Contents

Secondary markets

Euro secondary stays slow

The light BWIC volumes seen in European securitisation markets throughout the much of the Easter holidays look set to continue into today.

It was a quiet day on- and off-BWIC on Friday with spreads for the most part unchanged and a similar pattern appears to be forming at today's open. CLOs, Dutch and UK prime continue to garner the most interest, while Spanish paper seems to be the most at risk to weakening.

There is currently only one BWICs on the European calendar today - a ten line 6.2m original face ABS, CLO and MBS list due at 12:00 London time. It comprises: BUMP 2011-2 A, DECO 2007-E6X A3, EMFNL 2008-2X A2, EMFNL 2008-APRX A2, ESAIL 2007-2X A3C, ESAIL 2007-NL2X A, GRAN 2003-2 1B, LAN 2012-2A 1A, NASHP 2006-X A and RMACS 2007-NS1X A2A.

Two of the bonds have covered with a price on PriceABS in the past three months, doing so as follows: DECO 2007-E6X A3 at 98.75 on 24 March; and EMFNL 2008-2X A2 at 89.1 on 4 February.

Secondary markets

Flicker of life in US CDO/CLO BWICs

The US CDO/CLO BWIC calendar is flickering into life for tomorrow.

After a relatively quiet week last week it's another quiet day on- and off-BWIC in the US CLO/CDO secondary market today. However, a small BWIC pipeline is gradually building for tomorrow, albeit with little visible after that for the remainder of the week.

There are currently four BWICs on the schedule for tomorrow - one Trups CDO list and three CLO auctions. The $37.124m Trups list is due at 11:30 New York time and consists of: ALESC 5A B, ALESC 15A A1, PRETSL 14 A2, PRETSL 15 A2, REGDIV 2004 A1 and TROPC 04-4A A3L. None of the bonds has traded with a price on PriceABS in the past three months.

Of the CLO lists, the most sizeable is a seven line 1.0 triple-A BWIC due at 10:00, which totals $516+m in original face. It comprises: APID 2007-5A A1S, APID 2007-CA A2A, ATRM 5A A3A, LCM 5A A1, MDPK 2007-5A A1A, STRN 2007-1A A1S and VENTR 2006-1A A1S. Only APID 2007-CA A2A has covered with a price on PriceABS in the past three months, doing so at 99h on 23 January.

Secondary markets

Euro ABS/MBS static

The European ABS/MBS secondary market remains quiet but well-supported.

"Secondary ABS/MBS is still static and very quiet post-Easter," says one trader. "Levels are pretty much unchanged and despite the Street feeling long they appear well-supported."

The primary market is also dragging attention away from secondary trading. "There is a lot of investor interest focused on new issues including the latest ALBA and Co-op deals," the trader confirms.

There are currently three European ABS/MBS BWICs scheduled for today - one UK non-conforming and two mixed mainly peripheral RMBS lists all primarily involving small clips. In addition, there are two stand-alone CLO auctions with the highlight being a triple-B list due at 15:30 London time, which should give some indication of the depth of the recent demand for European CLO paper.

The five line €15.695m list consists of: DRYD 2013-29X D, EGLXY 2013-3X D2, JUBIL 2013-10X D, RPARK 1X C and SPAUL 3X E. None of the bonds has covered on PriceABS in the last three months.

Secondary markets

US CLO lull continues

The lull in US CLO secondary market activity is continuing despite the small increase in the BWIC calendar today.

"It's still very much a continuation of last week," says one trader. "There are a few lists today, but it's still very quiet - nothing has materially picked up."

The trader suggests there are no significant reasons for the lull in activity. "Many took extended holidays over the Easter period and people are still taking stock of the huge volume of new issuance we saw in March."

Things could turn round soon, however. "It might get busier later in the week - there is no real evidence for that yet, but everyone is finally back from holidays and are beginning to refocus on the new quarter," the trader says.

Today's CDO/CLO BWIC calendar has increased from the four lists reported yesterday to five so far. Overall, the trader says: "The lists are a mixed bag generally skewed towards mezz and equity. There are no standout bonds and, again, low total volume."

Secondary markets

Euro ABS/MBS ticks over

Dynamics in the European ABS/MBS secondary market remain unchanged as it continues to tick over.

"We've been pretty busy over the last few days with the usual dynamics in evidence," says one trader. "Tone seems OK, the ECB is chugging along albeit at a slow pace and a few BWICs are going through."

Consequently, spreads remain range-bound. "A fair amount of yesterday's BWIC activity was in off-the-run assets so there was little general direction to read there, but in terms of flows in the more frequently traded areas I'd say we're flat to a little bit sideways," the trader says.

Today should see the market continue to tick over having opened unchanged with some patchy flow trading in evidence and the ABS/MBS BWIC schedule currently standing at three lists. The auction line items primarily revolve around UK non-conforming bonds and some CMBS, but there is also a €26.774m three line list of prime RMBS.

The latter, due at 14:00 London time, comprises: ARRMF 2010-1X MB, FSTNT 9 A1 and LUNET 2013-1 A2. The bonds last covered on PriceABS as follows: ARRMF 2010-1X MB at 101.255 on 4Februay; FSTNT 9 A1 at 102.55 on 16 February; and LUNET 2013-1 A2 at 103.103 on 31 March.

Secondary markets

US CLOs holding up

Despite continuing low levels of activity the US CLO secondary market is holding up.

"It's still very quiet as the holdover from the holidays continues," says one trader. "But that's not to say the market isn't holding up well - prices remain firm if mainly moving sideways for now."

The trader continues: "We don't see any really distressed areas and demand is strong as CLOs remain relatively cheap to other structured assets, with 2012 single-A to double-B paper currently the most sought after by real money."

That said, sector tiering is still an issue. "We're seeing back bids on bonds with higher than 6% energy exposure even when a good manager is involved," says the trader.

Overall, the main current concern is supply. The trader says: "Off-comp dealers are not loading up and mainly making markets in small size, while BWICs have been at very low levels and in very small size - there's only $95m on the schedule for this week in total and half of that is double- and single-Bs."

Typical of that trend is one of today's handful of lists, which is due at 11:00 New York time from a large money manager. "It will be interesting to see how that trades - because of the small pieces it appears to be from a separate managed account, so is more likely to go through," says the trader.

The $10.98m 12 line auction comprises: BABSN 2014-IA E, DRSLF 2014-34A F, REGT4 2014-1A E, REGT4 2014-1A F, SHACK 2014-5A E, SLVS 2014-1A E, SMORE 2014-1A D, SNDPT 2014-2A E, SPARK 2014-1A E, SPARK 2014-1A F, TICP 2014-2A D and VENTR 2014-18A E.

Four of the bonds have covered with a price on PriceABS in the last three months - REGT4 2014-1A F at 82A on 17 March; SHACK 2014-5A E at 85.8 on 19 March; SMORE 2014-1A D at L80S on 2 February; and SPARK 2014-1A E at H80S on 18 February.

Secondary markets

Prime focus for European ABS/MBS

The European ABS/MBS secondary market continues to be reasonably active with prime paper being the main focus.

"Overall, the market remains quite positive and flows are picking up," says one trader. "They are still mainly concentrated in the prime segment where spreads are unchanged but there is plenty of activity with real money participating."

In contrast, the trader says: "UK non-conforming is a bit slower mainly because of increased focus on primary with a few new deals going through and some of the talk circulating being wider than secondary."

CMBS is also seeing some primary activity, the trader adds. "There are two new deals going through at the moment, but I don't think they will impact secondary significantly as the deals are so different. CMBS has been fairly quiet of late but there are a couple of BWICs due today."

The overall BWIC schedule is continuing the increased volume levels of the past few days with six ABS/MBS lists already circulating on the schedule today with a range of deal types in both core and peripheral assets on offer. One of the highlights is one of the CMBS BWICs - a German multifamily auction due at 14:00 London time.

The seven line €51.498m list comprises: GRF 2013-1 A, GRF 2013-1 C, GRF 2013-1 D, GRF 2013-2 A, TAURS 2013-GMF1 A, TAURS 2013-GMF1 C and TAURS 2013-GMF1 D. Three of the bonds have covered on PriceABS in the last three months, doing so as follows: GRF 2013-1 C at 103.35 on 12 March; GRF 2013-1 D at 107.16 on 26 February; and TAURS 2013-GMF1 C at 103.53 on 12 March.

Secondary markets

Euro CLOs see significant flows

The European CLO secondary market is continuing to see significant flows.

"We're seeing less volume than last month, but flows are still very significant," says one trader. "In the month so far we've done less selling than last month, but have bought more."

Nevertheless the trader reports demand for CLO product remains very strong and has broadened. "We're seeing demand across the entire capital structure now although double-As are still a bit stuck."

Secondary buying is unlikely to significantly diminish any time soon, according to the trader. "Two new deals have been announced so far this quarter, but are nowhere near pricing so there continues to be a big supply deficit."

At the same time, the market remains insulated from broader concerns. "Greece is in the background but it's still seen as a Greece-specific issue rather than a macro one, so there's no impact on CLOs for now," the trader says.

European CLO BWIC activity has been more of a feature this week and there are four lists due today, albeit three are single lines. All are expected to trade well, but the largest list is generating the most interest - three lines of 1.0 triple-As due at 15:00 London time.

The €9.5m original face auction comprises: DALRA 2-X C, OHECP 2006-1X C1 and PENTA 2007-1X A1. None of the bonds has traded on PriceABS in the last three months.

Secondary markets

US RMBS looks for direction

The US non-agency RMBS secondary market is still relatively quiet, but one big list tomorrow could help to give the market some direction.

"Things are still a little slow as they have been since the end of March," says one trader. "However, it is reasonably busy today, as is normally the case on a Thursday, with just under $700m in for the bid involving sellers from the usual suspects across money managers and fast money."

While today offers no stand-out lists, tomorrow sees a 16 line $855m current face BWIC at 11:00 New York time. Further, the trader says: "It contains a mixture of rarely seen subprime, hybrid and option ARMs bonds, none of which are among known holdings of the insurance companies who are usually behind this kind of list."

The rarity of the assets as well as the block sizes could give the market a boost, the trader suggests. "As always the results of a big list will be looked at closely, but hopefully this one will spur us out of the pattern we appear to be stuck in with no clear direction."

While the market is relatively quiet bonds continue to trade well. "Spreads are still really tight, so sellers are still doing well and while there is a lot of talk around geopolitical concerns they are not directly feeding into the RMBS market," the trader says.

Secondary markets

Euro peripherals weaken

Concerns over Greece have finally fed into the European ABS/MBS secondary market.

Amid a short spike in activity on- and off-BWIC yesterday the bulk of peripheral bonds saw a weaker tone. Greek assets inevitably led the way with GRIF 1 A dropping two points before recovering by a half to close in the 65 area.

Portuguese and Spanish spreads have also edged wider, but Italian RMBS remain solid. At the same time, UK non-conforming bonds traded well on BWIC yesterday and secondary spreads were unchanged on the day and into this morning's open.

There are currently only two BWICs on today's schedule both involve UK RMBS and both offer something slightly unusual. At 13:30 London time there is a three line residual list comprising: 21.6% of ESAIL 2006-1 R and 36% each of 36% of NGATE 2006-2 R and NGATE 2006-2 MERC.

Then, at 14:00 there is a dollar-denominated list of seniors. The seven line $50.1m original face list consists of: AIREM 2006-1A 1A, BRNL 2007-1A A4C, LEEK 17A A2B, PARGN 12A A2C, PARGN 13A A2C, PARGN 14A A2C and PARGN 7A A1A.

Three of the bonds have covered on PriceABS in the last three months - AIREM 2006-1A 1A at 97.07 on 27 January; BRNL 2007-1A A4C at 98.9 on 23 February; and LEEK 17A A2B at 105.02 on 16 April.

Secondary markets

Euro CLOs stay strong

The European CLO secondary market appears to continue to be insulated from broader market concerns.

Yesterday saw strong prints across all the BWICs due and broader secondary activity was similarly buoyant. Today, overall European CLO market tone remains positive and demand for paper continues to be high.

There are two European CLO BWICs scheduled for today so far. Both are due at 14:00 London time - a single line of 2.0 double-A as part of a two line euro and dollar list and three pieces of 2.0 equity due as part of a seven line mixed CDO/CLO auction.

The double-A tranche is €9.225m of DRYD 2013-29X B-1A. The €27.47m CDO/CLO list comprises: CARN 2007-1 A2, CARN 2007-1 A3, CGMSE 2014-2X SUB, GROSV 2013-1X SUB, SPAUL 4X SUB, ZOO IV-X B and ZOO IV-X C.

None of the bonds has traded with a price on PriceABS in the last three months.

Structured Finance

SCI Start the Week - 13 April

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

Pipeline
Several deals were added to the pipeline last week as the market started up again after the Easter break. These included seven ABS, three ILS and three CMBS.

The ABS were: €455m Alba 7; US$554.45m ARI Fleet Lease Trust 2015-A; US$1bn Dell Equipment Finance Trust 2015-1; US$223.64m First Investors Auto Owner Trust 2015-1; US$1.169bn Hyundai Auto Lease Securitization Trust 2015-B; US$747.7m Navient Student Loan Trust 2015-2; and US$1.06bn Santander Drive Auto Receivables Trust 2015-2.

Alamo Re Series 2015-1, Benu Capital and Cranberry Re 2015-1 constituted the ILS. Meanwhile, the CMBS were US$1.4bn BAMLL Commercial Mortgage Securities Trust 2015-200P, US$1.31bn FREMF 2015-K44 and US$796.6m WFCG Commercial Mortgage Trust 2015-BXRP.

Pricings
It was another active week for deals leaving the pipeline. The week's prints consisted of five ABS, two ILS, three RMBS, five CMBS and four CLOs.

The ABS were: US$1.269bn AmeriCredit Automobile Receivables Trust 2015-2; US$732m Chrysler Capital Auto Receivables Trust 2015-A; US$1.4bn Nissan Auto Receivables 2015-A Owner Trust; US$350m PFS Financing Corp Series 2015-A; and €715.4m Purple Master Credit Card Note Series 2015-1. The ILS were US$150m Citrus Re Series 2015-1 and US$100m Pelican III Re Series 2015-1.

US$229m B2R 2015-1, US$297.17m Citigroup Mortgage Loan Trust 2015-A and US$240.8m FirstKey Lending 2015-SFR1 made up the week's RMBS. The CMBS were: US$1.1bn CGCMT 2015-GC29; US$632m Core Industrial Trust 2015-TEXW; US$822m Core Industrial Trust 2015-WEST; US$1.14bn JPMBB 2015-C28; and US$950m MSBAM 2015-C22.

Lastly, the CLOs were US$513.1m Babson CLO 2015-I, US$505m Mariner CLO 2015-1, US$436m Palmer Square CLO 2015-1 and US$409m Zais CLO 3.

Markets
US ABS secondary spreads were broadly unchanged last week, although Bank of America Merrill Lynch analysts note that some subordinate auto loan ABS and consumer ABS notes did tighten 3bp-5bp. "Secondary volume was somewhat spotty with light volume earlier in the week, although weekly volume was in line with this year's weekly average," they say.

Production coupon US agency RMBS outperformed hedges last week, according to Citi analysts. They add: "[Non-agency] dealer inventory increased by around US$300m for the week ending April 9, with a day-over-day increase on April 9 of around US$340m, implying that the around US$800m BWIC of subprime and POA bonds traded well."

US CMBS spreads tightened a little as the market rode a broader rally. "Secondary trading of recent issue LCF triple-A bonds was 1bp tighter, at swaps plus 83bp. Lower in the capital stack, single-A rated mezzanine bonds were 2bp tighter, to swaps plus 201bp, and triple-B rated mezzanine bonds were 3bp tighter, to swaps plus 330bp," note Barclays Capital analysts.

In European ABS, better two-way flows began to be seen towards the end of the week, but JPMorgan analysts note that overall conviction remains low. They add: "Unsurprisingly, spreads have drifted sideways over the Easter break, with trading flows very subdued-even into quarter end."

Editor's picks
CMBS market cuts froth: Despite accelerating last month, US CMBS 2.0 B-piece BWIC volumes remain significantly lower than they were this time last year...
Bouncing back: The US CLO equity market is rebounding from a spate of volatility...
Originator 'loophole' eyed: The Bank of England and the ECB have expressed concern over a "loophole" in the originator definition of the CRR...
Post-crisis performance issues highlighted: US$1.9bn of post-crisis CMBS loans were newly watchlisted in March...

Deal news
• Freddie Mac intends to pre-market its inaugural actual loss STACR offering, STACR 2015-DNA1, beginning 13 April. The RMBS will be similar to recent STACR deals, but instead of allocating losses to the debt notes based upon a fixed severity approach, losses will be allocated in this transaction based on the actual losses realised on the related reference obligations.
• Fannie Mae is marketing its first bulk-sale of non-performing loans, featuring an overall pool of approximately 3,200 loans that total US$786m in unpaid principal balance. This follows Freddie Mac's recent sale via auction of 5,398 deeply delinquent NPLs (SCI 1 April).

Deals added to the SCI New Issuance database last week:
Agate Bay Mortgage Trust 2015-2; American Homes 4 Rent 2015-SFR1; Apidos CLO IX (refinancing); Arbor Realty CRE 2015-FL1; BBCMS 2015-SLP; BBCMS 2015-VFM; Celeste Mortgage Funding 2015-1; CGCMT 2015-SSHP; Chase Issuance Trust 2015-2 (re-open); Citrus Re series 2015-1; COMM 2015-CCRE22; CSAIL 2015-C1; CSMC Trust 2015-1; CSMC Trust 2015-2; DECO 2015-HARP; E-CARAT 5; FirstKey Mortgage Trust 2015-1; Houston Galleria Mall Trust 2015-HGLR; Hypenn RMBS III; IM Grupo Banco Popular Empresas VI; IMSCI series 2015-6; JP Morgan Mortgage Trust 2015-IVR²; JPMCC 2015-COSMO; Kizuna Re II series 2015-1; Manatee Re series 2015-1; MSC 2015-420; MSC 2015-XLF1; NZCG Funding 2; Private Driver 2015-1; Quarzo CQS; Queen Street X Re; Shackleton 2015-VII CLO; Springleaf Funding Trust 2015-B; STACR 2015-HQ1; Treman Park CLO; WFCM 2015-LC20; WinWater Mortgage Loan Trust 2015-2; WinWater Mortgage Loan Trust 2015-3

Deals added to the SCI CMBS Loan Events database last week:
BACM 2007-1; COMM 2014-CR²0; DBUBS 2011-LC1; EMC VI; GSMS 2011-GC3; GSMS 2012-GC19; JPMBB 2014-C24; JPMCC 2003-ML1; JPMCC 2005-CB13; JPMCC 2006-CB16; JPMCC 2007-CB18; JPMCC 2011-C3; JPMCC 2012-CBX; LBUBS 2006-C4; MLCFC 2006-4; MLMT 2005-CIP1; MSC 2007-IQ15; WBCMT 2006-C23; WFRBS 2011-C3; WFRBS 2013-C18; WINDM VII; WINDM X

Structured Finance

ABSPP rethink proposed

While the ECB's ABSPP has brought benefits to the market, it has also underwhelmed. Increasing transparency could do more to support the recovery of eurozone ABS and translate into improved credit flows to the real economy.

ECB purchases after the first full quarter of ABSPP activity have been put at €4.89bn by JPMorgan analysts. As a proportion of the distributed eurozone ABS market, this accounts for around 2.2% of available bonds.

This level of purchases is far lower than the ECB's concurrent covered bond programme and also lower than many market participants hoped for and expected. Where the programme has been successful, however, is the part it has played in further destigmatising the product.

"This has directly resulted in increased investor engagement with the product, benefiting both issuers and ultimately, the provision and price of credit to the real economy. At least of equal importance, the ECB (along with the Bank of England), has also stood as the most credible proponent for the re-evaluation of regulatory treatments for ABS investment for a number of years," say the analysts.

The programme's failure to achieve the volume of purchases that the market expected and largely continues to expect may be reflective of a mistake on the market's part in viewing the programme as another of the ECB's QE initiatives. The analysts suggest the ABSPP should no longer be seen as a QE vehicle.

How the programme should be seen instead is more difficult and causes uncertainty. "As well as a degree of fogginess around the ABSPP's overarching aims (and the objectives against which its success or failure can be appropriately measured), we also think there is a lack of clear understanding in the issuer and investor communities of both the ABSPP's investment process as well as the programme's investment criteria," the analysts say.

Uncertainty about the ABSPP's goals and investment process could both increase the uncertainty of execution, exacerbating existing problems rather than repairing the market. Therefore the analysts argue it is important that issuers and investors alike gain increased confidence about the programme's objectives and structure.

As the European ABS market benefits from the ECB's engagement, the analysts do not advocate terminating it early. They do, however, suggest ways it could be improved.

"Foremost, we believe there is scope to significantly improve communication with the market, starting with the clarification of the ABSPP's objective(s)," they say. As the programme's purchase rate seems too low to convincingly be categorised as QE, but the market continues to view it as part of QE, the analysts believe a re-communication of the ABSPP's objectives would be "extremely beneficial for market participants and programme alike", facilitatating a clearer understanding of intent and allowing the programme's success to be judged on its own merits rather than total purchases.

The analysts suggest the ABSPP should be positioned more clearly as a tool for reducing specific dislocations facing a wholesale market channel, as for covered bonds during CBPP1. The ABSPP's investment process could be simplified by removing areas of duplication between the ECB itself and its contracted asset managers, which would aid both the programme and the marketing of new transactions through the indication of ABSPP participation earlier in the book-building process.

Additionally, the ABSPP could reduce execution uncertainty for issuers by pro-actively communicating its investment criteria to the market, incentivising issuers to structure to the criteria. Removing uncertainty in this way could feed into more efficient pricing.

"In sum, we believe that a more transparent ABSPP in terms of purpose, process and investment criteria will serve to reduce current uncertainty in the market, thereby increasing issuer and investor engagement, supporting higher transaction flows with more efficient pricing, and resulting in the improvements in real economy funding flows that a successful eurozone securitisation market can bring," the analysts conclude.

JL

Structured Finance

Non-sponsor lending head hired

Andrew Frank has joined Cerberus Capital Management as md. He will be primarily responsible for non-sponsor backed lending, as well as creating and managing partnerships with other lending institutions, intermediaries and advisory firms.

Prior to joining Cerberus, Frank was md and head of syndication for all debt capital markets activity at Stifel Nicolaus. Previous to this, he worked at Merrill Lynch in its structured credit products group, where he originated, priced and helped distribute structured transactions. Frank began his career in Deloitte & Touche's securitisation transactions team.

Structured Finance

SF director tapped

First Names Group has hired Keat Cheng Chin as structured finance director. He will be involved in implementing SF transactions for the firm, including CLOs, aviation and real estate structures.

Chin arrives from TMF Group, where he held a variety of roles, including leading an accounting team on SF. Prior to this, he was an audit manager for BDO Ireland.

Structured Finance

Debt advisory head poached

Jason Green has joined Investec Investment Banking as head of debt advisory. He will focus on providing debt advice and solutions to a range of corporate and institutional clients.

Green joins the firm from Portland Advisors, where he was a senior advisor, covering a variety of transactions that included structured finance. Prior to this, he was a partner at PwC and co-founded its debt advisory business in 2006, advising both corporate and financial sponsors during this time. Green has also held senior positions at RBS and National Australia Bank.

Structured Finance

European chief replaced

Nicholas Pappas has joined BlueMountain Capital Management as ceo of its European operations, based in London. The current ceo, David Rubenstein, will return to the firm's flagship office in New York, where he will serve as a managing partner and general counsel.

Pappas arrives as former head of EMEA leveraged finance trading and research at Goldman Sachs, where he oversaw a public and private trading team focused on EMEA distressed loans and claims, as well as high yield bonds and CDS. Prior to this, he served in a number of roles at Deutsche Bank, including co-head of US credit trading. He also held trading positions at Bear Stearns.

Structured Finance

Freddie beefs up

Freddie Mac has appointed Anil Hinduja as evp and chief enterprise risk officer, responsible for providing the overall leadership and direction for the company's enterprise risk management division. The GSE has also named David Leopold vp of affordable housing production for the multifamily business.

Hinduja reports to Freddie Mac ceo Donald Layton and will serve on the company's senior operating committee. He replaces Mark DeLong and Jorge Reis, who have served as interim co-chief enterprise risk officers since January. Delong and Reis will continue in their ongoing roles at Freddie Mac, as svp, enterprise operational risk management and svp, enterprise chief risk officer for the investments & capital markets business respectively.

Hinduja joins Freddie Mac from Barclays, where he served in increasingly broader risk management roles beginning in 2009. Prior to that, he spent 19 years at Citi in diverse roles with increasing responsibility across finance, operations, sales and distribution, business and risk management in global consumer businesses.

Meanwhile, Leopold will be responsible for managing all relationships, transactions and deal negotiations for the Freddie Mac multifamily affordable housing business, reporting to its evp David Brickman. He most recently managed origination of tax credit equity investments for Bank of America Merrill Lynch's commercial real estate division and Bank of America's national lending team for affordable housing and community-focused CRE. Prior to that, he was an affordable housing specialist at the US Department of Housing and Urban Development.

Structured Finance

Structuring heads on the move

Citi has hired Olivier Renault as head of financial institutions solutions for EMEA. He was formerly head of structuring and advisory at Stormharbour Securities and has been subsequently replaced in this role by Francesco Dissera.

Before Stormharbour, Renault was a director in global structured credit products at Citi and was also previously associate director for S&P's risk solutions services.

Dissera joins Stormharbour from UBS, where he was head of securitisation, focusing on European ABS and covered bond structuring. He has also held senior roles at FinSolutia and JPMorgan.

CDO

Trups CDO case concluded

The London High Court has ruled in favor of Taberna Europe in a misrepresentation judgment against failed Danish financial institution Roskilde Bank. The court ordered the payment of damages in the amount of €26.42m, with €4.77m interest, plus costs to be assessed.

Taberna claims that the defendant's alleged misrepresentations induced it to invest €25.4m on the secondary market in subordinated notes in a CDO issued by Roskilde Bank in 2008. Roskilde Bank has since failed and, with this judgment, Taberna will be made substantially whole.

The case is 'Taberna Europe CDO II PLC and Selskabet AF 1.September 2008 in Bankruptcy, formerly known as Roskilde Bank A/F Claim No. 2011, Folio 1400'.

CDO

CDO manager swapped

Chotin Fund Management has resigned from its role as the collateral manager for Mercury CDO 2004-1 and designated Dock Street Capital Management as its replacement. Fitch says that terms of the proposed replacement collateral manager agreement have remained almost identical, with only minor differences that are not material to the ratings of the transaction.

For other recent CDO manager transfers, see SCI's CDO manager transfer database.

CDS

Derivatives partner named

Ashurst has promoted Jasmine Tiw to partner in its securities and derivatives practice. She was previously a senior associate at the firm, covering OTC trades and securitised issuances under structured product programmes.

Prior to Ashurst, Tiw worked in Credit Suisse's structured capital markets team. She also previously worked in Deutsche Bank's securitised products group.

CDS

SEF names director

Robert Pickel has been hired as non-executive director of Tradition SEF's board. Pickel stepped down as ISDA ceo last year (SCI 22 April 2014). He also held a number of other positions at the association, including evp and general counsel.

CMBS

Work-out vet poached

Case Property Services has recruited David Balaj as director and work-out project manager, responsible for assisting clients in addressing distressed commercial real estate and CMBS loans. He joins Case as the firm increases its caseload to address the many underwater loans that are at risk of being unable to refinance upon maturity within the next 36 months.

Balaj was previously an svp in SL Green Realty Corp's investments group, working on acquisitions, dispositions and joint venture asset management. In this role, he was responsible for the asset management and/or work-out of loans held in SLG's structured finance platform totalling over US$1bn.

CMBS

CMBS team reinforced

Walker & Dunlop has added Chris Charboneau and Randy Efron to its commercial property funding team. Charboneau joins the Chicago office as svp, while Efron joins the firm's New York office as vp. Both are responsible for originating commercial financing opportunities for clients nationwide and will be reporting to Geoff Smith, md and head of originations for the firm's commercial property funding lending venture.

Prior to joining Walker & Dunlop, Charboneau served as director of CRE finance and securitisation at Hanover Street Capital, where he originated and structured CRE loans for placement in Deutsche Bank CMBS. Meanwhile, Efron was previously a member of Hudson Realty Capital's CRE debt origination team and a vp of acquisitions and asset management at Trinity Hotel Investors.

Insurance-linked securities

ILS president recruited

TigerRisk Partners has hired Tony Ursano as president. In his new role, he will seek to help grow the firm's business, identify and source the most efficient forms of capital available for TigerRisk's clients and build the firm's M&A advisory business.

Previously, Ursano was ceo of Willis Capital Markets and Advisory. He began his career at Donaldson, Lufkin and Jenrette and subsequently worked for SG Warburg, Merrill Lynch and Banc of America Securities, where he was global head of the financial institutions group and later vice-chairman.

Insurance-linked securities

Rival bid made for PartnerRe

EXOR has submitted a written proposal to the board of directors of PartnerRe to acquire 100% of the common shares of the company for US$130 per share in cash, valuing PartnerRe at US$6.4bn. The all-cash proposal represents a 16% premium to the implied value per share of US$112.53 for PartnerRe under the amalgamation agreement between PartnerRe and AXIS Capital (SCI 26 January), based on the average of AXIS's closing prices for the ten days ending on 13 April.

EXOR says its proposal is also 1.13x PartnerRe's diluted tangible book value per share as of 31 December 2014, in contrast to the proposed AXIS transaction, which is priced at a discount to PartnerRe's diluted tangible book value per share. In addition, the proposal is fully financed and the acquisition will be funded through cash available on hand, as well as an investment grade bridge facility and term loan to EXOR from Citi and Morgan Stanley for up to US$4.75bn. No capital increase by EXOR is required.

EXOR adds that the proposal intends to provide continuity to PartnerRe's management team and its brand, and has already been unanimously approved by the EXOR Board. The offer does not require EXOR shareholder approval, but is subject to limited confirmatory due diligence, termination of PartnerRe's agreement with AXIS, execution of definitive agreements and approval by PartnerRe's shareholders. Assuming the full cooperation of the PartnerRe board, EXOR says it expects to close the transaction in 2015.

EXOR's financial advisors on the transaction are BDT & Company, Morgan Stanley and Citigroup Global Markets. The legal advisors are Paul, Weiss, Rifkind, Wharton & Garrison, Cox Hallett Wilkinson and Pedersoli e Associati.

Insurance-linked securities

ILS pair named co-ceos

Willis Group has promoted Rafal Walkiewicz and Michael Guo to co-ceos to lead Willis Capital Markets & Advisory. They will succeed Tony Ursano.

Walkiewicz joined WCMA as md in 2014 from Goldman Sachs, where he served as md in the bank's financial institutions group. Guo joined the firm in 2013 as WCMA's head of Asia, having been a partner and md at Boston Consulting Group's financial services practice.

Risk Management

Analytics effort strengthened

Vichara Technologies has hired Keith Weintraub as md, based in its Hoboken office in New Jersey. Weintraub previously worked at Citi, where he was director of the derivatives research and analytics teams, as well as a trader on the bank's New York and London trading desks. He also developed risk management systems for prime brokerage at Deutsche Bank.

Risk Management

Lending platform recruits risk chief

CommonBond has hired Vinayak Gurjar as chief risk officer. He will be responsible for overseeing the firm's risk management strategy and underwriting guidelines.

Prior to joining CommonBond, Gurjar was global head of governance in treasury capital markets at Citi, where he led authorisation for issuance of third-party debt, including securitisation. Previous to this, he was a director at S&P, rating structured finance transactions backed by both consumer and commercial assets.

RMBS

Broker hires RMBS director

Madison Paige Capital has appointed Dan Lichtenberg as md. He arrives from Bank of America Merrill Lynch, where he was a director, focusing on RMBS trading.

RMBS

MBS sales pro tapped

Joseph Bevilacqua has joined Robert Baird & Co as a director. He arrives from Stifel Financial, where he worked in institutional sales for fixed income securities, with a particular focus on RMBS. He has also held senior sales roles at firms such as Piper Jaffray, First Empire Securities and Cantor Fitzgerald.

ABS

EMEA auto ABS surveyed

Fitch says that transactions across the most active auto ABS jurisdictions in the EMEA region share many key building blocks, such as asset characteristics and origination practises, and risk drivers in the form of obligor defaults and car market values. However, each country also has unique features that can influence transaction performance, including tax risks in Germany, voluntary termination risk in the UK and unsecured recoveries in Italy.

The agency adds that EMEA auto ABS has performed strongly through and since the crisis as negative rating actions have been limited, with losses near to zero for investors. Fitch's expected portfolio default rates remain at the low end for EMEA structured finance, typically ranging between 1% and 5%, depending on the country of the assets.

In Fitch's view, short-term, granular and standardised assets support collateral performance. At the same time, mostly simple structures with fully sequential amortisation and healthy levels of excess spread quickly increased credit protection available to noteholders. Key challenges, though, come in the form of increased exposures to residual values, an increased appetite for longer revolving periods and a potential relaxation of underwriting standards as the financial crisis abates.

Both term issuances and outstanding warehouse facilities of EMEA auto ABS reached their highest level to date in 2014, at €25.5bn and €8.5bn respectively. Term issuances accounted for around 15% of total SF - including prime RMBS, ABS and structured credit - issuance in the year. Fitch believes this was largely due to renewed investor confidence in core EU auto ABS countries, ECB support and issuance from new'jurisdictions, such as Nordic countries and Switzerland.

ABS

GE sales spark servicing concerns

Moody's says that General Electric's divestiture of most of its GE Capital unit will impact ABS that the unit sponsors, due to the potential transfer of servicing in the transactions to other entities. The asset sales are expected to affect three ABS sectors, in particular - asset-based loans, floorplan loans and equipment loans/leasing.

GE Capital has issued about US$4.8bn in ABS deals since January 2014. Moody's believes the risk exists in the potential transfer of servicing of the ABS deals to other entities, especially if smaller and less experienced entities assume these responsibilities.

The agency adds that the servicer's ability to perform servicing functions is an important factor in its ratings assessment of GE asset-based loan transactions. Asset-based loans require intense servicing to monitor the financial health of the borrowers and the value of the assets backing the transaction.

GE Capital's floorplan ABS deals also require highly specialised servicing. The firm is the master servicer and originator for the floorplan ABS, guarantees the performance of obligations of the other originators and is the administrator for the trust.

GE Capital's inventory financing business, Commercial Distribution Finance, has been appointed by the master servicer to serve the trust as a sub-servicer and is also an originator. While a servicing transfer could affect ratings, Moody's explains that any new servicer in GE Capital floorplan ABS must be rated Baa3, mitigating ratings risk to the deals.

However, the GE Capital downsizing will likely have little impact on the issuer's equipment loan and leasing transactions. This is because the deals have relatively short WALs and might mature by the time a buyer acquires the assets, and because servicing duties in equipment ABS are generally minimal.

ABS

Slow pay-downs spur SLABS default risk

Some FFELP student loan ABS are at risk of default because certain tranches are not amortising fast enough to pay off by their final maturity dates, Moody's reports. The slow pay-down speed is a result of loan repayment trends that began during the financial crisis and have been accelerated by newer programmes to ease burdens on borrowers.

The percentage of loans from borrowers who are making any payments whatsoever declined to an average of 46% during the 2007-2014 period, from an average of 52% during the 2001-2006 period, primarily due to high levels of loans in deferment or forbearance. Many borrowers are enrolling into either income-based repayment or extended repayment plans, which allow them to reduce their monthly payments or waive payments temporarily.

Additionally, the number of borrowers making additional payments on their FFELP loans beyond the required monthly minimum has fallen dramatically compared with before the crisis. Although the prepayment rate rose to 4%-5% of the loans in repayment in 2014 from nearly zero during the crisis, prepayments remain low relative to historical levels.

Moody's notes that if some tranches of FFELP securitisations do not pay off by the final maturity dates, the transactions will default, based on the terms of the deals. Upon default, investors by a majority vote can exercise their right to change allocation of cash collections, in which all holders of senior classes of securities would receive their pro rata shares of payments and all holders of subordinated classes would not receive any interest or principal payments until the senior classes are fully repaid. A switch in the payment priority would lead to further extension risk on current-pay class A notes.

Nevertheless, final recoveries are expected to be high as the loans have a guarantee from the US government for at least 97% of principal and accrued interest, and most FFELP securitisations have sufficient cash reserves and other forms of credit enhancement that would protect investors against losses.

Moody's recently placed on review for downgrade the ratings of 14 tranches in 14 FFELP SLABS. The agency says that the action is a result of the increased risk that the tranches will not fully pay down by their respective final maturity dates.

Structured Finance

Community lending initiative launched

Lending Club and Citi are launching a new partnership with Varadero Capital to facilitate up to US$150m in loans designed to provide more affordable credit to underserved borrowers and communities. Renaud Laplanche, Lending Club ceo and founder, says the partnership will attempt to aid banks in enhancing community lending efforts for low- and moderate-income families.

Citi Community Capital is the group within Citi that focuses on providing community development loans and investments that help meet the credit needs of communities and which receive consideration under the Community Reinvestment Act. All qualifying loans will be issued by WebBank, a Utah-chartered industrial bank, and purchased by Varadero Capital through a credit facility provided by Citibank.

Structured Finance

Rate hikes to trouble CMBS, RMBS

Faster increases in interest rate rises by the US Fed and a corresponding shock to the economy would likely leave most US structured finance (SF) ratings untouched, according to Fitch. However, it could slow the refinancings that will be crucial to the CMBS market and could hurt some RMBS deals that include legacy adjustable-rate mortgages.

Fitch expects the Fed's actual average policy rate for 2016 to be 1.6%. In its shock scenario, the agency assumes inflation would rise to 4.5% and force the Fed to raise its annual target to 4% in 2016. Fitch also assumes zero real US GDP growth, unemployment rising steadily to 7% and the yield on 10-year US Treasuries reaching 5.5% in 2016.

Most ratings would be stable under this scenario, but the generally negative impact on the still-challenged housing market could raise consumer debt costs and slow spending activity. The CMBS market would see the greatest impact under this scenario, in part due to the maturity wall that would coincide with the scenario's most significant disruption.

Approximately US$177bn of multi-borrower fixed-rate transactions are scheduled to mature from 2015 to 2018 and the weighted average coupon for those loans is about 5.7%. As rates increase, potential loan proceeds would generally decrease. Fitch says demands for more equity would be unlikely to be met as many of the loans maturing in the next several years are already over-leveraged.

In addition, RMBS pools with relatively high numbers of adjustable-rate mortgages would be particularly exposed to higher payments. A rise in rates and an economic slow-down would also likely affect home prices, adding negative pressure on legacy borrowers with little or no home equity. Fitch would expect borrowers in transactions issued since 2010 to be able to absorb the changes in this scenario without a significant increase in ratings risk, due to strong home equity positions and large liquid reserves.

In contrast, the impact on auto and student loan ABS performance would be minimal, while certain credit card ABS metrics would see some variations that would be unlikely to change ratings. The knock-on effect from other macroeconomic stresses, such as rising unemployment and other labour market strains, could have a more significant impact on ABS performance variables across the board. However, Fitch expects ABS ratings volatility under the scenario to be relatively low, similar to its performance during the recession.

Structured Finance

Korean ratings window widened

Moody's says that Korean cross-border structured finance transactions can now achieve triple-A ratings if they benefit from external enhancement mechanisms that cover currency transfer and convertibility risks. This follows the agency's raising of Korea's local currency country risk ceiling to triple-A, although Korea's foreign currency bond ceiling remains at Aa1.

Moody's explains that Korean structured finance transactions will in general be bound by the Aa1 foreign currency bond ceiling. In exceptional circumstances, transactions that have arrangements to cover currency transfer and convertibility risks may pierce Korea's Aa1 foreign currency bond ceiling and reach the triple-A local currency country ceiling.

"In this context, Moody's will assess such arrangements, together with the transaction's credit enhancement level and legal and structural attributes to determine if they are consistent with the triple-A rating level," says Marie Lam, a Moody's associate md. "In Korean transactions, the most commonly seen mechanism to mitigate the negative consequence that will come about if the Korean government interferes with the Korean SPV's foreign currency bond is through a swap."

Moody's also notes other commonly seen structural attributes in Korean transactions. For example, commingling risk is largely mitigated in Korean credit card ABS and auto loan ABS transactions as obligors make payments directly to the transaction's trust account via auto debit. Additionally, set-off risk is mitigated by the presence of a set-off reserve in RMBS, while there are also reserve and back-up servicer arrangements to mitigate servicer transfer risk.

Moody's believes the credit performance of Korean receivables - such as credit cards, auto loans and mortgage loans - will remain strong in 2015. The strong performance is supported by government policies to boost the economy, record low interest rates that currently stand at 1.75% and a low unemployment rate that will be around 3%-4% over the year.

Structured Finance

Corporate trust survey launched

SCI's 2015 European Corporate Trust Survey is open for participation (click here to take part). The survey is an in-depth questionnaire that seeks to identify which corporate trust service providers offer the best-in-class services across a number of key delivery areas focused on the ABS market.

The aim of this exercise is to enable clients of trustees to provide feedback and help corporate trust service providers to improve their offering. The survey is broken down into six sections, representing different areas of service, and clients vote using scores ranging between one and seven based upon their experiences.

The management data derived from the survey provides granular information on the drivers of good service. To receive a copy of the management data, contact SCI.

The results of the 2015 survey will be compiled at the end of May and released at IMN's Global ABS conference in June, where a special report in SCI will detail the high-level findings and the trustee with the best aggregate scores will be announced. BNP Paribas Securities Services has received the best aggregate survey scores for the last two years in a row.

To provide your feedback on corporate trust service providers, click here.

Structured Finance

Regional bank settlement agreed

First Tennessee, the regional bank for First Horizon National, has agreed in principle with the US Department of Housing and Urban Development and the US Department of Justice to settle claims related to the bank's underwriting and origination of FHA-insured mortgage loans from 1 January 2006 through to 31 December 2008. Under the agreement, First Tennessee has committed to pay US$212.5m.

First Horizon previously reserved US$50m for this matter and expects to report a pre-tax expense of US$162.5m related to the agreement in its first-quarter financial results. Final legal resolution remains subject to negotiation and execution of a formal written settlement agreement satisfactory to all parties.

Structured Finance

RFC issued on agency removal option

Fitch is seeking comments as to whether triple-A ratings should be achievable where rating agency removal language (RRL) is present and the rating opinion depends on related contractual provisions being followed. RRL allows an issuer or sponsor to remove a rating agency and all contractual provisions relating to that agency from documentation without the explicit consent of bondholders.

Fitch believes this could particularly impact contractual remedies in relation to the credit profile of counterparties. The agency adds that rating migration could be more pronounced relative to other programmes and transactions if deals with such language are assigned the highest ratings.

"While at the time of issuance, it is by no means certain that the RRL would be exercised or that, if it were, it would be exercised to remove Fitch as one of the rating agencies, it is rendered more probable if, for example, Fitch should, at some point in the future, downgrade the counterparty to a lower level than the other rating agencies such that counterparty remedies are engaged," says Stuart Jennings, group credit officer for structured finance and covered bonds at Fitch.

As such, the agency explains that rating removal may be more probable in a programme/transaction where RRL is present than in one where investors must be consulted and would have the opportunity to assess the specific circumstances giving rise to the proposed rating agency removal. Upon such contractual provisions being removed, Fitch says it would expect to downgrade its ratings.

For SF transactions or covered bond programmes with RRL, Fitch says it would assess in its analysis the practical ability of issuers and sponsors to exercise the RRL, as well as the likelihood of RRL being exercised. Where the agency believes the RRL has a higher likelihood to be exercised, it will assume this occurs with respect to counterparty or other contractual provisions on which Fitch relies in its analysis. In the case of new rating proposals with RRL, this could see ratings capped or, for ratings of existing SF transactions or CB programmes where such RRL is already present, ratings could be downgraded.

While RRL is present in a small number of CB programmes and SF transactions that Fitch rates, the agency currently assesses these as having a low practical ability or likelihood of RRL being exercised and expects no rating action as a result. However, Fitch notes that it is possible that new issuance from these programmes or trusts would become subject to the rating limitations.

Responses are invited for submission by 15 May.

CMBS

CMBS defaults at six-year low

Fitch says that new US CMBS defaults continued a trend of declines, with the annual default rate falling to 0.6% in 2014 from 0.9% in 2013, a level not seen since 2008. The agency projects new CMBS term defaults to hold steady this year, with the cumulative CMBS default rate - currently at 13.3% - to decline slightly in 2015.

Loans from 2005-2007 deals led new defaults again, as peak vintage defaults made up 89.7% of all defaults and consisted of 39.3% from 2007, 29.5% from 2006 and 20.9% from 2005. One notable change year-over-year was the emergence of retail defaults as the largest contributor by balance in 2014. At US$1.7bn and comprising 44.5% of all defaults, retail overtook office, which had led for the past three years.

Fitch notes that two possible challenges facing CMBS in 2015 are the potential for higher interest rates and the encroaching refinance wall made up of 2005-2007 loans. "Most peak vintage CMBS loans are still performing and have coupons that are, on average, higher than current mortgage rates," says Fitch senior director Brook Sutherland. "In most cases this should allow most CMBS loans to refinance at maturity, though a more rapid increase in interest rates than expected could prove problematic."

Fitch believes that CMBS 2.0 defaults will likely follow a more traditional curve compared to peak vintages, with defaults taking place later in their loan terms. From CMBS 2.0 vintages, six loans totalling US$54.1m defaulted in 2013, while 12 loans totalling US$101.6m defaulted in 2014.

CMBS

February liquidations hit

April US CMBS remittances indicate that five loans totalling US$77.6m in balance have been liquidated from the MLCFC 2007-7 trust. The loans were previously listed for sale on Auction.com in February (SCI 4 February) and, together with an additional two properties from the US$15.5m Norcross Industrial Portfolio, generated US$62.2m in proceeds. This compares with a combined appraisal value of US$63.2m.

After repaying advances, ASER and fees, the properties generated US$41.9m in principal proceeds and US$35.7m in losses, for a 46% severity. Barclays Capital CMBS analysts note that the only property listed in the February auction that did not sell was the US$800,000 Comfort Inn Bossier, which special servicer LNR indicates will likely close in time for the May remittance.

The losses wrote off the C tranche and 40% of the B tranche in MLCFC 2007-7, reducing AJ credit enhancement to 1.82%. The Barcap CMBS Credit model predicts that losses may ultimately reach 62% of the AJ tranche in the base case.

Principal proceeds paid off the ASB class and paid off 1% of the last cash-flow A4 tranche. US$8.4m in repaid ASER was applied to interest and, as a result, US$3.8m of shortfalls was repaid on the AJ tranche and US$3.1m was repaid on the B tranche.

CMBS

CMBS pay-offs fluctuating

Trepp says the percentage of US CMBS loans paying off on their balloon date increased in March to 64.8% from the February rate of 59.5%. The March rate is slightly below the 12-month moving average of 65.4%. The highest rate in the last five years was in November 2013, when pay-offs totalled 81.3%.

By loan count as opposed to balance, 61.2% of loans paid off in March. On this basis, the pay-off rate was down by over six points from February's 67.6% level. The 12-month rolling average by loan count is now 69.6%.

CMBS

Sears JV exposure gauged

Sears is set to form another real estate joint venture, with Simon Property Group (SCI 7 April), involving 10 properties valued at US$228m. Under the transaction, the retailer will receive US$114m and a 50% interest in the JV, while SPG will contribute US$114m in cash for its 50% interest and separately agreed to acquire a Sears property at the La Plaza Mall in McAllen, Texas.

Morgan Stanley CMBS strategists identify 10 CMBS loans totalling US$190m by allocated balance with shadow exposure to seven of the properties in the JV. Of the loans, seven - totalling US$177m - are in 2.0 deals. Four of the loans have shadow exposure to the Sears in Midland Park Mall, which secures a US$81.5m loan securitised in COMM 2012-CR3.

The property encompasses a total of 629,405 square feet, of which 277,659 square feet serves as collateral for the Midland Park Mall loan. As of September 2014, the mall reported occupancy of 97%, NOI debt yield of 9.96% and NCF DSCR at 2.08x.

Other loans with large exposure to the JV include the US$41.92m Brea Plaza Shopping Center and the US$30m Seacourt Pavilion, securitised in COMM 2012-LC4 and COMM 2014-UBS5 respectively.

CMBS

Walgreens lease expiries eyed

Walgreens Boots Alliance plans to close 200 drugstores in the US, under a US$500m cost-cutting measure. The retailer is believed to be a tenant in 401 properties encumbered by 249 CMBS 2.0 loans with an allocated balance of US$1.5bn across 105 deals.

US$383m of the exposure is concentrated in 2013-vintage deals and US$378m in 2015-vintage deals, according to Morgan Stanley CMBS strategists. They find that 11 underlying Walgreens leases - representing 2.8% of the total allocated balances - are set to expire between 2016 and 2020, and believe these particular stores are the ones that are more likely to close.

The largest loan with exposure to a short-term lease is the US$98.8m Spirit Cole Portfolio, securitised in COMM 2013-LC13, which includes two Texas Walgreens with leases expiring in 2017 and 2020 - Walgreens - LaMarque and Walgreens - DeSoto. These properties have 2012 sales per square-foot of US$148 and US$179, and rent per square foot from a September 2013 rent roll of US$21.10 and US$17.64 respectively, according to Morgan Stanley figures.

The two stores have a combined allocated balance of US$5.4m, but there are also two other Walgreens properties in the portfolio.

Other large loans with exposure to Walgreens short-term lease expiries include the US$42.4m Cole Retail 12 Portfolio, US$41.61m Cole Portfolio and US$22.73m Olympia Development Walgreens Portfolio securitised in WFCM 2012-LC5, JPMCC 2010-C1 and GSMS 2013-GC16 respectively.

CMBS

REO properties up for bid

Auction.com data indicates that 49 properties with US$320m in balance across 37 CMBS loans are out for the bid in late April and May. WBCMT 2006-C24 has the largest exposure to the auctions, accounting for three properties totalling US$63m, according to Barclays Capital CMBS analysts.

The three properties are the US$18.6m Towamencin Shopping Village, the US$23.5m Park Plaza II and the US$20.3m Mission Springs Apartments. All three are severely distressed, with DSCR NOI well below 1.0x and in REO.

The largest property out for auction is the US$34.5m Senator Office Building - securitised in GCCFC 2005-GG5 - which is also REO and has underperformed, with a DSCR NOI of 0.63x in 2014. The building was valued at US$26.9m in June 2013 and currently has US$4.5m in P&I advances and US$4m in ASER.

The US$33m Goodwin Square, securitised in CD 2005-CD1, is the second-largest property listed on Auction.com for April and May. The building was valued at US$13.2m in 2014 and has been in distress, with a DSCR NOI that has been below 1x since 2008.

CMBS

'Positive momentum' for Euro CRE

DBRS expects positive momentum generated by an up-tick in investment and lending to translate into increased European CMBS issuance. However, legacy transactions are likely to continue to struggle as the slow economic recovery maintains pressure on performance.

"Upcoming maturities are likely to put some pressure on the market as older vintage transactions roll off and either move into special servicing or are redeemed," the agency explains.

It notes that 105 performing loans remained outstanding, as of end-March. A total of 27 loans totalling €3.3bn are coming due within the next 12 months, including €1.6bn due this month.

The largest loans that are due this month are the 36 Hospitals loan, £486m of which is securitised in THEAT 2007-1 and £324m is securitised in THEAT 2007-2. A further maturity extension has been granted to 15 June to allow for a restructuring to be implemented.

The next largest loan due this month is the €240m Fortezza II loan - securitised in WINDM XIV - whose repayment hurdle has been postponed to 15 June to allow for restructuring discussions to continue. After April, the next largest loan coming due is the £165m Criterion loan - securitised in ECLIP 2007-1 - in July.

Nevertheless, DBRS says that prospects for newly-originated collateral within CMBS transactions and the potential for a return of the market as a funding tool are improving based on debt market performance. In 2014, 38% of lending was for financing new investment or acquisitions, according to data tracked by Cushman & Wakefield. Refinancing only accounted for 36% of 2014 lending, showing favourable comparison to the 56% in 2013.

Overall, lending origination increased by 55% as lenders and investors continue to actively pursue investment in the commercial property markets across Europe. Lending terms are improving as a result of this increased focus on the sector: senior prime loan-to-value ratios remain at a moderate minimum of 55% on average, but for high quality transactions they can stretch to 75%.

Insurance-linked securities

ILS diversification predicted

ILS market participants expect a further diversification away from traditional catastrophe bonds, with a particular focus on new perils in emerging markets and collateralised reinsurance, according to Clear Path Analysis' latest report on the sector. This prediction follows a record year for annual property cat bond issuance, with a total of US$8bn of limit placed.

Total catastrophe bonds on-risk stood at US$24.3bn in December, representing an 18% increase over the prior year. The Clear Path Analysis report suggests that ILS is seen as an appealing investment consideration for large institutions, with some reinsurers launching their own specialist boutiques. However, as the more traditional cat bond market becomes saturated with interest, investors and managers are looking for better returns within the market.

At present, over 70% of cat bond issuance features US hurricane coverage, but institutional investors are also increasingly looking to emerging markets for alternatives. Dirk Lohmann, ceo of Secquaero Advisors, comments: "In terms of weather-related risks, I would say flood - whether European or US - is likely to impact the most in the next five to 10 years and, as a result, models are currently being developed to measure that. Specific areas that are likely to become more relevant include natural catastrophe risks in China, where they regularly experience earthquakes and typhoons." Ongoing and increasing economic development in China, combined with a growing rate of wealth, has led to a significant increase of insurance penetration in the country.

Other perils that could proliferate include heatwaves, high temperatures and subsequent droughts. These perils could arise in emerging markets, such as Russia, Ukraine and Kazakhstan.

Given the capacity constraints in the catastrophe bond market, as well as increased market saturation and competition for traditional reinsurance programmes, ILS managers have spent recent years at the forefront of innovation in an attempt to maximise their investable opportunities. Michael Stahel, partner at LGT Capital Partners, concludes: "We are seeing the larger primary insurance companies, especially some of the US primaries, starting to considerably shift their purchase for catastrophe capacity away from traditional reinsurance towards capital market investors."

NPLs

European NPL fund debuts

Sciens Alternative Investments and PVE Capital have launched the PVE European Distressed Fund I, a closed ended fund that is invested in a portfolio of Italian non-performing loans with a gross book value of €408m, primarily composed of secured loans backed by Italian real estate (SCI 31 March). The fund closed earlier this year after reaching full capacity.

PVE Capital is the originator of the investments, as well as asset manager of the NPL portfolio, while Sciens is the fund manager. Sciens founder and ceo John Rigas cites relatively low duration and the high quality of the collateral as key attractions for the fund.

This is the second recent venture between Sciens Alternative Investments and PVE Capital, adding to an existing European structured credit managed account named SGAS Pearl, which launched in September 2014 on Sciens' independent managed account platform.

RMBS

Banks eyeing MSR purchases

Recent fallout surrounding Ocwen is bringing US banks back to the market in greater numbers as buyers of mortgage servicing rights, according to Fitch. In recent months, banks have agreed to purchase several bulk packages of MSRs from Ocwen due to a number of factors, including the current regulatory environment, improvements in bank portfolio make-up, bank interest in maintaining servicing scale and market opportunity.

The agency says this is a marked change post-crisis, when several banks reduced their servicing exposure to underperforming loans through frequent sales of MSRs to non-bank entities. These sales, together with portfolio run-off and the improved economy and housing market, have resulted in bank servicing portfolios that are now smaller and better performing, leaving some banks as opportunistic buyers of MSRs.

Fitch observes that bank and non-bank mortgage servicers have been under heightened regulatory scrutiny post-crisis. Although both sectors have recently seen cases of regulatory findings and settlements, banks appear to be currently better positioned within the new regulatory framework.

In early 2012, key bank servicers were required to institute substantive changes as part of their agreement under the National Mortgage Settlement. Since many of the settlement requirements were ultimately included in the Consumer Financial Protection Bureau's guidelines for all servicers in 2014, subject banks had a relatively easier transition. Fitch says the greater comfort that banks have in the current regulatory environment has situated them as more eager buyers of mortgage MSRs than was the case several years ago.

In addition, most mortgage servicers saw their cost of servicing increase significantly during the post-crisis period as a result of higher fixed expenses associated with regulatory compliance. This has provided an incentive for non-bank servicers to grow and for the banks that have large mortgage servicing operations and have seen their portfolios shrink, to seek to maintain scale when opportunities to acquire clean and standard servicing become available.

Fitch says that while scale is important, changed capital rules - including Basel 3 - will likely constrain significant growth by bank servicers in the future. Previously, banks were able to contribute the full value of their MSRs to their Tier 1 capital; however, MSRs are limited to 10% of Tier 1 capital under Basel 3. To the extent that a bank holds MSRs that exceed the 10% threshold, the excess must be deducted from capital, leaving banks seeking to maintain a balance between the impact of these capital rule changes and their desire for well-scaled servicing operations.

RMBS

Boost for Spanish housing

An increase in mortgage lending in Spain over the last year could help the housing market to recover in 2015, Moody's suggests. Rising mortgage origination will likely improve the demand for housing, which in turn could help lift house prices.

"Historically, there has been a high positive correlation between mortgage origination and changes in house prices. In our opinion, the increase in lending is therefore likely to translate into higher property prices this year," notes Rodrigo Conde Puentes, a Moody's analyst.

Moody's notes that lenders have actively competed to offer mortgage interest rates closer to pre-crisis levels in 1Q15. The increase in mortgage origination will help to alleviate the house price decline if it is accompanied by good economic conditions, low interest rates and lower repossessions, which would stem the rising stock of unsold houses.

However, the potential house price recovery is expected to be uneven, as the coastal areas have a higher stock of unsold houses than the central and northern regions. About 563,000 properties remain unsold, representing 2.2% of the total properties in Spain.

Smaller loan amounts and low interest rates have improved the debt-to-income ratio for potential borrowers, increasing the pool of eligible borrowers for lenders. A slow-down or reversal in price decline will create equity, thereby reducing the probability of default and the amount of losses upon default. Increasing recoveries and a faster time-to-sale would have a positive effect on outstanding RMBS transactions, as it would result in lower losses for tranches and a potential improvement in their credit enhancement.

RMBS

Housing market corrections examined

Housing market corrections coincide with a country's GDP being 6% lower on average than if it had continued on its growth path before prices peaked, according to Moody's research. The study examines economic developments in countries after housing market declines based on 50 global episodes of housing market corrections since 1973.

"On average, GDP is around 6% lower than its pre-price peak path after a price correction in the housing market, although there is considerable variation," comments Ruosha Li, an analyst in Moody's macro financial analysis team. "Our research showed that for a given fall in the house prices, the average GDP shortfall is larger in advanced economies than in emerging markets."

For every 10% decline in house prices in real terms, GDP falls by around 4% from its pre-peak path, according to the study. Property price downturns since 2006 have been linked to a larger fall in GDP. The GDP gap between pre-peak trends has increased from around 4% before 2000 to around 7% since then.

Housing downturns in the late 2000s occurred at the time of the global financial crisis and the euro-area sovereign debt crisis. Severe downturns in various non-property sectors directly contributed to the GDP shortfall.

RMBS

Countrywide settlement nears completion

BNY Mellon has presented the US$8.5bn Countrywide settlement agreement to the New York Supreme Court for final approval. The bank is seeking a modification of the language in the February 2014 judgment to bring it in line with last month's appellate division ruling (SCI 6 March), specifically by deleting any language regarding withholding the release of modification claims.

If the court modifies the final judgment approving the settlement, it will mark the end of almost four years of legal process and pave the way for the US$8.5bn to finally flow to the deals, according to Barclays Capital RMBS analysts. They note that the trustee's approval application to the New York Supreme Court suggests that no further appeals were filed in the 30-day appeal period and, if the court modifies the judgment, the settlement should be finalised legally.

However, the settlement also requires IRS/state tax approvals before the settlement is deemed to have received official 'final court approval'. The settlement agreement provides that the trustee should request these approvals within 30 days of the signing date of this settlement, which is defined as the date on which the agreement was first executed by all the parties. Based on the execution copy of the agreement provided as an exhibit to the initial petition, the Barcap analysts suggest that this should have been 28 June 2011.

But the agreement envisions the possibility that the IRS is not amenable to the request in the first 30 days after signing and allows for this request to be made as soon as possible thereafter. Similar approvals had been already received for ResCap's pay-outs, so it may not be a lengthy hurdle, even if the approval process has not yet commenced.

Once the tax approvals are in place, the last step that remains before cash flows through to the trusts would be for the trustee-appointed expert to calculate allocable shares for each deal/group. This has to be undertaken within 90 days of the final court approval.

Based on that allocation, Bank of America is required to make payment to each covered trust within 120 days of the final court approval. If, for some reason, the allocation for each trust is not finalised in 120 days, Bank of America has to pay the US$8.5bn to a non-interest-bearing escrow account at BNY Mellon, which will hold the payment until the allocation is finalised.

"As such, if the court amends/enters the final judgment in the next few days/weeks and assuming that the IRS approvals have been received in parallel, we do not foresee any real hurdle for the US$8.5bn settlement and expect the cash to flow to the 530 non-agency trusts in the next 4-5 months," conclude the analysts.

RMBS

MSR sale due

JPMorgan plans to transfer 4,138 loans from 12 US RMBS transactions to Select Portfolio Servicing (SPS) by way of a mortgage servicing rights sale. Moody's says that the transfer will not result in a reduction or withdrawal of the current ratings on the securities.

The 12 affected transactions are: Aegis ABS Trust 2004-4; ABFC Asset-Backed Certificates Series 2006-HE1; Citigroup Mortgage Loan Trust 2006-HE2 and 2006-HE3; First Franklin Mortgage Loan Trust 2003-FF2 and 2003-FF4; Credit Suisse First Boston Mortgage Securities Series 2003-4, 2003-6 and 2003-7; Homebanc Mortgage Trust 2006-1; and Morgan Stanley ABS Capital I Trust 2005-NC1 and 2006-HE2.

The transfer of the loans is scheduled to occur between May and June.