Contents

ABS

Conference end brings BWIC boost

The US ABS market was fired up again yesterday as participants returned from IMN's ABS East conference. BWIC volume reached close to US$500m during the session, with SCI's PriceABS data capturing a plethora of credit card ABS bonds, as well as a number of auto, student loan, container and franchise names.

Several covers were recorded in the credit card space, including for the CCCIT 2013-A1 A1 tranche, which was covered at 99.97. The bond was previouslycovered on 3 September at 12 and was joined yesterday by the CCCIT 2013-A3 A3 and CCCIT 2014-A3 A3 tranches, which were talked at plus 18 and in the mid-teens respectively.

A US$3.668m piece of CHAIT 2012-A3 A3 was covered at 18, while a US$2.5m piece of the same tranche was covered at plus 17. The tranche was covered on 3 September at 14.

In addition, CHAIT 2012-A5 A5 was covered at plus 18. The tranche was covered a week earlier at 16 and was covered on 24 July at 15.

The CHAIT 2013-A4 A4 tranche was covered at 17.4, while COMET 2006-A11 A11 was covered at 25 and COMET 2013-A2 A2 was covered at 23. Meanwhile, the DROCK 2012-1 A tranche was covered at 100, having been covered in September last year at Libor plus 22.9.

Auto supply was also strong during the session, with the AMCAR 2012-4 E tranche talked in the mid-100s. The bond first appeared in PriceABS on 15 March 2013, when it was talked in the low-200s.

AMCAR 2014-3 A2B was talked at 29 and FORDL 2014-A A2B was talked in the mid-teens. The FITAT 2014-2 A2B tranche was also talked in the mid-teens, having been covered at 100.03 on 30 July.

In the student loan space, the NAVSL 2014-1 A1 tranche was talked at 30. The bond was covered earlier this month at 99.88.

SLMA 2004-4 B was also out for the bid and was talked at 96.31, while the SLMA 2004-5 B tranche was talked at 90.16. The SLMA 2012-E A1 tranche was talked at 40.

Rounding out the supply was the franchise loan SPMF 2013-1A A bond and the container ABS TAL 2014-1A A tranche. The former was covered at plus 155, while the latter was covered at plus 139.

JL

RMBS

Busy session for Euro RMBS

Yesterday proved to be a busy session for secondary European RMBS. SCI's PriceABS data captured a long list of bonds out for the bid, several of which were covered.

Among the names circulating yesterday was a €5.478m piece of the €50m CASTO 1 A tranche, which was talked at 99 handle, mid-99 and 99.51. The tranche first appeared in the PriceABS archive on 10 February, when it was covered at 97.45.

The ERF 5 A tranche was talked between the high-80s and 91.14 and was covered at 90.27 during the session. The tranche was covered earlier in the month on 8 September at 90 and was covered on 8 May at 88.45.

UCI 10 A was talked at around 95, 95.1, 95.24, 95.5 and 96 handle and was covered at 95.8. It was covered on 4 September on 83.06.

Price talk on the MARS3 3 A1A tranche was between 97 handle and mid-97 and the tranche was covered at 97.37. It was previously covered on Tuesday at 97.23.

GRAN 2004-2 2A1 was talked at 99.82 and covered at 99.855, while GRANM 2006-1X A6 was talked at 99.71 and covered at 99.77. The GRANM 2007-1 3A2 tranche was talked at 99.71 and covered at 99.73.

A £3.825m piece of the AUBN 3 A2 tranche was talked between 99.8 and the 100 area and was covered at 99.963. Price talk in the two previous sessions had also been between 99.8 and 100, while the last recorded cover for the bond was at 99.57 on 16 May.

MPLC 7 A2 was talked between the 97 area and 98 area and was covered at 98.15. The first recorded cover price for the tranche is 94.625, from 8 November 2012.

PARGN 13X A2B was covered at 95.27 and the PARGN 9X AB tranche was covered at 96.46, while the RMAC 2004-NS3X A2A tranche was talked between 96 and 98 and was covered at 97.6. Two cover prices for the RMAC tranche were recorded last month, at 95.86 and at 95.87.

Lower down the capital structure, the EMFNL 2008-2X B tranche was talked between the 80 area and mid/high-80s and was also talked in the low-200s. The tranche was covered yesterday in the mid-80s.

EMFNL 2008-2X D was talked in the mid-20s, mid-60s, mid/high-60s and mid-300s. It was covered in the mid/high-60s.

Meanwhile, KDRE 2007-1 C was talked in the mid/high-60s, at around 70 and in the high-70s, before being covered at 75. The tranche made its first appearance in the PriceABS archive last week, when it was talked in the mid/high-60s.

One final bond of interest was LANSD 2 M1. It was talked yesterday in the mid/high-teens and was covered in the high-20s.

JL

CLOs

European markets quieter

It's a quieter day today so far across European structured finance secondary markets.

There is only one euro CLO lists scheduled for today so far, though there is continuing interest in bonds in the bilateral market. A flurry of ABS and MBS BWICs are circulating today, inevitably including a significant proportion of peripheral names, but not in as large a volume as earlier in the week.

"Overall it's definitely quieter today," confirms one trader. "There's a real sense of people squaring things away, locking up inventory and just looking to put on nice trades."

Nevertheless, there are pockets of aggressive bids still being made on- and off-BWIC in all asset classes, continuing the trend from those seen yesterday in Irish and Spanish RMBS.

Secondary markets

Trading picks up again

Trading in Europe has exceeded expectations as today has worn on with BWIC lists being added for all deal types and continued bilateral activity. The US markets are seeing similar moves.

"There have been quite a number of lists added, which is something of surprise - we all thought it was going to stay quiet today," says one trader. However, he adds next week is undoubtedly going to be busy on both sides of the Atlantic with plenty of lists already scheduled either side of quarter-end.

Trading in Europe today has continued to be at strong levels. The trader highlights the 11:00 RMBS list in particular noting that most of the bonds traded at talk, but a couple executed even higher.

The drivers behind market activity primarily remain unaltered as well, the trader says. "It's more of the same overall, though I do get the sense - and it's no more than that as nothing fundamental has changed - that maybe some hedge funds are starting to re-balance their positions by exiting some of their more esoteric credits, perhaps in anticipation of a correction in a month or two."

Secondary markets

ECB Thursday looms

The general spread tightening seen in European ABS, CLOs and MBS over last week is expected to hold firm or increase in the run-up to the ECB meeting and promised further details on ABSPP on Thursday. Given current levels the possibility now looms that anything other than entirely positive news from the ECB could send prices lower across the board.

While buying is expected to continue this week, thus far there is only one euro BWIC list visible for today - a €22m slice of WODST II-X A2 due at 14:00 London. The triple-A CLO has not traded on PriceABS before.

Secondary markets

US CDOs in focus

It looks set to be a busy day today in US CDOs across Trups, CRE and ABS deals.

In terms of Trups deals, the FDIC is likely to announce its next and ninth auction list later today having missed a week last week due to expectations of a quiet market as a result of ABS East and the Jewish New Year holiday. At the same time, there is a Trups CDO on a two line list due to trade at 14:00 New York - $12m of TPREF 2 B, which last covered on PriceABS at M40s on 5 August 2014. Alongside it is $700,000 of real estate CDO SORIN 2005-1A B, which has not previously traded with a price on PriceABS.

An hour earlier, at 13:00, there are more real estate assets to be had as part of a CDO liquidation BWIC. The list contains: $10m ARMSS 2005-1A A2, $2m ARMSS 2005-1A D, $2m ARMSS 2005-1A E, $3.5m CBRE 2006-1A D, $3.5m LMRET 2006-1A E, $10m LNR 2006-1A CFL, $10m WWCAP 2005-1A A1, $10.325 BAYC 2004-3 A1, $3.264 BAYC 2005-1A A1, $1.26m BAYC 2007-5A A2, $4.5m BAYC 2007-6A A2 and $5m BAYC 2008-2 A2. None of the bonds have traded on PriceABS in the last three months.

There are also some ABS CDOs due at 13:00: $15m BRNHM 2006-1A A2L, $7m GEMST 2006-5A B, $7m HOUT 2006-1A B, $5m ICM 2006-S1 A1LB and $5m RFCCD 2005-3A C. Only HOUT 2006-1A B has traded on PriceABS in the last three months - covering at 7 on 21 August.

A further four lines of ABS CDOs are in for the bid at 15:00 New York. The list consists of: $12.72m CRCDO 1A A1A, $1.7m GRESH 2003-1X D, $4.72m MID 2000-1A A1L and $89.32m of VARIC 1A A2. None of the bonds have traded with a price on PriceABS in the last three months.

Secondary markets

UK RMBS takes attention

Following on from only patchy trading in peripherals, including some selling, in yesterday's session the European RMBS market may give its full attention to UK RMBS today with two notable BWICs in the sector circulating.

Due at 11:00 London is an 11 line list of UK Prime deals with tranches denominated in sterling, euros and dollars. It consists of: FOSSM 2012-1X 2B2, GRAN 2004-2 2A1, GRAN 2004-3 2A2, GRAN 2004-1 3A, GRANM 2006-4 A8, GRANM 2005-2 A6, GRANM 2006-1X A5, GRANM 2007-1 2A1, GRANM 2005-1 A4 , GRANM 2007-1 4A1 and PARGN 16 A. Nine of those deals have covered on PriceABS in the last three months, as follows: FOSSM 2012-1X 2B2 101.91 on 2 July; GRAN 2004-1 3A 99.43 on 12 August; GRAN 2004-2 2A1 99.86 on 25 September; GRAN 2004-3 2A2 99.74 on 3 July; GRANM 2005-1 A4 99.46 on 3 July; GRANM 2005-2 A6 99.70 on 18 September; GRANM 2007-1 2A1 99.53 on 25 September; GRANM 2007-1 4A1 99.47 on 3 July; and PARGN 16 A 100.23 on 3 September.

Then, at 15:00 is an 18 line euro and sterling list of UK non-conforming RMBS consisting of: EHMU 2007-1 M1, ESAIL 2006-2X C1A, ESAIL 2006-4X B1A, ESAIL 2006-4X C1C, ESAIL 2007-1X B1A, ESAIL 2007-1X B1C, GHM 2007-2X CA, GHM 2007-2X CB, LMS 2 BC, MPLC 7 B, NGATE 2007-2X BB, RMACS 2006-NS2X M2C, RMACS 2006-NS3X M1C, RMACS 2006-NS3X M2C, RMACS 2006-NS4X M2C, RMACS 2007-NS1X M1A, RMACS 2007-NS1X M1C and RMACS 2007-NS1X M2C. Only one item from the list has traded with a price on PriceABS in the last three months - NGATE 2007-2X BB, which last covered at 84.3 on 11 September.

Secondary markets

Senior euro CLOs stay strong

Continued demand for senior euro CLO paper was evidenced by the strong execution of a three line BWIC this morning. More activity in such bonds is expected throughout the week.

€5m of BACCH 2007-1 A covered at 99.7, €5.5m of HARVT III-X B at 97.66 and €3m of NWEST III-X A at 99.55. All levels were at or above talk.

The demand, being seen on- and off-BWIC, is driven in part by belief in the knock-on effects of the ABSPP and in part by end-accounts profit taking on successful trades in other asset classes and switching to the opportunities they see as still available in top-rated CLOs. Supply will continue in part from BWICs with two more lists containing senior euro CLO paper already scheduled for this week.

Secondary markets

CMBS slowdown for now

After a quieter than average week last week US CMBS has been in similar mode this week so far, but that is expected to change once the new quarter starts.

"It's been quiet today as it's quarter-end, though we have seen some selective selling and there are some BWICs too," says one trader. "But for the most part accounts seem to be laying low."

Where there has been trading activity this week it has to some extent mirrored the trend seen throughout September of real money investors putting on longer duration positions by selling 1.0 deals and buying in the primary market. There has been plenty of new issuance in September for investors to deploy this strategy and more is expected to come in October. Nevertheless, spreads have held firm.

"Spreads didn't go wider despite the strong new issue market, which is positive for the market as whole. Overall, we expect secondary activity to pick up as Q4 begins and continue into next week," the trader adds.

Secondary markets

Differing day ahead for euro CLOs and ABS

The European CLO market should see a continuation of recent healthy levels of activity today, while a relatively quiet day is expected in European ABS and MBS.

Traders report a continuation of two-way flows and strong execution in the European CLO secondary market this week, with the expectation that this will continue right up to tomorrow's ABSPP announcement. There are also currently three CLO BWICs totalling €153m circulating for today.

The highlight of which is the three line triple-A list due at 15:00 London, which consists of: €25m of CORDA 2006-1X A1, €25m of CORDA 2007-1X A1F and €50m of CADOG 4X A. Of those only CADOG 4X A has traded on PriceABS covering at 98.15 on 8 April 2014. All three bonds are currently being talked in the VH90s.

Following a busy day yesterday, European ABS traders expect a quieter day today with many players sitting the session out given the proximity to the ECB meeting. Lists are, however, being added to the BWIC pipeline with three lists currently circulating for today dominated by UK RMBS.

Secondary markets

Peripherals to the fore

Each of the three European ABS/RMBS BWIC lists scheduled for this afternoon contain peripheral names. At the same time, such deals are being traded in the bilateral market.

Today's auctions are dominated by peripherals, first up at 14:00 is a 53m four line list containing FGOLD 1 B, ITALF 2005-1 A, PPAF 3 A2 and SANFI 2006-1 D. None of these bonds have traded on PriceABS in the last three months.

Next at 15:00 are two lines totalling 41m - DMPL VI A and MAGEL 3 A. The former last covered on PriceABS at 101.063 on 22 September and the latter at 92.25 on 9 July.

Then at 16:00 there is a pure peripheral mezz four line list totalling 22m consisting of: BCJAF 9 C, MAGEL 4 B, MAGEL 4 D and RHIPO 7 C. Of those, only two covered in the last three months on PriceABS - BCJAF 9 C at 67.51 on 5 August and RHIPO 7 C at 80.35 on 10 July.

Peripherals are less dominant off-BWIC where traders report consistent trading in peripheral and core names, primarily prime.

Secondary markets

Slow return for US CLOs

Many US CLO traders are back at their desks following ABS East but the late start to the week combined with a Jewish holiday tomorrow and Friday means the market is yet to build back to a full head of steam.

"It's pretty quiet in secondary, though we have seen some opportunistic selling today," says one CLO trader. Nevertheless there are trading possibilities, he says, such as relative value plays between manager tiers and in the triple-B to single-B sector.

However, the trader adds: "Players looking at mezz have to be patient, there was a time when you could buy in primary and sell in secondary almost straight away, but because of where relative spreads are you'll have to wait six months to a year to see any kind of real return."

In terms of BWICs, today is a quiet too with only two dollar lists circulating. The second of which due at 14:30 New York is a $20.1m three line triple-A list comprising BABSN 2005-3A A, FORE 2007-1A A1A and RACEP 2006-3 A. The list is likely to go well - as the trader says: "There's good demand for senior paper and we're seeing a genuine diversification of the investor base into real money investors."

Secondary markets

Euro peripheral action continues

Peripherals continue to be a strong focus today as interest in non-core paper continues in the European ABS/MBS markets.

This morning's €54.2m five line peripheral seniors list traded strongly at 9:00, with all bonds trading above talk levels, following on from the similar success of yesterday's peripheral mezz auction. The BWIC results are expected to bring out further peripheral lists amid today's already heavy BWIC programme throughout the European ABS, CMBS and RMBS sectors more broadly.

The peripheral BWICs echo activity in the bilateral market, where peripheral bonds are better bid across the capital structure and in all deal types this morning. Flows are described as healthy, if patchy and below the trading volumes seen last week.

Secondary markets

US RMBS stays in range

Spreads have been range-bound in US RMBS today as the market remains in a post-ABS East and Jewish holiday lull.

"Trading is fairly light for quarter-end with only around $200m out for bid today," says one trader. "It mainly seems to be people, including some money managers, clearing odd-lots."

Today is also remit day in non-agency RMBS, which will have further served to suppress trading levels. Consequently, expectations are that volume will begin to increase tomorrow and next week as the market moves into the new quarter.

Structured Finance

SCI Start the Week - 29 September

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

Pipeline
The pace of deals joining the pipeline slowed last week. Two new ABS were announced, as well as one RMBS, one CMBS and two CLOs.

The ABS were €678m Cars Alliance Auto Loans France V 2014-1 and US$240m MVW Owner Trust 2014-1. The RMBS was US$483.562m JPMMT 2014-IVR3.

US$570m BLCP Hotel Trust 2014-CLRN was the sole CMBS to begin marketing. The CLOs were US$350m BNPP IP CLO 2014-II and US$586m Fortress Credit Opportunities V CLO.

Pricings
The pace of deals departing the pipeline also slowed last week. Two ABS printed, as well as three RMBS, one CMBS and four CLOs.

The ABS new issues comprised C$500m Glacier Credit Card Trust Series 2014-1 and €1.032bn VCL Multi-Compartment 20. Meanwhile, US$365.7m Agate Bay Mortgage Trust 2014-2, N$150m RESIMAC Versailles Trust Series 2014-1 and €1.2bn STORM 2014-III accounted for the RMBS.

The CMBS print was US$1.4bn CSMC 2014-USA. Finally, the €450m Carlyle Global Market Strategies Euro CLO 2014-3, €567m Jubilee CLO 2014-XIV, US$763m Octagon XXI and €517m Sorrento Park CLO deals rounded out the new issuance.

Markets
It was a strong end to the week for European RMBS, with SCI's PriceABS data capturing a long list of bonds out for the bid on Thursday (SCI 26 September). Many of the tranches included on BWICs were covered during the session.

Activity in the US RMBS market was limited as a result of IMN's ABS East conference, however. Wells Fargo analysts note that non-agency activity was particularly slow.

"Weekly trade volume was US$3.4bn and BWIC volume was slightly less than a billion," they note.

The US ABS market picked up when ABS East finished and BWIC volume reached close to US$500m for Wednesday's session (SCI 25 September). PriceABS picked up a range of auto, credit card, student loan, container and franchise names out for the bid in that session.

In addition, the US CMBS secondary market was busier. "An above-average share of about 40% of bid-lists was driven by CMBS 3.0, including a large 2012 triple-B minus list," Barclays Capital analysts observe. "The selling may have been partially to blame for the widening in spreads this week, in addition to the weak macro environment."

Meanwhile, activity in the US CLO space slowed, with BWIC volumes reaching only around US$88m - split between 1.0 and 2.0 deals. "All the legacy volume was originally rated triple-A, but none of the 2.0 volume was. Many of the themes remain the same and we continue to see strong demand and bids for legacy paper. Mezzanine trading in the 2.0/3.0 space remains choppy," say Bank of America Merrill Lynch analysts.

Deal news
• Assuming noteholder approval is granted, the proposed restructuring of the Aire Valley RMBS master trust (SCI 23 September) should be broadly positive for bondholders. Investors are expected to benefit from a cleaner pool of collateral, higher levels of subordination and potentially higher ratings. With longer-dated IO collateral targeted for repurchase, alongside exposures to higher LTV borrowers, a degree of WAL contraction could also emerge.
• S&P has placed its single-B minus rating on MultiCat Mexico series 2012-I class C notes on credit watch with negative implications, reflecting the fact that a trigger event may have occurred with respect to the catastrophe bond. The class C notes cover losses in Cabo San Lucas in Mexico, near which Hurricane Odile made landfall on 15 September.
• African Risk Capacity (ARC) has unveiled the Extreme Climate Facility (XCF), a multi-year funding mechanism that will issue climate change catastrophe bonds. The bonds - which are expected to be issued in 2016 - will provide additional financing to participating countries to enhance their climate adaptation investments, in the event that weather shocks increase in occurrence and intensity across the African continent.
• Auction.com and Real Capital Markets are listing US$700m in US CMBS loan sales from late September through early November. The auctions are said to consist primarily of smaller properties, securing 100 loans across 73 transactions.
• Seven US CMBS loans are believed to have exposure to the recent closure of various Sears and Kmart stores. The affected properties include two anchor stores in CMBS 2.0/3.0 malls. The US$49m Towne West Square Mall in MSC 2011-C2 may be most affected by the closing.

Regulatory update
• ISDA and Markit have launched the ISDA Canadian Representation Letter on ISDA Amend. The move is in response to Rule 91-507, published by the Ontario Securities Commission (OSC), the Manitoba Securities Commission (MSC) and the Autorité des Marchés Financiers (AMF), which requires reporting counterparties to report certain derivatives data to designated or recognised trade repositories with respect to transactions involving local counterparties.

Upcoming SCI events
• 2 October - Live Webinar: What's Next in European RMBS?
Complimentary registration here
• 29 October, New York - SCI's 7th Annual Securitisation Pricing, Trading & Risk Seminar
Click here for more details

Deals added to the SCI New Issuance database last week:
ACAS CLO 2012-1 (refinancing); Ally Auto Receivables Trust 2014-2; American Express Credit Account Master Trust series 2014-3; American Homes 4 Rent 2014-SFR²; Atlantes SME 4; BA Credit Card Trust 2014-3; Barclays Dryrock Issuance Trust 2014-3; Battalion CLO VI; CarNow Auto Receivables Trust 2014-1; Cedar Funding IV CLO; Cent CLO 16 (refinancing); Chrysler Capital Auto Receivables Trust 2014-B; Citibank Credit Card Issuance Trust 2014-A7; Citibank Credit Card Issuance Trust 2014-A8; COMM 2014-UBS5; CPS Auto Receivables Trust 2014-C; Credit Acceptance Auto Loan Trust 2014-2; E-Carat 4; Firstmac Mortgage Funding Trust No.4 Series 2-2014; FREMF 2014-K39; GE Equipment Midticket Series 2014-1; GM Financial Automobile Leasing Trust 2014-2; Golden State Re II series 2014-1; GSMS 2014-GC24; Halcyon Loan Advisors Funding 2014-3; Highbridge Loan Management 2012-1 (refinancing); LCM XVII; Newhaven CLO; PHEAA Student Loan Trust 2014-3; Porsche Innovative Lease Trust 2014-1; Santander Drive Auto Receivables Trust 2014-4; SC Germany Auto 2014-2 UG; Sequoia Mortgage Trust 2014-3; Series 2014-1 REDS EHP Trust; SpringCastle Funding Asset-Backed Notes 2014-A; Symphony CLO VIII (refinancing); Thacher Park CLO; Turbo Finance 5; UCL Locat SV - 2014 Series; Westgate Resorts 2014-1; World Omni Automobile Lease Securitization Trust 2014-A; ZAIS CLO 2.

Deals added to the SCI CMBS Loan Events database last week:
BACM 2002-PB2; BACM 2004-4 & MLMT 2004-BPC1; BACM 2006-1; BACM 2007-1; BALL 2005-MIB1; BSCMS 2003-PWR²; BSCMS 2003-T10; BSCMS 2005-PW10; BSCMS 2005-PWR7; BSCMS 2006-PW11; BSCMS 2007-PW15; BSCMS 2007-PW17; CD 2005-CD1; CD 2006-CD3; CGCMT 2006-C5; CGCMT 2013-GC15; CMLT 2008-LS1, CGCMT 2007-C6 & MLMT 2007-C1; COMM 2004-LB4; COMM 2006-C7; COMM 2010-C1 & WFRBS 2014-LC14; COMM 2012-CCRE4; COMM 2012-CR5; COMM 2012-LC4; COMM 2013-CR8 & COMM 2013-CR9; CSFB 2003-C5; CSMC 2006-C4; CSMC 2006-C5; CSMC 2007-C5; DECO 2007-E5; DECO 2007-E7; DECO 6-UK2; ECLIP 2006-3; ECLIP 2007-2; EPICP DRUM; FLORE 2012-1; FREMF 2011-K12; GCCFC 2005-GG3; GCCFC 2005-GG5; GCCFC 2007-GG9; GECMC 2005-C2; GMACC 2004-C2; GSMS 2007-GG10; GSMS 2010-C1; GSMS 2011-GC3; GSMS 2011-GC5; IMSER 2; JPMCC 2005-CB13; JPMCC 2005-LDP5; JPMCC 2006-CB14; JPMCC 2006-CB17; JPMCC 2006-LDP9; JPMCC 2007-CB20; JPMCC 2014-FL4; LBCMT 2007-C3; LBUBS 2004-C6; LBUBS 2005-C1; LBUBS 2006-C1; LBUBS 2006-C6; MESDG CHAR; MLCFC 2006-1; MLCFC 2007-9; MLMT 2004-BPC1; MLMT 2005-LC1; MLMT 2005-MCP1; MLMT 2006-C2; MSBAM 2013-C11 & MSBAM 2013-C12; MSC 2004-HQ4; MSC 2005-T17; MSC 2006-HQ9; MSC 2006-IQ11; MSC 2007-HQ13; MSC 2007-IQ14; MSC 2007-T27; MSC 2011-C1; MSC 2011-C2; MSC 2011-C3; MSC 2012-C4; OPERA GER²; Schooner 2007-8; TITN 2006-1; TITN 2006-3; TMAN 7; WBCMT 2004-C15; WBCMT 2005-C16; WBCMT 2005-C22; WBCMT 2007-C32; WFRBS 2012-C10; WFRBS 2013-C11; WFRBS 2013-C14; WFRBS 2013-C18, WFRBS 2013-UBS1 & WFRBS 2014-LC14; WINDM VII; WINDM X.

Structured Finance

PIMCO chief moves on

PIMCO founder Bill Gross has left the firm to take up a role at Janus Capital Group, where he will join former PIMCO colleague Richard Weil. Gross is expected to focus on bond investments and will manage the recently-launched Janus Global Unconstrained Bond Fund and related strategies. The move comes after recent reports that the US SEC is investigating alleged improper valuation and performance reporting in PIMCO's US$3.6bn total return exchange-traded fund.

Gross will be based in a new Janus office to be established in Newport Beach, California and will be responsible for building the firm's global macro fixed income strategies. This is expected to be complementary to Janus' existing credit-based fixed income platform, built under the leadership of Gibson Smith.

PIMCO announced earlier this month that Joshua Anderson is stepping up to lead its European structured products group (SCI 11 September).

Structured Finance

LCM's London arm acquired

Guggenheim Securities is set to acquire the London operations of Lazard Capital Markets (LCM), expanding the firm's international presence. Subject to approval by the UK FCA, the business will operate under the new name of Guggenheim Securities International.

As part of the acquisition, LCM's team of 10 professionals - led by Duncan Riefler - will join Guggenheim. Riefler, who ran the LCM London office, will report to Guggenheim's New York-based senior md and head of fixed income Ronald Iervolino.

Riefler was previously a co-founder and partner of Sonas Partners in London, and prior to that had a 19-year career at Merrill Lynch with a number of roles within fixed income in New York and London. Joining him from LCM are David Corney, Phillip Bloch, Jay Larkin, Nannette Bax-Stevens, Piero Greco, Samir Patel and Alison Kilsby. In addition, Dennis McKenna and Tomas Mannion will be added to the platform in high yield trading and research roles respectively.

Structured Finance

NewOak enlists credit vet

NewOak has appointed Triet Nguyen as an md in its corporate and municipal credit solutions group. He will help the team to build out its capabilities and assist clients in fundamental credit assessment, surveillance and portfolio monitoring.

Nguyen was most recently a managing partner at Axios Advisors, which he founded in 2002. He has also worked at Ziegler Capital Markets, Saybrook Capital, eBondUSA, John Hancock Advisors and Putnam Investments as well as Harris Trust and Savings Bank.

Structured Finance

Product delivery head added

Ian Mattinson has joined Fitch Solutions as a senior director and head of product delivery and execution. He will report to md and global product head Brian Filanowski, who joined in the summer (SCI 18 July). Mattinson was previously at Thomson Reuters, where his most recent role was head of product management.

Structured Finance

New PIMCO leadership named

PIMCO has named Daniel Ivascyn as group cio, succeeding Bill Gross (SCI 29 September). In addition, the firm has appointed Andrew Balls as cio global, Mark Kiesel as cio global credit, Virginie Maisonneuve as cio equities, Scott Mather as cio US core strategies and Mihir Worah as cio real return and asset allocation. PIMCO ceo Douglas Hodge and president Lew Jacobs will continue to serve as the firm's senior executive leadership team.

Mather, Kiesel and Worah will also serve as portfolio managers for PIMCO's total return fund, while Saumil Parikh, Mohsen Fahmi and Ivascyn will serve as portfolio managers for its unconstrained bond fund. Ivascyn will continue to oversee the firm's alternatives strategies, structured credit and income strategies.

Under the new leadership structure, Balls and Worah have additional managerial responsibility for PIMCO's portfolio management group and trade floor activities globally. Balls will oversee portfolio management in Europe and Asia-Pacific, while Worah will oversee portfolio management in the US.

Structured Finance

Servicer branches out

Situs has appointed Tim Keast as executive md, based in the firm's European headquarters in London. Working with Situs coo Bruce Nelson, Keast will be responsible for the expansion of the firm's traditional services beyond commercial real estate to include other asset classes, such as residential, consumer, SME and other structured finance debt.

In his new role, Keast will assist in broadening Situs' reach in Southern Europe, including Italy, Greece and the Balkans. In addition, he will work with the newly opened Situs Madrid office, headed by Fernando Salazar Lacalle, and continue to build on the efforts of the joint venture between Situs and Lindorff.

Keast was formerly ceo and president of Clayton Euro Risk.

Structured Finance

Halcyon beefs up in Europe

Daniele Benatoff and Damien Miller have been appointed co-heads of Halcyon Asset Management (UK). Benatoff has been with Halcyon since May and focuses on European mergers and special situation strategies, while Miller focuses on European credit and will join the firm by year-end. The two co-heads will also be among the portfolio managers for Halcyon funds dedicated to investing in European opportunities.

Benatoff co-founded Benros Capital Partners in London, where he served as ceo and head of research from 2011 to 2013. Previously, he was executive director of Goldman Sachs Principal Strategies in London from 2004 to 2011.

Miller was most recently md and global head of special situations at Alcentra, where he built out the firm's distressed and opportunistic credit investment business and acted as portfolio manager. He was previously a director and portfolio manager for the special situations group at Barclays Capital in New York.

David Snyder, already a managing principal and portfolio manager of Halcyon Loan Management, will continue leading Halcyon's European CLO efforts and bank loan strategies as head of Halcyon Loan Advisors (UK).

Structured Finance

Structured credit pro added

John Niblo has joined PineBridge Investments as portfolio manager. He was formerly principal at Rigi Capital Partners, focusing on alternative investments, distressed credit and structured credit. Prior to that, he was head of structured credit trading and sales at Knight Libertas.

CDS

Credit hedge funds specialist hired

Virginie Afota has joined the Abu Dhabi Investment Authority as a senior fund manager in its fixed income and treasury department.

Afota was previously a hedge fund analyst at Unigestion. She has also worked at Lonestar Europe, SPQR Capital, AXA Investment Managers and Goldman Sachs and has experience across fixed income, credit, derivatives and structured products.

CLOs

Manager adds marketing pro

3i Debt Management has appointed Shane Miller as a marketing director in its New York office. He was previously at Angelo Gordon and has also worked at Bear Stearns and Lehman Brothers.

CMBS

Western US CMBS expansion eyed

Greystone has appointed Erik Edwards as an md. He will be based in San Diego and report to Robert Russell, head of production for the firm's CMBS group.

Edwards will focus on originating new loans and establishing a stronger CMBS presence for the firm in the western US. He was previously at Wells Fargo and has also worked at iStar and Cushman & Wakefield.

CMBS

CRE platform purchase lined up

Walker & Dunlop will acquire Johnson Capital's loan origination and servicing platform. Terms of the cash and stock transaction have not been disclosed, although completion of the acquisition is expected to close around 1 November.

Johnson Capital specialises in CRE mortgages and maintains long-standing brokerage relationships with many life insurance companies, banks and CMBS conduits. It is an approved HUD MAP lender and Ginnie Mae issuer and has also sourced billions of dollars of Fannie Mae DUS loans as a correspondent to Walker & Dunlop and originated Freddie Mac multifamily loans.

CMBS

Commercial origination trio added

Walker & Dunlop has added three originators to its commercial property funding team. Geoff Smith and Kimberly Riordan will be based in New York, while Paul Jankovsky joins the Dallas office.

Smith joins as md and head of origination for the firm's conduit and high yield platform. He was previously head of origination and distribution at Hudson Realty Capital.

Jankovsky joins as svp and was previously at BH Capital, having also served as a senior originator within the CMBS groups of Goldman Sachs, JPMorgan and Merrill Lynch. Riordan joins as vp and was previously at Rockwood Real Estate Advisors.

Insurance-linked securities

ILS fund to liquidate

Listed ILS fund DCG IRIS has been put into members' voluntary liquidation, following a shareholder extraordinary general meeting. The company's directors announced in June a proposal for the voluntary winding up of the fund.

"The directors consider that the winding-up is in the best interests of shareholders as a whole because it has come to the directors' knowledge that a significant proportion of shareholders are seeking an exit from their investment in the company and, accordingly, acceptances in respect of a redemption offer would be likely to leave the company materially smaller in total asset size, with correspondingly reduced prospects for future growth. The directors do not consider it in the company's or remaining shareholders' interests for the company to continue in such circumstances," DCG IRIS states.

The company was admitted to the LSE on 27 June 2012, with the admission of Sterling shares representing initial net assets of £39.5m. It then commenced a share placing programme, placing £11.025m of Sterling C shares on 20 December 2012, followed by £9.277m, £1.175m and £7.699m of Sterling shares on 22 May, 15 July and 7 November 2013.

Since launch, the fund has delivered on its objective of providing exposure to ILS: the annualised NAV total return as of 31 July was 4.45% since inception. Annualised volatility has been low at 0.46% over the same period. Returns were minimally affected by insurance events; for example, Hurricane Sandy resulted in a reduction to NAV of just 0.24%.

However, the company remained of relatively small asset size and has not attracted the investor demand that was anticipated at launch. In light of decreasing premium levels in the reinsurance market and the fund's total asset size, the directors proposed a voluntary winding-up of the company rather than a redemption offer.

Redemption proceeds from the master fund shares are expected to be received by 30 November and monies will be dispatched to shareholders as soon as practical after receipt of the proceeds. The expenses incurred in relation to the winding-up are currently estimated to amount to approximately £740,000, or 1.07p per share.

Risk Management

Sales chief makes step up

Lombard Risk Management has promoted John Groetch to md for the Americas. He joined the firm earlier this year as a regional sales director (SCI 24 April).

Groetch will manage the company's strategic drive in the region. This will include strengthening the firm's local organisational structure and driving business development efforts.

Risk Management

OTC clearing sales head named

Newedge has appointed Jamie Gavin as head of institutional OTC clearing sales for the UK. He will report to UK head of institutional sales Will Davies and take responsibility for both OTC clearing institutional sales and for leading the development of its OTC clearing proposition.

Gavin was previously global head of change for listed derivatives and OTC clearing at Morgan Stanley. He has also worked in OTC collateral management at Goldman Sachs.

Risk Management

Collateral processing JV formed

The DTCC and Euroclear have confirmed the creation of a joint venture that will leverage both companies' expertise, technology and franchises to focus on collateral processing (SCI 7 May). Dubbed DTCC-Euroclear Global Collateral, the new company will be domiciled in the UK, subject to regulatory approvals.

Ownership and governance of the company will be shared equally between DTCC and Euroclear, with its board and senior executives drawn from the two firms' management. Euroclear md and head of corporate technology Michael Shipton will assume the role of ceo of DTCC-Euroclear Global Collateral, with DTCC md, strategy and business development, Mark Jennis assuming the role of executive chairman. The board will also include: Jo Van de Velde (Euroclear md and head of product management); Mei Li Powell (Euroclear md and head of communications, marketing & CSR); Peter Axilrod (DTCC md and head of corporate strategy and business development); and Andrew Douglas (DTCC md and head of government relations for Europe and Asia).

The JV will bring to market a Margin Transit Utility (MTU) and Collateral Management Utility (CMU). The MTU will provide straight-through processing of margin obligation settlement, leveraging current DTCC infrastructure, as well as additional infrastructure currently in development in coordination with the industry. Industry testing of the MTU is scheduled to begin in mid-2015.

The CMU will address the global challenge of sub-optimal collateral allocation and mobility by utilising Euroclear's Collateral Highway service. The establishment of this utility will follow the launch of the MTU.

The JV will operate open architecture services, thereby facilitating access to other central securities depositories, custodians and settlement agents.

RMBS

RMBS investigations disclosed

UBS has disclosed in a recent exchange offer prospectus that it received last month a subpoena from the US Attorney's Office for the Eastern District of New York, which seeks documents and information related to its RMBS business from 2005 to 2007. The bank says it has also been responding to a subpoena from the New York State Attorney General relating to its RMBS business.

UBS further disclosed that is has been cooperating with both the Special Inspector General for the Troubled Asset Relief Program (which is working in conjunction with the US Attorney's Office for Connecticut and the US DOJ) and the US SEC relating to trading practices in connection with the purchase and sale of MBS in the secondary market from 2009 through the present. A number of other banks are reportedly responding to similar inquiries from these authorities.

ABS

Italian factoring law utilised

Fitch says that the application of Italy's factoring law to portfolio transfers can increase transparency in Italian revolving securitisations, bringing Italian practice into line with all other European jurisdictions. The agency's comments come after it assigned its first ratings on an Italian securitisation that uses the factoring law to complete the sale of loans to the SPV, as provided for under amendments to Italy's securitisation law made earlier this year.

According to the counsel for the transaction, Auto ABS Italian Loans Master, originators that choose to use the factoring law in assigning assets can transfer a sub-pool of eligible assets from the loan book to the SPV. While this is common in other European jurisdictions, before the amendments, the only way to transfer assets in Italy was to move all those that met eligibility criteria into the SPV (the standard sale method).

Fitch notes that the ability to transfer a sub-set of eligible assets means that eligibility criteria can remain constant during the revolving period and do not have to be open-ended or repeatedly amended to allow for subsequent transfers of additional assets into the SPV. This should make asset characteristics more consistent over the life of a transaction and reduces the risk of discretionary asset sales and negative selection, assuming a random selection from within the eligible assets. Random selection is not specified in the factoring law, but the agency expects it to be applied on any deal to avoid negative selection.

Another difference is how borrowers are notified of the transfer, which ensures enforceability against them if there is an originator/servicer default. Under the factoring law, borrowers must be notified of the transfer individually, as elsewhere in Europe. Under the standard sale method, notification simply requires the publication of a notice of transfer in the Italian Official Gazette.

When using the factoring law, a transaction's contractual provisions can specify that borrowers should be notified within a relatively limited timeframe and that notification is accelerated if a servicer is downgraded. In Auto ABS Italian Loans Master, for example, the seller - Banque PSA Finance - will provide each borrower with a notice of assignment at the time of the first communication related to the relevant receivable and each borrower will be notified of transfer upon servicer termination.

Structured Finance

CRA RTS adopted

The European Commission has adopted three regulatory technical standards (RTS) needed to implement key provisions of the Regulation on Credit Rating Agencies (CRAs). These RTS set out: the disclosure requirements for issuers, originators and sponsors on structured finance instruments; reporting requirements to CRAs for the European Rating Platform; and reporting requirements for CRAs on fees for the purpose of ongoing supervision by ESMA.

The first RTS specifies the content, frequency and presentation of the information that the issuer, the originator and the sponsor of a structured finance instrument established in the EU will jointly need to disclose on a website that will be set up by ESMA. This disclosure obligation aims in particular at reducing investors' dependence and reliance on credit ratings and reinforcing competition between credit rating agencies.

The second RTS determines the content and the presentation of the information that CRAs are to disclose to ESMA for the purpose of the European Rating Platform. ESMA will establish the platform, which will allow investors to consult and easily compare all available credit ratings for all rated instruments.

To allow for more efficient data reporting for CRAs to ESMA, this RTS also streamlines the data reported by CRAs and integrates the existing reporting requirements for the purpose of historical performance data available in the central repository established by ESMA.

Finally, the third RTS sets out the content and format of data on fees charged by CRAs to their clients to be periodically reported to ESMA for the purpose of its ongoing supervision of CRAs. The information collected under this RTS should allow ESMA to verify whether pricing practices are discriminatory and thereby facilitate fair competition and mitigate conflicts of interest.

The European Parliament and the Council now have one month to exercise their right of objection, with the possibility to extend - twice - this period for another month at their initiative. Following the expiry of this objection period, the RTS will be published in the EU Official Journal and will enter into force on the twentieth day following the date of their publication.

Provisions regarding the European Rating Platform are expected to be directly applicable from 21 June 2015, while disclosure on structured finance instruments will be applicable from 1 January 2017.

Structured Finance

AIF securitisations explained

Scope Ratings has released a report that discusses the repackaging of alternative investment funds (AIF) into securitisation-like rated debt products. Entitled 'Securitisation of Alternative Investment Funds - Analytical Considerations', the report discusses the main challenges in analysing such 'fund-turned-debt' instruments.

"Investors' search for yield has helped pioneer a new form of structured finance debt. Shares in an AIF are an investment with equity-type return parameters, and the repackaging of such products into a debt issuance with predetermined interest and principal payments is a challenge for both arrangers and rating agencies alike," says Stefan Bund, group md at Scope Ratings.

Guillaume Jolivet, md and head of structured finance at the agency, adds: "Even though the actual economic return for the investor shall not be altered by the repackaging, both from a legal perspective and the cashflow pattern, AIFs and securitisations are two different ball games."

AIF managers are looking to respond to investors' search for yield in a persistently low interest rate environment and tap new investor segments to increase their assets under management. Scope notes that securitisations of AIF shares (or fund securitisations) are becoming increasingly popular, as recent regulations require certain investor types to invest in rated debt products rather than in equity-type shares of AIFs.

The securitisation of an AIF is typically a repackaging of the shares or profit participation notes (fund shares) issued by the AIF through an SPV. The SPV issues debt, often in the form of CLNs, and uses the notes' issuance proceeds to purchase shares in the AIF and finance the set-up costs of the structure. The only sources of cashflow to pay the interest and principal on the notes are the proceeds received by the issuer from the fund's shares.

While the notes issued by the SPV entitle investors to receive interest and principal payments, Scope has also seen transactions with extra payments in the form of a performance dividend. Such extra payments are often optional and are drawn from the available cash in the fund, in excess of fees and interest payments due under the notes. As a result, an AIF securitisation allows for a direct pass-through of all cashflows generated by the fund to the notes.

The investment in the debt issued by the SPV can only match the risk characteristics of the fund shares. In that sense, even though the SPV has issued debt, the risk profile of the securitisation is the same as that of a direct investment in the fund shares. Consequently, the AIF securitisation can be compared to an unlevered single tranche securitisation exposed to an entire pool of underlying assets.

Structured Finance

Iberian TD sector sustainable?

Electricity tariff deficits (TD) in Spain may have peaked in 2013, while Portuguese TD will peak next year, Fitch suggests. The agency expects the total stock of TD in both countries to start falling in the coming quarters, potentially restoring financial sustainability to their electricity systems, although risks to system sustainability have not disappeared.

Fitch's base-case forecasts see Spain's cumulative TD stock falling to €26.8bn at end-2014 from €28.4bn last year, marking the first year-on-year reduction in a decade. Portugal's TD balance is forecast to peak at around €4.5bn at end-2015 under the agency's base-case scenario, before falling rapidly from 2018, as no significant additional TD is generated.

In both cases, the reductions are likely to be driven by falling renewable subsidies due to policy-driven changes to remuneration formulae and increasing regulated revenues (RR). Renewable subsidies in Spain will drop to €7.5bn in 2014 from €9.2bn in 2013 and should be less volatile under the new legal framework, under which subsidies are based on installed capacity rather than electricity production. Additional and higher taxes have already boosted RR by 37% since 2011.

In Fitch's Spanish base case, the ratio of TD outstanding to RR falls to close to 100% (considered a sustainable level in its TD securitisation rating criteria) by 2017. For Portugal, the figure drops to around 84% by end-2017.

However, the sustainability of Iberian electricity systems could be challenged by a fragile macroeconomic environment and possible political interference, in particular ahead of national elections scheduled in both countries next year. In Fitch's adverse scenario forecast, the ratio of TD to RR remains well above 100% at end-2017 in the case of Spain and marginally above 100% for Portugal.

The agency views the sustainability of the Portuguese electricity system as more resilient to this adverse scenario than in Spain, mainly because of the smaller Portuguese TD imbalance, the shorter periods of TD amortisation and the clearer independent powers of the industry regulator.

CDO

Final KBC CDOs unwound

KBC says it has collapsed the two remaining CDOs in its portfolio, freeing up €300m in capital and increasing the bank's solvency by 0.4%. The move also releases KBC from the portfolio protection agreement it entered into with the Belgian Federal Government and completely eliminates the group's exposure to MBIA.

From a total of over €25bn outstanding in 2008, KBC has now fully scaled down its CDO portfolio in the space of five years (SCI passim). However, the bank remains counterparty to and issuer of a further €300m of CDO notes held by investors that will be outstanding until year-end 2017.

KBC also announced that it has completed the sale of KBC Bank Deutschland to several investors linked to Teacher Retirement System (Texas), Apollo Global Management, Apollo Commercial Real Estate Finance and Grovepoint Capital. The deal will free up some €100m of capital, primarily by reducing risk-weighted assets, and improve the bank's solvency position by around 15bp. The sale marks the final operation to be completed under the divestment programme agreed with the European Commission in 2009.

KBC has repaid €5bn of the €7bn received in financial support from the Belgian Federal and Flemish Regional Governments after the financial crisis. The total amount in principal repayments, coupon payments and fees for the CDO guarantee currently stands at €9.5bn.

The bank intends to accelerate repayment of the remaining support received from the Flemish Regional Government and to pay back the final instalment by end-2017 instead of year-end 2020, as agreed with the European Commission. By the time it has repaid all the aid received, the total figure for principal repayments, coupon payments and fees for the CDO guarantee will have risen to over €13bn.

CDS

Tesco CDS hit wides

Tesco five-year credit default swaps have widened by 37% in the two days following the company's announcement that it had overstated its first-half profits by approximately £250m, Fitch Solutions reports. Tesco CDS are now at the widest levels observed for the name since May 2012.

"After pricing consistently in the triple-B space for the past six months, credit protection on Tesco's debt is now pricing wide of triple-B minus levels," comments Diana Allmendinger, director at Fitch Solutions.

Whether the erroneous accounting practices will have any material influence on Tesco's full-year profit guidance is currently being investigated.

CDS

New CDS contracts quoted

Dealers have begun quoting 2014 senior and subordinate financial CDS contracts. Credit derivatives strategists at JPMorgan calculate that 2014 sub contracts are on average trading 75% wider than existing 2003 contracts, while 2014 senior contracts are on average trading flat to 2003 contracts, with a -8% to +8% range for individual single names.

The JPMorgan strategists believe that 2014 senior contracts should trade inside 2003 contracts, given that the removal of the sub/senior cross-trigger should outweigh the benefit under the new CDS definitions of being able to deliver the package from any senior bail-in. They suggest that the 2014 contracts trading wider than 2003 contracts is the result of a short-term technical due to positions being rolled and would expect this to correct over time.

Subordinated bond pricing is expected to be the biggest driver of trading levels for 2014 subordinated CDS, with some allowance for the bond-CDS basis. The strategists estimate that the average sub bond-CDS basis stands at +12bp, although some names are trading with a negative basis relative to bonds.

CDS

Computer Sciences spikes on LBO talk

Talk of a possible leveraged buyout has sent Computer Sciences Corp credit default swap spreads to their widest level in nearly two years, according to Fitch Solutions' latest CDS Case Study Snapshot. The firm reports that five-year CDS on Computer Sciences widened by 81% on Monday alone.

"After pricing consistently in line with triple-B levels for the past six months, credit protection on Computer Sciences' debt is now pricing in the below-investment grade space," comments Fitch Solutions director Diana Allmendinger.

CDS liquidity for the IT services provider remains high, trading in the second global percentile. "Increased market concern for Computer Sciences has likely been sparked by speculation that the company may be in leveraged buyout discussions with private equity firms," Allmendinger adds.

CLOs

Mixed performance for Euro SME CLOs

Fitch reports in its latest European SME CLO Performance Tracker that ratings in the sector have remained stable in the face of mixed performance across jurisdictions. At the same time, average credit enhancement has increased over the last 12 months for transactions in all European jurisdictions covered by the agency.

For pre-crisis transactions, deleveraging was typically caused by the end of replenishment, while more recent transactions frequently benefit from excess spread trapping mechanisms, which accelerate the repayment of rated notes. Rising credit enhancement frequently offsets any deterioration in transaction performance, keeping ratings stable.

Fitch rated four new SME CLOs over the last 12 months, in addition to a note re-issuance tied to a transaction restructuring. The initial portfolio balances of the new Spanish and Italian transactions were in the range of €300m-€1.2bn. In contrast, the size of new transactions from the Netherlands and Belgium is in the range of €4bn-€9bn.

Thirteen Fitch-rated SME CLOs were terminated over the last 12 months. They were either pre-crisis transactions with low pool factors or revolving transactions that had reached the end of the replenishment period and securitised short-dated loans. In some instances, such as Stichting SME Lion I and Mercurius Funding Compartment Mercurius-1, the collateral from the residual portfolio was refinanced in a new SME CLO.

While asset performance in Italian SME CLOs remains challenged with high levels of delinquencies, performance in Spain is improving, with delinquencies falling from their peak in January 2013. A recession mars the performance of Dutch SME CLOs, causing delinquency levels to rise, albeit from a low base. German and UK asset performance remains stable with low delinquency levels, reflecting an improving operating environment for SMEs in these countries.

CLOs

SME CLO delinquencies stabilising

Fitch-rated Spanish SME CLO delinquency rates have stabilised over the last 12 months. Stabilisation of delinquencies at high levels is in line with the agency's expectations, which take account of the country's economic recovery but see collateral performance under pressure following almost five years of economic contraction.

Delinquencies have fallen to an average of 3.9% over the last 12 months, compared with a peak of 5.3% in January 2013. The stabilisation coincides with an economic recovery that saw the country exit recession in 2H13 and post quarter-on-quarter GDP increases of 0.4% and 0.6% in the first- and second-quarters of 2014.

It is mirrored in the slow-down in the creation of non-performing loans (NPLs) in the Spanish banking system and in the falling number of corporate insolvencies, where a decline in the share of real estate and construction companies suggests that stress is now felt more evenly across the economy. Banks also appear more willing to extend fresh credit lines to solvent corporates, including SMEs.

Transactions have continued to delever due to amortisation, building credit enhancement mainly for senior notes that offsets high delinquency levels. The majority of upgrades during the last year related to senior notes that were constrained by Spain's country ceiling, after this was raised to double-A plus in April when Fitch upgraded Spain's sovereign rating one notch to triple-B plus.

Junior notes remain more exposed to asset quality as the credit enhancement provided by reserve funds has been increasingly depleted by delinquencies rolling into default.

CMBS

Grand Mart loss restated

The September remittance report for the US$14.1m Grand Mart Chicago Portfolio loan - securitised in MSCI 2007-TOP27 - shows a revised loss severity of 100% for the asset. The CMBS loan was resolved last month, but the August remittance reported a 140% loss severity, with a realised loss of US$19.8m - including US$5.7m in interest shortfalls.

Fitch notes that the restated remittance reports full interest recovery on the class E notes and partial recovery on class F. Class G, already rated D due to previously incurred losses, was wiped out by the disposition.

The original US$14.9m loan was secured by three single-tenant grocery-anchored retail properties located in Aurora, Bridgeview and Joliet (Illinois). The Aurora property sold in July 2012 for US$2.25m and the Bridgeview property sold in August 2013 for US$1.8m. Proceeds from the sale of these properties were used to pay back servicer fees and expenses and reduced the loan balance to US$14.1m.

The final property located in Joliet was liquidated in August, which resulted in the final resolution of the loan for a US$14.1m realised loss.

The loan transferred to special servicing in March 2009, due to payment default when two of the three properties were vacated by the tenant, Cub Foods. All three properties have been 100% vacant since 2009. The properties became REO through a deed-in-lieu of foreclosure in December 2010, according to Fitch.

CMBS

Junior loan transfer proposed

Freddie Mac is proposing to amend the intercreditor agreements for six of its CMBS to enable it to sell its interests in the trusts' junior loans to a depositor, which in turn will securitise the assets and issue CMBS notes. The affected transactions are FREMF 2010-K7, 2011-K702, 2011-K703, 2011-K704, 2012-K706 and 2012-K707.

The proposed omnibus amendment to the definition of qualified transferee would allow the junior lender (Freddie Mac) to transfer over 49% of its interest in the junior loans to a qualified transferee. Moody's has reviewed the amendment and determined that the proposal will not result in a downgrade or withdrawal of the current ratings on the affected notes.

CMBS

Special servicing universe shrinks

The US CMBS special servicing universe continued to shrink during 1H14, while recovery rates on liquidated loans rose sharply, according to Fitch's latest CMBS special servicing index report.

Recovery rates improved to 69.5% for 2Q14, compared to an average of 57.7% for the two previous quarters. Additionally, a sizeable portion of CMBS loans were liquidated with less than a 5% loss during the first half of this year.

CMBS loans in special servicing topped US$43.7bn at the end of 1H14, less than half the size of the US$91.7bn high-water mark observed in 2010. The rate of CMBS loans transferring out of special servicing more than doubled those loans entering special servicing during the first six months of the year.

CMBS

Quelle case resolved

The High Court in London has issued a judgment against Colliers International (UK) over its negligent valuation of a property in a test case that is expected to have major implications for the CMBS market. The case was brought by Titan Europe 2006-3, after the building in question lost nearly 90% of its stated value when the occupants - German mail order company Quelle - became insolvent and vacated the property (see SCI's CMBS loan events database).

Colliers valued the property at €135m in December 2005 and Credit Suisse advanced a loan of €110m, based on the valuation, the bulk of which was subsequently securitised in a transaction of circa €1bn. The case was progressed by Hatfield Philips International, the special servicer of the Quelle Nurnberg loan.

The High Court judgment concluded that the true value of the property, as at December 2005, was €103m. Colliers had therefore negligently overvalued the property by €32m and this is the figure that Colliers is required to pay to the CMBS trust, together with interest and costs. Rosling King was legal adviser in the case.

James Walton, partner at the firm, comments: "This was an extremely complex case that has taken five years to resolve and this landmark judgment has wide implications for other issuers and special servicers in the CMBS market; the decision will probably result in the pursuit of other claims."

The case hinged on two key issues: did Colliers negligently overvalue the property; and had the Titan CMBS suffered a loss, which entitled it to pursue a claim against Colliers. Justice Blair ruled in favour of the trust on both counts.

"This is the first time that a UK Court has been faced with a claim brought against a negligent property valuer where the loan advanced by the original lender has been securitised," Walton continues. "As a result of this judgment, it is very likely we will see a greater appetite to recover losses suffered during the collapse of the commercial property market across Europe during the recession. There is a perception that these claims may now be time-barred, but that perception is wrong."

He adds that the firm's strategy was to inform the court as thoroughly as possible on real estate valuation methodology and the many variables that lie within that. "By doing that, the Judge was armed with all the necessary information and a 'valuation toolkit', which enabled him to reach his own measured conclusion as to valuation."

Insurance-linked securities

Cat bond rating affirmed

S&P has affirmed its double-B plus rating on Nakama Re Series 2013-1, after the probability of attachment was reset to a percentage consistent with the transaction documents and the current rating. The agency also reviewed the creditworthiness of the ceding company - National Mutual Insurance Federation of Agricultural Cooperatives (Zenkyoren) - and the rating on the collateral that, barring the occurrence of a covered event, will be used to redeem the principal on the redemption date.

Insurance-linked securities

RFC issued on insurance-linked funds

AM Best is requesting comment from market participants on a new draft criteria report relating to insurance-linked fund ratings (ILFR). An AM Best ILFR is an opinion on an insurance-linked fund's (ILF) average credit quality and vulnerability to losses due to credit defaults in a portfolio constituted primarily of insurance-linked assets and the inability of the fund to fulfil specific and direct contract obligations associated with insurance-linked assets.

The agency says that ILFRs are fundamentally different from issue or issuer ratings because funds generally cannot default on obligations, since they essentially have investors who own shares and can only participate in losses or gains associated with the funds. An ILFR does not guarantee the performance that shareholders of the fund should expect and does not make any statements about the net asset value shareholders should expect or the level of fees charged by a fund's manager.

Under the criteria, ILFs can consist of various insurance-linked assets and obligations, such as natural catastrophe bonds, ILWs, extreme mortality bonds, surplus notes, Trups, structured settlements, ordinary annuities, life settlements, Regulation XXX/AXXX securities, CDOs backed by insurance-related risks and other insurance-linked assets, obligations and structured securities.

Comments on the criteria should be submitted by 29 October.

Risk Management

Canadian trade reporting supported

ISDA and Markit have launched the ISDA Canadian Representation Letter on ISDA Amend, their solution that streamlines aspects of compliance with Dodd-Frank, EMIR and other OTC derivatives regulatory requirements. The move is in response to Rule 91-507, published by the Ontario Securities Commission (OSC), the Manitoba Securities Commission (MSC) and the Autorité des Marchés Financiers (AMF), which requires reporting counterparties to report certain derivatives data to designated or recognised trade repositories with respect to transactions involving local counterparties. Trade reporting requirements in Canada begin on 31 October.

ISDA's Canadian Representation Letter - which was published in March - assesses how trade reporting requirements apply to institutions operating in the Canadian provinces of Ontario, Quebec and Manitoba. Other Canadian provinces are expected to adopt similar trade reporting rules in due course.

To assist in gathering this information in a consistent and efficient manner, ISDA and Markit have made the representations found in the ISDA Canadian Representation Letter available via ISDA Amend. Buyside firms can use ISDA Amend at no charge.

RMBS

Peripheral RMBS webinar scheduled

SCI, in association with Bloomberg Valuation Service (BVAL), is hosting a webinar on the outlook for and investment opportunities in the peripheral European RMBS markets at 2pm UK time/9am Eastern on 2 October. Click here to sign up for this complimentary event.

Panellists include Prytania Group cio Mark Hale, DBRS European RMBS head Keith Gorman and BVAL global head of product development Cynthia Sachs. The panel will discuss the development of the peripheral RMBS market versus core RMBS since the financial crisis, peripheral RMBS pricing challenges and how the ECB's asset purchase programme will affect the peripheral RMBS market.

RMBS

Spanish arrears continue to decline

Improvement in Spain's macroeconomic environment is slowly feeding through to asset performance in RMBS transactions, according to Fitch. The agency reports that the volume of three-months plus arrears (excluding defaults) continues to decline, reaching 1.9% in 3Q14 from 2.2% in 2Q14, but remains far from pre-crisis levels (0.2%).

While part of the decline can be attributed to the roll-through to default of borrowers who have been in arrears for extended periods of time, the annualised constant default rate (CDR) is also on a downward trajectory. Fitch's CDR is down by 50bp from its most recent peak in February 2014.

The Spanish property market also appears to be more liquid and transparent, although the price discounts to original valuations needed to achieve sales of properties taken into possession remain at around peak levels of 70%. Nevertheless, the number of new property sales in 1Q14 was the highest seen in a first quarter of any year since 2010, indicating a return of mortgage credit availability.

In addition, Fitch suggests that the market has reached a consensus on property prices, as the decision of many banks to offload properties from their balance sheets has led to improved price transparency. As a result, disparities in the valuations reported by servicers have reduced.