Contents

Structured Finance

Tough times

Recruitment quiet as markets squeezed

The tone in structured finance recruitment on each side of the Atlantic is cautious at best. While hiring continues in both the US and Europe, it is limited and must be set against the backdrop of other large teams being closed down.

Partially the issue is that markets are not providing the kind of opportunities that people had hoped for. In the current environment, a recruitment drive is probably not high on most institutions' priority list.

"RMBS is getting crushed right now. It is a tough market, with very tight spreads, low vol and low volumes," says Chadrin Dean, consultant at Integrated Management Resources.

He continues: "That makes life difficult and a lot of shops are having to cut back. There does not appear to be any relief, so I do not see them bouncing back soon."

Regulation remains the primary concern. RBS, for example, is shedding its US CLO business as part of a drive to cut staff numbers and comply with provisions of the Dodd-Frank Act.

"In the CLO space there has not been so much cutting back as there has been in RMBS, but then there has not been a lot of growth either. A lot of this comes down to the government kicking the regulation can down the road instead of addressing issues," Dean observes.

He continues: "The goal is to structure CLOs that will not contradict regulations, but without knowing exactly what the regulations are going to call for, that is extremely difficult. It looks like the government is happy to say it will implement regulation and let the market react to that without having to follow through too strongly themselves."

Morgan Stanley is also believed to have cut back in fixed income in both New York and London. A London-based headhunter notes that Investec has cut back lately as well and says a lot of investment banking jobs are currently under threat - although he adds that Investec did not have the largest team to begin with.

There is some cause for optimism in Europe, however. Although hiring remains limited in the region, the London headhunter says that RMBS is probably the most active part of the market.

"We have seen a few buy-side roles for RMBS, although the banks are still not building up. It is not a huge number of hires, but it is more than in other sectors," he says.

The headhunter is keen to point out that the US and European markets can rarely be easily compared. While CMBS is quite healthy in the US, the European market is still waiting to take off.

This difference between the US and Europe can be frustrating when it seems like the European market is being punished for problems that arose in the US. "Regulation is still ruling the day over here, as it is in the US," says the headhunter. "For a long while now the market has been stuck in the same position. Regulation will keep directing this market and that is something which will certainly be true during the next quarter."

European ABS is "ticking over" and the CLO market is "bumping along", but activity is at low levels and not frequent enough to get excited by, the headhunter suggests. The covered bond space is more active.

It has been suggested that Japanese banks could be preparing to beef up their structured finance units in both the US and Europe. While this could be an interesting development, both men are sceptical.

"Japanese banks often build teams quite quickly, arbitrage whatever opportunity it is they have hired for and then wind their teams down again. If the market is strong and there are opportunities, then they might stick around," says Dean.

The London-based headhunter points out that Nomura and other banks have been quiet for a while. While there are rumours of Japanese banks expanding, he has not seen anything material.

"Japanese banks do tend to leap in and leap out. Sumitomo might get involved, but for any of these banks my question would be where their business is coming from and I would ask what the Japanese banks are seeing that the rest of the market is not," he adds.

With the ECB putting its weight behind the market in Europe and a push from the Japanese banks being rumoured, a change could be on the horizon. Alternatively, the market may have settled into a new normal.

Dean says: "Volatility is down and rates are down - and nobody sees rates going anywhere. Having low volatility, low spreads and low rates is not a good situation and there does not seem to be too much good news coming through."

JL

Structured Finance

Peripheral possibilities

Peripheral RMBS relative value explored

The recently announced €1bn-plus Berica ABS 3 RMBS transaction has piqued investor interest in peripheral paper. Publically distributed Italian RMBS has been rare post-financial crisis, but it could offer compelling relative value.

The peripheral European housing markets have emerged from the financial crisis in varying states of health. This is at least in part because of differing governmental approaches, but it also has implications for peripheral RMBS.

"Ireland made the best progress in establishing where real estate prices are. The government instituted auctions of properties and that meant you could see where properties were selling," says Peter Nowell, head of ABS trading at BNP Paribas.

That meant the bottom of the market was clearly visible and investors could identify the start of the recovery. By contrast, the same action was not taken in the less visible Spanish market, where banks have either delayed repossessions or kept repossessions on their balance sheets to avoid selling at prices which set too low a watermark.

"A lot of the older Spanish RMBS that were at conservative LTVs have continued to do well. Deals that were issued later have been supported by the banks which issued them. Often they have bought them back at a discount, which is cheaper than issuing new mortgages," says Nowell.

With these different approaches it has been the Irish market that has generated new issue RMBS before Spain. However, with the success of covered bonds in the Spanish market, Nowell notes that a Spanish deal could be possible before the year's end.

The Italian market did not have the same housing bubble or fall in real estate prices as many other peripheral states encountered. With issuance picking up, it could be an attractive option.

"Italy is our preferred primary market and that goes for all of European RMBS, not just the peripheral states. It is an active market with a bit of momentum behind it and you can get peripheral exposure in a meaningful size," says Gareth Davies, head of European ABS and covered bond research at JPMorgan.

He adds: "In Portugal and Ireland, the deals are few and far between. That also means the allocation process is a lot more difficult because once a deal does come out there is a lot of demand."

The Berica RMBS is just one of a list of deals to come from Italy recently. The Monviso 2014 consumer loan ABS is another name currently sitting in SCI's deal pipeline, while the recent A-BEST 9 was the first auto ABS backed by Italian collateral to launch since 2012.

"We just closed a consumer deal which was two times oversubscribed, so there is certainly enough investor demand for Italian securitised assets. With Berica ABS 3 in the market, it will be interesting to see how new deal pricing compares to the secondary market, where spreads are under 100bp over Euribor," says Nowell.

Although the Spanish market does not offer the same volume of new deals or such compelling relative value in the primary market, Spanish secondary bonds could be worth considering. However, investors who are not determined to invest in peripheral names might get a better deal from the UK.

"In the secondary market, Spanish paper is probably the most interesting option. It is hard to get good Portuguese, Irish or Greek paper in meaningful size. But in Spain, even if you cannot get quite the bond you want, you can get a decent substitute for it," says Davies.

He continues: "Without sacrificing yield, though, you could invest in UK non-conforming instead - which is much more heavily supported. That said, Spanish pricing is normalising and it is a market which provides good exposure to a good news story."

For those investors who do wish to focus on the periphery, Nowell suggests that no RMBS markets are off limits. "There is value throughout the periphery, depending on how much risk investors will take," he says. "Greece is a little speculative, but there have been huge rallies in prices and people are looking to work out where relative value is there."

Indeed, the RMBS market which Davies would be most likely to avoid is not peripheral at all, but is in fact the UK. As Northern Europe recovers and technicals remain positive, the one big risk in the UK is political risk as Scotland prepares to vote on whether to leave the union - which JPMorgan economists believe there is a 20%-25% chance of happening (see also SCI 18 June).

"With the UK, spreads could either grind inwards a couple of basis points or jump outwards. For the sake of 3bp or 4bp, I would stay away for a couple of months and then you can come back in September when the result of the vote is known," says Davies.

He continues: "Meanwhile, spending three months in a Spanish rally would be far more meaningful. There is also political risk around Catalonia, of course. But even if they vote for independence, the result is non-binding, so that political risk is not as strong as the positive technicals."

One of those positive technicals is the ECB's reaffirmed support for the European securitisation market (SCI 6 June). Knowledge that the central bank is considering outright purchases has improved sentiment right across the asset class.

"The ECB is keen to support the real economy and could use RMBS purchases to achieve that. Even if the bank does not invest directly in peripheral RMBS, the sector could still be affected if other markets tighten in," says Nowell.

He concludes: "It will be very interesting to see if the ECB does intervene. When the ECB intervened in covered bonds, it dragged spreads in massively. However, it might be the case that the ECB is happy to talk about helping the market and rely on that talk being enough to prop things up."

JL 

Source: Lewtan

Source: Lewtan

ABS

Autos fuel ABS activity

US ABS secondary market activity remained moderate in yesterday's session, with BWIC volume of a little over US$200m. SCI's PriceABS data shows a large number of auto ABS tranches out for the bid.

ACAR 2014-2 C was talked in the low/mid-200s - as it had been on Monday - and was covered in the low-200s. The AMCAR 2014-2 C tranche was talked at plus 90 and covered in the high-80s.

Another AMCAR tranche - AMCAR 2014-2 D - was talked at plus 110 and covered in the very low-100s. AMCAR 2014-2 E was talked in the very high-100s and covered in the high-100s.

The CFCAT 2013-2A D tranche was talked at around plus 300 and covered in the mid/high-200s. The tranche had also been talked at around plus 300 on Monday.

EART 2014-2A C was talked in the very high-100s and covered in the high-100s, while HALST 2014-B A2 was talked at plus 17. The HALST tranche had never before appeared in PriceABS.

There was also credit card paper out, with the AMXCA 2012-2 A tranche talked at plus 8. The tranche was covered at 100.31 on 11 June and at plus 12 on 30 May.

In the student loan space, the NCSLT 2007-1 A3 tranche was talked in the low-90s. The tranche had been covered at 92 on 6 June and was covered in the mid-80s on 4 February.

Meanwhile, the SLMA 2004-A B tranche was talked at 97.5. It was joined by SLMA 2004-B B, which was talked at 96.

JL

CDO

Strong showing seen for CDOs

SCI's PriceABS data captured 765 CLO and 93 CDO line items this week, with 156 and 44 respectively recorded yesterday, suggesting strong secondary activity on both sides of the Atlantic. A range of bonds were out for the bid, including a couple of Trups CDO tranches that were affected by the recent American Bancorp case (SCI 11 June).

A number of Trups CDO names were this week captured for the first time by PriceABS. The ALESC 16 D, as well as ALESC 16A PREF and ALESC 15 PREF tranches were talked at low-single-digits and very low-singles before successfully trading yesterday. ALESC 12X PREF was also talked at very low-single-digits during the session, while ALESC 14 D2 was talked in low-singles but ultimately did not trade.

Elsewhere in the Trups CDO space, PRETSL 15 B1 was talked in the low-60s before being covered at low/mid-60s yesterday. The bond had previously been talked in the high-50s/low-60s on 14 May.

In addition, PRETSL 26 C1 and PRETSL 26 D were out for the bid. Talk for the former was recorded at low-40s and mid/high-40s, with a cover at mid-40s. It had previously been talked at mid/high-30s on 12 March.

The latter bond was talked in the high-singles and teens before successfully trading.

The PRETSL 22 INC, PRETSL 23 INC and PRETSL 24 INC tranches were talked in the low-single-digits and very low-single-digits during the session before successfully trading. The former had previously been talked in the low-singles on a number of occasions last month.

Of the pre-crisis US CLO names circulating yesterday, HLCNL 2006-1A B was talked at 96 area and covered at 96 handle, having previously been covered at 93.75 on 4 December. AVCLO 2007-6A D was talked in the mid-90s before being covered in the high-90s. It was also talked in the mid-90s on 12 December.

In the subordinate space, the DUANE 2005-1A SUB tranche was talked at 30 area and covered at 30 handle during the session. It had previously been covered at 46.5 on 3 January 2013.

There were also plenty of post-crisis US CLO bonds out for the bid. For example, AMMC 2013-12A E was talked at 92 handle, before being covered at 92.55. It had previously been covered at 95 handle on 23 May 2013.

Additionally, CGMS 2013-1A A2A was talked at low-99s and covered at mid-99 handle on its debut in the PriceABS archive.

Among the European CLO names on offer yesterday were PENTA 2007-1X C and BOYNE 1X E. The former was talked at 89 handle, but did not trade. It was previously covered at 87.16 on 30 October 2013.

The latter was talked and covered at 96 handle. It was previously talked at mid-90s on 26 February.

The HARBM PR²X A3 tranche also circulated during the session, with talk in the low-90s and a cover of low/mid-90s recorded. The bond had previously attracted talk at 87 handle on 26 March, according to PriceABS.

CS

CMBS

Light CMBS supply to start week

US CMBS secondary market activity was light yesterday, with BWIC volume a little over US$100m. Generic spreads were mostly unchanged with several CMBS 1.0 tranches out for the bid.

Most of the tranches circulating in yesterday's session were from pre-crisis deals. One of the oldest-vintage tranches available in the session was GEBL 2003-2A A.

SCI's PriceABS data shows price talk on that GEBL tranche was in the mid/high-90s. The tranche was talked at high-95 handle on 9 October 2013 and was also covered at 96.01 in September 2013.

The JPMCC 2006-LDP6 B tranche was another pre-crisis name on yesterday's lists. It was talked in the low-400s but did not trade.

MLCFC 2007-6 AM was talked in the low/mid-200s and covered at 245. The tranche was covered last week at swaps plus 252 and was covered on 24 January at 325.

The MSC 2007-HQ11 B tranche, meanwhile, was covered at 345. It had been covered at 395 in March and was talked in January in the low/mid-400s.

After agency names boosted supply last week (SCI 17 June), there were more names out again yesterday. Among them was the FHMS K026 A2 tranche, which was covered at 29.

FHMS K020 A2 was covered at 24, having been covered at 26 a week earlier. FHMS K032 A2 was covered at 29.5 and FHMS K036 A2 was covered at 30.

JL

Structured Finance

SCI Start the Week - 23 June

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

Pipeline
Additions to the pipeline last week were fairly even distributed between ABS, RMBS, CMBS and CLOs. There were 11 new deals in total.

The ABS consisted of US$450m Drug Royalty II 2014-1, €372.3m Monviso 2014 and SC Poland Auto 2014-1. The RMBS were US$423m Citigroup Mortgage Loan Trust 2014-J1, US$303.75m JPMMT 2014-2, A$500m PUMA Series 2014-2 and US$1.62bn VOLT 2014-NPL4.

As for CMBS, those were US$863m COMM 2014-CCRE18, US$1.4bn COMM 2014-KYO, US$635m JPMCC 2014-INN and £210m Taurus UK 2014-1. Meanwhile, the CLOs were US$450m Adams Mill CLO, the refinanced US$379.5m Dryden Senior Loan Fund XXIII, US$518m MidOcean Credit CLO III and US$527m TICP CLO II.

Pricings
The number of deals leaving the pipeline was up strongly on the previous week. Last week there were 11 ABS, one ILS, four RMBS, three CMBS and seven CLO prints.

The ABS were: US$393.01m ARL Second; US$291.4m CLI Funding V Series 2014-1; A$255m Flexi ABS Trust 2014-1; US$1.6bn Ford Credit Auto Owner Trust 2014-B; C$500m Hollis II 2014-1; US$683.4m Hyundai Auto Lease Securitization Trust 2014-B; US$184.8m Massachusetts Education Financing Auth Issue I Series 2014; US$220m New Jersey Student Loan Revenue Bonds 2014-1; US$100m Progreso Receivables Funding 2014-A; US$93.1m Rhode Island Student Loan Authority Series 2014-1; and €1.4bn Sunrise Series 2014-1.

The ILS was US$400m Alamo Re Series 2014-1 and the RMBS were US$558.5m Colony American Homes 2014-2, A$735m-equivalent Firstmac Mortgage Funding Trust No.4 Series 1A-2014, €1.5bn FTA RMBS Santander 1 and US$250m WIN 2014-1. The CMBS were US$440m BAMLL 2014-IP, US$343m CG-CCRE 2014-FL1 and US$1.24bn FREMF 2014-K38.

Lastly, the CLOs were: A10 Term Asset Financing 2014-1; US$410m AMMC CLO XIV; US$528m Covenant Credit Partners CLO I; US$408.25m Magnetite IX; US$570m Neuberger Berman CLO XVII; US$825m OZLM VII; and US$581m Shackleton VI.

Markets
US non-agency RMBS volume reached around US$788m on Tuesday, ahead of a US$647m bid-list scheduled to trade on Wednesday, as SCI reported last week (SCI 18 June). SCI's PriceABS data recorded a mix of bonds out for the bid during the session, with several single-family rental names of particular interest.

US ABS spreads were flat, with lighter-than-usual trading activity in the secondary markets according to Barclays Capital analysts. "ABS trading volumes averaged US$930m during the first four days of the week, down from US$1.1bn during the prior week," they add.

In the US CMBS market, secondary spreads started the week unchanged, although BWIC volume was up strongly to over US$500m (SCI 17 June). SCI's PriceABS data recorded a number of agency tranches, including FHMS K006 A1 and FHMS K009 A1, which were both covered.

It was a busy week in the US CLO and European CLO markets. SCI's PriceABS captured 765 CLO and 93 CDO line items last week, with 156 and 44 respectively recorded on Thursday, suggesting strong secondary activity on both sides of the Atlantic (SCI 20 June). A range of bonds were out for the bid, including a couple of Trups CDO tranches that were affected by the recent American Bancorp case (SCI 11 June).

Deal news
• The US$5.7m The Cove at Southern loan, securitised in JPMCC 2011-C5, has become the first CMBS 2.0 conduit loan to take a loss - albeit a nominal one. According to June servicer data, the trust realised US$5.9m in gross proceeds from the sale of the property and a US$34,100 loss after fees and repayment of advances.
• The US$58.7m Citizens Bank Portfolio, securitised in BACM 2006-5, has paid off in full almost three years after its anticipated repayment date (ARD) of July 2011. The loan also received US$4.1m in other interest proceeds, which weren't applied to the typical interest waterfall but instead were diverted to the residual V tranche.
• The US$20m 4001 North Pine Island Road loan has been liquidated for US$7.5m, resulting in unusual pay-outs for the JPMCC 2006-CB15 CMBS. The loan generated US$7.5m, but the entire balance was used to pay expenses totalling US$7.8m, according to Barclays Capital CMBS analysts.
• Santander Consumer USA (SCUSA) last week made a US$71m capital contribution to correct a payment distribution error in the SDART 2013-5 class A2 notes. Moody's notes in its latest Credit Outlook that such servicer error and lapses in transaction governance are operational risks in securitisations that financially strong servicers can remedy, if necessary.
• Moody's has downgraded the ratings of seven classes of notes across seven UK CMBS sponsored by Tesco. Approximately £3.97bn of debt is affected by the move. The Baa1 rated tranches across Tesco Property Finance 1, 2, 3, 4, 5 and 6, as well as Delamare Finance have been lowered to Baa1.

Regulatory update
• Australian securitisation activity is on the rise but is not being helped by the attitude of the market's regulator. APRA appears to be dragging its heels on introducing master trusts and its cautious approach is attracting criticism.
• The 2014 ISDA CDS definitions have been published and will be implemented in September (SCI passim). One of the main changes from previous definitions is the adoption of a single standard reference obligation (SRO) for standard CDS contracts, which will apply to all trades on a reference obligation at a particular seniority level.
• The new Russian structured finance legislative platform is credit positive for the country's securitisation market, says Moody's. The agency notes that the new framework contains the key elements required for a broad range of securitisation and project finance structures and will provide onshore alternatives to securitisation transactions that were previously possible only via offshore issuing vehicles.

Deals added to the SCI New Issuance database last week:
A Voce CLO; ACAS CLO 2014-1; Ally Auto Receivables Trust 2014-1; ALM XIV; ALME Loan Funding II; AmeriCredit Automobile Receivables Trust 2014-2; BlueMountain CLO 2014-2; California Republic Auto Receivables Trust 2014-2; Carlyle Global Market Strategies Euro CLO 2014-2; Cerberus AUS Levered II; CGCMT 2014-388G; CIFC Funding 2014-III ; Citibank Credit Card Issuance Trust 2014-A5; CNH Equipment Trust 2014-B; CPS Auto Receivables Trust 2014-B; CSMC Trust 2014-ICE; Dominato Leonense; Fifth Third Auto Trust 2014-2; Flatiron CLO 2014-1; Fosse Master Issuer Series 2014-1; FREMF 2014-K38; Friary No. 2; Galaxy XVII CLO; GE Equipment Transportation 2014-1; Golden Bar (Securitisation) series 2014-1; GSMS 2014-GC22; Harvest CLO IX; Hilton Grand Vacations Trust 2014-A; IDOL 2014-1 Trust ; JPMCC 2014-C20; Kingsland VII; KVK CLO 2014-2; LCCM 2014-909; MARS 2600 series V; MMAF Equipment Finance 2014-A; MSBAM 2014-C16; Nelnet Student Loan Trust 2014-5; NewStar Arlington Senior Loan Program; Nissan Auto Lease Trust 2014-A; OHA Credit Partners X; PHEAA Student Loan Trust 2014-2; Residential Reinsurance series 2014-1; Santander Drive Auto Receivables Trust 2014-3; Scandinavian Consumer Loans IV; Series 2014-1 WST Trust; SMART ABS Series 2014-2E Trust; STORM 2014-II; Tidewater Auto Receivables Trust 2014-A; Toyota Auto Receivables 2014-B Owner Trust

Deals added to the SCI CMBS Loan Events database last week:
BACM 2005-3; BACM 2005-4; BACM 2006-2; BACM 2006-5; BACM 2007-5; BACM 2008-1; CD 2006-CD2; CD 2006-CD3; CD 2007-CD4; CMLT 2008-LS1; COMM 2007-FL14; COMM 2013-LC6 & COMM 2013-CR6; CSMC 2007-C1; DECO 7-E2; ECLIP 2006-4; ECLIP 2007-2; EMC VI; EPICP CULZ; EURO 28; FOX 1; FUCMT 1999-C1; GCCFC 2004-GG1; GCCFC 2005-GG3; GECMC 2004-C2; GECMC 2007-C1 & CD 2007-CD4; GMACC 1998-C1; GMACC 2000-C3; GMACC 2006-C1 & GECMC 2006-C1; GSMS 2005-GG4; GSMS 2006-GG6; GSMS 2010-C1; JPMCC 2006-CB15; JPMCC 2006-LDP9; JPMCC 2007-C1 & JPMCC 2008-C2; JPMCC 2007-CB18; JPMCC 2007-LD11; JPMCC 2007-LDP10; JPMCC 2011-C5; LBUBS 2005-C1; LEMES 2006-1; MESDG DELT; MLCFC 2007-5; MLMI 1998-C3; MLMT 2005-LC1; MLMT 2006-C1; MSC 2006-HQ9; MSC 2007-HQ13; RIVOL 2006-1; WBCMT 2005-C21; WBCMT 2005-C22; WBCMT 2006-C25; WBCMT 2007-C30 & WBCMT 2007-C31; WBCMT 2007-C33; WFRBS 2012-C7; WFRBS 2013-UBS1; WINDM VII; WINDM XIV

ABS

Esoteric ABS pro recruited

Guggenheim Securities has appointed Matt Bissonette as an md in its fixed income division in New York. He will work on structured products transactions with a focus on esoteric ABS.

Bissonette specialises in telecommunications infrastructure securitisation. He was previously at Deutsche Bank, where he was co-head of the special situations sector within structured credit.

ABS

Euro ABS trader joins NY team

One William Street Capital Management has added Chris Brown as a vp in New York to support the firm's European ABS trading business. He was most recently a European RMBS and ABS trading vp at Deutsche Bank and has also worked for Capital One.

Structured Finance

Index services offering expands

Interactive Data Corporation is to provide evaluated prices to Barclays for use in the newly-added US agency CMBS component of the Barclays US Aggregate Bond Index. This marks the latest development in Interactive Data's efforts to support the growing index services industry.

The firm also provides evaluations for bonds that are components of other Barclays bond indices, such as the Contingent Capital Bonds Index, US Municipal Bond Index, US Corporate High Yield and the US Floating Rate Note Index. Another recent example highlighting its index services offerings include BlackRock's CoRI Retirement Index, which launched in July 2013 with Interactive Data as the index calculation agent.

The firm's index services provide independent and objective operational outsourcing, including the design, support, maintenance, calculation and distribution of indexes across fixed income instruments, currencies, equities and commodities.

Structured Finance

Asset manager adds SF vet

Mark Northway has joined FourWinds Capital Management as global head of sales and distribution. He was previously head of marketing and distribution for EMEA at Brookfield Investment Management.

Northway has also worked at LBBW as global head for credit capital markets and as global head of structured credit at Rabobank. Before that he worked at Yamaichi International, Standard Chartered and First Interstate.

Structured Finance

Asset manager adds in Asia

GoldenTree Asset Management has opened an office in Singapore and hired Shahriar Saadullah as md to lead its business development efforts in the Asia-Pacific region. He reports to head of global business development Kathy Sutherland.

Saadullah was previously head of Asia-Pacific for the international fund distribution group in Citigroup's global markets team in Singapore. Before that he was based in London, including a stint in the company's structured products sales and marketing team.

The Singapore office will initially focus only on business development. Investment professionals may be hired in the future.

Structured Finance

Markit IPO upsized

Markit has upsized and priced its IPO for 53,472,353 common shares at a price of US$24 per share. This constitutes an upsize of the IPO of 7,764,388 shares or 17%.

All of the common shares are being sold by selling shareholders and Markit will not receive any proceeds from the offering. The underwriters have a 30-day option to purchase up to an additional 8,020,853 common shares from selling shareholders to cover over-allotments, if any. The IPO is expected to close on 24 June, subject to customary closing conditions.

Bank of America Merrill Lynch, Barclays, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JPMorgan, Morgan Stanley, UBS, BNP Paribas, Jefferies, RBC, RBS and TD Securities are acting as joint book-running managers for the IPO.

CDS

TABB recruits research leader

TABB Group has appointed Anthony Perrotta as head of fixed income research, based in New York. He will report to founder and ceo Larry Tabb and take responsibility for directing TABB's research alliance fixed income practice, which serves rates and credit market investors.

Perrotta joins from Cornerstone Resources, where he was ceo. He has served as head of credit and co-head of derivative products at Tradeweb Markets and head of dealer relationship management for MarketAxess' DealerAxess unit. Perrotta has also worked at Barclays Capital, Lehman Brothers and Morgan Stanley.

CLOs

CLO structuring head added

BNP Paribas has appointed Dushy Puvan as head of CLO origination and structuring. He will be based in London.

Puvan joins from Lloyds Bank, where he was a director focused on structuring CDOs and CLOs. He also has experience in ABS, leveraged loans, SME loans and corporate loans.

CMBS

Servicing pro appointed

Krupali Mehta has joined Link Financial Group. She will lead the backup servicing team.

Mehta specialises in the servicing and management of securitised transactions and most recently worked for Hatfield Philips, overseeing CMBS portfolios. She has also worked at Allied Irish Bank as a credit analyst.

CMBS

CMBS trader brought on board

Dan Voloshin has joined Deutsche Bank as a CMBS trading director. He will be based in New York and report to Aaron Greenberg, co-head of CMBS trading.

Voloshin was previously at Barclays and before that worked at Lehman Brothers. He started his career at PwC.

Insurance-linked securities

ILS vet takes advisory role

ILS fund manager Securis Investment Partners has hired Martin Reith as an advisory director in London. He previously founded and led Ascot Underwriting.

Reith will advise on business planning and strategic development. He will also join the board of Securis ILS Management.

RMBS

PLS suit settlement announced

The FHFA has reached a US$99.5m settlement with RBS to resolve claims alleging RBS violated federal and state securities laws in connection with private-label mortgage-backed securities (PLS) that were purchased by Freddie Mac between 2005 and 2007. The FHFA has now reached settlements in 15 out of the 18 PLS lawsuits it filed in 2011 (SCI passim).

RMBS

Derivative actions filed against trustees

A number of large institutional investors last week sued six RMBS trustees in New York state court for breaching their fiduciary duties and failing to force mortgage originators and RMBS issuers to repurchase defective loans. The trustees named include BNY Mellon, Citi, Deutsche Bank, HSBC, Wells Fargo and US Bank.

The investors include BlackRock, PIMCO, Prudential and DZ Bank, according to a Lowenstein Sandler memo. The complaints are styled as derivative actions in which the investors are suing on behalf of the trusts and involve more than 2,200 RMBS trusts with combined original principal balances of more than US$2trn.

RMBS

Manager boosts mortgage business

BlueMountain Capital Management has appointed Bob Thomas and Jeff Picron to its mortgage group. The pair co-founded Induction Capital.

Thomas was previously head of mortgage trading strategy at Goldman Sachs and also spent eight years at Citadel Investment Group. Picron was previously an independent quantitative consultant and worked on mortgage-related projects for Magnetar Capital and Citadel Investment Group.

RMBS

RMBS suit dismissed

The Supreme Court of the State of New York last week dismissed a US$450m RMBS lawsuit against Goldman Sachs filed by a number of CDO issuers, including Phoenix Light SF, Blue Heron Funding and Kleros Preferred Funding V. The plaintiffs filed the action in July 2013, alleging that Goldman both misrepresented the quality of loans underlying the RMBS and failed to disclose that it was betting against the securities with short positions. A Lowenstein Sandler client memo notes that in granting Goldman's motion to dismiss, Judge Charles Ramos found that "[t]he true nature of the risk being assumed could, admittedly, have been ascertained by reviewing loan files and plaintiffs never asked for them... The obligation of a sophisticated investor to inquire cannot be merely excused".

ABS

Auto ABS ratings supported

Steady historical performance and strong structural protections in auto loan ABS globally have supported credit quality and the resulting ratings upgrades of securities in the sector, Moody's reports. The agency says it rates most auto loan ABS in North America, Europe, Asia Pacific and South America investment grade or at the maximum achievable rating in the country.

At issuance Moody's rates over 75% of securities rated Aaa on the global rating scale and, as of 31 March 2014, rated 84%-100% of all auto loan ABS Prime-1 or Aaa. Upgrades have outnumbered downgrades.

"Most downgrades occurred during the recent financial crisis, either because of weaker performance of the loans in the pools or because we downgraded the country's local currency ceiling," says Kan Leung, a Moody's avp and analyst.

Since the agency began rating auto loan securitisations, the total issuance that it has rated in pools globally has grown to approximately US$1.7trn-equivalent, as of 31 March 2014. US issuance accounts for approximately two-thirds of this figure. However, non-US markets are expected to gain share over time.

ABS

FFELP ABS criteria updated

Fitch has published its updated criteria for rating US FFELP student loan ABS. The changes revise the agency's standard default rate assumptions and extend the default timing for consolidation loans.

Fitch's standard default rate assumptions used in cash flow modelling when issuer-specific data is not available are based on 22 years of industry FFELP loan performance. Recent performance data indicates higher defaults for certain loan and school types so the rating agency has increased its default assumptions for these variables to reflect the performance data.

As for the default timing for consolidation loans, industry performance data indicates that the default timing of consolidation loans are evenly distributed over a longer period of time of at least eight years compared to Fitch's initial assumptions of five years when running cash flows, so the curve has been extended. There is no material ratings impact.

ABS

Card delinquencies to hit new lows

Credit card ABS delinquencies should reach new lows for the May reporting period, says Fitch. Prime chargeoffs are also expected to decline toward previous records and the 60-plus day delinquency index should also approach its low, although retail chargeoffs are anticipated to rise slightly.

Delinquencies may rise again slightly but should stay below historic averages as originators begin to loosen lending standards. While there is evidence banks have eased up on underwriting, they have not yet added these unseasoned accounts to their trusts, so the loosening of credit standard is unlikely to have an impact on ABS in the near term.

ABS

FFELP servicers on top of reject rates

US FFELP student loan ABS servicers "have done an admirable job" keeping net claim reject rates down, says Fitch. However, the rating agency is unsure that this can be maintained.

Since the FFELP programme ended in 2010, servicers have had to adjust to several changes. Keeping net claim reject rates under control in order to prevent sizable ABS losses has been a key challenge.

Servicer loss, exemplified by net claims rejects, is a key rating driver that could contribute 20%-30% of stressed losses for triple-A rated FFELP ABS, says Fitch. More rejected claims would translate to higher ABS vulnerability to losses.

"A student loan servicer's net claims reject rate represents their capability to service a loan as required and represents the true loss to an ABS trust, so the lower they can keep the number of rejected claims, the better," says Fitch md Michael Dean. Factors that could lead to a spike in rejected claims would probably be one-time events - such as a servicing transfer or workforce reduction - that create a backlog in claims filing.

ABS

Auto underwriting concerns raised

US auto ABS performance for the rest of 2014 should be stable despite increased concern about underwriting, says Fitch. Losses are expected to hover at or near record lows for prime auto ABS.

The rating agency notes that underwriting is becoming more aggressive, with a rising number of lowest-FICO and credit tier buckets in prime auto ABS pools. If that number reaches 10% then higher losses become a reasonable expectation.

Fitch says it is "fairly comfortable" with the prime auto ABS outlook for the coming months, but is not so sanguine on subprime auto ABS. An influx of new names are targeting weaker credit borrowers and Fitch says only a select few subprime auto ABS names warrant triple-A ratings on their securitisation.

Structured Finance

Moody's downgrades fewer deals

The global structured finance 12-month downgrade rate continued to decline for the fourth straight year to end 2013 at 9.1%, says Moody's. The historical average is 16.6%.

There were 6,557 ratings from 2,183 deals downgraded. CMBS and RMBS accounted for 11% and 10.4%, respectively, of the total.

Most sectors exhibited downgrade rates in 2013 that were well below their historical averages and experienced positive rating drift, says the rating agency. The 12-month upgrade rate was at its highest level for over a decade, reaching 6.9% as 5,044 ratings from 1,939 deals were upgraded - with CLOs posting an upgrade rate of 29.7%.

Structured Finance

Individual noteholder suit permitted

The New York court of appeals has unanimously held that a trust indenture's 'no-action' clause barring contractual claims under the indenture did not bar a security holder's independent common law or statutory claims, which Schulte Roth & Zabel notes is a positive development. The court says it is clear the no-action clause was intended to leave a security holder free to pursue independent claims.

The court was ruling on a case where Quadrant Structured Products sued several defendants, including credit derivatives firm Athilon Capital, for alleged wrongdoing related to notes purchased by and issued by Athilon. The defendants had claimed Quadrant's complaint was barred by a no-action clause.

Structured Finance

CRA standards final draft published

ESMA has published its final report on draft regulatory technical standards required under CRA 3 regarding information on transparency of structured finance instruments. The standards will complement the existing regulatory framework.

The enhanced transparency requirements set out in the regulatory technical standards are intended to improve the information available to investors and supervisors. As well as structured finance transparency, the final report also covers the European Rating Platform and periodic reporting of fees charged by rating agencies.

The focus for structured finance is on the information that issuers, originators and sponsors of a structured finance instrument must publish. Existing disclosure and reporting requirements adopted by the ECB and Bank of England have been incorporated.

The final draft includes templates for structured finance instruments where that has been possible and adopts a phase-in approach for any further templates. Future templates will be forged through discussion with the European Commission, ECB and stakeholders.

ESMA says it will develop reporting obligations concerning private and bilateral structured finance instruments as soon as possible. The draft has been submitted to the European Commission for its approval, which will now take three months to decide whether to endorse ESMA's proposals.

Structured Finance

Investors upbeat on international ABS

International ABS investors are feeling confident about the asset class, according to a survey by JPMorgan. The ECB's announced intention to make direct purchases appears to have fuelled some of that confidence.

JPMorgan surveyed 67 investor firms, 16 originators and 24 other market participants. The investors were mainly from the UK and Europe, although 9% were based in the US.

Investors are currently upbeat about the asset class, as they were six months ago, and remain confident about the rest of the year. They identify broad-based value in the primary markets - even for plain vanilla asset classes - and also have secondary market interest in Spain, Italy and UK non-prime RMBS.

Italian leasing ABS and UK BTL RMBS were also popular secondary market picks. Secondary market interest was strong in the senior part of the capital structure, with some mezzanine interest but very little junior interest.

Investors view the outlook for ABS more positively than for other instruments, which reverses previous long-held views. Originators also mark a significant improvement in market sentiment.

The most commonly identified impediment to a more whole-hearted reopening of the European ABS markets was repeatedly cited as regulation. Liquidity and absence of supply were also noted.

The ECB's intention to purchase ABS is overwhelmingly seen as positive for the market, although the predicted boost from TLTRO (SCI 6 June) is viewed as less certain. As for what the ECB should buy, answers ranged from all ABS to SME only, peripheral, primary only, secondary only, high quality only or mezzanine only.

Structured Finance

Credit unions set to securitise

The US National Credit Union Administration Board unanimously approved five items at its sixth scheduled open meeting of 2014, two of which are related to securitisation and another to mortgage modifications. The Board proposed rules that would allow qualified institutions to securitise loans they have originated and create safe-harbour protection for certain securitised assets.

Under the proposal, qualified federal credit unions would be able to securitise loans if they meet certain criteria approved by the Board. A credit union would be required to create a separate SPE to hold the assets, as well as have independent risk management controls and an annual independent audit performed. Additionally, the credit union's board members would need to have an adequate understanding of the securitisation process and senior management would need to have sufficient expertise to oversee these transactions.

"As the credit union system becomes larger and more complex, more credit unions are developing the scale and expertise to offer sophisticated innovations," NCUA Board chairman Debbie Matz comments. "Securitisation is complex and has the potential to tap new sources of liquidity and mitigate interest rate risk. However, it would also create an additional layer of risk. Most credit unions do not yet originate enough loans to sponsor securitisations, but for those that do, it is prudent to propose specific safety and soundness provisions."

Meanwhile, the proposed rule providing a safe harbour for assets transferred by a federally insured credit union in connection with a securitisation or a participation aims to promote investor confidence and a level playing field for credit unions to sponsor securitisations. Comments on both proposed rules must be received within 60 days of publication in the Federal Register.

The NCUA also proposed a rule to assist underwater borrowers by allowing federally insured credit unions to refinance or modify real estate loans without obtaining an additional appraisal in markets where home prices have declined. The rule would eliminate the current duplicative requirement that federal credit unions provide members copies of appraisals for loans secured by a first lien on a dwelling, as recently finalised Consumer Financial Protection Bureau regulations also require credit unions provide copies of such appraisals.

CDO

CDO auction lined up

An auction has been scheduled for Sunrise CDO I on 15 July. The collateral shall only be sold if the proceeds are greater than or equal to the auction call redemption amount.

CDO

Trups teamwork to raise recoveries

Coordination among US Trups CDO investors and legal enforcement of their claims through involuntary bankruptcies may improve the prospects for better recoveries on distressed Trups issuers, says Fitch. As bankruptcies result in significantly worse outcomes for bank managers and owners, more out-of-court settlements with better recoveries for Trups holders are likely.

The last two months have seen two involuntary bankruptcy petitions filed by managers of Trups CDOs. A filing against American Bancorp was filed jointly by managers of Alesco Preferred Funding II, XV and XVI, while there was also a filing against Trapeze Capital Management in relation to Trapeza CDO XII.

In both CDOs, the debtors had been deferring their interest payment on Trups for longer than the maximum allowed deferral period of 20 consecutive payments, providing the basis for involuntary bankruptcy petitions by the CDO managers. American Bancorp is better capitalised and may result in higher recoveries and Fitch says the best outcome for Trups holders would most likely be a quick sale of an operating bank subsidiary that would minimise disruptions of the bank operations.

There has been a rise in cures and a significant slowdown in deferrals and defaults across the Fitch-rated Trups CDO universe, although a significant balance of issuers continue to defer. Fitch estimates that US$2.6bn of currently deferring bank issuers could reach their deferral limit in the next six years and many have written agreements with banking regulators that prohibit them from making distributions on Trups.

CDO

FDIC to auction Trups CDOs

The FDIC intends to offer for sale its interests in certain Trups CDOs through a series of auctions. These auctions are anticipated to commence around the week of 14 July. Interested bidders must first become qualified bidders through an application to the FDIC.

CDS

Argentina CDS trigger event considered

ISDA's determinations committee has been asked whether a recent announcement by the Argentinean government could have triggered CDS on the country. Argentinean economy minister Axel Kicillof last week declared the sovereign would not make certain interest payments on 30 June.

The question has been asked on behalf of a CDS holder which was scheduled to terminate last Friday. The CDS holder maintains that the determinations committee should resolve an event that constitutes a potential repudiation/moratorium has occurred, thus establishing that a repudiation/moratorium extension condition has been satisfied.

CMBS

Kyo-Ya leverage eyed

Fitch says that the most recent financing of the Kyo-Ya hotel portfolio, a little more than a year after its last refinancing, demonstrates the increasing leverage being offered by US CMBS lenders. The higher debt levels associated with the COMM 2014-KYO transaction - which was initially reviewed, but ultimately not rated by the agency - combined with a reduced collateral pool compared to last year's transaction, a management transition and potentially peak performance would likely have resulted in Fitch assigning lower subordinate bond ratings.

Total debt in the new CMBS transaction stands at US$300m above last year's refinancing, taking advantage of a significant up-tick in net cashflow over the past year, despite the removal of the 1,142-room Sheraton Princess Kaiulani from the pool. Although the Princess Kaiulani was the weakest property in the previous pool, the increase in total debt and the reduction in supporting collateral should give investors pause, Fitch warns.

Kokusai Kogyo Holdings Co acquired Cerberus's 55% hotel ownership interest in Kyo-ya Hotels & Resorts in conjunction with the current acquisition financing. The two parties previously shared ownership in the company.

Along with the divestment of Cerberus, the president of Kyo-Ya hotels, Greg Dickhens, departed the company. Fitch believes that Dickhens was instrumental in gaining approval from local authorities for various redevelopment plans and stabilising the financial performance and reporting of the portfolio and the impact of his departure on future performance is uncertain.

The 2013 refinancing of the hotel portfolio followed an increase of over US$25m in NOI between 2007 and October 2012. The portfolio included the Sheraton Waikiki, The Royal Hawaiian, the Westin Moana Surfrider and the Sheraton Princess Kaiulani (each located in Waikiki Beach in Honolulu), as well as the Sheraton Maui Resort & Spa on the island of Maui and The Palace Hotel in San Francisco. The current iteration of the Kyo-Ya Hotel Portfolio is comprised of five hotels, but remains a highly compelling portfolio of real estate, given the high quality and prime location of the hotels.

Fitch rated the triple-A class of the previous Kyo-Ya refinancing (GSMS 2013-KYO), the trust debt of which totalled US$1.1bn or US$213,178 per room. In comparison, the current COMM 2014-KYO transaction totals US$1.4bn or US$348,606 per room.

Based on a Fitch NCF of US$147.6m and a cap rate of 10.25%, the US$551m class A in the COMM 2014-KYO transaction is consistent with a Fitch triple-A rating. However, the US$1.073bn class E would imply a double-B minus rating by Fitch versus the triple-B minus ratings assigned by Morningstar and S&P.

After growing to approximately US$158.3m across the six hotels when refinanced in 2013, portfolio cashflow for the new five hotel portfolio reached US$169.2m, as of April 2014 (shortly after Cerberus' divestment in the portfolio). Growth was fuelled by the Waikiki assets completing property and room overhauls corresponding with increased tourism after post-recession declines and the implementation of resort fees for the Hawaiian assets. Although the current ownership plans to continue investing in the properties, Fitch believes that these factors are unlikely to be replicated.

CMBS

CTL CMBS downgraded

Moody's has downgraded the ratings of seven classes of notes across seven UK CMBS sponsored by Tesco. Approximately £3.97bn of debt is affected by the move.

The Baa1 rated tranches across Tesco Property Finance 1, 2, 3, 4, 5 and 6, as well as Delamare Finance have been lowered to Baa1. The action was prompted by Moody's decision to downgrade the long-term senior unsecured rating of Tesco to Baa2 from Baa1, with a stable rating outlook. The affected CMBS transactions are credit-tenant-linked (CTL) and, as a result, the ratings of the notes are closely linked to the rating of Tesco as the guarantor of the occupational leases.

CMBS

First CMBS 2.0 loss recorded

The US$5.7m The Cove at Southern loan, securitised in JPMCC 2011-C5, has become the first CMBS 2.0 conduit loan to take a loss - albeit a nominal one. According to June servicer data, the trust realised US$5.9m in gross proceeds from the sale of the property and a US$34,100 loss after fees and repayment of advances.

Trepp notes that watchlist comments pointed to a drop in occupancy from 87% to 60% since securitisation and a DSCR of 0.71x as reason for the default. The loan had been due to mature in September 2016.

Insurance-linked securities

Streamlined cat bond facility launched

Aon Benfield Securities has launched CATstream, a new facility that is designed to offer cedants faster and more efficient access to capital markets capacity for catastrophe risk. Featuring template documentation and pre-agreed wordings, CATstream enables catastrophe bonds to be established in less than half the time of the typical non-standardised products. With faster access to capital markets capacity, cedants can take advantage of additional risk transfer capacity in note form.

CATstream currently allows for the domiciliation of special purpose insurers (SPIs) in Bermuda and Ireland. The streamlined documents developed for the service have been reviewed and approved by the associated service providers and regulators, in order that transactions can be brought to market more quickly and with lower frictional costs.

CATstream can be used to structure transactions with index and indemnity trigger structures that relate to a broad range of perils and territories, allowing clients to enjoy capacity diversification, multi-year capacity and multi-year known pricing.

Insurance-linked securities

Nat cat bonds affirmed

S&P has affirmed its ratings on 18 natural-peril catastrophe bonds issued by 10 different issuers, following the annual resets of the probability of attachment. In each case, the probability of attachment was reset to a percentage consistent with the transaction documents and the current rating. In addition, the agency reviewed the creditworthiness of each ceding company and the ratings on the collateral that - barring the occurrence of a covered event - will be used to redeem the principal on the redemption date.

The affected issuers comprise: Embarcadero Re series 2012-I; Ibis Re II series 2012-I and 2013-I; Long Point Re III series 2012-I; Mystic Re III series 2012-I; Residential Reinsurance series 2011-I; Residential Reinsurance series 2012-I and 2012-II; and Residential Reinsurance series 2013-I and 2013-II.

RMBS

Granite ratings upgraded

Fitch has upgraded 78 tranches of the Granite Master Trust programme and three tranches of the Whinstone programme. All other tranches have been affirmed.

Granite comprises five 'capitalist' issuers (Granite Mortgages 2003-2, 2003-3, 2004-1, 2004-2 and 2004-3) and nine 'socialist' issuers (Granite Master Issuer 2005-1, 2005-2, 2005-4, 2006-1, 2006-2, 2006-3, 2006-4, 2007-1 and 2007-2). Following the breach of the non-asset trigger in November 2008, the Granite master trust programme effectively became a pass-through structure with sequential note amortisation and principal receipts being diverted to the capitalist issuance and the socialist issuance.

Credit enhancement has built up across all classes with principal payment rates recently moving over 13%. Fitch notes that the credit support available to classes M and C of the socialist structure and the class C notes of the capitalist issuance has passed their respective rating stresses, resulting in the latest upgrades.

The volume of loans in arrears is down to 4.5%, thanks to the low interest rate environment and the servicer's early-arrears management strategy. Although that is down from 6% a year ago, it remains one of the highest across the UK prime sector.

RMBS

LMI claims indices rolled out

Fitch has introduced new indices to monitor payment rates of claims submitted to lenders' mortgage insurance (LMI) providers across Australian prime RMBS. Losses that are not paid by the LMI may affect the transaction and RMBS investors, the agency says.

Generally, 7% to 9% of Australian prime RMBS losses are not paid by LMI, according to Fitch. At end-March 2014, mortgage insurers paid 93.5% of the cumulative submitted claims across all outstanding Fitch-rated Australian prime RMBS. Additionally, at least 2% of realised losses are not submitted by the lender to the mortgage insurer, as they are not covered by the LMI policy.

A loss on a defaulted loan tends to arise when the recoveries are lower than the obligation outstanding. The average submitted claim has been stable, at between A$80,000 and A$90,000 over the six years to March 2014. The average reduction of 7% to 9% on the average claim of A$80,000 to A$90,000 is therefore a minimal amount in comparison to the transaction size.

No Fitch-rated Australian prime RMBS transaction has suffered a loss as a result of claim reductions over the 14 years to March 2014. Any reductions in LMI claims to date have been covered by either the seller or servicer making a payment due to its breach under the LMI policy or excess available income.

However, this may not always be the case under stressed conditions, as claims can be significantly higher than the current average and the LMI payment rate may be lower. Notes that have no subordination are exposed to the risk of one or more LMI claim reductions, ultimately resulting in a loss.

As a transaction's size reduces, it will be more exposed to concentration risk and claim volatility. As excess spread will be lower, it might not be able to cover any unexpected principal loss.