Contents

ABS

Auto paper doing the rounds

A number of auto names were circulating in the US ABS secondary market yesterday. Some of these names appeared in SCI's PriceABS data for the first time, including two Ford tranches.

Price talk for the FORDO 2009-E A4 tranche was plus 10, with FORDO 2012-A D talked in the mid-90s. Other auto names of interest seen during the session include SDART 2012-5 A2 and VFET 2012-1A A2, which were talked at plus 13 and plus 10 respectively.

Consumer ABS spreads widened by 1bp-3bp last week, as heavy new issue volumes appeared to draw investor interest away from secondary paper. However, ABS analysts at Wells Fargo view such spread movement as a pause rather than a reversal in trend based on market fundamentals.

"In our opinion, demand for benchmark ABS - such as prime autos - is likely to remain relatively strong, although resistance could build at tighter spreads due to the low absolute yields available on many of these securities," they note.

Outside of the auto space, a large US$58m slice of Sallie Mae's SLMA 2007-2 A3 student loan ABS tranche was talked at plus 30. It is the A2 tranche's first appearance in the PriceABS archive, although the same deal's B tranche was covered at 86.5 earlier this month.

CLOs

CLO pricing disparity emerges

The number of CDO bid-lists circulating in secondary reached double figures yesterday and even more are expected to hit the market today. However, about half of the names showing in SCI's PriceABS data for the session did not trade, implying that some sellers' expectations are overly optimistic at current levels.

PriceABS shows 167 line items yesterday for CLOs alone, across both European and US transactions. Among the European names that did not trade during the session was CELF 2007-1X D.

Among the US tranches that did not trade are ALM 2011-4X SUB, CIFC 2012-3X B2L, BABSN 2007-2A D and APID 2006-4A D. The latter was talked at low-90s on 19 February and traded at 71.3 on 11 July.

Names that attracted covers yesterday, meanwhile, were from a wide range of vintages and from right across the capital stack. For example, ALM 2011-4X F was covered at 94 handle, ARES 2007-12X E at 96 handle, GALL 2005-1A B2L at 97.29 and LANDM 2006-8A A2 at 95.41.

Additionally, a US$5.6m slice of LCM 4X INC and US$6m of the NPTNO 2007-2X C tranche were covered at 60 handle and mid-80s respectively during the session. The former was talked at mid/high-60s last November and the latter was covered at high-50s last July.

Of the European names out for the bid yesterday, an €806,023 slice of the AVOCA II-X A1 was covered at 98. The tranche was previously covered at 95.82 last May, according to the PriceABS archive.

CS

CMBS

Mid-week blip barely dents CMBS

Thursday was an interesting session for secondary US CMBS. Several recent-vintage tranches attracted covers, while talk around AJ tranches out for the bid shows the extent of tightening seen over the last couple of months.

The CMBS sector was only mildly affected by the broader market's reaction to the latest Fed minutes, with Trepp describing the fall-out as "mild collateral damage". Indeed, spreads widened on Wednesday, but not dramatically. Levels during Thursday were largely consistent with the previous session, suggesting that the longer-term trend remains a tightening one.

SCI's PriceABS data shows that a plethora of paper from 2011 and 2012 vintages was covered in yesterday's session. UBSC 2011-C1 A3, UBSCM 2012-C1 A3, UBSCM 2012-C1 AS and UBSCM 2012-C1 B were covered at 82, 83, 112 and 145 respectively.

The WFRBS 2011-C3 A4 tranche was covered at 85, with talk at 80. It was previously covered at 93 on 6 November 2012 and at 128 on 7 August.

Similarly, WFRBS 2012-C6 XA was covered at 137, whereas its price talk from 15 August was 275. WFRBS 2012-C6 AS was covered at 100, JPMCC 2011-C5 XA was covered in the low/mid-100s and JPMCC 2012-CBX XA was covered at 152. The previous cover for the latter tranche was at 286 on 8 August.

The earliest vintage paper captured by PriceABS from the session was JPMCC 2004-C3 AJ, which was talked around 110. It was one of eight AJ tranches seen yesterday, which between them show dramatic tightening over the past few months.

CGCMT 2005-C3 AJ was talked around the 200 mark, coming in slightly from its cover at 215 on 10 January, when it was also talked in the low/mid-200s. CSMC 2006-C1 AJ was talked around 185, having been previously covered on 24 January at 196 and back on 17 August in the low-400s.

WBCMT 2005-C20 AJ was talked at 135, the same level as in the previous session, but was covered in both November and October at 190. JPMCC 2005-LDP5 AJ was talked around 175, having been talked last November in the low-300s and on 25 July in the low/mid-300s.

Talk at swaps plus 625 for LBUBS 2007-C1 AJ further underlines the point. The tranche was covered last month at 597, but was being talked as wide as 800 in September and at 820 the month before.

As an interesting counterpoint, JPMCC 2007-CB19 AJ was talked in the low-70s, which is the same level the tranche was covered at back on 9 August, when it first appeared in the PriceABS archive. Talk and covers between the two dates have remained within a range of 68.8 to the mid-70s.

Finally, a couple of names that stood out from further down the capital stack were BSCMS 2007-PW18 E (talked in the mid-20s) and JPMCC 2007-CB20 F (covered at 52.16, with talk in the low-60s). Talk on the latter tranche in August last year had been between the mid/high-20s and mid-30s.

JL

RMBS

Subprime sets pace for busy session

Non-agency US RMBS supply shot up yesterday to around US$1.86bn, boosted by a large amount of subprime paper. SCI's PriceABS data shows activity from yesterday's session across all of the RMBS sub-sectors, with paper from as far back as 2002 appearing on bid-lists.

"Overall BWIC volume has soared from the prior session, led by the subprime sector. Two CDO liquidation lists, with predominately mezzanine line items, provides the bulk of activity in the subprime space," notes Interactive Data.

Just over a third of fixed rate paper came via an all-or-none list, with Alt-A supply outstripping prime. There was a concentration of 2006/2007 vintage paper and the Alt-A LXS 2006-8 3A4 tranche - which was talked in the mid-50s, having been in the low-50s back on 20 September - is typical of the names that were circulating.

An even higher proportion of hybrid paper came through an all-or-none list, with around 60% coming off one list from the morning. The vast majority were senior tranches, with Alt-A hybrids dominating supply.

Dealer offerings were mostly unchanged, although the option ARM AHMA 2006-4 1A12 tranche was talked in the mid/high-60s, very slightly higher than the mid-60s talk it attracted in the prior session. Talk in December last year was in the high-50s and low-60s, with the tranche's earliest recorded cover in the PriceABS archive comes from 5 September, when it was covered in the low/mid-50s.

Together with the CDO liquidations, a list of HELOC/second-lien wrapped paper from various monolines drove subprime volume. One such tranche was SAIL 2006-2 A3, which was talked in the mid-80s and mid/high-80s. It was covered last month in the mid-70s and back in July last year the tranche was talked in the high-60s and high-60s/low-70s.

JL

RMBS

Liquidation list lifts US RMBS

Wednesday saw secondary supply shoot up, with SCI's PriceABS data displaying three times as many RMBS line items as for the previous session. Non-agency US RMBS was particularly active, with increased volume across the fixed, hybrid and subprime sectors.

The fixed space was boosted by a liquidation list and prime fixed tranches accounted for over half the fixed supply. A US$23.045m piece of the CWHL 2007-17 1A2 tranche was talked in the mid-90s and high-90s, with talk in the prior session in the very high-90s.

Alt-A fixed names, such as MSM 2005-5AR 1B2 and CSFB 2005-9 3A2, also circulated. The former was talked in the low-20s, while a US$12.922m piece of the latter tranche was talked in the mid-60s, with further talk in the mid/high-60s.

"Overall BWIC volume has jumped from the prior session. The majority of supply is focused in the ARM sector, with several large blocks out for bid, while a liquidation list accounts for the jump in fixed rate line items. Dealer offerings are mostly unchanged to mixed day-over-day," comments Interactive Data.

There were several large blocks of hybrid paper out for the bid as well, with an Ambac list circulating early in the session. Alt-A hybrid paper, such as ARMT 2005-4 7M1, was talked in the low/mid-40s and low-60s.

Meanwhile, a US$25.92m piece of the WFMBS 2005-AR15 1A6 prime hybrid tranche was covered in the mid-90s, in line with talk. The tranche was talked in the mid/high-90s last month.

Subprime attention was largely focused on a liquidation list of 2002-2005 vintage mezz paper, understood to be from the Duke Funding High Grade I CDO. Two names of interest are SURF 2006-BC1 A2D and ARSI 2006-W5 A2C.

A US$1.938m slice of the SURF tranche was talked in the low- and low/mid-90s, following low/mid-90s talk the day before and a low/mid-90s cover on 15 January. A US$36.55m piece of the ARSI tranche was talked in the low/mid-30s, mid/high-30s and at 40. Talk in the previous session had been in the mid/high-30s.

JL

Structured Finance

SCI Start the Week - 25 February

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

Pipeline
Many deals joined the pipeline last week, with a good number remaining even after several priced before Friday's end. The largest addition was US$1.28bn JPMCC 2013-C10, which was joined by two other CMBS in the shape of US$1.49bn COMM 2013-CCRE6 and US$569m GSMS 2013-G1.

The only new RMBS to enter the pipeline was US$600.2m Sequoia Mortgage Trust 2013-3, while US$387.75m Sound Point CLO II stands as the sole CLO entrant. US$200m Caelus Re 2013 is set to be the third ILS of the year, while the US$170.79m Educational Enhancement Funding Corp Series 2013 and US$187.1m Eole Finance SPC are also soon to join the ABS universe.

Pricings
The number of ABS deals that priced during the week was once again in double figures, with three RMBS, one CMBS and four CLOs hitting the market. Five of the 11 new issue ABS were auto transactions, while two credit card deals and a whole-business securitisation also printed.

The auto ABS comprised: €530.6m E-Carat Compartment No.5; US$1.342bn Ford Credit Auto Owner Trust 2013-A; US$1bn Nissan Master Owner Trust Receivables Series 2013-A; €719m VCL 17; US$1.25bn Volkswagen Auto Loan Enhanced Trust 2013-1; and US$350m World Omni Master Owner Trust Series 2013-1.

The credit card ABS consisted of US$1.15bn Chase Issuance Trust 2013-A2 and US$500m Golden Credit Card Trust Series 2013-1. The remaining ABS were US$1.16bn Nelnet Student Loan Trust 2013-2 and US$271m TAL Advantage V Series 2013-1. The WBS was £750m Arqiva Financing.

The three RMBS prints were US$101.6m BOMFT 2013-8 NPL, A$750m Medallion Trust Series 2013-1 and €1.473bn Orange Lion 2013-9. The CMBS new issue was US$1.49bn UBSBB 2013-C5.

Finally, the CLOs that hit the market last week included: €300.5m Cairn CLO III, US$420m Dryden XXVI Senior Loan Fund, US$400m Figueroa CLO 2013-1 and US$618.35m ING IM CLO 2013-1.

Markets
The European CLO sector picked up after a quiet start to the week, as SCI reported on 20 February. Cairn CLOs were in focus in both the primary and secondary markets early in the week, with one trader noting that the new Cairn CLO III deal priced "quite well".

In the secondary market, bids on CRNCL 2006-1X M were lower than expected. Dealers are trying to sell single-A paper at below 400 DM, although it remains to be seen whether buyers are willing to meet them at that level.

It was also a slow start for the US CLO market because of Presidents' Day, but Bank of America Merrill Lynch securitised products strategists note that volumes picked up as investors sought to lock in gains after the recent secondary spread tightening. They believe the market is now taking a breather to adjust to its new levels.

The number of CDO bid-lists circulating on Wednesday and Thursday was unusually high, althoughSCI's PriceABS archive shows that around 50% did not trade (SCI 21 February). 167 line items from US and European CLOs showed up on PriceABS on Wednesday alone. Many tranches were successfully covered, such as ALM 2011-4X F.

In the new issue space, the Dryden XXVI CLO triple-A tranche priced at 110 DM, a post-crisis tight. The single-A, triple-B and double-B tranches priced at spreads of 272, 367 and 590, versus CLO 2.0 tights of 265, 355 and 540 respectively.

Meanwhile, many recent-vintage tranches appeared on US CMBS BWICs towards the end of the week, as SCI reported on 22 February. Thursday's session suggested that the market was not particularly shaken by the latest minutes from the Fed and a longer-term tightening trend continued to be in evidence.

Non-agency US RMBS led the charge as secondary supply shot up on Wednesday (SCI 21 February). The fixed space was boosted by a liquidation list, while hybrid and subprime supply were also strong.

Subprime attention was largely focused on a liquidation list of 2002-2005 vintage mezz paper. SCI's PriceABS data showed SURF 2006-BC1 A2D and ARSI 2006-W5 A2C talked from the low-90s to low/mid-90s and from the low/mid-30s to 40 respectively.

Barclays Capital MBS analysts note that US RMBS agency paper once again saw up-in-coupon outperform with the basis continuing to lag. Despite the weakness, they observe that lower-coupon technicals remain strong and reassert that Fed MBS purchases will continue until year-end.

"FN 3s underperformed by 6 ticks, while FN 3.5s were down by two ticks. Technicals remain strong despite the weakness in performance, with 3 and 3.5 rolls trading 2-4 ticks special, driven mainly by ongoing Fed purchases. On the other hand, higher coupons continued their upward march, with FN 5s and 5.5s outperforming Treasury hedges by 4 ticks each," they comment.

Deal news
• The US$35m Doubletree by Hilton JFK Airport loan has been transferred to special servicing. Securitised in JPMCC 2012-CBX, the loan represents the first CMBS 2.0/3.0 asset to enter special servicing due to property performance.
• The US$150m JW Marriott Las Vegas Resort & Spa loan, securitised in the CSMC 2007-TFLA CMBS, realised a US$66.9m appraisal reduction this month. The move could shift control of the loan from the junior lender (Galante Holdings) to the class K notes and potentially resolve the ongoing litigation by three CRE CDOs to block it from exercising its fair value purchase option (see SCI's CMBS loan events database).
• Twelve EMEA CMBS loans were added and four were removed from special servicing following work-outs in January. A total of 157 loans, representing approximately 22% of the total outstanding deal volume, were in special servicing at the end of the month.
• Persistent servicer challenges and declining recovery rates are colouring the performance of Sofoles-sponsored transactions. Performance varies across three segments: transactions sponsored by government entities Infonavit and Fovissste perform well; bank RMBS exhibit mixed credit metrics; and non-bank sponsored transactions backed by Sofoles loans remain stressed.
• Morningstar has added the US$42.2m Ballston Common Mall loan, securitised in PCM Trust 2003-PWR1, to its watchlist after it passed its maturity date last month. There has been no indication from the servicer as to the borrower's refinancing plans.
• Dock Street Capital Management has been retained to act as liquidation agent for Davis Square Funding VI. The collateral will be auctioned via four sales on 26 and 27 February.
• The rankings in the SCI league tables for bank arrangers in the structured credit and ABS markets have been finalised for 2012, with RBS and Barclays Capital taking top spot in Europe and the US respectively. The moribund European new issuance market saw a drop in volumes over the previous year, while the US kicked on again from 2011's increased levels.

Regulatory update
• The ECB deadline for submitting loan-level deal data to the European DataWarehouse is the end of March. However, concerns about the legal implications of uploading such data have held some originators back.
• Providing performing borrowers in non-agency RMBS pools with a viable exit from their high-interest mortgages is attracting increasing attention among US policymakers. A couple of options are emerging, but a legislative approach - whereby mortgages are refinanced rather than crammed-down - would be preferable from an investor perspective.
• Competing rating agencies could gain market share due to the US Department of Justice's civil lawsuit against S&P (SCI 6 February). But it is also hoped that ratings standards and ratings transparency will improve as a result.
• The Basel Committee and IOSCO have published a second consultative paper that represents a near-final proposal on margin requirements for non-centrally cleared derivatives. Several features of the proposal are intended to manage the liquidity impact of the margin requirements on financial market participants.
• Recent rep and warranty proposals in new US RMBS deals may expose investors to added risks from weak underwriting and defective mortgage loans. Weaker proposals should be accounted for in the credit enhancement where possible.
• ICE Clear Credit has received regulatory approval to clear the Markit iTraxx Europe CDS indices. Clearing for the contracts will launch on 25 February.
• FASB has issued for public comment a proposal to improve financial reporting by providing a comprehensive measurement framework for classifying and measuring financial instruments. The proposals are expected to reduce volatility from debt value adjustments, as well as increase the transparency of financial institutions' statements.
• ESMA has launched a shortened consultation in connection with formulating regulation on fees for trade repositories (TRs) by a delegated act. The move follows a formal request from the EC to provide technical advice to assist it in this area.
• FIX Protocol Ltd has published recommended best practices and accompanying implementation guidelines for the electronic trading of bonds. The aim is to enable bond market participants to benefit from cost-effective and efficient connectivity to the growing number of bond trading platforms emerging across the US and Europe.
• Steps taken by the US Treasury to wind down the Capital Purchase Program (CPP) could lead to incremental cures in some TRUPS CDOs. 109 issuers across TRUPS CDOs remain participants in the programme, with the exposure reaching 208 issuers at its peak.
• The ECB's change to its repo eligibility criteria for covered bonds is credit negative for programmes with cover pools containing ABS, according to Moody's.

Deals added to the SCI database last week:
Ally Master Owner Trust series 2013-1; Chase Issuance Trust 2013-1; CNH Equipment Trust 2013-A; Ford Auto Securitization Trust series 2013-R1; Galaxy XV CLO; GSMS 2013-KING; Jamestown CLO II; Kentucky Higher Education Student Loan Corp series 2013-1; Nomad CLO ; Race Point VIII CLO; Salus CLO 2012-1; Sheridan Square CLO; South Carolina Student Loan Corp series 2013-1; Springleaf Funding Trust 2013-A; Torrens series 2013-1 Trust; World Financial Network Credit Card Master Note Trust Series 2013-A.

Deals added to the SCI CMBS Loan Events database last week:
BACM 03-2 & BACM 04-1; BRUNT 2007-1; BSCMS 2006-PW12; CD 2006-CD2; CGCMT 2004-C1; COMM 2004-LB4A; CSMC 2007-TFLA; CWCI 2006-C1; CWCI 2007-C3; DECO 2006-C3; ECLIP 2006-2; ECLIP 2007-2; EMC VI; EURO 23; FLTST 3; GMACC 03-C2 & GECMC 03-C2; JPMCC 2006-LDP9; JPMCC 2007-LD11; JPMCC 2007-LDPX; JPMCC 2012-CBX; LBUBS 2003-C7; MSC 2006-IQ11; MSDWC 2002-IQ3; TAURS 2007-1; TITN 2007-CT1; TMAN 6; WTOW 2007-1.

Top stories to come in SCI:
Focus on European CLOs
Progress report on CDS clearing

Structured Finance

Senior reshuffle for investment manager

ING Investment Management has promoted Hans Stoter to cio. He succeeds Mark Weber, who has returned to the US to resume his responsibilities as evp of structured assets, loans and alternatives.

Stoter joins the international management committee and will chair the global investment leadership team. He has held various roles at ING since joining in 1998 and has previously worked at Philips and Nomura.

Tim Dowling will succeed Stoter as head of credit investments and global high yield lead portfolio manager. He is currently team leader and lead portfolio manager for US high yield and will report directly to Stoter in his new role.

Structured Finance

SEC alleges New Stream fund fraud

The US SEC has charged New Stream Capital and two of its former hedge fund managers with lying to investors about their fund's structure and financial condition. Unbeknownst to investors, they were not investing on equal terms after the fund was restructured without their knowledge.

David Bryson and Bart Gutekunst are accused of having secretly revised the fund's capital structure on behalf of its largest investor, Gottex Fund Management, before it collapsed. They then instructed the marketing department to hide the fact that Gottex had priority over other investors in the event of the fund's liquidation.

Former cfo Richard Pereira and former head of investor relations Tara Bryson have also been charged, with the latter agreeing to settle with the SEC. New Stream's Cayman Islands affiliate has also been charged.

New Stream managed a US$750m hedge fund and in March 2008 the capital structure was revised to Gottex's benefit. A restructuring a couple of months earlier had created two feeder funds and eliminated the preferential liquidation rights previously enjoyed by the feeder fund through which Gottex had invested and Gottex was threatening to redeem its investment.

The fund's financial statements were falsified to hide the restructuring and investors who asked about redemption levels were not told about the Gottex redemption request. Public disclosure would have made it much harder for the firm to attract and retain investors.

CDS

Pricing service adds Fitch CDS data

Interactive Data has added Fitch Solutions' CDS consensus pricing as an additional input to its CDS evaluation service. The evaluation service covers a wide range of single name corporate, sovereign and US municipal entities as well as CDX and iTraxx index trades.

Fitch's CDS consensus pricing data comes directly from contributing market makers. Fitch provides end-of-day pricing for index, sovereign and corporate and loan CDS products, benchmarks for illiquid or infrequently traded entities, as well as month-end pricing on ABS of CDS, including credit cards, automobiles, RMBS and CMBS.

CMBS

CMBS strategy head moves on

Richard Parkus has joined Seer Capital Management as md and trader for its CMBS team. He will report to Tony Barkan and lead the firm's efforts in identifying CMBS and CRE debt investments.

Parkus was most recently head of CMBS strategy at Morgan Stanley, having joined the bank two and a half years ago (SCI 18 August 2010). Prior to Morgan Stanley he was head of CRE debt strategy at Deutsche Bank and previously held senior roles at Lehman Brothers in London and New York.

Insurance-linked securities

New home for Bermuda-based ILS pro

Jerome Faure, who recently announced his departure from ILS Capital Management (SCI 20 February 2013), is set to join Endurance Specialty Holdings. He will become global reinsurance ceo next month, responsible for Endurance's North America, Bermuda and international reinsurance operations.

Faure has held various underwriting and reinsurance management roles over the last 25 years. Prior to ILS Capital Management he was chief underwriting officer at Tokio Millennium Re and president and ceo of SCOR US.

RMBS

ClearPoint off-loaded

Gleacher & Company has sold substantially all of the assets of its ClearPoint subsidiary to Ocwen Financial Corporation subsidiary Homeward Residential. The firm announced its plans to sell the business in 3Q12, after defaulting under agreements with its lenders that required Gleacher to provide payment guarantees.

ABS

Seasonal factors drive auto losses

Prime and subprime US auto ABS losses have risen in recent months, according to Fitch's latest index results for the sector. The trend is likely to be fleeting as the sector enters a seasonally strong period, however.

Prime annualised net losses (ANL) rose by 5% in January, recording the fifth consecutive increase. That said, prime losses are still at their lowest levels seen over the past 10 years.

Additionally, losses are well below the strong 2005-2006 vintages, which ranged from 0.65%-1%. Fitch expects prime auto asset ABS performance to normalise through the year. However, it will remain historically low even as used vehicle values soften a little further and payroll taxes rise, eating into consumers' monthly incomes.

Prime 60+ day delinquencies were up by 10% in January to 0.43% from 0.39% in December, but 16% lower year-over-year (YOY). Prime ANL rose month-over-month (MOM) to 0.42% in January from 0.40%, but were 21% improved YOY.

Prime cumulative net losses (CNL) remained at 0.29% in January, unchanged from December's level. CNL were 44% improved YOY, remaining within record low levels.

In the subprime sector, 60+ day delinquencies rose by 3% MOM to 3.74% in January, while ANL improved by 4% MOM to 6.62% - down from 6.92% in December.

ABS

RV securitisation tipped for growth

As Americans increasingly purchase recreational vehicles (RVs) and leisure boats, S&P believes that securitisation may be an option for lenders looking to diversify their funding sources. The low interest rate environment and a growing number of loan originators - both new entrants and re-entrants to the market - have increased consumer access to credit for RVs and boats.

Both the RV and marine industries benefited from moderate growth in the past two years. According to the Recreation Vehicle Industry Association (RVIA), wholesale shipments of all RVs increased 11.6% in December compared with the same month one year ago, while full-year shipments beat estimates - rising by 13.2% over 2012. RVIA also projects an increase of 4.5% in 2013 shipments.

Sales in the marine industry were up by approximately 10% in 2012, according to the National Marine Manufacturing Association (NMMA). And it projects another 5% to 10% sales increase in 2013.

Buyers report increased consumer confidence and willingness to spend, taking advantage of the buyer's market created by high inventories and low interest rates, creating lower pricing for new and used models. Some consumers are re-entering the market, while first-time buyers are taking advantage of the versatility and cost benefits of RV vacations, rather than traditional pay-and-stay vacations.

The increase in RV and marine sales is aided by the resurgence of financing options in these industries, as better terms and historically low rates make purchases viable. As originators' underwriting volumes continue to increase, they will look for diverse funding methods, with securitisation expected to be one option.

"Given the positive trends in sales and financing of RVs and boats and the favourable ABS environment, we see an opportunity for a resurgence of the RV and marine asset class in the near future. Securitisations can be an alternative for lenders to diversify funding options and, with tighter underwriting standards and an understanding of the discretionary nature of the underlying assets, these transactions could appeal to both originators and potential investors," S&P notes.

Structured Finance

TR fees consultation underway

ESMA has launched a shortened consultation in connection with formulating regulation on fees for trade repositories (TRs) by a delegated act. The move follows a formal request from the EC to provide technical advice to assist it in this area.

In order to deliver its advice to the Commission, ESMA says it has considered several possible fee structures for TRs applying for registration. Under consideration are different fee bands based on objective criteria. Such criteria take into account the costs to be incurred in carrying out all the relevant actions regarding the applications submitted and aim to be proportionate to the estimated turnover of TRs.

For on-going supervisory fees, ESMA is considering for its advice a single periodic fee based on turnover of the TR relative to the turnover of other TRs registered in the EU. An option for a minimum supervisory fee is also being considered.

ESMA notes that it has formulated an initial view on the appropriate method for considering the turnover of a TR in fees calculations, but it is also considering alternative methods for the calculation of turnover and fees.

Feedback is welcome until 6 March, ahead of the 31 March deadline when ESMA is due to submit its advice to the EC.

Structured Finance

Servicers adapt to market deterioration

The slow-down of the European structured finance market has not coincided with a corresponding contraction in servicing activity, S&P says. A new report published by the rating agency highlights a number of changes seen in the European servicing sector since 2008.

In particular, European servicers have adjusted their business models to compensate for the deteriorating market conditions. For example, the rise in the number of non-performing loans has spurred further growth in the special servicing sector.

Additionally, third-party servicers are expanding in countries where they traditionally didn't have a presence, such as Spain. Servicers are also expanding into new asset classes - such as consumer finance - as other areas become saturated.

The report is based on information garnered from the sub-set of servicers that S&P ranks, as well as from other market players, such as investors.

Structured Finance

Top arrangers decided

The rankings in the SCI league tables for bank arrangers in the structured credit and ABS markets have been finalised for 2012, with RBS and Barclays Capital taking top spot in Europe and the US respectively. The moribund European new issuance market saw a drop in volumes over the previous year, while the US kicked on again from 2011's increased levels.

This year SCI saw a total of around US$392.75bn qualifying deals completed in the US and €78.07bn in UK/Europe. Last year US volumes reached US$263.5bn, while the other side of the Atlantic saw €89.5bn worth of primary deals.

The league tables cover primary market transactions for asset-backed securities (ABS), commercial mortgage-backed securities (CMBS), residential mortgage-backed securities (RMBS) and collateralised debt/loan obligations (CDOs/CLOs). Qualifying deals are full primary securitisations that were publicly marketed and sold to third-party investors; i.e. were not privately placed or issuer/arranger retained or re-issues or re-securitisations.

SCI publishes its league tables on a quarterly basis. The numbers are based on the SCI deal database and are, where possible, corroborated with the firms involved.

The tables for 2012 can be found by clicking here.

CDO

Trups CDO defaults decrease further

Combined defaults and deferrals for US bank Trups CDOs decreased further to 29.7% at the end of January, from 30.2% at the end of the previous month, according to Fitch's latest index results for the sector. Approximately 0.45% of this drop is attributed to the removal of the defaulted and deferring collateral of five Trups CDOs that no longer have outstanding Fitch ratings.

In January one new bank, totalling US$3m of collateral in one CDO, defaulted. Additionally, six banks representing US$54.5m of collateral in eight CDOs resumed interest payments and repaid cumulative deferred interest on their Trups.

One issuer immediately redeemed upon cure. There were no new deferrals during the month.

At the end of January, 216 bank issuers were in default, representing approximately US$6.4bn held across 79 Trups CDOs. Additionally, 333 deferring bank issuers were affecting interest payments on US$4.8bn of collateral held by 78 Trups CDOs.

CDO

ABS CDO auction due

An auction is to be held for Capital Guardian ABS CDO I on 18 March. The collateral includes small business loan, subprime RMBS, CRE CDO and CMBS assets. It will only be sold if the proceeds are at least equal to the auction call redemption amount.

CDS

Differentiated basis trades touted

A meaningful move in the CDS basis has occurred over the last few months, with cash underperforming synthetic risk due to a glut of new bond issuance. Given the twin concerns of higher rates and the potential for increased idiosyncratic credit risk, credit derivatives strategists at Morgan Stanley recommend differentiating basis trades based on dollar prices, credit curves and absolute spread levels.

They put forward three key strategies: basis switch trades for maturity matched positive basis pairs, maturity matched negative basis trades and duration matched negative basis trades with longer dated bonds. In terms of switch trades, the Morgan Stanley strategists suggest that the most attractive opportunity lies in switching out of high dollar priced bonds in the front end of the curve into long CDS positions.

"We think this trade makes sense for lower quality investment grade names trading at wide absolute spreads," they explain.

With regard to negative basis trades, the strategists see value in standard negative basis pairs where there is potential for further basis normalisation, as well as in healthier and tighter spread names. "Our preferred trade is to own lower dollar price bonds in the more liquid 10-year part of the maturity spectrum and selectively hedge with duration matched CDS at the five-year point," they add. "These pairs would outperform if the individual credit were to sell off and the credit curve flattened. In that regard, we consider this type of basis trade to be a good way to position for rising idiosyncratic risk."

CDS

Compliance schedule released for iTraxx swaps

The CFTC has released a revised compliance schedule for clearing of iTraxx CDS indices. Category 1 and 2 entities must comply by 26 April and 25 July respectively, while all other entities must comply by 23 October.

The previously established schedule for all other swaps subject to the clearing requirement - CDX CDS indices and all four classes of interest rate swaps - remains unchanged. The compliance schedule for these swaps is: 11 March for category 1 entities; 10 June for category 2 entities; and 9 September for all other entities.

CDS

Electronic trading platform enhanced

Tradeweb Markets has enhanced its electronic iTraxx credit default swap index platform in Europe, enabling both sell- and buy-side clients to access the same bids and offers from liquidity-providing dealers. The addition of inter-dealer trading alongside dealer-to-institutional client trading is designed to improve transparency and promote more liquid markets for all participants, the firm says.

The new functionality leverages the expertise of Dealerweb, Tradeweb's inter-dealer markets business. Dealers can trade iTraxx indices with other dealers in a stable order book trading environment, providing them with a more efficient way to access liquidity, hedge risk and, as a result, support robust markets for institutional clients. Since its launch on 7 February, cumulative trading volume on the platform has been €24.8bn, with 12 dealers participating.

Tradeweb launched inter-dealer trading activity for US CDX CDS indices in October 2012 and since then has traded more than US$287bn of the contracts, with 13 dealers providing liquidity.

CDS

Absolute return fund prepped

ECM Asset Management has launched its Absolute Return Credit Fund (ARC), with the aim of gaining exposure to the deleveraging credit cycle in the present low growth and low interest rate environment. ARC will target an absolute return of one-month Euribor plus 4% per annum net of fees in all market conditions, with an emphasis on capital preservation and management of downside risk.

ARC is a Luxembourg-domiciled UCITS-compliant absolute return fund offering daily liquidity. The fund will employ directional credit strategies, while its fundamental approach to credit markets should enable it to identify systemic and idiosyncratic opportunities.

It will use relative value strategies - including basis trading, pair trading, capital structure relative value and curve trades - as an active source of return. The fund's focus is on European corporate credit, with the flexibility to invest across global credit markets.

Derek Hynes and Ross Pamphilon will be the portfolio managers of ARC.

CMBS

German MF CMBS under 'less pressure'

The announcement of a second large loan refinancing in the German multifamily CMBS sector this year and growing investor interest in large property portfolios reinforces Fitch's view that the sector is under far less pressure than other parts of the European CMBS market. The agency believes that well-managed German multifamily housing (MFH) will remain one of the more sought-after asset types in CMBS while interest rates stay low.

Debt providers and property investors are attracted by the diversified and stable cash flows in the German MFH sector, Fitch notes. Two high-profile refinancings totalling €1.8bn have already occurred in the sector this year and the agency expects further refinancing of large portfolios and portfolio sales to continue over the next couple of years.

The latest refinancing to occur in the sector is for German real estate group Gagfah, which secured a €1.06bn facility from Bank of America Lynch to refinance its Woba portfolio of apartments in Dresden (see SCI's CMBS loan events database). The existing loan was due on 15 May and is securitised in the Windermere IX and Deco 14 transactions. Gagfah says it plans several other refinancings in the first half of the year.

The Woba refinancing comes a month after Deutsche Annington Immobilien (DAIG) signed €787m of financing for partial repayment of the GRAND CMBS transaction (SCI 18 January). The financing should enable it to meet over 70% of the first of the 12-month amortisation targets agreed with noteholders late last year as part of a wider restructuring. DAIG also expects to generate "a substantial repayment amount" from property sales in 2013.

Fitch notes that refinancing risk still exists, but the pressure on German MFH is less intense than in many other asset classes - including most European CMBS, where little bank funding is available. Portfolio sales - which represent another option for sponsors seeking to generate funds for loan repayment - provide further succour to the market in the form of actual pricing evidence, the agency says.

Having resurfaced in 2011, large portfolio sales remained a feature of the German MFH market during 2012, with average deal size more than doubling from the previous year. Recent figures point to five sales of more than 10,000 units each in 2012. A successful sale of a portfolio of 33,000 apartments by BayernLB subsidiary GBW, for which bids have been submitted, would bolster market confidence further.

CMBS

CMBS credit recovery intact?

The US CMBS delinquent amount ended 2012 at US$42.57bn, about 5% lower than where it began the year, according to S&P. However, as the year progressed, CMBS credit metric performance improved.

"Although it is our view that the CMBS credit recovery is intact, we believe that holding it back in 2012 were an elevated unemployment rate, the slow improvement in property fundamentals, the deceleration in liquidations and the maturing of the 2007 vintage year loans," comments S&P credit analyst Larry Kay. "We believe these factors also contributed to the steady build-up of distressed legacy REOs."

By year-end, REOs were about one-third (US$4bn) higher than at the beginning of the year. Fewer liquidations and the seasoning of delinquent loans sparked the REO rise.

As REOs increased, so did the overall CMBS delinquency rate, which ended 2012 at 9.81% - its highest level since S&P began tracking delinquencies in 1999. Almost 60% of the year's delinquency decline occurred in the fourth quarter.

At the state level, California had the largest amount in REO at the end of 2012, accounting for approximately 53% of the state's total delinquencies and 16% of total CMBS REO as of December 2012. Comparatively, for the same period, New York REOs accounted for 11% of New York's total delinquencies and 4% of total CMBS REO.

"We expect that it will take some time to chip away at the REO bucket, reflecting the US$16.4bn of REO currently outstanding and the US$2.25bn of seriously delinquent loans that could advance to REO status," Kay adds.

In 2012, US$55.7bn of fixed- and floating-rate loans matured (3,382 loans). In the first half of the year, the fixed-rate payoff rate was 54.57%, dragged down by the 39.63% fixed-rate payoff rate for the 2007 vintage.

As many of the 2007 vintage year loans were scheduled to mature in the first half of 2012, the third and fourth quarter payoff rates provided much better results. The fixed-rate payoff rate jumped to 73.10% in the third quarter and then rose to 82.47% in the fourth quarter.

For the year, the fixed-rate payoff rate was 71.89% compared with 64.51% in 2011. Fixed- and floating-rate scheduled maturities in 2013 will be about half of the 2012 amount.

CMBS

Mixed outlook for gaming CMBS

CMBS first appeared in the major US gaming markets in 1998, with the securitisation of the Showboat Hotel and Casino in Atlantic City. Since then, transactions have been done on the casino/hotels along both the Las Vegas Strip and the Atlantic City Boardwalk. But based on different growth patterns, securitisations in these two markets have had - and will likely continue to have - mixed results, according to S&P.

Following the two down years of 2008 and 2009, Las Vegas visitor volume began to turn around and increased by 2.7% in 2010 compared to 2009. In both 2011 and 2012, Las Vegas visitor volume continued to grow modestly, increasing by about 6% when comparing the year-to-date totals though November of both years.

Atlantic City, however, has not yet turned around. For full-year 2012, there were about 23.8 million visitors, which is about 30% fewer than in 2006. Competition from casinos in Pennsylvania, New York and Connecticut will likely keep the pressure on Atlantic City's performance.

In addition to gambling revenue, Las Vegas casinos receive significant revenue from their room and food segments, whereas Atlantic City relies heavily on gambling revenue from day trippers. S&P expects this dependence on gambling revenues within a very competitive landscape to limit CMBS lending activity along the Boardwalk. However, it anticipates continued lending activity along the Strip, especially in high-volume years.

Last year, the CMBS market lent only on the Strip, financing the retail components of the Grand Canal Shoppes and Shoppes at The Palazzo and the Fashion Show Mall. At the end of 2012, there was approximately US$2.5bn of trust balance (US$3bn whole loan balance) of Strip and Boardwalk CMBS loan collateral outstanding.

CMBS

EMEA special servicing activity examined

Twelve EMEA CMBS loans were added and four were removed from special servicing following work-outs in January, according to Moody's. A total of 157 loans, representing approximately 22% of the total outstanding deal volume, were in special servicing at the end of the month.

The loans in special servicing are securitised across 53 large multiborrower and single-borrower transactions, three of which are no longer monitored by Moody's as the rated tranches have been repaid. New additions turned four large multiborrower transactions - two in the Talisman and two in the Titan Europe programmes - into non-performing loan pools of four to seven loans.

A loan backed by ground lease payments was transferred into special servicing for the first time. The £66m loan (Fairhold) securitised in Deco 8 - UK Conduit 2 is backed by over 92,000 ground rent assets and was not repaid on its maturity date.

Two loans that were transferred into special servicing prior to January have been added to the report, including the €208m Petrus loan, which was transferred in July 2012. The loan was transferred due to a cross-default with the €273m Margaux loan in the same securitisation, Titan Europe 2006-2. The transfer was not announced by the special servicer until January, with a view to achieving a successful enforcement and ensuring the noteholders would fully benefit from the cross-collateralisation between the loans (see SCI's CMBS loan events database).

The work-out of one of eight loans backed by collateral in France is proving difficult as the borrower elected to place itself into insolvency safeguard proceedings through the French courts. The French court has rescheduled the payments of the borrower under the €8m Nantes loan, securitised in Titan Europe 2007-2, such that the loan maturity is extended to 2021 with 66% of the principal only due after the note legal final maturity date in April 2017.

Another loan - the £224m Woolgate Exchange loan securitised in Cornerstone Titan 2006-1 - repaid in full in January, redeeming all of the class A notes and partially repaying the class B notes of the issuer. Losses were realised on two loans: the €52m Steigenberger loan securitised in Titan Europe 2006-1; and the £1m Group 7 Suffolk loan securitised in Deco 12 - UK 4. The loss severities on the original loan amounts were 5% and 11 respectively.

The weighted average Moody's expected principal loss for loans in special servicing has increased to 40% from 39%.

CMBS

BRUNT 2007-1 restructuring agreed

Noteholders last week agreed to the amendments to Bruntwood Alpha, as proposed by the borrower (SCI 1 February). The restructuring of the UK CMBS centres on a two-year extension of the notes and one of the two loans - the £229.2m B2000 loan - in exchange for which noteholders have been offered an increase in margin on a staggered basis.

The B2000 loan extension is subject to £66m being repaid on an agreed schedule. It is envisaged that £48m will be repaid via a further asset disposal plan, £4.5m via excess rental income and the remainder by way of voluntary repayments.

Holding property values constant, this plan should allow for deleveraging of the loan to a 59% LTV by January 2016, from 76% currently, according to Fitch. The LTV covenant is scheduled to reduce to 70% by 2015, bolstered by continued yearly valuations.

Notably, the borrower (Bruntwood Group) is not seeking to extend the January 2014 maturity date of the other loan - the £203.4m BE loan - which implies it has greater confidence in its ability to redeem this loan in the short term. This is reinforced by its successful refinancing of some of the collateral, Fitch notes. The borrower has recently exercised its right to release six collateral properties - including the clear trophy asset in the CMBS portfolio - for which the loan was partially prepaid in line with the originally documented release pricing.

The substantial prepayment has not reduced overall leverage because the 15% release premium (RP) is in addition to an allocated loan amount (ALA) set at closing, since when the sold assets had appreciated in value by an offsetting amount. Principal allocation to notes from collateral disposals will remain pro-rata up to the ALA, with the RP distributed sequentially.

While this suggests that improvement in senior advance rates over time will be modest, the borrower intends to make a one-off equity-like injection by subordinating interests it has acquired in the notes to those of other noteholders. Notably while interest will continue to accrue on re-acquired notes, return of principal will be deferred until the other noteholders have been repaid, pending which diverted principal will be paid out sequentially.

Although Bruntwood has demonstrated a commitment to capital expenditure, the exposure to secondary locations in the remaining portfolio is of some concern, Fitch adds. However, the agency notes that the recent open market sale executed was at a price in excess of the valuer's estimate.

CMBS

Improving CRE fundamentals highlighted

All of the commercial real estate sectors continued to grow in 4Q12, despite a softened economy and slow job growth, according to Moody's latest US CMBS and CRE CDO surveillance review. A significant rise in losses on CMBS loans is therefore unlikely, at least in the near term, as commercial real estate fundamentals continue to improve.

Moody's Commercial Mortgage Metrics (CMM) weighted average base expected loss rose to 8.41% from 8.03% in the fourth quarter, while the base expected loss for conduit/fusion transactions rose to 8.89% from 8.63%. The overall CMM base expected loss was relatively stable, at around 8% throughout 2012, and is expected to remain so until delinquencies decline.

"The sector is benefitting from limited construction and positive absorption, which have created positive market dynamics," says Michael Gerdes, Moody's md and head of US CMBS & CRE CDO surveillance. "As in the third quarter, multifamily and hotel both performed strongly and should continue to do so over the next year, albeit at a more modest pace. The recovery in the office and retail sectors has been muted, but performance will strengthen in tandem with employment and economic growth."

Moody's central global scenario calls for US GDP growth of around 2% for 2013 and, despite recent positive developments, risks to the agency's forecasts remain skewed to the downside. While no significant increase in base expected loss is anticipated in the near future, there could be some minor shifts due to refinancing difficulties as loans approach maturity.

The overall share of specially serviced (SS) loans declined by 48bp to 11.31% in the fourth quarter, from 11.79% in the third. The Specially Serviced Loan Tracker (SSLT) has declined in 15 of the past 20 months, contracting by 93bp below the April 2011 peak of 12.72%. Performing SS loans accounted for 19.6% of the SS loan universe by balance, down by 84bp from the third quarter, in large part because of faster workouts of non-performing five-year SS loans from 2007 relative to the new loans that entered special servicing.

Retail performance was relatively flat. For the third quarter in a row, vacancy rates declined by 10bp, with rents also declining slightly.

The office sector continues to recover, despite slower-than-expected economic growth and ongoing concerns about high unemployment. Downtown markets continue to outperform suburban markets.

The hotel sector, meanwhile, continued to perform strongly. Year-over-year RevPAR was up by 6.8%, as of November 2012, with the greatest increases seen in both luxury hotels and hotels in the Pacific.

Multifamily also performed well, despite a slow-down in growth. Four markets - Miami, Newark, Oakland and Pittsburgh - had vacancy rates below 3%, down from seven markets at the end of the third quarter.

CMBS

Range of special servicers broadening

Increased issuance volume is bringing several new B-piece buyers to the US CMBS market. But Fitch notes that, unlike in previous years, they are not specially servicing these deals.

Absent from the B-piece investors across the 81 CMBS transactions issued in 2012 were the so-called 'old cartel' of special servicers, made up of LNR Partners, CWCapital and C-III. These firms still retain significant interest and market share in older vintage CMBS, though they are being replaced by new entrants. Among them are Rialto, Eightfold Real Estate Capital, Raith Capital Management and Blackrock - who were the largest buyers of CMBS B-pieces last year.

While Fitch has seen significant interest in special servicer ratings recently and assigned five new ratings last year, only Rialto was actively buying B-Pieces. Of the new servicers, each has a different platform and market focus.

Two have significant CMBS positions, two are servicing non-performing transactions, one is a CDO manager and large loan special servicer, and one is a GSE (Freddie Mac). Fitch believes the continued growth in CMBS issuance supports a broader range of special servicers.

CMBS

CMBS losses moving up the capital stack?

The composition of US CMBS loan liquidations appears to be shifting. Over the past three years, less than half of all liquidations each month were for loans sized between US$10m-US$50m, with special servicers largely liquidating loans sized US$10m or less. However, this month 69% of all liquidated loans had balances of between US$10m-US$50m.

If this trend continues, it could lead to a significant jump in the number of mezzanine legacy bond tranches that begin to take write-downs over the coming months, according to MBS analysts at Bank of America Merrill Lynch. They analysed a number of conduit deals to determine the highest tranche that was taking a loss as of the end of 2010, 2011 and as of February 2013. The exercise suggests that losses have moved into the investment grade part of the capital structure.

"We think that by the end of this year, it is likely that losses will more soundly begin to hit legacy bonds that were originally single- or double-A rated," the BAML analysts note.

RMBS

Mortgage settlement progress report released

US mortgage servicers have distributed US$45.83bn in direct relief to over 550,000 homeowners - or roughly US$82,000 per homeowner - as part of the National Mortgage Settlement, according to a progress report released by the Office of Mortgage Settlement Oversight. As of 31 December, more than US$22.48bn of the relief has been via debt forgiveness, which has lowered monthly payments on over 266,000 mortgage loans and reduced loan balances by more than US$84,000 on average.

To date, the majority of the relief has come from short sales, which account for about 43% of the total. Second-lien modifications or extinguishment was the next most frequently used relief method, accounting for 25% of the total relief offered.

So far, Ally is the only servicer to have completed its consumer relief requirements, albeit the firm was only responsible for 1% of the required industry credits. It provided US$630m in total relief to fulfil its required credits of US$200m.

RMBS

RMBS ratings approach explained

US RMBS with weak structural frameworks are unlikely to receive a Aaa rating from Moody's, even if they have strong prime loan pools and satisfactory originators and servicers. The agency explains that RMBS with provisions that significantly limit originators' obligations to repurchase defective loans, have a narrow third-party pre-securitisation due diligence scope or a weak alignment of interests between the sponsor and investors are not consistent with its Aaa rating.

In its analysis of RMBS deals, Moody's weighs the effectiveness of the transaction elements that provide transparency and align interests between issuers and investors: the representations and warranties (R&Ws), the procedures available to investors for the enforcement of R&W breaches, the robustness of the origination process and the scope of pre-securitisation due diligence. For an RMBS to earn a top rating, investors should be protected against the risk of loss due to fraudulent or defective loans and they should have access to robust and reliable data that provides transparency concerning loan terms, borrower credit and property valuation, the agency says.

Moody's notes that a strong framework is exemplified by the post-crisis RMBS offered by Redwood Trust. Some other proposals it has reviewed or discussed with issuers have exhibited weaknesses that would result in an investment grade rating in the A1 to A3 range.

The agency says that representations and warranties and related enforcement mechanisms are significantly weakened when they have: expanded materiality factors, expiry of critical R&Ws, borrower life events that render a breach immaterial, a narrow scope of the R&W breach review, a limited R&W related to data accuracy or a presumption that no breach exists. "Issuers can create a strong RMBS framework in a multitude of ways and we therefore assess credit risk and assign ratings based on each deal's individual merits," says Yehudah Forster, a Moody's vp. "Within the framework, one or more weak elements increase the risk that fraudulent or defective loans will be securitised. Where we detect weaknesses in one or more elements, we will weigh whether the weakness can be mitigated with increased credit enhancement or whether the weakness is of such a magnitude as to limit the achievable ratings or preclude us from rating the transaction."

RMBS

RMBS rep and warranty warning

Recent rep and warranty proposals in new US RMBS deals may expose investors to added risks from weak underwriting and defective mortgage loans, according to Fitch. As such, the agency believes that these weaker proposals need to be accounted for in the credit enhancement where possible.

The rep and warranty framework established post-crisis as part of ASF Project Restart reflects a high standard that provides the most assurances about loan origination and underwriting quality, and have been seen in all deals issued by Redwood Trust so far. These reps contain few knowledge qualifiers, the repurchase obligations are for the life of the loan and there is little ambiguity.

With some of the most recent RMBS proposals, however, the rep and warranty frameworks contain provisions that Fitch deems to be weak. For instance, some of the provisions relieve lenders from their repurchase obligations after fewer than 36 months. Others contain proximate clause language and materiality factors in determining if a breach occurred.

"These provisions begin to introduce subjectivity and may burden a mortgage trust with additional risks and expenses," says Fitch senior director Suzanne Mistretta.

The balance between protecting both lenders and investors in new RMBS deals requires greater clarity and transparency, the agency notes, so that investors remain protected and lenders remain incentivised to make sound underwriting decisions. "The proposals vary widely, so each transaction will be approached holistically. Transactions with significant third-party due diligence and strong credit quality borrowers would provide greater confidence that any future default risk would be driven by credit events and not operational weaknesses," adds Mistretta.