Contents

CMBS

Steady state for US CMBS secondary

Generic US CMBS spreads were mostly unchanged yesterday with BWIC volume of around US$270m. SCI's PriceABS data reveals a few tranches from 2013 as well as names from the more commonly seen 2006 and 2007 vintages out for the bid.

CD 2006-CD3 C was talked in the high-50s and at around 69 but did not trade. It had been talked in the mid/high-60s just last week and was covered 11 months ago on 21 March in the low-50s.

JPMCC 2007-C1 AJ was talked in the mid/high-500s and very high-90s and was covered at 99. The tranche had been talked at swaps plus 575 last week and first appeared in the PriceABS archive in July 2012, when it was talked in the low-70s.

The LBCMT 2007-C3 AJFL tranche was talked in the low/mid-80s and high/mid-80s, but did not trade. The tranche was also talked in the mid/high-80s on Friday and was last covered at 79.

MLCFC 2007-5 A4 was talked at around 125 and covered at 120. The tranche was covered earlier in the month at 127 and was covered in November at 134.

Rounding out the 2007-vintage supply, MSC 2007-IQ16 AJFL was talked at around 80 and in the mid-80s, but was another DNT. The tranche was talked at 85 last week and was talked between the mid-50s and 60 area when it first appeared in PriceABS in June 2012.

2013-vintage paper is seen less frequently and one of the tranches out for the bid yesterday had not appeared in the PriceABS archive before. That tranche - COMM 2013-CR10 A2 - was talked in the high-50s yesterday.

Also out for the bid was COMM 2013-CR12 A4, which was talked at around 88 one month after being picked up by PriceABS at a DNT. The tranche has been covered three times since late October, at 98, swaps plus 96 and at 94.

GSMS 2013-GC16 A4 was also talked at around 88, having again been picked up as a DNT on 24 January. The tranche did trade successfully earlier this month.

Another name of interest from the session was MSBAM 2013-C7 A4, which was talked at around 85. The tranche was first recorded by PriceABS when it was traded on 6 August and it has been covered twice since then.

JL

RMBS

RMBS market moves higher

US non-agency RMBS BWIC activity picked up strongly yesterday to reach almost US$900m. Subprime paper was prevalent on bid-lists, concentrated in the 2005-2007 vintages, with price talk and covers on several bonds moving up from the previous session.

For example, FFML 2005-FF7 M3 was covered in the low-80s yesterday, having been talked in the mid/high-70s in the previous session. When the tranche first appeared in SCI's PriceABS archive in October 2012, it was covered in the mid/high-50s.

CWALT 2005-J2 1A12 was talked in the mid/high-80s yesterday, as was DSLA 2005-AR² 2A1A. PriceABS data shows that the latter tranche had also been talked in the mid/high-80s in the previous session and several times in the 80s last year. The former tranche had not previously appeared in the PriceABS archive.

JPMMT 2005-A3 3A4 was talked in the very high-90s (having been talked in the previous session in the high-90s), while the SABR 2005-FR5 M1 tranche traded during the session (having been talked the day before in the mid-60s). Several 2005-vintage tranches did not trade, however. Among those DNTs were HEMT 2005-1 M6, IMM 2005-6 2M2 and JPALT 2005-S1 1A8.

Among the 2006-vintage names out for the bid yesterday, ACE 2006-SD1 M1 was covered in the mid-70s, having been talked the day before in the low-70s. Similarly, the CBASS 2006-CB4 AV3 tranche was covered in the low-70s, having been talked between the low-60s and low/mid-60s in the prior session.

BALTA 2006-8 2A1 was talked in the mid/high-60s and covered in the low-70s during the session. When the bond first appeared in the PriceABS archive on 14 February last year it was talked in the low/mid-60s.

FMIC 2006-3 2A2 was covered in the mid/high-50s, having been talked in the mid-50s in the previous session. Meanwhile, RAST 2006-A14C 2A7 was covered at low-24, a year and a week after it was talked at around 28 on only its second PriceABS appearance.

The CWALT 2006-OA9 1A1, CWALT 2006-23CB 2A8, CWALT 2006-25CB A10 and CWALT 2006-28CB A14 tranches were all recorded as DNTs.

Price talk on the AHM 2007-2 2A was in the mid/high-teens, which is lower than recorded the day before. However, the CARR 2007-FRE1 A3 tranche was covered in the very high-60s, having been talked in the mid-60s in the previous session.

CBASS 2007-CB3 A1 was covered in the low-60s, having been talked in the high-50s in the previous session. The CBASS 2007-CB3 A2 tranche was also covered in the low-60s.

INABS 2007-B 2A3 was covered in the low/mid-60s (having been talked in the low-60s in the previous session), while OOMLT 2007-2 3A3 was covered in the mid-50s - the same level at which it had been talked in the previous session. Additionally, SASC 2007-BC4 A4 was covered in the low/mid-70s, which is the same level at which it was talked in the preceding session.

Not all of the names out for the bid were from 2005-2007 vintages. One of the earliest-vintage tranches circulating yesterday was RASC 2001-KS3 AII (which was covered in the low/mid-90s), while one of the latest on offer was MSRR 2010-R5 5B (which also traded).

JL

Structured Finance

SCI Start the Week - 24 February

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

Pipeline
A steady flow of new deals joined the pipeline last week. As well as three ABS and two ILS, three RMBS and three CMBS were announced.

The ABS were: US$1.008bn Ally Auto Receivables Trust 2014-SN1; E-Carat 3; and US$678m VFET 2014-1. The ILS consisted of US$225m East Lane Re VI series 2014-1 and US$125m Gator Re 2014-1.

The newly-announced RMBS comprised US$379m Citigroup Mortgage Loan Trust 2014-A, US$11.766bn OASIS 2014-1 and A$500m TORRENS Series 2014-1 Trust. The CMBS, meanwhile, were US$120m COMM 2014-UBS2, US$306.3m GSMS 2014-NEW and a £110m second tap issuance of Trafford Centre Finance.

Pricings
It was a slightly quieter week for completed issuance than the one before. Three ABS priced, as well as an ILS, one RMBS, two CMBS and three CLOs.

The ABS prints were US$423.55m GreatAmerica Leasing Receivables Funding Series 2014-1, US$1.5bn Honda Auto Receivables 2014-1 Owner Trust and US$291m TAL Advantage V series 2014-1. The ILS was US$100m Queen Street IX.

The RMBS new issue was €1.075bn STORM 2014-I, while the CMBS were US$186.8m CSMC Trust 2014-SURF and US$957.6m JPMBB 2014-C18. Finally, US$518m Anchorage Capital CLO 3, US$522m JFIN 2014-1 and US$513m Venture XVI priced.

Markets
European CLO investors are becoming increasingly competitive in their search for yield, as SCI reported on 19 February. One trader reports that equity pieces are being particularly well bid.

The trader adds: "Investors are paying more attention to underlying assets and taking a much more detailed view as far as how the deal will perform. It is competitive, so they will run very low defaults for quality portfolios to see if they can reach those offer levels."

Last week was fairly quiet for the US CLO market, according to analysts at Bank of America Merrill Lynch. They note: "Overall, US 1.0 spreads are now 10bp tighter at the triple-A and double-A level, while CLO 2.0 spreads are 5bp-20bp wider in the mezzanine tranches compared to two weeks ago."

US ABS secondary supply was concentrated in auto loan bonds later in the week (SCI 21 February). SCI's PriceABS data shows that Thursday's bid-lists also included some utility bond and student loan paper.

In the US RMBS market an increase in non-agency BWIC activity was seen in the middle of the week, with almost US$900m of paper circulating during Wednesday's session. Subprime paper was prevalent, with supply concentrated in the 2005-2007 vintages.

US CMBS new issue spreads have been drifting wider, which is in sharp contrast to the legacy sector, where Barclays Capital analysts report that money-good AJs and wider-trading AMs continue to be well bid. They add: "Spreads on these tranches compressed by another 15bp-25bp this week and are now trading 50bp-125bp tighter than the beginning of the year."

Deal news
• The February remittance for the MLCFC 2007-5 CMBS recorded US$192m of liquidations across 10 properties listed in the CWCapital bulk sale. The dispositions resulted in US$103.7m of realised losses, implying a 54% severity.
• Remittances were also reported for three other US CMBS with exposure to the CWCapital bulk sale - BACM 2007-1, JPMCC 2007-LDP11 and WBCMT 2006-C28. LDP11 appears to have bucked the trend for net sales proceeds to exceed recent appraisal values.
• Mixed loan-level developments for the pan-European CMBS Cornerstone Titan 2007-1 suggest that principal losses could reach the class B notes. The A2 class has become the most senior tranche, increasing the risk of a note EOD and further complicating class B losses.
• Intu Properties has tapped its Trafford Centre Finance CMBS, with the launch of £110m additional class A, B and D notes. The proceeds will be used to provide funds for the firm's pipeline of active management projects and major extensions.
• Dock Street Capital Management has been appointed successor collateral manager to Libertas Preferred Funding I, following the resignation of Cira SCM (SCI 4 November 2013). Moody's has confirmed that the move will not affect its rating on the CDO.
• Investec Bank has issued key person replacement notices for the Gresham Capital CLO I, II, III, IV and V deals. James Cuby, Steve Torr and Richard Swift join Henrik Malmer as the key persons on the five transactions.
• French retailer Vivarte has suspended payments on €2.8bn of buyout debt while it negotiates a restructuring. The move could cause some European CLOs to fail their coverage tests, resulting in a diversion of cashflows from junior to senior tranches.

Regulatory update
• The Lehman bankruptcy court in December applied the US Bankruptcy Code's safe harbour for swaps in determining that the provisions of a swap agreement Lehman was a party to with the Michigan State Housing Development Authority (MSHDA), which addressed the calculation of settlement amounts upon termination of the swap, when liquidation provisions fall within the safe harbour. This decision is in contrast to prior decisions of the court, which had denied the applicability of the safe harbour to issues arising with other Lehman swap counterparties, and is said to be a credit positive development for securitisations when they rely on swaps.
• SFIG says it has filed a letter with the US SEC recommending revisions to the loan-level disclosure schedule proposed under Regulation AB 2. The association's RMBS Loan-Level Disclosure Subcommittee held a series of meetings from late-2013 through January 2014 to discuss improvements to Schedule L, with the goal of proposing enhancements that could be adopted by the SEC in the final rule.
• ESMA has published its Annual Report 2013 on credit rating agencies (CRAs) in the EU. The report also outlines the authority's supervisory work plan for this year.

Deals added to the SCI New Issuance database last week:
Arqiva Financing series 2014-1; Arrowpoint CLO 2014-2; CNH Equipment Trust 2014-A; COMM 2014-CCRE15; Enterprise Fleet Financing Series 2014-1; Fifth Third Auto Trust 2014-1; Ford Credit Floorplan Master Owner Trust A series 2014-1; Ford Credit Floorplan Master Owner Trust A series 2014-2; Halcyon Loan Advisors Funding 2014-1; Heathrow Funding; JGWPT XXXI series 2014-1; Manchester Airport Group Funding; Medallion Trust Series 2014-1; Neuberger Berman CLO XVI; Nissan Auto Receivables 2014-A Owner Trust; OFSI Fund VI; Quadrivio SME 2014; Scot Roads Partnership Finance; Tennenbaum Senior Loan SPV; World Financial Network Credit Card Master Note Trust Series 2014-A.

Deals added to the SCI CMBS Loan Events database last week:
BACM 2006-6; BACM 2007-1; BSCMS 2006-T24; BUMF 3; CGCMT 2005-C3; COMM 2004-LNB4; COMM 2005-C6; CSMC 2007-C4; CWCI 2007-C2; DECO 2006-E4; DECO 8-C2; ECLIP 2006-3; EMC VI; EPICP BROD; EURO 28; FLTST 3; FOX 1; GCCFC 2003-C2; GSMS 2005-GG4; JPMCC 2005-LDP5; JPMCC 2006-CB17; JPMCC 2007-LD11; LBUBS 2008-C1; MLCFC 2007-5; MLCFC 2007-8; MSC 2004-HQ4; REC 6; TITN 2006-3; TMAN 7; WBCMT 2006-C28; WINDM VII.

Top stories to come in SCI:
ILS outlook

CMBS

TITN 2007-CT1 losses to reach Bs

Mixed loan-level developments for the pan-European CMBS Cornerstone Titan 2007-1 suggest that principal losses could reach the class B notes, according to Barclays Capital CMBS analysts. The A2 class has become most senior tranche, increasing the risk of a note EOD and further complicating class B losses.

The transaction balance has reduced from its initial €1.3bn to €483.8m, as of January, with 13 loans remaining in the portfolio. All these loans are in special servicing.

Principal losses at the transaction level are allocated reverse sequentially via non-accruing interest (NAI) amounts. Aggregate NAI amounts on the January IPD were €137.6m, reaching up to class D of the CMBS.

The reported outstanding portfolio principal balance exceeds the NAI-adjusted outstanding note balance by €2.6m, largely due to a currency gain when the FX rate of the Swiss franc-denominated Klimson loan changed. However, the Barcap analysts believe that this currency gain will ultimately be lower than €2.6m due to currency swap termination costs.

They expect an additional €317m of principal recoveries from the portfolio after reducing loss expectations for the Wolfsburg loan, but increasing loss expectations for the Hugo and Hannover loans. Their base case now sees losses break in class B, where they would range between 66% in an optimistic recovery case and 100% in a pessimistic recovery case.

The A2 class became the most senior remaining class last month, increasing the risk of note EOD due to non-payment of interest. Interest shortfalls are being driven by a couple of factors, including one loan - German Retail Portfolio II - being not current on interest obligations and the unavailability of servicer advances.

Additionally, interest due on the class X note is based on interest due on the loans, so remains due in relation to the German Retail Portfolio II loan - despite the interest default. Special servicing fees are not deducted from the interest due on the class X, resulting in a revenue shortfall at the issuer level.

So far, there has been no interest payment default on the most senior class, as €1.5m principal proceeds have been used to pay interest on classes A1, A2 and X. The principal should be able to cover note interest, although failure to pay principal could also constitute a note EOD.

If principal proceeds are used to pay note interest, the remaining outstanding note balance would exceed the remaining outstanding loan portfolio balance. If loan principal is used to pay interest on the senior notes, it would increase the principal loss allocated to the CMBS notes, further impacting the class Bs.

The analysts calculate that €2m in principal could be used each year to pay interest on the most senior classes to avoid an issuer EOD. All told, this could add 4% to class B principal losses, potentially with the class Bs deferring interest until the IPD in which the A2 tranche is fully repaid. Class B cumulative interest deferral could therefore increase to €1m by January 2016.

Using the base-case assumption that €3m of principal is used to pay interest on classes A2 and X, as well as repay the currently outstanding servicing advances and expected class B interest deferral, the analysts predict a 93% principal loss for the class Bs. A conservative loss scenario would see the tranche wiped out and the class A2s suffer a 3% loss.

Secondary market pricing for the class A2 notes appears to factor in the risk of a principal loss. However, pricing for the class Bs implies substantially higher principal recovery assumptions than the analysts' base case.

"In our view, class B could provide upside for investors who are more optimistic than we are on German retail properties (the German Retail Portfolio loans) and/or French offices (the Hugo loan)," they conclude.

JL

CMBS

CWCapital liquidation trends emerging

A number of trends have become apparent for the loans liquidated in CWCapital's bulk sale (SCI passim). Proceeds have generally been higher than appraisals - on average by 13% - and loss severities are coming in at around 50%.

Barclays Capital CMBS analysts estimate that US$1.9bn of the US$3.2bn of loans placed for bid in auctions sent liquidation proceeds to their respective trusts in the February remittance. The remainder is expected to be pushed through in March and April.

Sale proceeds have been on average 13% higher than appraisals, but this upside surprise is not evenly distributed across properties. Properties with larger loan balances have been more likely to outperform, while those with balances below US$10m appear to have underperformed by 4%.

"In contrast, larger loans outperformed their most recent valuations by over 15%. This is not entirely surprising; recent news reports have suggested that the auction attracted several deep-pocketed institutional CRE investors, who would naturally be more interested in acquiring larger distressed assets," the Barcap analysts note.

A greater upside was also observed for heavily distressed properties. Where LTVs were greater than 300%, as of the most recent appraisal, sale proceeds were nearly 40% higher on average.

Less distressed properties sold for only about 10% higher than their appraisals, while assets that were valued at less than 100% LTV saw a negative surprise in liquidation proceeds. This is typical of a strong risk-on environment and the analysts believe that fully stabilised, leased-up assets may sell for worse than their appraisal because of the lack of additional upside and the effect of higher financing costs from increasing rates.

Similar trends by property type are also emerging. The CWCapital auctions saw retail and office properties more likely to outperform, while apartment and hotel properties - which are more often stable than office and retail - lagged.

As an exception to the preference for distressed assets, larger metropolitan statistical areas (MSAs) are still performing better. Investors appear to favour assets in the top 10 MSAs, where auction proceeds are 16% higher than appraisal, compared to 9% higher in other geographies.

"One of the explanations is that larger institutional investors may find it easier to manage properties in some of the gateway cities, rather than assets that are spread across a wider geographical area. We do, however, believe that this gap is narrowing; valuations in the top MSAs are getting close to their peaks and there may not be as many opportunities for above-average returns in the future," the analysts explain.

The remittances this month have had divergent impacts on bond pricing. Senior tranches trading at premiums were hurt by the large unscheduled pay-downs at par.

Bonds lower down the capital structure gained as resolutions reduced loss forecasts and boosted valuations for senior mezzanine tranches. The biggest winners were the deep-discount lower mezzanine bonds that had not been remitting interest for several months but which were paid accrued shortfalls thanks to large ASER cashflows.

As of last week, CWCapital had closed on 110 of the 134 assets offered, with another 12 expected to close by mid-March (SCI 24 February). The Barcap analysts believe that only about 70 of these liquidations have been reported by CMBS trusts in the February remittance.

GSMS 2007-GG10 is thought to be the deal with the most remaining exposure, with resolutions for US$575m of loans still to be reported, which should happen in the March remittance. Additionally, MLCFC 2007-5 has US$193m of distressed assets still to close, despite seeing US$200m of liquidations already this month.

CWCapital has also suggested it will consider further bulk sales in the future. These could occur in spurts, with high concentrations in single deals.

Such sales would lead to large ASER recoveries, which can push through significant interest shortfall reimbursement payments to deep out-of-the-money lower mezzanine tranches, which may also be owned by the servicer as a controlling class. Selling in bulk also enables servicers to extract 1% liquidation fees from distressed assets.

JL

RMBS

Countrywide wrangling continues

Judge Scarpulla of the New York State Court ruled last week that the judgement entered by Judge Kapnick on 31 January in the US$8.5bn Countrywide settlement case will not be further delayed. AIG and other objectors had asked for the entry of the judgement to be stayed, alleging that various issues remained unclear (SCI 12 February).

AIG is nevertheless pursuing a motion to reargue the case before Scarpulla, alleging that Kapnick overlooked disputed and unresolved issues and failed to adequately explain her decision. The firm maintains that it will lodge an appeal at the "appropriate time".

The 31 January judgment approved the settlement agreement except to the extent that it releases loan modifications claims (SCI 3 February). While this could mean that more money will be paid to settle the modification claims, the final analysis will be contingent on how this additional claim amount interacts with BofA's successor liability to Countrywide, according to Barclays Capital RMBS analysts.

They suggest that two broad options remain. First, BofA and the trustee could decide that the US$8.5bn is fair payment for rep and warranty claims and that loan modification claims should not be released and handled separately outside this settlement.

In this scenario, once all appeals are exhausted, an expert would determine the final allocation percentage based on the approach that was laid out in the agreement. But it is less clear how the trustee/investors could proceed on the modification-related repurchase claims.

The other possibility is that BofA and the trustee could decide that some of the US$8.5bn should be set aside to cover modification claims. While this would probably increase opposition to the settlement if it was undertaken for all deals, BofA and the trustee could achieve this by identifying pools at highest risk of modification claims and potentially exclude them from the list of settlement trusts, the Barcap analysts note.

The settlement agreement had released five separate classes of claims: failure to repurchase loans that breached rep and warranties; successor liability claim against BofA; failure to deliver required mortgage documentation; servicing claims against the master servicer; and failure to repurchase modified loans. In return for releasing these claims, investors derive value from three broad sources: US$8.5bn paid into trusts; servicing changes, which are estimated to be valued at US$2.5bn-US$3bn; and document exception cures for certain types of exceptions.

The trustee claimed that the reasons for accepting the US$8.5bn settlement were: it was more than the US$4.8bn that its expert found could be paid out of Countrywide; cost uncertainty and delay of litigation; and the range of damages recoverable in litigation did not exceed US$8.5bn. "While it is clear that the trustee would have come up with a different conclusion on the third point, if it had found the value of the loan modification claims to be as high as was claimed by some of the objectors (notably Triaxx CDO entities, which have claimed up to $31bn), its conclusions on the first two points may have remained the same," the analysts conclude.

CS

ABS

Ratings vet takes top credit role

Morningstar has appointed Calvin Wong as chief credit officer. He will be based in New York and report to president Vickie Tillman.

Wong will take responsibility for enhancing the internal control structured for ratings, supporting credit rating model review processes and overseeing the development of rating criteria. He has in-depth knowledge of ABS and RMBS and was most recently practice criteria officer for global RMBS at S&P.

Structured Finance

Valuation leader appointed

Houlihan Capital has appointed Theresa Poppei as senior md for valuation. She will be responsible for expanding the firm's tax and US SEC compliance valuation practice and growing the firm's litigation support and expert witness testimony capability.

Poppei joins from Duff & Phelps, where she specialised in valuations for tax and SEC compliance purposes. She has also worked at Ceteris US and Arthur Andersen.

Structured Finance

Asset finance team beefs up

Carey Hansford has joined Aldermore Bank's asset finance team as structured products business development manager. She is based in Bristol, UK.

Hansford previously worked at GE Capital and at Black & White Organisation Company. She held several roles at GE, including funding manager and UK capital markets servicing leader.

Structured Finance

Broker-dealer adds senior pair

Bonwick Capital Partners has hired Ray Gatten and Phillip Toth to boost its fixed income securitisation, trading and private placement business. They each join as md and will be based in New York.

Gatten and Toth previously worked at National Alliance. Gatten has particular experience in the nascent peer-to-peer securitisation market and has previously worked as head of structured product trading at Cantor Fitzgerald and in roles at Morgan Stanley Dean Witter and RBC Dain Rauscher, while Toth has worked at Quant Group, JVB Financial, Sterne Agee and Janney Montgomery.

Structured Finance

Structured FI group boosted

Sanjeev Khurana has joined Janney Montgomery Scott in New York as md from Pierpont Securities. He has a wealth of structured fixed income experience and has worked at Ally Financial, Nariman Point Advisors, UBS Dillon Read Capital Managment, Bear Stearns and JPMorgan Chase.

Structured Finance

Structured products pro brought in

Filippo Sampietro has moved to GoldenTree Asset Management to work on structured products. He formerly held a credit, rates and alternatives role at Mediobanca and has previously worked in structured products at Alcentra, Morgan Stanley and RBS.

CLOs

Key man replacements made

Investec Bank has issued key person replacement notices for the Gresham Capital CLO I, II, III, IV and V deals. James Cuby, Steve Torr and Richard Swift join Henrik Malmer as the key persons on the five transactions.

Insurance-linked securities

Underwriting pair appointed

CATCo Investment Management has appointed Charles Vaughan and Richard Montgomerie as underwriting directors in London. The pair previously co-founded reinsurance strategies for AQR Capital Management and Magnetar Capital and will report to ceo Anthony Belisle and coo Jason Bibb.

Risk Management

Advisory adds risk specialist

Sheila Stamps has joined CIT Group's board of directors and will serve as a member of the firm's risk management and regulatory compliance committees. She was previously at Dreambuilder Investments and has also worked at the New York State Common Retirement Fund, FleetBoston Financial, Bank One Corporation and First Chicago Corporation, with experience in European and US ABS.

Risk Management

CLO vet joins broker

Mario Verna has joined Guggenheim Partners in New York as an md in CLO banking. He was previously at Krypton Advisors, where he sourced investors for banks to hedge their loan portfolios through securitisations and risk participations.

Verna has also worked at Deutsche Bank, where he ran the bank's global securitisation programme, and at Chase and JPMorgan in CLO roles. He was formerly a director at Fitch Ratings.

RMBS

RBS settles Harborview claims

RBS has settled an RMBS class action litigation led by New Jersey Carpenters Health Fund for US$275m. It is the third largest RMBS federal securities class action settlement in the US.

The settlement covers securities violations involving the packaging and sale of 14 public offerings of Harborview series RMBS where RBS failed to disclose that the loans collateralising the certificates were not originated in accordance with the applicable underwriting guidelines. Almost all the bonds had been downgraded to junk by late 2008.

RMBS

Agency derivatives trader joins

Andy Chang has joined Pierpont Securities from Cantor Fitzgerald to trade agency derivatives. He has previously worked at RBS and Donaldson, Lufkin & Jenrette.

RMBS

Syncora warns of liquidity mismatch

Syncora Guarantee has settled its RMBS-related claims with JPMorgan. In return for releases of all of the insurer's claims against the bank and certain of its affiliates arising from insured RMBS transactions that were the subject of litigation or dispute, it will receive a cash settlement.

Separately, the insurer has remediated its exposure to several material financial guarantee insurance policies since the posting of its 3Q13 statutory financial statements. As a result of these multiple substantial remediation transactions and litigation recoveries, it expects to remove from its 2013 annual statutory financial statements its disclosure regarding substantial doubt about the ability to continue as a going concern over the next twelve months.

However, Syncora notes that thereafter and especially beginning from 2017 it continues to face a potential liquidity mismatch between expected claim payments in the earlier years, followed in later years by recoveries of these claims payments.

ABS

Tobacco settlement methodology updated

Moody's has updated its methodology for rating tobacco settlement revenue securitisations, affecting around US$19bn of ABS bonds. The rating agency has upgraded 55 tranches, downgraded seven tranches, confirmed 73 tranches that were placed on review last year and affirmed a further three tranches.

Moody's has amended its cashflow modelling assumptions related to the non-participating manufacturer (NPM) adjustment provisions of the master settlement agreement that was signed by certain states, territories and companies in 1998. The changes follow a December 2012 settlement of the NPM adjustment disputes for 2003-2012, which changed calculation of the NPM adjustment for 22 US states and territories (SCI 13 December 2013).

ABS

RV approach updated

Moody's has updated its methodology for rating EMEA auto lease ABS exposed to residual value (RV) risk. The agency has expanded the methodology previously applicable to rating UK RV ABS transactions to other EMEA regions.

In particular, Moody's has confirmed that haircut levels developed for the UK are broadly applicable to other European markets and clarified its approach in relation to the use of depreciation data to forecast vehicle values. The update will not impact the existing ratings of notes issued by transactions exposed to RV risk.

ABS

MMF rules delayed

The decision by the European Parliament's Economic and Monetary Affairs Committee to postpone agreement on draft rules to regulate money market funds (MMFs) last week leaves the scope of possible investment restrictions on ABCP unclear, Fitch says. These restrictions may prompt significant asset reallocation for some MMFs, depending on the scope of the regulation.

Euro- and sterling-denominated constant net asset value MMFs in Europe held €9.3bn of ABCP at end-2013, according to iMoneyNet, and ABCP accounts for up to 30% of some funds' investments. Draft rules proposed by the European Commission would prevent MMFs investing in ABCP backed by assets other than trade receivables. Fitch suggests that in practice this would prevent MMFs investing in almost all ABCP conduits.

However, it is unclear whether the restriction is limited to conduits that hold assets other than trade receivables or that are permitted to hold such assets, even if they do not. In addition, an MMF's aggregate securitisation exposure - which includes ABCP - would be restricted to 10% of assets.

Amendments suggested late last year by some MEPs would make the draft rules less restrictive and grant more power to ESMA to define eligible ABCP for MMFs based on the liquidity and credit quality of the collateral pool. The ECON Committee has rescheduled a vote to finalise draft rules on 10 March.

ABS

Seasonal trends lift timeshare delinquencies

US timeshare ABS delinquencies increased moderately this past quarter due to seasonal trends, though year-over-year declines continue, according to Fitch's latest index results for the sector. Total delinquencies for 4Q13 stood at 3.38%, up slightly from 3.14% in 3Q13.

However, 4Q13 marks the sixth consecutive quarter of year-over-year improvement. Delinquencies for 4Q12 were 3.55% and have largely normalised at their historical levels, following the dramatic increases of 2008 and 2009.

The year-over-year improvement is also evident in default performance. While monthly defaults for 4Q13 at 0.66% increased slightly from 3Q13 at 0.64%, they are down from the 0.75% observed in 4Q12, but remain elevated compared to pre-recessionary levels.

On an annualised basis, defaults were 7.93% for 4Q13. This is lower than the 8.17% observed last quarter and 8.54% a year ago. This is also the lowest level of defaults for timeshare ABS in over four years.

Fitch's rating outlook for timeshare ABS remains stable due in part to the delevering structures found in timeshare transactions, as well as ample credit enhancement levels.

ABS

Softer performance seen in autos

Overall asset performance in both the prime and subprime auto loan ABS sectors was softer in January, as prime annualised losses rose by 6.8% on a monthly basis and subprime losses crept up by 1.3%, according to Fitch. But the late winter months are seasonally strong as consumers pay down debt levels, so the agency expects asset performance to improve in February and March.

Prime 60+ day delinquencies stood at 0.38% last month, the highest level in just over a year, but were 12% lower year-over-year (YOY). Annualised net losses (ANL) hit a two-year high of 0.47%, although the rate was well below the historical average (1%). ANL were 12% higher versus a year earlier.

In the subprime sector, delinquencies moved up to the highest level since September 2010, hitting 3.84% - a 12% month-on-month increase. ANL were stable in January at 6.43% and were 3% below the level in January 2013. Fitch notes that performance in this sector continues to soften, with losses creeping up to pre-crisis levels, although the current rate is well within historical levels.

ABS

Lebanese receivables ABS closed

Bemo Securitisation has closed DHC Healthcare Fund, the first revolving trade receivables securitisation in the Lebanese healthcare sector. The transaction is backed by a US$14m diversified portfolio of trade receivables provided by Dima Healthcare to its hospital, pharmacy and clinic clients.

The fund has been established under Lebanese Law 705/2005, has a 4.5-year maturity and a three-year revolving period. The issuance was subscribed by Banque BEMO, Allianz SNA, BBAC, First National Bank, BlomInvest, FFA Private Bank, CreditBank, BIT and BEMO Europe Banque Privée.

ABS

Solar investment gaining traction

Investor interest in commercial solar projects has more than doubled in the last 12 months, according to Mercatus. A year-end analysis of commercial solar project investment and development trends undertaken by the firm reveals that exploration - and investment dollars - for solar projects is on the rise.

Mercatus reports growth of more than 200% in the number of projects evaluated for investors and developers from 2012 to 2013 using its platform, and over 150% in Q413 versus Q412 alone. The analysis is based on data from over 1,400 solar projects from over 50 financiers and 300 developers over the last two years, estimated to cover more than 40% of the US market.

According to the report, the West continues to be the largest market for solar in the US for a variety of reasons, including high electricity rates in California and Hawaii, strong incentive programmes (like the 35% Hawaii State Tax Credit and the California Solar Initiative), strong solar resources in states with mid-average electricity rates and progressive local utilities offering standardised programmes to promote lower cost development and higher cashflows. Perhaps surprisingly, activity in the Northeast US is on the rise, showing gains for the last three quarters and accounting for 41% of new evaluations in 4Q13.

Northeast markets are driven largely by high electricity rates and strong Solar Renewable Energy Credits (SREC) programmes, which allow electricity suppliers to effectively supply a portion of their electricity from solar generators even if they don't own the generators. SREC programmes are volatile and highly susceptible to market forces of supply/demand, however.

Other US markets typically ebb and flow based on incentives offered, but none have created staying power yet, according to the report.

As the large-scale utility project pipeline growth has slowed, investors are looking at the residential and commercial segment. The report indicates that US investors are shifting somewhat strategically towards international projects to diversify and find new markets that might yield better returns on investment, including Japan, India, the Middle East and the Caribbean.

International investments are still showing the highest IRR at 9.2%, according to the Mercatus report, although these returns dropped by 420bp during the past year. The Northeast ranked second at 9% IRR, up by 120bp in 2013. The Southern US saw the lowest rate of return at 5.7%, down by 300bp from end-2012.

Structured Finance

Further CRA improvements required

ESMA has published its Annual Report 2013 on credit rating agencies (CRAs) in the EU. The report also outlines the authority's supervisory work plan for this year.

The report notes that CRAs continue to progress in how they comply with the CRA regulation, including improved internal transparency and disclosure to the market on credit rating activities, as well as empowerment of the compliance function. However, ESMA considers that improvements are still necessary, notably in connection with: the validation of rating methodologies; internal governance; and robust IT systems to support the rating process.

These issues form the basis for much of ESMA's supervision activities, as outlined in its 2014 work plan. This includes the completion of the two ongoing supervisory reviews into CRAs' monitoring of structured finance ratings and into small- and medium-sized CRAs.

A new thematic investigation on how CRAs review and validate their rating methodologies will also be launched, as well as dedicated work on CRAs' IT systems and controls. Additionally, following the entry into force of the amended CRA regulation in June 2013, ESMA will complete a specific assessment on CRAs' compliance with the new regulatory requirements.

Structured Finance

Canadian ABS to remain robust

DBRS notes in its annual review of Canada's structured finance market that the combined effect of conservative underwriting, modifications to mortgage lending rules and improving economic conditions provided a solid foundation for securitised portfolios in 2013. For the second year in a row, the market saw combined term ABS and ABCP issuance of over C$26bn.

Underlining the strong asset performance seen in the Canadian market, mortgages in arrears of more than 90 days remained stable at 0.3%, average losses in securitised credit card receivable portfolios fell to 3.5% and defaults in auto loans originated after the financial crisis continued to exhibit lower losses than in prior years. At the same time, strong consumer spending led to increases in national home prices and record retail automotive sales, which contributed positively to Canadian securitisation issuance.

Non-bank originators continue to fund insured mortgages through bank-sponsored ABCP conduits. The amount of insured residential mortgages funded doubled to C$8bn in December 2013 from about US$3.7bn in December 2011.

Overall, DBRS expects the credit performance of underlying collateral to remain stable in 2014. On an asset class basis, the agency expects fewer credit card issuances this year as existing credit card programmes have fewer maturities and less room for new issuance based on the size of current custodial pools. But issuance levels in retail auto securitisations are anticipated to remain relatively consistent with prior years.

Headwinds to continued issuance in 2014 also include the high levels of household indebtedness relative to disposable income and proposals to further limit insured mortgages as collateral in non-CMHC sponsored securitisation vehicles, DBRS notes. In its 2014 federal budget released on 11 February, the government confirmed that it is moving forward with prohibiting the use of insured mortgages as collateral in private label securitisations such as ABCP. While mortgages and home equity lines of credit represented more than 50% of underlying assets within ABCP conduits, as of December 2013, funding of these assets through private label securitisations represented less than 1% of the total funding sources used in the entire residential mortgage market.

DBRS says that issuance and performance may also be affected by the ongoing European debt overhang and further US fiscal policy issues, both of which have far-reaching implications for Canada. However, a favourable interest rate environment, a strong regulatory backdrop and continued demand from foreign investors may help alleviate concerns for issuers.

The Canadian government took meaningful steps to limit its involvement in the residential mortgage market through Canada Mortgage and Housing Corporation (CMHC) and is expected to continue doing so. The government has been active in curtailing securitisation and use of government-backed insured mortgages as collateral, including through new issuance caps on National Housing Act MBS and Canada Mortgage Bond (CMB) issuance. As a result, growth in consumer credit and mortgage lending slowed to 5.3% and 3.5% respectively in 2013.

Structured Finance

Surge in SFR issuance anticipated

US home rental securitisation issuance is predicted to hit US$5bn this year. The increasing cost of homeownership is driving the need for rental housing and institutional investors appear to be responding to the demand.

The rise in renter households has outpaced ownership by a factor of 10, according to Deutsche Bank CRE debt strategist Harris Trifon. He notes in a recent CREFC publication, CRE Finance World, that institutional investors have purchased 90,000 homes around the US over the last year or two at a cost of just over US$15bn. That figure is surging monthly.

Blackstone is the frontrunner in terms of both units bought and capital invested, tipping the scales at roughly 40,000 units and more than US$7bn spent.

Taken on a region-by-region basis, activity is highest in the South, followed by the West and the Midwest. Higher prices and the relative lack of distressed properties have made the Northeast the only non-starter in this regional growth pattern, Trifon reports.

He suggests that home rental transactions could become the second-biggest contributor to the growth of securitisation in the US, trailing only the CMBS market in nominal terms. Deals are expected to have a relative balance in the US$50m to US$150m range.

Structured Finance

Reg AB 2 recommendations filed

SFIG says it has filed a letter with the US SEC recommending revisions to the loan-level disclosure schedule proposed under Regulation AB 2. The association's RMBS Loan-Level Disclosure Subcommittee held a series of meetings from late-2013 through January 2014 to discuss improvements to Schedule L, with the goal of proposing enhancements that could be adopted by the SEC in the final rule. Also considered was the addition of certain new fields, which subcommittee members believe would enhance the disclosures proposed in Schedule L.

Structured Finance

Credit fund redemptions persist

Investors allocated an estimated US$4.9bn to hedge funds last month, but performance losses of US$12.8bn resulted in total industry AUM declining by 0.3% to US$2.845trn, according to eVestment figures. At the same time, MBS strategies continued to lose assets: January was the sixth month of net redemptions for the sector in the last eight.

Nevertheless, performance from the group was among the best in the industry to start 2014. Returns for MBS funds were up by 1.22% in January.

This is against a backdrop investors favouring equity over credit exposure in each of the last four months. An estimated US$13.8bn was allocated to equity strategies to begin 2014, while an estimated US$7.3bn was redeemed from credit strategies, the sector's largest monthly redemption since September 2011.

"The US$21bn flow differential between equity and credit strategies in January was the largest between the two since early 2007. In the last four months, investors have added an estimated US$29bn to equity exposure and reduced credit exposure by US$6bn," eVestment observes.

Structured Finance

TRACE reprieve for CDOs, CMBS

FINRA will exclude CDOs, CBOs, CLOs and non-agency CMBS from its proposal to expand TRACE's coverage of securitised products (SCI 5 November 2013). The move comes after SIFMA submitted a comment letter on the proposal to the SEC (SCI 9 January).

Specifically, CDOs, CBOs, CLOs and non-agency CMBS will not be classified as 'asset-backed securities' (as defined in proposed FINRA Rule 6710(cc)) and won't be subject to dissemination or reduced reporting time frames under the proposed rule change. Instead, FINRA will consider potential additional transparency in these products in conjunction with other tranched securities, such as CMOs, as appropriate.

The regulator says it agrees that the credit analysis for CDOs, CLOs, CBOs and non-agency CMBS differs from securitised products backed by consumer or student loans, a lease, or a secured or unsecured receivable. The proposal will therefore include only consumer ABS products for the time being.

SIFMA is concerned that the dissemination of such data may lead to a fall in transaction volumes and lesser liquidity, based on the experience in the corporate bond market. FINRA has indicated that it believes the evidence is not conclusive in this regard, however.

Structured Finance

SPVs implementing FATCA remedies

SPVs incorporated outside the US are likely to take the necessary steps required to ensure that they do not incur losses related to FATCA, Moody's suggests. In cases where SPVs do not take remedial action, the agency says it will assess the negative impact of such losses on the ratings of the relevant notes.

FATCA will impose a withholding tax (WHT) on payments made to non-US financial institutions. But the WHT will not apply to financial institutions in countries that have signed a Model 1 intergovernmental agreement with the US Internal Revenue Service, unless they fail to comply with reporting requirements under local laws.

Moody's generally assumes that structured finance transaction parties will avoid WHT on payments made to SPVs by taking suitable steps to ensure that SPVs incorporated outside of the US will either not receive cashflows that are subject to FATCA WHT or comply with FATCA reporting requirements. FATCA may have a negative rating impact if it becomes evident that such assumptions are not valid for a given transaction and in cases where, for example, the transaction parties do not (or indicate they will not) comply with the reporting requirements.

Moody's notes that while most transactions executed before July 2014 will benefit from grandfathering, some are potentially at risk of FATCA WHT.

Structured Finance

RFC issued on privacy approach

The US SEC has reopened for comment its proposals for ABS shelf-eligibility under Regulation AB 2. Specifically, the Commission is seeking comments on an approach for the dissemination of potentially sensitive asset-level data to address privacy issues.

The relevant proposals are: Asset-Backed Securities, Securities Act Release No. 33-9117 (Apr. 7, 2010), 75 FR 23328; and Re-Proposal of Shelf Eligibility Conditions for Asset-Backed Securities, Securities Act Release No. 33 - 9244 (July 26, 2011), 76 FR 47948. Comments are due by 28 March.

The SEC says it received comments in response to the proposals when they were originally released recommending that, because certain potentially sensitive data would form part of the required asset-level disclosures, the asset-level information be provided by means other than public dissemination on EDGAR. For example, some comments suggested that information that may raise individual privacy concerns could be provided to investors through a limited-access website.

The Commission has therefore prepared a memorandum summarising additional information about the use of websites in the ABS market as a means to disseminate asset-level and other offering information. The memorandum describes one potential method to address privacy concerns related to the dissemination of potentially sensitive asset-level data. This method would require issuers to make asset-level information available to investors and potential investors through a website that would allow issuers to restrict access to information as necessary to address privacy concerns.

Structured Finance

Spanish sovereign ceiling lifted

Moody's has raised the maximum achievable rating for Spanish structured finance transactions to A1 from A3, following the upgrade of Spain's government bond rating to Baa2 from Baa3 and its local and foreign currency bond and deposit ceilings to A1 from A3. The move reflects improvements in institutional strength and reduced susceptibility to event risk, the agency says.

Moody's is currently assessing the impact of the rating actions on all outstanding Spanish structured finance transactions. For this purpose, the agency also considers the performance of the underlying asset portfolios in line with its collateral assumptions and the counterparty risks imbedded in the transactions. The outcome of these deliberations will be published for affected transactions in the coming weeks.

CDO

Trups CDO cures continue

The number of combined defaults and deferrals for US bank Trups CDOs declined to 25.8% at end-January, compared to 26.5% at end-December, according to Fitch's latest index results for the sector. Approximately 0.22% of this drop is attributable to the removal of the defaulted and deferring collateral of one Trups CDO that is no longer rated by the agency, with the remainder of the difference due to new cures and redemptions.

Two issuers, representing US$12m in collateral across three CDOs, defaulted during the month. Both had been previously deferring on their Trups interest payments.

Nine issuers, representing US$162m in collateral across 22 CDOs, cured their previous deferrals. There were no new deferrals, Fitch notes.

Across 78 Trups CDOs, 223 bank issuers have defaulted and remain in the portfolio, representing approximately US$6.4bn of collateral. Additionally, 251 issuers are currently deferring interest payments on US$3.3bn of collateral. This compares to 329 deferring issuers totalling US$4.5bn of collateral at this time a year ago.

CDS

CDS definitions published

ISDA has published the 2014 ISDA Credit Derivatives Definitions, a revised version of the 2003 ISDA Credit Derivatives Definitions that contains the basic terms used in the documentation of most credit derivatives transactions. Implementation of the definitions is scheduled to coincide with the September CDS index roll date.

The 2014 ISDA Credit Derivatives Definitions introduce several new terms (SCI passim), one of which provides for the bail-in of credit default swap contracts on financial reference entities. It incorporates a new credit event triggered by a government-initiated bail-in and a provision for delivery of the proceeds of bailed-in debt or a restructured reference obligation, as well as more delineation between senior and subordinated CDS.

Another new term is in connection with sovereign CDS asset package delivery for CDS contracts on sovereign reference entities. It introduces the ability to settle a credit event by delivery of assets into which sovereign debt is converted.

Additionally, a standard reference obligation allows for the adoption of a standardised reference obligation across all market-standard CDS contracts on the same reference entity and seniority level.

The new definitions also contain several amendments to standard credit derivatives trading terms, including: upgrading provisions dealing with transfers of debt to successor reference entities; expanding the scope of guarantees that can be hedged with CDS; rationalising the treatment of contingent debt and guarantee obligations; addressing currency redenomination issues; and adjustments to the restructuring settlement mechanism.

ISDA expects market participants to begin confirming transactions using the 2014 Credit Derivatives Definitions starting on the implementation date. The definitions will only apply if parties reference them in their trade documentation for new trades or agree to amend the documentation for existing transactions via the use of a protocol.

CLOs

Strong portfolio management required

Approximately US$148bn of CLOs was issued across 93 different managers during a very stable credit environment from January 2010 through December 2013. Fitch notes that credit surveillance and portfolio optimisation are key to sustaining performance if the credit environment worsens, causing an increased default rate for leveraged loans.

"A changing credit and regulatory environment increases the need of strong portfolio management. Focus on credit selection and investment process - including experience managing loans and administering CLOs through a credit cycle - is paramount," the agency observes.

Fitch says it recognizes that there are differences among CLO asset management organisations in terms of size, operating strategy and assets under management. A review of each manager therefore requires careful consideration of the context in which it operates.

The agency notes that ultimate CLO manager ownership can be broken out into five distinct types, each with its own set of advantages and challenges. The five types are: global multi-line managers (such as Invesco and Guggenheim); bank affiliates (Credit Suisse Asset Management); insurance companies (Prudential and Babson); independent boutiques; and global alternative-affiliated managers (Blackstone and Carlyle).

The latter have dominated the CLO 2.0 market. While independents have edged out alternative affiliates by manager count (34 to 31), they lag in issuance by less than one-half as many deals - a function more of the alternatives' size and scale than any difference in competency.

Thus far, managers across the ownership spectrum have delivered average to above-average stable performance, according to Fitch. However, successful portfolio management in an increasing default environment will require work-out experience and an executable plan for managing distressed loans within CLO guidelines. It will also require a heightened emphasis on credit surveillance by analysts.

Furthermore, the potential impact of regulatory provisions - such as the Volcker Rule and risk retention - could alter the CLO management landscape significantly.

CLO managers of Fitch-rated CLOs will, in the agency's opinion, demonstrate sufficient standards of competency in the areas of leveraged finance and CLO administration. Accordingly, its CLO rating process includes an operational risk assessment and a review of the CLO manager's investment processes.

CMBS

CWCAM recoveries confirmed

CWCapital Asset Management reports that it has liquidated 110 of the 134 assets marketed via CBRE and Auction.com, with 12 further assets expected to close by mid-March (SCI passim). It is projected that overall recoveries averaging 66 cents on the dollar of US$3.43bn unpaid principal balance will be achieved through the bulk sale.

The assets that were marketed through CBRE received over 730 signed confidentiality agreements, which resulted in approximately 153 bidding entities and over 930 bids on 63 assets offered and 62 assets sold. The assets marketed through Auction.com received over 5,000 signed confidentiality agreements from interested buyers, which resulted in approximately 244 bidding entities and over 1,130 bids on 71 assets offered and 60 assets sold.

The trusts received total proceeds of approximately US$2.26bn. "The results of the sale validate our decision to manage and create value on certain assets through the low points in the real estate cycle. We believe this path ultimately resulted in greater value recoveries," comments CWCapital president David Iannarone.

Provided market conditions remain favourable, CWCAM may consider additional more limited bulk sales in the future. The servicer expects to announce any such sales and disclose specific assets to be included through standard reporting prior to the start of a marketing process.

CMBS

CMBX 3 correction issued

Markit has issued a correction in connection with a loss recoupment on the CWCI 2006-C1 D tranche that wasn't reflected in January's CMBX.A.3 index settlements (SCI 23 January). A US$7,400 correction payment will now be made on US$1m original face trades.

The failure to reflect the loss reimbursement is believed to be due to the trustee reporting the payment as an 'interest adjustment' rather than a 'loss repayment'. Barclays Capital CMBS analysts note that the correction appears to tally with the CMBX market rules, which state that write-down reimbursements on cash bonds should flow through to the index.

"While the effect from this single revision is relatively small, we expect more instances of these loss recoupment payouts as special servicers turn to bulk sales," the analysts observe.

CMBS

Trafford Centre CMBS tapped

Intu Properties has tapped its Trafford Centre Finance CMBS, with the launch of £110m additional class A, B and D notes. The proceeds will be used to provide funds for the firm's pipeline of active management projects and major extensions.

The transaction is secured by intu Trafford Centre, the prime super-regional shopping centre near Manchester. The notes, which have an average maturity of nine years, will rank pari passu with the current outstanding class A, B and D notes.

Rated by Fitch and Moody's, the tap consists of £20m A4 notes (rated AAA/Aaa), £20m B3 notes (AA/Aa2) and £70m D3 notes (BBB/Baa2). Both rating agencies also affirmed their ratings on the outstanding £76.5m A1, £340m A2, £188.5m A3, £120m B, £20m B2, £69.55m D1 and £50m D2 notes. The transaction originally closed in March 2000, but was tapped for the first time in June 2005.

Based on Moody's analysis, the key strengths of the CMBS are: high quality collateral, with stable historical performance; strong sponsor, with experience and track record in active asset management; moderate initial leverage, with amortisation of the existing notes and a DSCR that averages 1.3x during the first five years. But the agency notes that the transaction lacks diversity (as the bonds are collateralised by a single property) and is long-dated (which exposes the notes to cyclical and structural changes of the retail sector). Additionally, the lack of amortisation for the new note classes introduces an element of refinance risk.

As at 31 December 2013, the assets secured under the CMBS were valued at £1.82bn, implying a circa 45% LTV after the issuance of the new notes. The combined intu Trafford Centre and adjoining property outside the collateral pool is valued at £1.9bn.

Credit Suisse and Lloyds are joint bookrunners on the issuance.

Insurance-linked securities

ILS index adds dollar hedge

Eurekahedge and ILS Advisers have released a US dollar hedged version of their benchmark Eurekahedge ILS Advisers Index. The index was incepted in December 2005 and has returned 71.27% through January 2014.

The Eurekahedge ILS Advisers Index is an equally-weighted index that tracks the performance of 32 hedge funds that explicitly allocate to insurance-linked investments and have at least 70% of their portfolio invested in non-life risk. The new US dollar hedged version of the index is weighted at 100.

Risk Management

Data transparency offered

Moody's Analytics has launched a new Structured Finance Portal that is designed to provide enhanced content, increased data transparency and innovative analytics. Initially focusing on CLOs, the service aims to deliver greater operational efficiency by removing the manual process typically associated with normalising and aggregating data.

"With our new Structured Finance Portal, users will have a clear view into the relative value of any given tranche, deal, manager or loan," comments Andrew Jacobs, director at Moody's Analytics.

The web portal features manager-style and performance metrics; benchmarking and market colour; loan-level content; and portfolio-level reporting and analytics. A comparability algorithm helps users to find similar tranches and view the latest associated third-party market colour. Additionally, batch cashflow analysis models help users to value their portfolios simultaneously.

Portfolio managers can benchmark a tranche with a scatter plot against its cohorts across any given performance metric. Portal users can also project cashflows and view pre-run results based on market-standard assumptions.

SCI's market colour service, PriceABS, is available as part of the Structured Finance Portal and enables users to view a bond's secondary market price alongside the Moody's Analytics model price.

RMBS

Purchase loans to boost RMBS

Moody's suggests that lower mortgage refinancing volume could lead to a higher proportion of purchase loans in new US jumbo RMBS. This, in turn, is likely to boost the credit quality of the pools because purchase loans typically have lower default rates.

"Rising interest rates have caused a drastic drop in mortgage refinancing applications since mid-2013," says Moody's vp and senior analyst Peter McNally. "This number will continue to fall as interest rates rise."

Purchase loans borrowers - who tend to have stronger credit profiles - could constitute a larger proportion of jumbo RMBS pools as refinancing volume falls, a credit positive for pool performance. "Originators generally perform a more in-depth credit review of purchase borrowers because it is their first loan review, whereas borrowers who are refinancing may receive less scrutiny," explains McNally.

He adds that the absence of cash-out borrowers also contributes to the stronger performance of purchase loans. "The fact that these borrowers have taken equity out of their homes for a mortgage refinancing loan shows that they need cash, which could contribute to the higher default rates of refinance loans."

RMBS

Dutch RMBS platform prepped

Venn Partners has acquired a €500m portfolio of Dutch residential mortgages from GE Artesia Bank. The deal marks the first step in Venn's establishment of a new lending platform focusing on the Dutch residential mortgage market, through primary origination and acquisitions of high-grade secondary mortgage portfolios. The firm plans to finance this business through the creation of a prime RMBS issuance platform.

The acquisition is driven by GE Artesia Bank's move to focus on its core international trade and commodity finance business. Venn's decision to enter this market is determined by its view that there is a dislocation in the supply of lending into the €650bn Dutch residential mortgage market, based on a number of factors.

Among these factors is that new origination is largely provided by domestic banks, against a backdrop of ongoing retrenchment, and the reduction of the NHG scheme. In addition, typical barriers to entry to the mortgage market are lower in the Netherlands.

The transaction is part of Venn's wider strategy to expand its direct asset-based lending activities in Europe, focusing on markets that demonstrate a systemic dislocation or distortion in credit supply as a consequence of the restrictions or retreat of traditional bank lending activities. Since its launch in 2009, the firm has established direct lending operations in European commercial real estate, renewable energy and receivables finance.

RMBS

Mexican housing outlook examined

Mexico's relatively benign inflation environment and sustainable residential property appreciation rates are credit positives for RMBS, Fitch says. Nominal housing prices in Mexico rose by 4.1% in 2013, according to Sociedad Hipotecaria Federal (SHF). Fitch's calculated annual real increase was 0.4% and has averaged 1.2% over the past eight years, demonstrating that home prices continue to grow at levels slightly above inflation.

Stable price growth trends have and will encourage borrowers with highly seasoned mortgage loans to stay current as equity continues to increase, according to Fitch. For the large levels of real estate-owned (REO) assets, mostly related to defaulted mortgage loans in the low income sector, house price stability provides some support to mitigate overall loss severity levels.

Last week, SHF published its House Price Index for 2013. Real house prices increased by 0.9% in the high income property segment and decreased by a modest 0.3% in the low income segment. Although both segments have recovered from the second half of 2012, where they averaged negative 0.3% and negative 1.7% respectively, the high income segment has rebounded more rapidly.

Fitch attributes this divergence in recovery trends to recent housing policies that encourage new construction closer to city centres. In addition, large construction companies' financial difficulties halted building activity and created a temporary supply shortage during 2012-2013. The annual construction sector GDP contracted by 6.8% during 3Q13 and new home inventory decreased by 55%, according to INEGI and BBVA Bancomer respectively.

However, the glut of abandoned/repossessed houses in the low income sector might pressure prices in that segment.

The vast majority of bank-sponsored RMBS issued over the last five years are performing consistently well. Low unemployment levels within the middle and high income segment have supported relatively low delinquency levels.

Overall leverage has been improving as home prices increase and underlying loans amortise consistently. Average loan-to-value ratios are now in the high-40% range, improving from the mid-60s at the time of closing.

Conversely, most low income housing RMBS sponsored by non-bank financial institutions in the mid- 2000s continue to increase their exposure to REOs. Despite positive growth in national average house prices, the states holding the largest volume of securitised REOs saw overall prices decline by 0.7% during 2013.

Servicers are starting to implement more aggressive quick sale adjustments to reduce their inventory and overall exposures in these segments. According to Fitch's loss severity analysis on 3,265 properties, market value declines on sold properties was 37% in 2013, up from 23% in 2010.