the month of October.

Similar to the prime performance, subprime performance remains strong relative to seasonal norms. Subprime 60+ days delinquencies dropped to 3.08% in October, a 3% decline over September. Delinquencies are 11% lower in October compared to October of last year.

Subprime ANL rose to 6.95% in October, representing an 8% increase from September. However, this increase was modest in comparison to month-over-month increases in September (21%) and August (24%). Subprime ANL were 4.7% lower in October when compared to October 2010.

ABS

Timeshare delinquencies near historical norms

US timeshare delinquencies rose during the last quarter as expected, yet remain consistent with levels from a year ago, according to Fitch's latest timeshare ABS index results.

Total delinquencies for 3Q11 were 3.56%, up from 3.28% in 2Q11. This reflects the seasonal deterioration that takes hold in the autumn and winter, Fitch says.

Total delinquencies are virtually unchanged from the 3.55% delinquency rate in 3Q10. Year-over-year improvements observed in recent years have ceased, as delinquencies have receded to levels closer to historical norms.

Monthly defaults for September declined to 0.62% from 0.80% in June and are also unchanged from the same period last year. Default trends typically lag those of delinquencies, and are expected to mirror the recent increase in delinquencies in the coming months.

ABS

Positive post-crisis performance for US ABS

Fitch has published a study analysing US credit card, auto and student loan ABS ratings outstanding on 1 July 2007 and their respective rating performance during the credit crisis to 30 June 2011.

US consumer ABS exhibited positive rating performance from the mid-2007 to mid-2011 period. The overwhelming majority of tranche ratings remained stable, were upgraded or were paid in full, including approximately 99% of both US credit card and auto transaction ratings.

Likewise, there were no credit card ABS downgrades and no investment grade auto ABS downgrades over the period. Equally, there were no impairments recorded for investment grade bonds in both the credit card ABS and auto ABS sectors during that time.

Downgrades were higher in the student loan sector, but - at 13% - the impairment rate was negligible. The sector saw a 0.6% default/near-default rate over the mid-2007 to mid-2011 horizon.

Structured Finance

Fitch updates on CRE CDOs and large loan CMBS

Fitch Ratings has released an updated criteria report for the surveillance of US CRE CDOs and CMBS large loan floating-rate transactions.

Fitch explains that while no material changes have been made to the core of the criteria, the recognised maturity default percent has been increased for the single-B and double-B rating stresses; and Libor stresses have been updated to be consistent with the Fitch research on 'Global Criteria for Cash Flow Analysis in CDOs' dated 15 September 2011.

No rating impact is expected to the highly rated (triple-A and double-A) classes while the rating impact for lower rated classes will range from no impact to generally one category, the agency adds. The new report replaces 'Criteria for US CREL CDOs and CMBS Large Loan Floating-Rate Transactions' dated 2 December 2010.

Structured Finance

Stable outlook for Euro SF

Fitch is maintaining its overall stable outlook for European structured finance transactions, despite the weakening macroeconomic backdrop and the negative effects that this could have on the performance of some of the underlying asset markets.

Current ratings already reflect the agency's expectation of further deterioration across most markets and asset classes. The structural protection available to the notes, alongside the downgrades already undertaken earlier in the cycle, mean that many of Fitch's structured finance ratings are insulated from the expected downturn in the economic environment, it says.

"Recent developments in the eurozone sovereign crisis have led to a weakening in sentiment across Europe and a marked increase in uncertainty about future asset performance," says Gioia Dominedo, senior director in Fitch's EMEA structured finance team. "However, this is not expected to affect all structured finance transactions equally. Certain sectors and asset markets remain insulated from the ongoing crisis."

The agency expects interest rates to remain exceptionally low during 2012, which will support the affordability of debt service payments for borrowers. This will result in broadly stable arrears levels for most consumer ABS, RMBS and SME CLO transactions.

However, this will not be sufficient to support transaction performance in all sectors. In particular, the effects of unemployment increases in Italy and Spain, as well as in weaker peripheral countries, will drive higher delinquency levels.

Other areas of concern include sectors that are dependent on balloon repayments and recovery values. "The intensified funding constraints on financial institutions, combined with stricter capital and liquidity requirements, have increased the pressure on banks to deleverage and shrink their balance sheets," says Andrew Currie, md in Fitch's EMEA structured finance team. "This will further increase the stress on sectors with significant refinancing requirements, such as CMBS and leveraged loan CLOs."

Structured Finance

Counterparty criteria downgrade warning

European transactions that did not implement changes to address counterparty exposures following the revision to S&P's rating criteria earlier this year and whose ratings are linked to a bank recently downgraded by the agency are expected to see knock-on downgrades in the next few days.

S&P on 29 November revised its ratings on 37 of the largest financial institutions as a result of its new bank rating criteria. The downgrades were typically only of one notch, but many of the affected institutions act as counterparties in securitisations.

An analysis undertaken by European asset-backed analysts at RBS of S&P's counterparty-related rating changes in July suggests that the list of critical counterparties - in other words, where note ratings are directly linked to the issuer credit rating (ICR) of the counterparty or one notch above the counterparty rating - include BBVA, Barclays, Citi, JPMorgan, LloydsTSB, Bank of Scotland and Morgan Stanley. Based on their analysis, the analysts suggest that the bonds consequently at risk of downgrade by a notch include: BBVA RMBS 2; Equity Release Funding 1, 2, 3 and 4; Kensington Mortgage Securities; Landmark Mortgage Securities 1 and 2; Lothian Mortgages 4; Mortgages 6 and 7; Newgate Funding; Southern Pacific Financing 04-A and 05-B; Southern Pacific Securities 04-1, 04-2, 05-1, 05-2 and 05-3; Auburn Securities 4 and 5; TDA 27; BOS 1, 2 and 3; Tioba Financing; Lusitano SME 1; Telereal Securitisation; and Mitchells and Butlers Finance.

Structured Finance

Financial guaranty ratings criteria hit

S&P has downgraded the financial strength ratings of Assured Guaranty Corp and Assured Guaranty Municipal Corp to double-A minus (stable outlook) from double-A plus (credit watch negative). At the same time, it downgraded the rating of Assured Guaranty Re to double-A minus (stable outlook) from double-A (credit watch negative). The action is in line with the agency's new criteria for rating financial guaranty companies.

Dominic Frederico, president and ceo of Assured Guaranty, comments: "Despite the higher capital standards, Assured Guaranty has maintained its ratings in the double-A category by continuing to execute its capital enhancement strategies. Further, the stable outlook assigned to our ratings reflects S&P's recognition of the quality of our insured portfolio, our underwriting discipline, risk management capabilities and strong competitive position. Our double-A minus stable ratings result in us maintaining some of the highest S&P ratings for a company in the financial sector."

Structured Finance

DSB deals downgraded

Moody's has downgraded the ratings of one RMBS (Monastery 2004-1) and two ABS (Chapel 2003-1 and Chapel 2007-1), as well as confirmed the ratings of another RMBS (Monastery 2006-1). The action reflects the impact of compensation that will likely be granted to borrowers by way of set-off in respect to due care claims related to DSB's lending and intermediation practices (see also SCI 1 November). This impact is derived from a framework agreement between the DSB bankruptcy trustee and consumer organisations presented in September 2011.

In its prior rating actions, Moody's had made assumptions with regards to the amounts of compensations to be granted in respect of due care claims. The agency says it has now received more details and clarity on these amounts and is therefore downgrading again the notes in three transactions and closing its rating reviews.

Structured Finance

Asian SF ratings to remain stable

Fitch says that it expects most outstanding ratings of non-Japan Asia (NJA) structured finance (SF) transactions to be stable in 2012.

"The uncertainties surrounding the global economy are not expected to materially affect NJA SF transactions. Asset performance in South Korea is projected to deteriorate mildly, though the triple-A ratings remain sustainable. In Singapore, cashflows of the Fitch-rated CMBS transactions are expected to be strong in 2012," comments April Chen, associate director in Fitch's NJA SF team.

The agency notes that the current high household debt in Korea will put the performance of securitised assets under pressure. However, the rating outlooks of Fitch-rated Korean SF transactions remain stable, given the low unemployment rate and benign domestic interest rate environment. The strong asset performance to date and low LTV ratios of the mortgage portfolios of RMBS, healthy payment rates, plus structural mechanisms - such as eligibility criteria for card and auto loan ABS - also support the stable outlook.

The robust rental revenue in Singapore's retail property sector in 2011 is forecast to continue in 2012. However, Singapore's office and hotel sectors are deemed relatively sensitive to the performance of the global economy, given the country's position as a regional business hub and as a large portion of its visitors are either international business or leisure travellers. Nevertheless, Fitch-rated transactions are able to withstand a 20%-50% decline in net cashflow from 3Q11 levels before any of the triple-A rated tranches are likely to suffer negative rating actions.

Fitch deems the refinancing risk in 2012 for Fitch-rated Singapore CMBS transactions low, given the good quality of the underlying properties and the originator's strong credit profile.

In Thailand, however, the recent flooding has caused widespread damage, resulting in business disruption and loss of livelihood. Consequently, the performance of Thai credit card transactions will be affected and it may take a few months to ascertain the magnitude of the impact. Barring the fall-out from major flooding in October and November, the performance of credit card portfolios has been stable and within Fitch's base-case assumptions.

CDO

ABS CDO liquidation scheduled

Stone Tower Debt Advisors has been retained to act as liquidation agent for Gulf Stream-Atlantic CDO 2007-1. The collateral will be sold to the best qualified bidders in one public sale, held in New York at 10am EST on 13 December.

CDO

Trups CDO deferrals declining

New deferrals continue to decline due to additional cures during the past month for US bank Trups CDOs, while defaults increased slightly, according to Fitch's latest index results for the sector.

Bank defaults for Trups CDOs rose by 0.05% to 16.62%, while new bank deferrals fell by 0.44% to 15.48% from 15.92%. The drop in deferrals was due primarily to bank cures during October and, to a lesser extent, new defaults from existing deferrals. The banks in question resumed interest payments and repaid accrued interest on their Trups in October, affecting US$146m of collateral in 15 CDOs.

The combined default and deferral rate for banks within Trups CDOs decreased 0.39% and now stands at 32.10%. Through the end of October, 193 bank issuers were in default (affecting US$6.3bn held across 83 Trups CDOs), while 377 bank issuers deferred on interest payments (accounting for US$5.8bn held by 84 Trups CDOs).

CDS

SEAT credit event called

ISDA's EMEA Credit Derivatives Determinations Committee has resolved that a failure to pay credit event occurred in respect of SEAT PAGINEGIALLE. An auction will be held in due course in respect of outstanding CDS transactions on the name.

The Committee also determined to withdraw the previous question in respect of SEAT PAGINEGIALLE, which had been submitted for external review, on the basis that the more recent submission of a question as to whether or not a credit event has occurred in relation to the name has now been addressed. The withdrawal should not be taken to imply any decision as to the issue that had been referred to external review, ISDA notes.

Separately, auctions to settle the credit derivative trades for The PMI Group and AMR Corporation CDS are due to be held on 13 and 15 December respectively.

CDS

SEAT auction scheduled

The auction to settle the credit derivative trades for SEAT PAGINE GIALLE CDS is to be held on 9 December. This follows the ISDA EMEA Credit Derivatives Determinations Committee resolution that a failure to pay credit event occurred on the name (SCI 2 December).

CDS

Indian CDS guidelines implemented

The Reserve Bank of India has implemented guidelines relating to the introduction of CDS for corporate bonds effective today (1 December 1). The bank issued these guidelines on 23 May 2011, but they were postponed pending infrastructure developments.

CDS

Unprecedented CDS widening to continue

The unprecedented widening of credit default swap spreads across many regions and sectors that characterised 2011 is set to continue into next year, according to Fitch Solutions in its year-end Risk and Performance Monitor.

"With no clear resolution to the European debt crisis and the US debt situation still in flux, CDS widening will likely persist in 2012," says Fitch director Diana Allmendinger.

This will likely result in added pressure on European sovereign CDS, which reached record highs this year after widening 170% on average over the course of 2011. Sovereign CDS liquidity also increased considerably in the Eurozone, with Hungary and Italy now the most liquid sovereigns through the end of November.

Another area of continued underperformance is likely to be financials, with spreads for European banks reaching levels not seen since the height of the credit crisis in 2009. Greek (at 146%), Italian (145%) and French (125%) financials led the CDS widening.

Spreads on North American banks also widened during 2011, albeit to a lesser degree, with CDS coming out 90% through the end of November. "As the landscape for new banking regulations evolves, the markets may distinguish more between the credit risk of big North American banks," adds Allmendinger.

CLOs

Alcentra prepping listed fund

Alcentra says it intends in early 2012 to launch a new fund that invests predominantly in senior secured loans and floating rate senior secured bonds issued by European corporates. The Alcentra European Floating Rate Income Fund, a Guernsey closed ended investment company, will be listed on the main market of the London Stock Exchange.

The fund aims to produce a quarterly dividend of 5.5% per annum in the first year of full investment. It is intended that a significant proportion of the portfolio will be sourced at a discount to par, allowing the opportunity for capital gains, and that no leverage will be used to achieve returns. Sterling and euro currency share classes will, subject to investor demand, be available at launch.

David Forbes-Nixon, chairman and ceo of Alcentra, comments: "We believe that current market conditions offer an extraordinary opportunity for investors. Since the global financial crisis in 2008, corporate balance sheets have strengthened and the leverage employed by sub-investment grade corporate borrowers in the US and Europe has fallen. Yet the return on loans at new issue has risen over this period. We believe that lenders today are being paid more for taking less risk."

The fund is targeting at least £150m. Once fully invested, it is expected that the portfolio will be diversified in approximately 60 investments across 15 industries, with no single borrower exposure of more than 5%.

Alcentra and affiliates are expected to invest at least €10m in the fund.

CMBS

CMBS loan extension prevalence highlighted

Fitch says in its latest European CMBS Loan Maturity Bulletin that continued restrictions on new bank funding mean that the majority of loans are still failing to repay at maturity. The Fitch Repayment Index remains low at 38.9%, though this represents a slight improvement from 37.2% in the previous month due to five loans repaying in full.

Full repayments during the month included the Sfr66.1m Corvatsch loan (securitised in Windermere X CMBS) and the €53.8m Algarve Portuguese loan (European Property Capital 3). The former continues the trend of successful redemptions of Swiss loans, while the latter represents one of the few loans in European CMBS transactions secured by Portuguese collateral, Fitch says.

"The full repayment follows the utilisation of the second one-year extension option in May 2011. Despite the ongoing uncertainty surrounding the Portuguese real estate market, the shopping centre securing the loan had performed well since closing, which will have greatly facilitated the successful refinancing of the loan," the rating agency adds.

By balance, only 27% of European loans that have matured since the beginning of the downturn have fully repaid at or shortly after their maturity dates. 42% of loans have been extended, while 21% are currently in workout. 2.1% of the loan balance that has matured since 2007 (excluding prepaid loans) has been lost.

"Full loan repayments at maturity are expected to remain low. In fact, four of the six loans maturing in December have Fitch LTVs in excess of 90%. This indicates that it is extremely unlikely that the loans will be successfully redeemed," Fitch says.

One of the loans, the Spanish (Heron City) loan securitised in White Tower 2007-1, is exposed to the ongoing downward pressure faced by the Spanish real estate sector. Fitch expects the Spanish retail sector to continue to suffer in the short to medium term. Consequently, the agency anticipates that the loan will be extended in order to avoid selling the asset under stressed market conditions.

Another loan scheduled to mature in December is the Dutch Offices I loan, securitised in MESDAG (Charlie). Having declined an extension request, Fitch expects the servicer to commence a workout of the loan. The agency believes the most likely strategy is one involving asset sales to gradually reduce the outstanding debt amount.

CMBS

US CMBS delinquency rate retreats

After two consecutive months of weak delinquency reports featuring increases that left the rate at its second highest point ever, the CMBS delinquency rate dropped sharply in November, according to Trepp's latest delinquency report. Overall in November, the delinquency rate for US CRE loans in CMBS fell by 26bp to 9.51%.

This was the second biggest drop in 2011, surpassed only by a 36bp drop in August. The rate has now fallen in four of the eleven months of 2011.

The percentage of loans seriously delinquent is now 8.88%, down by 33bp for the month. If defeased loans were taken out of the equation, the overall delinquency rate would be down by 29bp to 9.95%.

However, Trepp adds that unfortunately two specific trends will put severe upward pressure on the rate over the next few months, indicating that further improvements could be elusive. It notes that the first wave of 2007-originated loans are about to reach their balloon dates and at the same time it seems unlikely there will be a resurgence in new issuance.

CMBS

European CMBS maturity performance 'dismal'

European CMBS loan maturity performance in October was more dismal than S&P anticipated. According to the rating agency's monthly European CMBS bulletin, only five of the 35 loans scheduled to repay in that month did so in full.

Significantly, in the 12 months up to 31 October 2011, servicers have extended €4.97bn by loan balance - increasing the extension rate as a percentage of the 12-month rolling universe loan balance to about 38%.

This month's bulletin examines delinquencies by sector, noting that the sectors showing the most vulnerability to delinquency are the smaller ones (nursing homes and DIY), while the largest sectors backing European CMBS - office, retail and multifamily housing - are faring well by comparison.

Only six loans in European CMBS are currently backed by nursing homes and two are backed by DIY assets - one of each being in default. About 45% of these asset classes, by loan balance, are currently delinquent. And more than 50%, by balance, of nursing home loans are in special servicing.

On the other hand, there are 196, 111 and 63 loans backed by properties in the office, retail and multifamily housing sectors respectively. Roughly one in six office and retail, and one in 10 multifamily housing loans are delinquent. By loan balance, however, about 13%, 6% and 5% are now delinquent.

CMBS

Court ruling boosts Centro CMBS

The New South Wales Supreme Court has allowed the restructuring - as approved by its security holders and senior lenders on 22 November - of the Centro Properties Group to proceed, thereby paving the way for the firm to refinance its underlying syndicates and meet the scheduled obligations to Centro CMBS 2006-1 by 20 December. This follows the objection by PricewaterhouseCoopers to the restructuring.

However, Fitch points out that the refinancings of eight of the original 13 debt facilities still need to be completed within a short time-frame to meet the scheduled CMBS repayment date. It warns that if refinancings are not completed by this date, property values, property marketability and the timing of sales will become a driver in assessing the ability to fully repay the CMBS by its final maturity of 20 June 2013 and the impact this may have on the rating of the notes.

The pool comprises 21 properties, all managed by Centro. The majority of the properties are sub-regional shopping malls, half of which are in New South Wales and a quarter of which are in Queensland.

As at June, the weighted average occupancy rate for the properties was over 99%, according to Moody's. The portfolio's net operating income has been increasing since June 2009.

However, the 18-month tail period, the potential disruption caused by the property manager's bankruptcy and the many number of properties that will be put on sale around the same time is expected to pressure the sales prices. In addition, several properties are co-owned: the presence of another owner adds to the uncertainty of the sales process and sales price, Moody's notes.

CMBS

Defeased CMBS unaffected by sovereign move

Fitch says that its revised outlook on the US sovereign rating to negative is unlikely to yield actions on defeased US CMBS transactions. Overall exposure to defeased collateral amounts to 4% of the agency's total rated population (US$16.1bn in 206 transactions).

Fitch revised its outlook on the US to negative from stable earlier this week due to declining confidence that consensus can be reached to reduce the federal budget deficit. The agency plans to review the sovereign rating in 2012. In the absence of material adverse shocks, a resolution of the negative outlook is not expected until late 2013.

Over half of the defeased collateral in Fitch-rated US CMBS matures prior to the end of 2013. Therefore, the collateral is likely to pay off before any potential rating action on the sovereign rating.

Maturities of Fitch-rated defeased loans are as follows: 2011-2013 - 52% (or US$8.4bn); 2014 - 16.5% (or US$2.7bn); 2015-2020 - 18.5% (or US$3bn); and 2021 and beyond - 13% (or US$2.1bn).

In the event of a downgrade or rating watch negative for the US sovereign rating, Fitch would expect only those CMBS deals and rake bonds with significant exposure to defeased loans to be impacted.

CMBS

CMBS from 2001 'still standing'

Much has been made of the pressure that US CMBS has been under in recent years, but one vintage has withstood both a turn-of-the-decade recession and the recent global credit crisis, according to Fitch. With ten years of seasoning, the vast majority of CMBS collateral from 2001 has either been liquidated or repaid in full through 3Q11. In that period, no investment grade class has taken a principal loss.

The attribute that probably best typifies the 2001 vintage collateral is its moderate initial leverage, which has made loans easier to refinance, Fitch notes. The disciplined underwriting also provided 2001 deals with strong structural features while credit enhancement levels helped mitigate the dual recessionary stresses.

Losses on Fitch-rated single-borrower and large CMBS deals came in at just under 0.1%. Meanwhile, multi-borrower transactions have realised cumulative losses of 2.7%, with Fitch expecting an additional 1.8% of losses prior to the retirement of all bonds. The agency projects that cumulative losses for the 2001 vintage - including multi-borrower, large loan and single-borrower transactions - will ultimately top out at approximately 3.2%.

CMBS

US CMBS loan liquidations 'skyrocket'

The balance of CMBS conduit loans liquidated in November skyrocketed, according to Trepp, posting the highest total since the firm began tracking this number in January 2010. The November total was 17% higher than the previous record set in June 2011.

At US$2.1bn, liquidations were 60% higher than the 12-month moving average of US$1.3bn per month. Since the beginning of 2010, special servicers have been liquidating at an average rate of about US$1.07bn per month, Trepp says.

The November liquidations came from 218 loans. That, too, was above the 12-month moving average of 160 loans per month.

The average loan size for liquidated loans was US$9.6m in November. Over the last 12 months, the average size of a liquidated loan has been US$8.2m.

Trepp says the total losses from the November liquidations were almost US$1.1bn - representing an average loss severity of 51.3%. This represented the highest reading since December 2010 when the average loss severity was 55%. The November number was up one point from October's 50.3% reading.

The November loss severity reading is well above the average loss severity of 43.5% over the last 23 months and also well in excess of the 12-month rolling average of 43.2%.

CMBS

CMBS tender results in

Having announced a fixed-price tender for all outstanding NEMUS 2006-1 bonds (SCI 22 November), HSBC in the end accepted purchase of only the class D note equal to £10m at the purchase price of 84% of par. The expected settlement date is 7 December 2011. The transaction is a synthetic CMBS backed mostly by ground rents on London office buildings.

Risk Management

Reg cap management solution launched

Moody's Analytics has launched RiskAuthority, which it describes as a next-generation regulatory capital management solution. The tool is aimed at enabling risk professionals to calculate, consolidate and report their organisation's credit, market, operational, concentration and liquidity risk in order to comply with Basel 1, 2 and 3. Developed specifically for banks, credit institutions and clearing houses, RiskAuthority calculates regulatory capital, leverage and liquidity ratios and displays the results in a flexible and intuitive manner.

Risk Management

Margin management service launched

BNY Mellon has launched MarginEdge, a global derivatives margin management service that allows financial institutions, clearing members and central counterparties (CCPs) to manage margin collateral efficiently while balancing trading costs and capital requirements associated with listed, cleared OTC and bilateral OTC derivatives. The service is designed to help segregate assets, support transformation services, optimise the use and allocation of collateral, consolidate margin management across collateral locations and providers, and simplify connectivity among market participants for margin movements.

RMBS

NHG-backed RMBS restructurings underway

Following the update to Fitch's Dutch NHG-backed RMBS criteria (SCI 6 July), all the affected issuers have confirmed that they intended to restructure the 13 impacted deals.

Fitch says it has been provided with updated pool cuts, historical NHG claims submitted to the stichting WEW, historical foreclosure data of the NHG-backed loans and set-off risk assessments, as requested. Additionally, the final capital structures for restructuring have been received for most issuers.

Feedback has been provided to all issuers on the data and structures provided. Over the next few weeks most restructurings are expected to be put in place. The agency expects to resolve the RWN's shortly afterwards, subject to finalisation of the documentation and approval of the amended structures by the noteholders. Some lenders prefer to implement the changes on the next interest payment date, the latest being in January.

For two transactions where the issuers have confirmed that they intend to restructure the deals but final capital structures are pending, the agency expects to receive the final capital structure shortly.

Based on the proposals received so far, Fitch expects to affirm almost all class A notes at triple-A. The junior notes in many transactions are, however, likely to see downgrades, broadly in line with the indications provided.

RMBS

Dutch mortgage portfolio acquired

Novapars Capital is set to acquire an €80m portfolio of Dutch residential mortgage loans from an unnamed US-based investor. This marks the firm's second such transaction, following its acquisition of DSB Bank's German loan portfolio this summer.

Novapars Capital won a competitive auction process, in which it worked closely with its new partner Cervus Capital Partners. Novapars and Cervus formed this partnership following their cooperation in the DSB transaction.

The Dutch portfolio consists of mortgage loans, originated in the past decade, with an average size of approximately €180,000. Servicing of the loans will be managed by Credit Management & Investor Solutions.

NIBC provided the debt for both the Dutch and the DSB transactions.

RMBS

Massachusetts AG files suit

Massachusetts Attorney General Martha Coakley has filed a lawsuit in Suffolk Superior Court against Bank of America, Wells Fargo, JPMorgan, Citi and GMAC in connection with their roles in allegedly pursuing illegal foreclosures and deceptive loan servicing. The suit also names Mortgage Electronic Registration System and its parent, MERSCORP, as defendants.

In the complaint, the Attorney General alleges that the defendants engaged in unfair and deceptive trade practices in violation of Massachusetts' law by: pervasive use of fraudulent documentation in the foreclosure process, including 'robo-signing'; foreclosing without holding the actual mortgage; corrupting Massachusetts' land recording system through the use of MERS; and failing to uphold loan modification promises to Massachusetts homeowners. The lawsuit seeks civil penalties, restitution for harm to borrowers and compensation for registration fees that were avoided. It lawsuit also seeks to hold the banks accountable through permanent injunctive relief to provide a solution for prior unlawful foreclosures and to require that the banks, going forward, register assignments and other documents in accordance with Massachusetts law.

The lawsuit follows more than a year of negotiations with the banks over a 50-state settlement focused on the issues of fraudulent documents, including robo-signing. Coakley had made clear that she would not sign on to an agreement with the banks if it included broad liability release regarding MERS and other issues, or if she did not believe the banks had come to the table with an offer in the best interest of Massachusetts (see also SCI 10 November).

RMBS

Mexican loan mods analysed

A recent S&P analysis of modified loans in a sample of Mexican RMBS shows that overall loan modifications have not cured delinquencies and defaults as well as had been hoped, the agency says.

"While the data is limited, we believe it provides some insight into how loan modifications are performing in Mexico," notes S&P credit analyst Daniel Castineyra.

Among the sample of loans, all modified between mid-2009 and August 2011, less than half remained current as of August 2011 and nearly a quarter of them had defaulted again. However, the programmes had yielded some benefits, such as renewing stalled cashflows to the RMBS trusts, if only temporarily. The amendments to the loans' terms, some of which incorporate a deed-in-lieu clause or a judicial agreement, may also reduce foreclosure timelines and costs after a default and speed up recoveries.

The programmes in widest use were designed jointly by Mexico's federal government mortgage agency, Sociedad Hipotecaria Federal (SHF), and several servicers in the Mexican Mortgage Association (MMA). The programmes target borrowers who are in financial distress, with three or more delinquent payments, but who show willingness to continue paying their loans.

The number of borrowers with loan modifications in Mexican RMBS has been growing since the creation of these programmes in 2009, with over 4,000 loans being modified between 2009 and 2011, representing around MXN1.89bn.

"We believe servicers will continue granting loan modifications, even if they only provide temporary relief, as a way to at least delay defaults and give borrowers one last chance to get current on their loans - and avoid losing their homes," Castineyra adds. "We will continue to analyse the efficacy of new loan modification products and their impact on the RMBS transactions we rate."