Contents

CMBS

Full circle

Agency CMBS could provide template for issuance

The recently-priced Florentia agency CMBS has several striking features. It is being seen as a positive return to the early days of the European market and could provide a blueprint for future issuance.

"Some of the first CMBS deals in Europe - such as Canary Wharf or Trafford Centre - were agency transactions, with the bank taking a fee for arranging the transaction for the benefit of the borrower," says Conor Downey, partner at Paul Hastings. "Agency CMBS deals will become more common as banks become more concerned about CRD retention requirements."

He continues: "While the market remains distressed and relatively few deals are issued that will not be a big problem, but in the future it will place a limit on how many conduit deals banks can do because their balance sheet allocation will get used up."

The CRD retention requirements tend to assume an originating bank will be responsible for the 5% bond retention. The definitions seem to have been written with RMBS in mind and do not necessarily translate quite as well to agency CMBS, where there is no originating bank because the loan is originated on closing directly out of the SPV issuer to the borrower and thus never touches the bank's balance sheet.

"The CRD says that where none of the parties to a securitisation clearly fit the definitions of the parties normally expected to make the retention, then the retention should be made by the party whose interests are most closely aligned to those of the investors. A CMBS borrower does not fit neatly within these definitions but is actually the party whose interests most closely match investors'," Downey explains.

Deutsche Bank's role in the transaction is as an arranger only and it was paid for placing the bonds in the market, but its interests are not at all aligned with those of the investors. The consensus after a lot of legal research was that the borrower - Vitus - could make the retention.

It had been previously thought that a CMBS borrower in an agency transaction should be the one to make the retention, but that theory had not been tested. The fact that it now has been tested and has met with investors' approval is a significant step for the market.

"Now the precedent has been set it removes a large uncertainty from the market and paves the way for other banks to do the same thing. A bank which had been out of the market for a while could look at this and feel comfortable that they could act as an arranger on an agency CMBS without having to retain any bonds, which is a big development," says Downey.

Downey also points to Florentia's back-to-basics structure as a further significant positive. He says: "With this deal, there were fixed rate classes of bonds issued and that goes back to the early days of the market where pari passu fixed- and floating-rate classes would be issued. In some ways it is coming full circle back to the early days, but it is good to see borrowers are willing to accept that structure again."

Equally encouraging is the fact that, at €754m, such a large transaction can be placed in the market at a time when banks are typically unwilling to lend more than a fraction of that amount. Clearly the European securitisation market has some appetite for large amounts of debt.

Downey comments: "There are plenty of multifamily loans out there in CMBS that are coming up to maturity. These are an obvious target for new CMBS deals because they have very secure cashflows and Germany is a low-risk, stable economy. So, for multifamily borrowers who are very concerned about the need to refinance, securitisation could be a strong possibility."

He adds: "Some multi-family refinancings will require far higher amounts, but there are also plenty around the same size or a bit smaller which could use this transaction as a blueprint. That does not guarantee more issuance in this asset class, but it does seem to be a natural fit."

While issuance is hard to predict in Europe, the US market is seeing several transactions a week. Given that the European CMBS market took off via US banks looking to replicate what they were doing in the US in Europe and the fact that securitisation appears to be the only viable option for large amounts of debt, the conditions are there for the European market to be restarted.

While Downey does not expect more agency CMBS this year, there could be deals next year. "There is a long way to go before we see multi-loan deals and secondary properties in the market, but it will come," he says.

Downey concludes: "CMBS is a highly efficient tool for distributing debt. The borrowers need this money and the investors want this investment and the banks can make significant fees, so I would be surprised if more deals did not come to market in this asset class."

JL

CMBS

Busy session seen in US CMBS

It was a jam-packed session for US CMBS yesterday. Fixed rate and 2.0 bonds were circulating alongside very large chunks of recent-issue paper, with agency tranches even making an appearance, according to SCI's PriceABS BWIC data.

Interactive Data figures put total CMBS BWIC volume for the session at US$557m, not including another US$2.9bn of new-issue IOs out for bid. "Generic CMBS spreads are generally wider on the day. BWIC volume has picked up from the prior session, with a nearly 20% increase. In terms of supply, there is a mix of seasoned and new issue paper from various parts of the capital structure out for bid," Interactive Data notes.

Some fixed rate tranches - such as WBCMT 2005-C17 A4 and WFRBS 2011-C5 D - exhibited noteworthy tightening. The former was covered at 43, having been covered at 44 on 3 October and at 68 on 25 July; the latter was covered at 318, having been covered the day before at 339.

A considerable quantity of other recent-vintage paper was also out for the bid. A US$243.56m slice of the GSMS 2011-GC3 X tranche was covered at 268, while US$125.478m of fellow Goldman bond GSMS 2012-GC6 XA was also out for the bid but did not trade.

US$83m of COMM 2012-CR1 XB was talked yesterday at 515 and US$221m of MSBAM 2012-C5 XC was talked at 550. In addition, a US$176m piece of WFRBS 2012-C6 XB was talked at 475.

Another recent tranche - JPMCC 2011-PLSD D - is also significant. A US$4.5m piece was talked during the session in the low/mid-200s, far tighter than the 405 it was covered at on 17 July.

Finally, the FHMS K703 A2, FHMS K706 A2 and FHMS K710 A2 tranches all attracted covers. K703 was covered at 25 over, having been covered at 46 on 1 August; K706 was covered at 22 over, having been covered at 38.5 over swaps on 23 August; and K710 was also covered at 22 over.

JL

CMBS

EMEA CMBS on the rise

SCI's PriceABS BWIC data indicates that senior European CMBS spreads have increased slightly over the past month or so. Levels for the benchmark GRND1 C tranche appear to have remained stable, however.

A couple of UK names - MALLF1 A and REC 5 A - are indicative of the rising trend. A £6.1m slice of the former was covered at 95.77 yesterday, having been covered at 94.88 on 20 September. A £238,434 piece of the latter was covered at 99.02, in contrast to 98.75 on 4 October.

In terms of European names, €295,961 of PROUD1 A was covered at 95.11 during the session. The tranche was covered at 93.8 on 20 September.

But EPICP DRUM B appears to be bucking the trend. The bond was covered at mid-/high-30s yesterday, having been talked at mid-40s on 10 September.

Meanwhile, FLTST2 A - along with GRND1 C - spreads have remained relatively stable. The former tranche was talked at 95.5-96a during the session and was covered at 95.63 on 2 October, while the latter was covered at M93 yesterday and at 93.78 on 7 September.

Chunks of Talisman 7 Finance paper also circulated yesterday. The D, E, F and G tranches were talked at mid-/high-30s, high-teens, mid-singles and singles respectively.

CS

RMBS

Secondary RMBS supply rockets

US non-agency RMBS supply spiked yesterday. SCI's PriceABS BWIC data shows over 100 RMBS line items for the session, with volume reported to have comfortably exceeded US$1bn.

Interactive Data figures put total non-agency supply at US$1.166bn for yesterday's session, largely driven by subprime CDO liquidations. All-or-none execution remains popular with sellers and levels have been holding steady, despite broader credit weakness.

Names captured by PriceABS support the view that levels are more or less steady. A US$12.78m slice of the BSARM 2007-1 2A1 tranche was covered yesterday in the low-70s. A piece a little over twice as large - US$28.4m - was talked in the very low-70s on Wednesday of last week and between the high-60s and 70 the day before.

A slight increase can also be seen with INDX 2006-AR35 2A1A, where a US$29.6m piece was covered yesterday in the mid-60s, after a US$12.2m slice had been talked in the mid-50s on 20 August and on 17 August. However, the fact that a US$51.55m piece of the LXS 2005-5N 3A1A tranche was covered at 79 confuses the picture slightly: a US$33m piece was talked in the very high-70s on 24 September, but on 19 September a US$20.6m slice was talked around the 80 area and in the mid/high-70s.

The ACE 2005-HE1 M4 tranche remains absolutely steady. A US$2m piece was being talked in the low-90s yesterday, which PriceABS shows is exactly where a US$4m piece was covered almost a month ago on 15 August.

JL

RMBS

RMBS dominates light session

Supply across the US secondary market was quiet yesterday to start the week. However, a steady offering of non-agency paper was seen, with RMBS names accounting for almost half the line items displayed in SCI's PriceABS BWIC data from the session.

"Overall BWIC volume has dropped from Friday's session. Market activity is focused in subprime collateral today, as fixed and ARM bonds out for bid are limited and mostly odd-lot. Dealer offerings are slightly mixed, but mostly unchanged day-over-day," says Interactive Data. Total RMBS BWIC volume stood at around US$252m.

The largest slice of any tranche to trade was a US$21.7m piece of AHM 2005-2 4A2, which traded in the mid-90s. SVHE 2007-OPT1 2A1, which has already traded at around 90 this month, also saw a US$7.679m slice trade in the low-90s yesterday.

In addition, there was a cover at 79 for an US$8m chunk of INDX 2006-AR9 3A2. A small US$200,000 piece of BOAMS 2004-5 1A7 was talked in the mid-90s during the session, while high-70s talk for a US$4.9m piece of CWALT 2006-5T2 A3 is just a little higher than the low/mid-70s it was talked at on 8 August.

JL

Structured Finance

SCI Start the Week - 15 October

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

Pipeline
Two ABS entered the pipeline last week, with one RMBS, one CMBS and one CLO joining them. The ABS were student loan deals: US$344.6m EdLinc Student Loan Funding Trust 2012-1 and US$686.6m NorthStar Student Loan Trust I 2012-1.

The RMBS was a UK buy-to-let deal (Paragon Mortgages No.17), the CMBS was a US$1.05bn multiborrower transaction (WFRBS Commercial Mortgage Trust 2012-C9) and the CLO is CIFC Funding 2012-II.

Pricings
ABS also accounted for the bulk of the week's prints. Issuance comprised three auto and two credit card deals, as well as a student loan ABS, a container ABS and a servicing advances transaction. One RMBS and one CLO also priced.

The auto deals were: US$1bn Honda Auto Receivables 2012-4 Owner Trust, US$1.511bn Hyundai Auto Receivables Trust 2012-C and US$527.36m Porsche Innovative Lease Owner Trust 2012-1. The credit card ABS consisted of US$563m GE Capital Credit Card Master Note Trust Series 2012-7 and US$466.667m World Financial Network Credit Card Master Note Trust Series 2012-D.

The student loan ABS was US$976m SLM Private Education Loan Trust 2012-E, while the container transaction was US$171m CAL Funding II series 2012-1 and the servicing advances deal was US$700m HLSS Servicer Advance Receivables 2012-T2.

The RMBS was A$983m Idol Trust 2012-2 and the CLO was €644m Etruria Securitisation 2012.

Markets
Activity in the US CLO secondary market slowed down during the shortened holiday week, according to securitised products strategists at Bank of America Merrill Lynch. BWIC volumes were only US$250m, as opposed to US$725m for the week before.

"Interest in equity tranches remains elevated as investors look for higher yielding assets and as holders look to monetise returns. There was another US$100m of equity tranches up for the bid on top of US$130m last week. Controlling equity classes remain especially sought-after tranches," they add.

Meanwhile, US CMBS spreads "continued their steady march tighter" last week, report Barclays Capital CMBS analysts. Generic 2007 dupers and AMs were 5bp tighter by the end of the week, with AJs up by half a point. SCI's PriceABS BWIC data showed busy trading sessions for the week, with slight tightening evident.

In the US RMBS market, Citi RMBS analysts note that non-agency prices were flat for the fourth consecutive week, with BWIC supply dropping slightly to US$4.3bn. In the agency space, downward pressure on dollar rolls contributed to 30-year production coupon MBS underperforming duration hedges by 3-6 ticks.

Finally, European RMBS spreads remained broadly stable for the week. JPMorgan ABS analysts note that Italian RMBS and UK non-conforming and BTL RMBS actually tightened. A raft of UK RMBS paper circulated on the secondary market early in the week, as SCI reported on Wednesday (SCI 10 October), with vintage prime senior bonds appearing to widen from their summer tights. 

Deal news
• The recently-priced Florentia agency CMBS has several striking features. It is being seen as a positive return to the early days of the European market and could provide a blueprint for future issuance.
• The take-up for Banco Santander Totta's (BST) offer to exchange three RMBS bonds into a covered bond has been limited. HIPOT 1R A saw no bonds accepted, while only €3m of amortised principal was accepted across HIPOT 4 A and HIPOT 5 A2.
• Moody's has released an unsolicited comment on JPMCC 2012-C8, JPMorgan and CIBC's CMBS that priced on 27 September. Based on a review of publicly available information, the agency believes that all classes of the transaction below the ASB tranche lack sufficient credit enhancement relative to the ratings four other rating agencies have assigned it.
• Moody's has downgraded to A1 the ratings of 56 securities across 17 South African RMBS and ABS, prompted by the weakening of the South African government's credit profile. The agency recently downgraded South Africa's government bond rating to Baa1 from A3 and lowering its local currency ceiling to A1.
• The assets and obligations of the Harrier Finance Funding SIV have been assigned from West LB/Portigon (WLP) to Erste Abwicklungsanstalt (EAA), acting as sponsor bank. The move follows the cessation of WLP's banking activities.

Regulatory update
• The SIPC trustee for Lehman Brothers Inc (LBI) and the joint administrator of Lehman Brothers International (Europe) (LBIE) have agreed in principle to resolve all claims - approximately US$38bn in the aggregate - between their respective entities. The proposed settlement is subject to approval by the US bankruptcy court and the English High Court, but sets the stage for distributions that are expected to provide 100% recovery of customer property.
• A federal court in New York recently ruled that investors in the failed Cheyne SIV - including named plaintiff Abu Dhabi Commercial Bank - could go forward with negligent misrepresentation claims against Morgan Stanley, which arranged and marketed the vehicle. US District Judge Shira Scheindlin dismissed plaintiffs' fraud claims against Morgan Stanley in August, but ordered them to show cause as to why their negligent misrepresentation claims should proceed, given her finding that Morgan Stanley made no direct misstatements.
• FINRA has fined Guggenheim Securities US$800,000 for failing to supervise two CDO traders who engaged in activities to hide a trading loss. Guggenheim and the traders have neither admitted nor denied the charges but have consented to the entry of FINRA's findings.

Deals added to the SCI database last week:
Ally Master Owner Trust Series 2012-5; Benefit Street Partners CLO I; CarMax Auto Owner Trust 2012-3; Chase Issuance Trust 2012-7; COMM 2012-CCRE3; Credico Finance 11; FREMF 2012-KF01; Huntington Auto Trust 2012-2; ING IM CLO 2012-3 ; MSBAM 2012-C6; National ABS Trust 2012-1M; Nelnet Student Loan Trust 2012-4; Oaktree Real Estate Investments/Sabal series 2012-LV1; OZLM Funding II; Santander Drive Auto Receivables Trust 2012-6; SMART ABS Series 2012-4US Trust; Storm 2012-V; TDA Lico Leasing III; Volkswagen Auto Loan Enhanced Trust 2012-2; and World Financial Network Credit Card Master Note Trust Series 2012-D.

Deals added to the SCI CMBS Loan Events database last week:
BACM 2005-3; BACM 2006-2; BSCMS 2004-PWR4; CGCMT 2007-C6; COMM 2006-7; DECO 2007-C4; DECO 2007-E5; DECO 2011-CSPK; EPICP BROD; EURO 21; EURO 22; FTST 06-FTS & LBUBS 07-C1; GMACC 2004-C2; GRND 1; JPMCC 2005-CB13; JPMCC 2006-CIBC14; JPMCC 2006-LDP9; JPMCC 2007-LD12; MLCFC 2006-1; MLCFC 2007-6; MLMT 05-LC1 & 05-CKI1; MLMT 2006-C2; MSC 2007-HQ13; OPERA CMH; REC 4 RETAIL PARKS; TITN 2006-2A; TMAN 3; and TMAN 4.

Top stories to come in SCI:
US CMBS spread trends
CCP margin developments

CMBS

Servicer risk mitigation matters

Litigation activity involving borrowers in US CMBS is maintaining a steady level, despite the number of loans in special servicing fluctuating recently. The allegations being made are also broadly the same as they were in the past, according to Maria Blue Minsker, counsel at Alston & Bird. Borrowers continue to allege lender liability, as well as breach of fiduciary duty and implied duty of good faith and fair dealing.

"They are looking back to the time of loan origination and alleging that appraisals fraudulently induced them to enter into the transaction," Minsker explains. "Borrowers are also trying to make cases in light of litigation success in the RMBS sector, where assignments into the trust and pooling policies have been attacked. They are essentially trying to say that they have standing to enforce the terms of the pooling and servicing agreement (PSA) and that the lender or servicer hasn't fully complied with the terms of the PSA."

She suggests that the proliferation of websites such as Foreclosure Fraud is encouraging borrowers to create smokescreens to avoid the question of whether they've met their obligations. "Borrowers are arguing that the financial crisis is making it impossible to refinance; therefore, they shouldn't have to pay the loan back."

The argument against these allegations is that borrowers aren't a party to the PSA or a third-party beneficiary, so they don't have standing to challenge it. "We also point out that commercial real estate loans are being made - but for the right assets and at the right interest rate. However, some borrowers simply don't like the terms," Minsker continues.

One lesson that servicers are learning as a result of litigation activity is that it's crucial to be consistent and ensure that when they deal with borrowers they use the same routine and mechanisms each time. Minsker concludes: "The focus on risk mitigation has increased significantly. Actions and processes that servicers normally would have done routinely now require a second look."

CS

Structured Finance

Cheyne SIV claim to proceed

A federal court in New York last week ruled that investors in the failed Cheyne SIV - including named plaintiff Abu Dhabi Commercial Bank - could go forward with negligent misrepresentation claims against Morgan Stanley, which arranged and marketed the vehicle. US District Judge Shira Scheindlin dismissed plaintiffs' fraud claims against Morgan Stanley in August, but ordered them to show cause as to why their negligent misrepresentation claims should proceed, given her finding that Morgan Stanley made no direct misstatements.

Plaintiffs subsequently argued that Morgan Stanley had conveyed ratings to them that it had reason to know were inaccurate, which constituted a breach of the duty that arose from the privity-like special relationship between the parties, a recent Lowenstein Sandler client memo notes. Although the ratings were not directly attributable to Morgan Stanley, Judge Scheindlin ruled in her recent decision that the bank could still be held liable for negligent misrepresentation for transmitting the inaccurate ratings to plaintiffs.

Structured Finance

Distressed debt vet joins Guardian

Hernan Magariños has joined Guardian Investment Banking and Real Estate as md in New York. He specialises in strategy assistance, asset analysis, buyer and vendor due diligence, portfolio valuation and other sales-related services.

Magariños has experience across commercial and residential mortgages, C&I loan, structured notes, unsecured loans and REO portfolios. He was previously director at KPMG Corporate Finance, where he was responsible for leading all distressed and non-core loan portfolio advisory efforts in the Americas and before that was director in PwC's distressed debt group.

Structured Finance

Natixis in fixed income acquisition

McDonnell Investment Management will be acquired by Natixis Global Asset Management. The acquisition will boost Natixis' fixed income capabilities and add municipal bond expertise.

McDonnell will continue to operate autonomously with no change in management or staff. It will also retain its brand name and Chicago headquarters.

McDonnell's alternative credit strategies group was bought earlier this year by THL Credit Advisors (SCI 13 July).

Structured Finance

Credit analyst added

Ryan Staszewski has joined Threadneedle as a corporate credit analyst within the investment grade team, specialising in utilities and securitisation. He was previously at JPMorgan in a similar role and has over 10 years' industry experience, including previous roles on the buy-side.

CDO

FINRA's CDO charge settled

FINRA has fined Guggenheim Securities US$800,000 for failing to supervise two CDO traders who engaged in activities to hide a trading loss. Guggenheim and the traders have neither admitted nor denied the charges but have consented to the entry of FINRA's findings.

Alexander Rekeda, who was head of Guggenheim's CDO desk, was suspended for one year and fined US$50,000. Rekeda was also charged by the US SEC earlier this year for activities while at Mizuho Securities (SCI 19 July).

Timothy Day was a trader on the desk acting under Rekeda's direction. He was suspended for four months and fined US$20,000.

The charge relates to a €5m junk-rated CLO tranche which Guggenheim acquired as the result of a failed trade in October 2008. Rekeda and Day then deceived a hedge fund customer into over-paying for the CLO before trying to cover their tracks with a series of payments and payment waivers, FINRA says.

CDS

ISDA makes board appointment

Athanassios Diplas has been named a senior advisor to ISDA's board of directors. He was until recently global head of systemic risk management at Deutsche Bank.

Diplas will work with the ISDA board and with ceo Robert Pickel, as well as other senior executives, on policy issues affecting the OTC derivatives markets. He will also continue to be involved with the ISDA Industry Governance Committee (IIGC), of which he was made co-chair last year (SCI 15 June 2011).

Diplas has previously served on ISDA's market resiliency working group for the counterparty risk management policy group III. As well as Deutsche Bank he has also worked for Goldman Sachs as emerging markets credit derivatives trader.

CDS

Credit derivatives rating service offered

ICAP has launched a joint credit derivatives rating service with Rapid Ratings. The new product brings together two independent sources of market-leading information to deliver a unique and innovative view of the credit derivatives market, the firms say.

The new pricing service combines pricing data sourced from ICAP's global interdealer trading platforms and Rapid Ratings' Financial Health Rating (FHR) data for each company entity. FHRs offer an insight in the creditworthiness of companies by applying industry-specific weightings to many more factors than conventional ratings firms, making it easier to compare companies to their peers.

CLOs

Sound Harbor makes CLO acquisition

Sound Harbor Partners will acquire the management contracts on US$2.2bn of leveraged loans held in Aladdin Capital Holdings' Landmark CLO funds. The funds will continue to be managed by William Lutkins and his team.

Sound Harbor manages the SHP Capital Solutions Fund. The acquisition will further Sound Harbor's objective to grow its investment platform by expanding its client base, investment talent and assets under management.

RMBS

MBS group expansion continues

Gleacher & Company Securities has boosted its MBS and rates team with six new appointments. The company has already added a further 11 professionals to that division over the last three months (SCI passim).

Martin Baxter joins as md, responsible for building the MBS and rates platform in Washington DC. He was most recently at Amherst Securities Group, where he opened and managed an office in Mclean, Virginia. Prior to that he opened an office in Washington for Raymond James & Associates, where he was svp.

Thomas Carey joins as md, responsible for building the Boston team. He was most recently director of institutional sales at Ally Securities, where he opened their Boston office. Prior to that he was director of structured products sales at Credit Suisse.

David Ludlow joins as md in New York. He was most recently mortgage sales md at Sandler O'Neill & Partners. He has previously worked for Raymond James & Associates, Deutsche Bank Securities, Alex Brown & Sons, Kidder Peabody and Goldman Sachs in a variety of mortgage products sales roles.

Joseph Vendemia joins as director in New York. He was most recently svp of institutional sales at Pursuit Partners. He has also worked as securitised products sales associate at JPMorgan and in a similar RMBS role at UBS.

Jeffrey Hingst also joins as director in New York. He was most recently MBS sales director at PrinceRidge Group. He has also held senior RMBS sales roles at FTN Financial Securities, Barclays Capital and Bear Stearns.

Stephen Lei also joins Gleacher as director in New York. He was most recently institutional sales director at KGS-Alpha Capital Markets. He has also worked for Nariman Point Advisors, HSBC Securities, Goldman Sachs and Fitch.

RMBS

REIT co-founder steps up

Annaly Capital Management has appointed Wellington Denahan-Norris as co-ceo. She co-founded Annaly alongside ceo Michael Farrell, who is stepping aside temporarily for health reasons. Kevin Keyes has been promoted to president and James Fortescue becomes coo.

ABS

Timeshare ABS criteria published

Kroll Bond Rating Agency (KBRA) has released its methodology for rating US timeshare ABS transactions. The methodology incorporates an analysis of the quality and expected performance of the underlying collateral, the originator and servicer's business model and operational strength, and the transaction terms.

KBRA's approach emphasises a focus on prevailing industry and credit trends, the integration of originator and servicer evaluations into the transaction analysis and the timely post-issuance surveillance of pool performance, the agency says. It also reviews the key features associated with timeshare ABS in comparison to other consumer ABS sectors, including: the importance of originator/servicer in the transaction; the optional repurchase of defaulted loans by the originator; and the relatively small loan monthly payments that enable borrowers to retain their timeshare interests, despite challenging economic conditions.

ABS

Auto ABS performance indices launched

Wells Fargo Securities has introduced auto ABS credit performance indices for prime and subprime auto ABS transactions. The indices calculate average default rates, net loss rates and loss severities at the sector level over time.

The latest readings of the indices indicate that default rates are bottoming out, while net loss rates remain relatively low in both the prime and subprime sectors. Lower loss severity rates have aided auto ABS performance over the past three years as the auto industry has restructured, Wells Fargo structured product analysts note.

"Our expectation is that the credit benefits from higher recovery rates have likely run their course. The direction of net loss rates, in our opinion, is likely to be dictated primarily by changes in default rates," they observe.

Default rates are expected to remain low through Q4 and into 2013, but various economic risks could change the direction of consumer defaults, the analysts warn. Nevertheless, they do not expect a serious deterioration in auto ABS credit over the next 12 months unless the economy slows significantly.

Robust auto ABS structures generally provide rising credit enhancement levels over time. "Along with positive credit trends, we believe that the spreads on subordinated auto ABS bonds continue to represent good relative value. Investors can pick up additional yield without taking on undue credit risk, in our opinion," the analysts conclude.

ABS

Lebanese auto ABS launched

Bemo Securitization (BSEC) has arranged an auto ABS for T. Gargour & Fils (TGF), the exclusive distributor for the Levant of Mercedes-Benz passenger and commercial vehicles, as well as other car brands. Dubbed TGF Star, the main purpose of the transaction is to enable the company to enhance the structure of its clients' portfolio, as well as create an off-balance sheet financing platform to better manage its credit sales.

"We have designed the structure in a way to make it flexible for both the originator and the investor. From one side, it offers TGF revolving financing to accompany the business growth, and from another side it provides investors with short-term paper in line with the current market demand. Indeed, the issuance prompted the interest of banks looking to invest their liquidity and diversify their treasury portfolio in short-term securities," explains Ronald Yazbeck, general manager of BSEC.

The structure was established under the provisions of Law 705/2005. It involves purchasing a portfolio of auto loans and trade receivables originated by TGF, and funding this purchase through the issuance of six-month rolling asset-backed paper. Investors are paid a fixed coupon that is reset every six months and, at each maturity of the issuance, they have the option to either renew or exit the investment.

Credit enhancement includes a retained subordinated tranche and a cash reserve. Purchase of additional auto loans and receivables will be made within a set of eligibility criteria in order to maintain the quality and composition of the portfolio, while the performance of the fund will be monitored via a set of amortisation triggers.

ABS

Colombian receivables programme debuts

Alianza Valores has structured the first trade receivables securitisation in the Colombian market. Originated by Coltejer, the COP22bn public placement exceeded the pre-agreed minimum amount of COP20bn for the first tranche of an issue for an aggregate amount of COP35bn.

The triple-A rated five-year revolving programme will be managed by Alianza Fiduciaria. It features daily reporting of Coltejer's commercial invoice portfolio as part of Finacity Corporation's role as master servicer.

Structured Finance

ABS gets CPO exemption

The CFTC Division of Swap Dealer and Intermediary Oversight last week issued interpretative guidance letters to equity real estate investment trusts and asset-backed securities funds. The guidance states that such funds that meet certain criteria are not included within the definition of 'commodity pool' and their operators are not 'commodity pool operators' under the Commodity Exchange Act and the CFTC's regulations.

The CFTC had been expected to issue a series of no-action letters and exemptive relief from these rules before they became effective on 12 October. The American Securitization Forum (ASF) on 5 October submitted a request to the CFTC seeking interim and permanent relief for securitisation trusts and other financial entities from regulation as commodity pools.

In addition, CFTC Republican Commissioner Scott O'Malia had expressed concern that the new swaps rules may introduce unnecessary complexity into the market and increase costs for industry participants. Specifically, he stated: "In a mad rush to implement the rules, the Commission quite often forgets to make sure that all these rules should work together to achieve the overall objectives of enhancing transparency and reducing systemic risk... It's not easy to comply with regulations when the goal posts are constantly moving."

Structured Finance

RFC issued on covered bonds, CDOs

Fitch has published an exposure draft with respect to its criteria for the asset analysis of European public entities' covered bonds and CDOs, which includes a number of proposed amendments. The agency also proposes to update its assumptions for asset marketability of public sector assets that are part of its discontinuity analysis for covered bonds.

The main proposals upon which feedback is sought are: modelling of material contagion risk among eurozone members; revised recovery assumptions for most European sovereigns and for European sub-nationals; and revised assumptions for the stressed time to liquidate assets. The programmes whose ratings will be impacted most by Fitch's proposed changes include public sector programmes or transactions exposed to eurozone countries that are rated lower than the transaction. However, the degree of expected impact varies strongly depending on the characteristics of each programme.

Fitch expects that ratings are unlikely to be affected by the proposed changes if: the ratings are based on a guaranty; all of the cover or underlying assets are already directly credit-linked to one or more sovereign ratings; there is sufficient cushion in available enhancement to compensate the expected increase in credit loss; or the transaction is only rated one notch above the issuer default rating (IDR), based on above-average stressed recoveries given default. In these cases, the agency expects that the current ratings could be maintained, albeit in some cases on the basis of higher breakeven enhancement levels.

Feedback is invited by 20 November, with the revised criteria expected to be published in December. Fitch will then place or maintain on rating watch negative any ratings that cannot be sustained based on the updated criteria.

The agency says it will communicate its updated breakeven OC level for the existing ratings and would expect to receive feedback from issuers within two weeks regarding any plans to increase the transaction's available OC levels. If no changes are proposed, Fitch would expect to downgrade ratings after this period.

Structured Finance

Credit opportunities fund minted

BlueMountain Capital Management has closed the BlueMountain Credit Opportunities Master Fund I, its most recent and largest longer-dated credit fund, with over US$1.4bn in capital commitments. Credit Opportunities I will invest opportunistically to capture the large premium available in more complex and less liquid credit instruments.

The fund will focus on corporate structured credit, such as CLOs and synthetic CDOs, asset-backed financing transactions and securities, and off-the-run single company corporate credit. The aim is to take advantage of opportunities arising in less liquid credit instruments that are being driven by regulatory changes, complexity fatigue and the retreat of bank capital from secured, asset-backed and structured lending markets.

Structured Finance

APAC ratings remain stable

Fitch reports that ratings of structured finance (SF) tranches in Asia Pacific were generally stable in 3Q12, with negative rating actions confined to Japan. A total of eight tranches were upgraded in the region during the quarter.

"The predominance of affirmations in 3Q12 again attests to strong asset performance, particularly in Australia and South Korea, across multiple asset classes," comments Alison Ho, senior director and head of Fitch's structured finance surveillance team.

In Australia one equipment lease ABS and one prime RMBS were upgraded, following strong build-up of credit enhancement and steady portfolio performance. Three Japanese CMBS tranches were upgraded as progress of work-out activity resulted in higher sales values being achieved than Fitch had previously expected. Three Japanese structured credit transactions were upgraded, following similar action on their underlying assets.

Twelve of the 16 downgrades in Japan were on distressed ratings of multi-borrower CMBS, due to weaker-than-expected progress of work-out activity and shortened time to maturity. The remaining downgrades impacted one prime RMBS transaction (two tranches), one single-borrower deal and one multi-borrower CMBS.

A total of 26 Japanese SF tranches were placed on rating watch negative during the quarter, due to incomplete remedial action following the downgrade of transaction counterparties. In early October, nine of these RWNs were resolved and the ratings affirmed after Fitch's analysis concluded that available structural protection was sufficient for the current rating levels.

"Fitch expects remedial action for the rest of the Japanese SF deals to be completed by end-2012 and that any rating watch negative still in place as of today will be resolved by then," adds Ho.

Outlooks on most ratings remain stable across the region. Only 14 negative outlooks were assigned during the quarter, split evenly between transactions in Japan and Australia/New Zealand, with one positive outlook assigned to a Japanese RMBS tranche.

Structured Finance

Spanish sovereign ceiling lowered

S&P has taken various credit rating actions on 116 tranches in 87 Spanish securitisations. The move follows the lowering of its long-term sovereign rating on the Kingdom of Spain to triple-B minus from triple-B plus in light of the country's deteriorating economic conditions.

Specifically, the agency has: lowered its ratings on 63 tranches in 51 RMBS; lowered its ratings on 37 tranches in 23 SME CLOs; lowered and kept on credit watch negative the ratings on five tranches in three SME CLO transactions; lowered its ratings on nine tranches in eight ABS; and lowered the ratings on two tranches in two Spanish CDOs.

Under S&P's criteria, the highest rating it would assign to a structured finance transaction is six notches above the investment grade rating on the country in which the securitised assets are located. Therefore, the agency's criteria now cap its ratings on transactions with underlying assets in Spain at double-A minus.

Only two tranches in two SME CLOs - the class B notes in EDT FTPYME PASTOR 3 FTA and the class C notes in BBVA-5 FTPYME FTA - remain at a triple-A rating level, as these ratings benefit from the support of a financial guarantee issued by the European Investment Fund.

Structured Finance

South African ratings hit

Moody's has downgraded to A1 the ratings of 56 securities across 17 South African RMBS and ABS, prompted by the weakening of the South African government's credit profile. The agency recently downgraded South Africa's government bond rating to Baa1 from A3 and lowering its local currency ceiling to A1.

Concurrently, Moody's has placed on review for downgrade the ratings of 54 South African RMBS and ABS securities, as well as an ABCP programme. The main driver for the placements is the agency's intention to reassess credit enhancement adequacy for each of the rated notes, given the increased risk of economic instability and political uncertainty as reflected by the lowering of the country ceiling.

Deterioration of the general economic environment - specifically, the real estate and consumer credit markets - beyond the current consensus may negatively affect the notes, the agency notes.

Structured Finance

Shadow banking examined

A flight to shadow banking activities to secure liquidity that is imposed on firms by regulators is causing wrong-way systemic risk, according to a new report from Celent. The firm suggests that defining what shadow banks are and what activities qualify under shadow banking is the preliminary issue. Once this is achieved, regulatory parameters can be set around the activities to curb the contagion in the event of a large failure or market volatility.

A rough Financial Stability Board estimate put the size of the global shadow banking system at around US$46trn in 2010, up from US$21trn in 2002. Today, this represents 25%-30% of the total financial system and half the size of bank assets, Celent notes.

The report focuses on repos, money market mutual funds, securitisation and securities lending products. "Although regulators are attempting to restrain some of these activities, they recognise that our financial system's endurance has become contingent on these activities for liquidity, credit and maturity intermediation," it says. "The main burden that regulators carry is knowing the level of interdependency between regular banks and shadow banks, and what kind of domino effect this system can have if it fails. Regardless, they cannot completely get rid of shadow banking since it provides liquidity to virtually every sector of the economy."

New regulations create new opportunities, the report adds. Such opportunities can be found in new risk management systems and new technology to abide by these rules - whether it is trading technology, valuation technology, pre-trade price technology or collateral optimisation technology.

CDO

New approach considered for EM CDOs

Moody's plans to revise its approach to rating emerging market (EM) CDOs. For cashflow transactions that are primarily backed by loans and bonds issued in emerging market countries, the agency is considering using the binomial expansion technology (BET) approach similar to that used to rate cashflow CLOs since June 2011.

As is the case for cashflow CLOs, Moody's says it is considering using diversity score, ratings-based default probability assessment and fixed recovery rates to derive a default and loss distribution for the purpose of determining expected losses on cashflow EM CDO notes. The diversity score construction will take into account high correlation among credits within the same region and industry. The region classifications (approximately ten contagion regions) will be similar to those defined in the CDOROM v.2.8-5 model, whereas the industry classifications (generally classified into six meta industries) will be broader than those specified in the cashflow CLO methodology.

The assessment of recovery rates will incorporate Moody's analysis of the historical default and recovery data for both emerging market and non-emerging market debt, and will likely range between 10% and 25% for bonds and between 10% and 40% for loans, depending on their seniority. Under the BET framework, the default probability and recovery rate of the collateral will be subject to stresses as a function of the target rating of the CDO notes. In addition to the base model runs, the agency will continue to run various scenarios on existing and future transactions to account for their idiosyncratic characteristics.

For certain countries that are subject to unusual credit distress, Moody's plans to apply additional stresses in its methodology revisions. Once this has occurred, it will issue a request for comment.

The agency has conducted a review of outstanding EM CDOs and has concluded that there is minimal impact from this methodology revision. It says it will place under review the ratings of a small number of affected tranches shortly.

CDS

CDS futures, options prepped

IntercontinentalExchange has licensed Markit's North American and European corporate credit default swap indices in order to develop futures and options contracts based on the Markit CDX and Markit iTraxx index families. The development of futures referencing CDS indices will create new exchange-traded products to manage corporate credit risk that complements existing CDS markets and provides additional tools to manage risk exposure, ICE says. ICE expects to launch the futures contracts in 1Q13.

CMBS

Reduced controlling class powers likely

Individual classes of CMBS investors seem likely to lose the ability to appoint or replace special servicers, which should help the European primary market to re-emerge, according to Fitch. The agency notes that although the lack of a controlling class in the recent Florentia deal is unlikely to become a precedent, the industry is backing efforts to dilute the power of investors in a single class of notes in the wider interests of bondholders.

Most new European CMBS transactions are likely to retain the concept of a controlling class of noteholders, but its powers will be reduced compared with previous vintages, thereby strengthening the position of senior noteholders. This is seen as vital to attracting a new breed of senior institutional investors entering the market for the first time.

The absence of a controlling class is a striking feature of Florentia. A single investor reportedly bought €565m of the transaction - around three-quarters of the total amount placed - and holding interests across the capital structure probably makes the lack of single-class control more palatable.

In the absence of a controlling class, the deal provides for the formation of a noteholder committee that the servicer or special servicer will consult on material loan events. A majority of noteholders can replace the special servicer if it is found to be in breach of its agreement. There is also a note maturity plan, detailing action to be taken by the special servicer and note trustee to present proposals to senior noteholders and - if necessary - start enforcement, if the notes are still outstanding six months before legal final maturity.

A controlling class's ability to replace special servicing may give it influence over asset management decisions, such as workout or enforcement. In some pre-crisis deals, the controlling class appears to have been able to obstruct workout options favoured by a majority of noteholders.

CMBS

CMBS late-pays declining

US CMBS delinquencies declined for the fourth straight month, according to Fitch's latest index results for the sector. CMBS late-pays fell by 2bp in September to 8.37% from 8.39% in August.

Several notable loans were also paid in full this past month. While encouraging on the surface, a closer look reveals that they were paid off only after refinancing delays, the agency notes.

For instance, the US$275m CalWest Industrial Portfolio matured in June, though the payoff did not take place until 30 August. Delays also took place with the US$232m Westin New York at Times Square loan, which matured in March but was not paid off until this past month.

Delinquency rates moved predictably across all major property types in September. The hotel and multifamily rates continued improving, while the office and retail rates worsened modestly. Current and prior month delinquency rates for each of the major property types are: 10.24% for hotel (from 10.82% in August); 9.95% for multifamily (from 10.18%); 9.03% for industrial (from 8.54%); 8.83% for office (from 8.72%); and 7.48% for retail (from 7.43%).

CMBS

State CRE price trends analysed

Commercial real estate prices in the US political red states have recovered more robustly than those in blue states in the aftermath of the financial crisis, according to the latest Moody's/RCA CPPI report. Overall since 2000, however, prices have gained more in the blue states than they have in the red states.

Moody's looked at the real estate price trends for the states for which it had sufficient data to index and grouped them as blue, red or swing based on recent electoral polls. "The blue states have outpaced red states overall since December 2000, but the red states have outpaced the blue states since the late-2009 trough in prices," says Tad Philipp, Moody's director of CMBS research. "Looking at the states individually, New York is the clear leader among the large blue states as it approaches a new peak in prices."

Since 2000, Texas has set the pace for commercial real estate prices among the large red states, as Virginia has among the swing states. Overall, the Moody's/RCA Commercial Property Price Indices national all-property composite indicates that price growth in commercial real estate has effectively stalled, with gains of only 0.2% in August and 0.1% in the past three months.

Over the last three months, the central business district (CBD) office sector has been the best performer among the core commercial property sectors, with prices up by 1.2%. Retail has been the weakest performer, down by 1.6% over the same time period. The non-major markets gained 2.4%, while the major markets declined by 2.4%.

Moody's notes that apartments in major markets have fully recovered their 23% peak-to-trough loss. Their strong recent performance reflects that sector's healthy fundamentals and abundant liquidity. The next best performer, CBD office in major markets, is 12% below its peak.

CMBS

JPMorgan CMBS slammed

Moody's has released an unsolicited comment on JPMCC 2012-C8, JPMorgan and CIBC's CMBS that priced on 27 September. Based on a review of publicly available information, the agency believes that all classes of the transaction below the ASB tranche lack sufficient credit enhancement relative to the ratings four other rating agencies have assigned it.

The biggest deficiency in enhancement is at the lower end of the investment grade spectrum. According to Moody's, classes D and E (rated triple-B plus and triple-B minus respectively) would more likely merit ratings two notches below the assigned ratings, with class E dropping to speculative grade.

Moody's comment also presents an alternative analysis of six loans that constitute 17% of the pool balance. "Four of these six loans are for retail properties in secondary or tertiary markets, with high tenant concentrations and upcoming lease expirations," says Tad Philipp, Moody's director of commercial real estate research. "Based on our analysis, not a single one of these loans merits investment grade consideration, whether on a standalone or a diversified pool basis."

The agency is also concerned that valuations based on currently low market cap rates understate long-term refinancing risk. "Current market capitalisation rates are appropriate for analysing the credit of a loan maturing in ten days, but not for analysing the risk of one maturing in ten years," says Nick Levidy, md of Moody's CMBS group.

The transaction was rated by DBRS, Fitch, Kroll and S&P.

Risk Management

OTC seminar draws near

A handful of complementary buy-side passes to SCI's 3rd Annual OTC Derivatives Seminar are still available. The event is being held at Bingham McCutchen's offices at 399 Park Avenue, New York, on 19 October.

This conference will focus on the regulatory implications for electronic trading and SEFs, central clearing, collateral management, reporting, risk management and client segregation. The programme consists of a series of panel debates, as well as workshops on collateral management and trade reporting.

Speakers include representatives from: Alliance Bernstein; Bank of America Merrill Lynch; BNY Mellon; Citi; DTCC; Fortress Investment Group; Gamma Derivatives; ICAP; Javelin Capital Markets; JPMorgan; and Morrison & Foerster. The event is sponsored by Bingham, CME Group and ICE.

Email SCI for a registration code or click here to register.

Risk Management

Updated OTC solution rolled out

Misys has released Summit FT Version 5.6, which is designed to accommodate the growing volumes of OTC trades being centrally cleared and to meet the latest requirements of both Dodd-Frank and EMIR. The update includes improved automation and regulatory reporting, and has been built with the flexibility to handle new regulations as they are defined, the firm says. New features also support the new swap definitions, OIS pricing, increased collateralisation of trades and connectivity to central clearers.

RMBS

Non-agency boost anticipated

S&P expects non-agency RMBS origination to begin rising, following the FHFA's initiatives to reduce the level of government support in the mortgage market and encourage higher private investment.

"The GSE and FHA loans have made up most of the market for the past few years, but this isn't a long-term solution because of the burden of government support on tax payers," explains S&P credit analyst Sharif Mahdavian. "We believe non-agency activity in the prime market will slowly pick up in the future once investors gain confidence in today's underwriting standards and credit quality."

Presently, the private market consists of 'super prime' loans, which exclude most borrowers. S&P believes that in order for non-agency origination to increase in the market, lenders will have to open up to more average borrowers.

"We think that future securitisation can embrace more prime mortgages once investors get more comfortable with today's underwriting standards," it concludes.

RMBS

Aussie RMBS reviewed

S&P has affirmed its ratings on 692 Australian prime RMBS tranches and raised its ratings on 14 others. Additionally, 10 tranches were placed on credit watch with positive implications.

The rating actions follow the agency's review of all outstanding Australian and New Zealand prime RMBS. The review incorporates the impact of the rating outlook revision to negative from stable on Australian lenders' mortgage insurer Genworth Financial Mortgage Insurance.

The affirmations are based on S&P's view that the affected transactions have performed within its rating expectations. The upgrades on the 14 tranches reflect the view that the transactions have demonstrated strong collateral performance and build-up of credit support. The agency believes that the upgraded transactions can withstand stress scenarios consistent with the higher rating levels.

The credit watch positive on 10 tranches in four transactions reflects the view that these transactions have accumulated credit enhancement as a percentage of their outstanding balances. S&P will resolve the watch placements after conducting further cashflow analysis under various stress scenarios for the affected transactions.

RMBS

Paragon to tap mezz demand

Paragon is set to publicly place double-A and single-A rated notes in addition to the senior tranche in its latest buy-to-let RMBS - the first UK issuer to do so post-financial crisis. The move is being attributed to spread tightening, which is allowing issuers to place tranches lower in the capital stack.

Rated by Fitch, Paragon Mortgages (No. 17) comprises four tranches, whose sizes are to be determined: triple-A rated class A notes, double-A class Bs, single-A class Cs and unrated class Ds. Credit enhancement for the class A notes is expected to be 15.5%, provided by the subordination of the class Bs (5.25%), class Cs (5%), class Ds (2.25%), a non-amortising reserve fund of 3% and excess spread. The reserve fund will increase to 4% of the initial note balance if 60+ day arrears exceed 3% of the outstanding portfolio balance or cumulative losses exceed 2% of the initial note balance.

The portfolio consists of UK prime buy-to-let residential mortgages, originated by Paragon Mortgages 2010 Limited. The loans are serviced by Paragon Finance as delegated by Moorgate Asset Administration, with Homeloan Management acting as a back-up servicer.

RMBS

Lower UK RMBS volume predicted

S&P anticipates UK RMBS issuance to end the year lower than in 2011 (see also SCI 24 September). Although credit performance remains generally robust, cheap central bank funding schemes and renewed economic deterioration are constraining issuance and could push up arrears, the agency notes.

"The UK's renewed economic contraction since late 2011, sluggish property prices and the tough lending environment are continuing credit negatives for mortgage loan performance, in our view. Indeed, we expect that the proportion of loans more than six months in arrears could rise by about 15% - to 1.2% in December 2013 from 1.1% in June 2012 - under our baseline forecast," comments S&P credit analyst Mark Boyce.

He adds: "Secondary market RMBS spreads have tightened significantly in 2012, potentially keeping securitisation on the table as a funding option for some mortgage lenders. Even so, competitive alternative funding sources - such as the Bank of England's Funding for Lending scheme - are likely to have a net negative effect on investor placements, in our view."

Although prime RMBS dominates issuance, some specialised mortgage market segments - such as the buy-to-let sector - are slowly starting to re-emerge, possibly boosting securitisation volumes in the process.

RMBS

Further credit watches resolved

S&P has resolved a further slug of credit watch placements made as a result of its implementation of revised criteria for surveilling pre-2009 US RMBS (SCI 16 October). The affected transactions in this latest review were issued between 2001 and 2007 and are backed by either a mix of adjustable- and fixed-rate subprime and scratch-and-dent mortgages or by adjustable- and fixed-rate prime jumbo mortgages secured primarily by first liens on one- to four-family residential properties.

Of the subprime and scratch-and-dent deals, S&P lowered its ratings on 257 classes from 101 RMBS and removed 207 of them from credit watch with negative implications, 47 of them from credit watch with developing implications and one of them from credit watch with positive implications. The agency also raised the ratings on 37 classes from 22 transactions and removed 15 of them from credit watch with positive implications and 13 of them from credit watch with developing implications. In addition, it affirmed the ratings on 497 classes from 118 transactions and removed 100 of them from credit watch negative, 46 of them from credit watch developing and 25 of them from credit watch positive.

Regarding the prime jumbo deals, S&P lowered its ratings on 1,012 classes from 99 RMBS and removed 949 of them from credit watch with negative implications and 57 from credit watch with developing implications. The agency also raised the ratings on 81 classes and removed 40 of them from credit watch positive, 28 from credit watch developing and one from credit watch negative. In addition, it affirmed the ratings on 520 classes from 99 transactions and removed 70 of them from credit watch negative, 41 from credit watch developing and 15 from credit watch positive.

S&P says it subsequently withdrew two of the lowered ratings and 11 of the affirmed ratings because of its view of the potential for performance volatility associated with pools with fewer than 20 loans. In addition, the agency withdrew the ratings on 72 classes from 30 transactions and removed 67 of them from credit watch negative, two from credit watch developing and one from credit watch positive. It withdrew 56 of these ratings in accordance with its current interest-only criteria and 16 of them because they have been paid in full.

RMBS

Credit watch placements resolved

S&P has lowered its ratings on 361 classes from 73 US RMBS and removed 318 of them from credit watch with negative implications, 34 of them from credit watch with developing implications and three of them from credit watch with positive implications. The agency also raised its ratings on 46 classes from 23 transactions and removed 23 of them from credit watch positive, eight of them from credit watch developing and one of them from credit watch negative.

In addition, it affirmed the ratings on 245 classes from 77 transactions and removed 31 of them from credit watch negative, 10 from credit watch developing and eight from credit watch positive. Ratings on 54 classes from 29 transactions, which had previously been on credit watch negative, were also withdrawn.

The actions resolve some of the credit watch placements made as a result of S&P's implementation of revised criteria for surveilling pre-2009 US RMBS (SCI 16 August). The transactions in this review were issued between 2002 and 2007 and are backed by adjustable- and fixed-rate Alt-A, high LTV and negatively amortising mortgage loans secured primarily by first liens on one- to four-family residential properties.