Contents

Secondary markets

Euro secondary edges up

Activity and some prices are edging up in the European securitisation secondary market, but trading remains patchy and could prove to be short-lived.

Despite another slow session yesterday, where spreads were once again primarily unchanged there are signs of some small increases in secondary activity and prices. Trading continues to be highly selective but the sectors attracting investors are broadening.

Aside from the continued focus on prime, UK non-conforming and CMBS; Italian and Spanish paper is seeing something of a resurgence and there are few more pockets of activity elsewhere across ABS and RMBS. However, liquidity remains generally thin and an accelerating primary market could hamper further secondary improvement.

There are currently five BWICs on today's European schedule. They include two mixed lists involving a collection of seniors in small clips at 12:30 London time and a little more substantial mixed mezz auction at 13:30.

At 14:00 is a two line triple-A CLO list - €9m CORDA 5X A1 and €7.46m HARVT 8X A. The bonds last covered on PriceABS at 98.6 on 20 October and L100H on 30 July, respectively.

Then there are two CMBS only BWICs, both due at 15:00. One is a single £4m line of LORDS 2 A, which last covered on PriceABS at 99.9 on 23 September, and the other is a 25 line 210+m euro and sterling AON list.

The latter comprises: DECO 2006-C3X C, DECO 7-E2X F, DECO 8-C2X D, DECO 8-C2X E, DECO 9-E3X E, ECLIP 06-3 D, ECLIP 2005-4 F, ECLIP 2006-3 E, EMC 4 C, EMC 4 D, EMC 6 C, EMC 6 D, MESDG CHAR D, PREPS 2007-1 B1, TAURS 2007-1 E, TITN 07-CT1X B, TITN 2006-1X E, TITN 2006-3X B, TITN 2006-5X B, TITN 2007-2X C, TITN 2007-2X D, TMAN 6 D, TMAN 7 F, WINDM X-X E and WTOW 2007-1 E. Three of the bonds have covered with a price on PriceABS in the past three months - TITN 2007-2X C at 0.75 on 21 October; TMAN 6 D at 0.76 on 5 August; and TMAN 7 F at 1.11 also on 5 August.

Secondary markets

US CLOs lagging

The US CLO secondary market is lagging behind the rally being seen in broader markets.

"Equities and high yield have rallied, but in cash bonds and CLOs there's no firm tone and they are not really trading that well," says one trader. "The bid-ask is just getting wider and people are sitting on the sidelines - there's no real impetus to buy or sell and the liquidity is just not there."

The trader continues: "We're being offered bonds that did not trade on BWIC and we're giving the sellers revised bids but they aren't hitting us. So there's no sense of capitulation at this point, but you feel it might come when we reach month-end and if it does dealers, who are heavy on inventory, might be the first leg to go."

There are currently five US CLO BWICs on the schedule for today. "There's a mix of assets in for the bid and we're seeing some middle market paper trading early, but overall there's no real shape to what's on offer," the trader notes.

Of those five lists the trader points to a six line triple-B list as being the one most likely to be a key indicator. "The bonds have got high oil exposure so I don't expect they'll trade well, if at all."

The $21.981m triple-B auction is due at 10:30 New York time and comprises: MIDO 2014-3A D, PARL 2015-1A D, PLMRS 2015-1A C, SHACK 2014-6A D, STCR 2014-1A D and TICP 2015-1A D. None of the bonds has traded on PriceABS in the past three months.

Secondary markets

Euro secondary pauses

The nascent revival in the European securitisation secondary market has come to a halt once again.

"The last few days have been a bit better in line with global markets and the impact of Draghi's comments was finally trickling through to ABS," says one trader. "However, yesterday broader markets took a pause and that immediately fed through to us and liquidity reduced straight away - volumes are lower across the board and with month-end coming that may not change."

Nevertheless, prices are unchanged overall, the trader reports. "Dutch RMBS remains stable and we only saw odd-lots trading in UK prime so there's been no movement there. In CMBS there was a large BWIC yesterday but it involved low mezz, which isn't usually traded, so the results didn't move the market."

At the same time, the trader adds: "CLOs are still waiting on primary to give us some clues. The latest Alcentra deal still hasn't materialised and in the meantime there's no real conviction in the market, so bid-offers are drifting wider."

The one area that continues to see some consistent activity is UK non-conforming. "Aire Valley, Paragon and a lot of the 2.0 deals are being better bid," says the trader. "Real money is involved again, which is good, but we're still not seeing major flows."

There are seven BWICs on the European schedule for today so far. The majority are a mix of assets and currencies, but the two lists likely to be most closely watched both come at 15:00 London.

One is a seven line 19.1m combination of Dutch and UK non-conforming, comprising: ALBA 2007-1 D, ESAIL 2007-1X D1C, ESAIL 2007-2X C1A, ESAIL 2007-5X C1C, MONAS 2004-I D, SPF 2006-A E and SPS 2006-1X E1C. None of the bonds has traded on PriceABS in the past three months.

The other involves €9m across four CLO equity pieces - CRNCL 2007-2X SUB, EGLXY 2007-2X SUB, EGRET I-X M and GRENP 2006-1X M. None of the bonds has traded on PriceABS in the past three months.

Secondary markets

Euro secondary stays slow

The European securitisation secondary market saw another slow session yesterday, but tone continues to slowly improve.

Activity remains patchy across secondary markets but most sectors are now seeing a buying bias. Consequently, spreads are broadly flat to slightly tighter over the past day or so.

Primary activity is continuing to distract participants, but secondary supply continues to tick over. For the most part BWICs are trading in line with expectations, though the relatively large number of UK non-conforming bonds in for the bid yesterday resulted in a significant proportion of DNTs.

There are five BWICs on the European schedule for today so far. UK non-conforming again takes centre stage with a 54.879m 15 line mix of euro and sterling UK non-conforming and buy-to-let bonds due at 14:00 London time.

The auction comprises: AIREM 2006-1X 2B2, ALBA 2015-1 C, AUBN 4 B, AUBN 4 M, AUBN 5 M, FLEX 5 M, PARGN 10X C1B, PARGN 12X C1B, PARGN 13X C1A, PRS 7 C, RLOC 2007-1X B1B, RMAC 2005-NS2X M2C, RMAC 2005-NS3X M1A, RMAC 2005-NS4X M1A and RMACS 2006-NS2X M1A. Only RMAC 2005-NS2X M2C has covered with a price on PriceABS in the past three months - last doing so at 85 on 6 October.

Secondary markets

US RMBS held

US non-agency RMBS secondary spreads are being held at or around recent wides by a range of external and internal factors.

"All eyes were on the Fed yesterday and while the lack of a rate rise was anticipated their hawkish comments mean fixed income and equities are off today," says one trader. "Even though high yield is edging tighter the softer overall sentiment is feeding through into our market and keeping spreads at the wider end and riskier assets such as subprime mezz are now proving difficult to shift."

At the same time, the trader adds: "There's also mounting pressure on spreads from a range of factors from other markets that indirectly impact RMBS. There's continuing rumblings of lay-offs and/or restructurings at the primary dealers; repos are getting a bit more expensive; and redemptions, thanks to losses elsewhere, are on the rise."

Those factors are currently sidelining some investors, the trader reports. "The opportunistic buyers we had been expecting at the current slightly wider levels have not materialised. It's not a major crisis, but it is keeping us at weaker levels."

Consequently, the market has experienced a light volume week with only $400-500m in for the bid each day so far. "Today sees a mix of liquidations and hedge funds looking to shed some risk," the trader notes.

However, the trader suggests next week could be busier. "Tomorrow is month-end and then the holiday season is approaching. So I expect tomorrow to be quiet and the following couple of weeks to be active, but then, barring any major volatility, we're likely to be in a holding pattern to the end of the year."

Secondary markets

Euro secondary mixed

The European securitisation secondary market continues to experience mixed fortunes, though tone continues to improve overall and some sectors are getting ever-more active.

UK non-conforming continues to lead the way with healthy activity on- and off-BWIC yesterday. Flows are strong in both directions, so spreads for now remain broadly unchanged.

The pick-up in peripherals is continuing with trades going through in Italian, Portuguese and Spanish names yesterday. Portuguese paper remained under pressure on the back of government bond weakness, but major names in the other two countries ended slightly up on the day.

Meanwhile, prime assets remain steady on continued fairly low secondary volumes. However, stronger activity in the primary market is helping to give the sector some price points.

There are currently two BWICs on the European calendar for today. At 14:00 London time there is a single €1.5m line of CLO EGLXY 2006-1X E, which hasn't covered on PriceABS in the last three months. Then at 14:30 is a single £42.6m slice of Australian RMBS IMT 2005-3E A2, which last covered on PriceABS at 93.5 on 13 August.

There is also an eight line Dutch prime seniors OWIC due by 14:00. It comprises up to €50m each of: SAEC 12 A1, SAEC 12 A2, SAEC 13 A1, SAEC 13 A2, SAEC 14 A1, SAEC 14 A2, SAEC 15 A1 and SAEC 15 A2.

ABS

Navient lays out FFELP recommendations

Navient has released repayment data on FFELP student loans, as well as a comment letter to Moody's regarding its ratings on ABS backed by such assets. The letter includes a number of recommendations, including Navient's belief that voluntary prepayments will continue to increase due to improving economic conditions, refinancing activity and the ultimate launch of the RePAYE programme.

The data package and letter highlight some of the features of deferment, forbearance and income-driven repayment (IDR) plans. The data also shows trends in usage of these options by repayment vintages and the relationship between usage and defaults.

The letter states that the final payoff date for any FFELP loan will not extend past the year 2048, except in rare circumstances. It also explains that repayment trends between 2008 and 2013 should not be used as the expected base-case scenario in a revised methodology by Moody's. Navient reveals that repayment rates have been increasing since 2014, while deferment and forbearance usage have been declining since 2008.

However, Bank of America Merrill Lynch securitisation analyst note that a portion of these trends must be reflected in base-case scenarios, as the impacts from the great recession are still being felt by the millennial generation. "At a minimum, borrowers may use IBR plans longer than they would have used forbearance because they are underemployed but not unemployed," the analysts explain.

Navient also proposes that Moody's applies a 'balanced, long-term and sustainable' methodology for rating FFELP ABS that reduces the risk of 'unnecessary ratings volatility'. The servicer proposes a revised approach that incorporates turbo features and optional servicer clean-up calls as mitigating factors against long extension of transactions.

The BAML analysts note that Moody's is more likely to recognise the turbo feature than the optional call, but argue that the call is optional, not mandatory. "Even some investors do not consider the optional call when pricing notes," they say. "Second, depending on the desired rating for the ABS, the rating agencies will likely consider the creditworthiness of the sponsor. We like the methodology used by Navient to determine the overall limit on future use of forbearance status and believe it should be adopted by market participants, including the rating agencies."

Navient's proposed methodology uses historical data to determine the proportion of the portfolio expected to use forbearance in the future and the number of additional forbearance months available under its policies to determine the 'logical limit' for the duration of forbearance. The servicer estimates that the maximum duration is six years for seasoned stafford loans (2006 vintage) and seven years for seasoned consolidation loans (2006 vintage) using Moody's assumed forbearance rates.

The analysts expect the use of deferment and forbearance to decline with delinquencies and defaults, as FFELP loans continue to season and the economy continues to improve. They also believe that voluntary prepayment rates should increase.

JA

ABS

Pubco performance 'under-appreciated'

While S&P has affirmed Punch Taverns' ratings and revised its liquidity outlook from less than adequate up to adequate, the rating agency's use of its corporate methodology rather than corporate securitisation remains wrong, suggests Barclays credit analysts. With further non-core disposals expected, there is value to be found in Punch's bonds.

S&P affirmed the ratings and revised its outlook as a result of Punch selling a larger number of pubs than planned and also disposing of drinks distributor Matthew Clark. However, Barclays analysts believe the rating agency is still not giving sufficient credit to Punch's competency in selling off its non-core portfolio.

"It is not a surprise that Punch has exceeded the disposal targets that it had set itself, given its track record of disposals. S&P expects 200 non-core pub disposals per annum, which is lower than the average of c.600 pubs per annum since 2009. Further, the 2016 financial year has just begun and Punch Taverns has already sold 158 pubs to New River," the analysts say.

Barclays also expects investment volumes into commercial property to be increasingly diverted to higher yielding specialist real estate, such as pubs, which is supportive for Punch's planned disposals. Commercial property volumes are expected to go above £70bn for the first time in 2015, with the 20% increase on 2014 driven by growth in deals in hotel, leisure and specialist property assets.

"We continue to think that Punch's A1Vs and A2Vs look attractive on c.110 price, given our expectation that disposals will support partial prepayment of these notes from 2018 at the latest at gilts plus 150bp spread and c.130 price," say the analysts. "Further, we also continue to expect the disposal proceeds from Matthew Clark held at the group level to be used to repay the PIKs, which yield c.14% at first call in September 2016, given how expensive this instrument is for the group."

JL

Structured Finance

SCI Start the Week - 26 October

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

Pipeline
It was an active week for the pipeline, with many deals coming and going. At the week's end four new ABS, three RMBS and three CMBS remained.

CARDS II Trust Series 2015-3, US$750m Fifth Third Auto Trust 2015-1, US$450m Flagship Credit Auto Trust 2015-3 and VCL 22 accounted for the ABS. The RMBS were US$344m JPMMT 2015-6, US$428m Progress 2015-SFR3 and US$1.12bn Towd Point Mortgage Trust 2015-5, while the CMBS were US$846m Hudson's Bay Simon JV Trust 2015-HBS, US$1bn MSBAM 2015-C26 and US$988m Wells Fargo Commercial Mortgage Trust 2015-C31.

Pricings
A very large number of deals priced last week. The final count consisted of 14 ABS, three RMBS, eight CMBS and five CLOs.

The ABS were: US$277m Ascentium Equipment Receivables 2015-2 Trust; US$425m Capital One Multi-Asset Execution Trust 2015-7; US$500m Capital One Multi-Asset Execution Trust 2015-8; US$1.05bn CarMax Auto Owner Trust 2015-4; US$376m CHAI 2015-PM2; US$873.15m Dell Equipment Finance Trust 2015-2; US$1bn Ford Credit Auto Lease Trust 2015-B; US$1.262bn Mercedes-Benz Auto Lease Trust 2015-B; US$476m NextGear Floorplan Master Owner Trust Series 2015-2; US$140.68m Orange Lake Timeshare Trust 2015-A; €338.7m SCF Rahoituspalvelut I (Kimi 4); US$370m SMART ABS Series 2015-3US Trust; US$701m SMB Private Education Loan Trust 2015-C; and US$300m World Financial Network Credit Card Master Note Trust Series 2015-C.

The RMBS were US$1.45bn CAS 2015-C04, US$360m Green Tree Agency Advance Funding Trust I Series 2015-T1 and US$140m Green Tree Agency Advance Funding Trust I Series 2015-T2.

The CMBS were: US$252m Colony American Finance 2015-1; US$931.8m COMM 2015-CCRE27; US$1.6bn FREMF 2015-K49; US$1.58bn FREMF 2015-K720; US$300m GSCCRE Commercial Mortgage Trust 2015-HULA; US$650m GSMS 2015-590M; US$848.4m GSMS 2015-GC34; and US$428.4m RFT 2015-FL1.

Lastly, the CLOs were: US$404m Cathedral Lake III; US$413.3m Cerberus ICQ Levered CLO 2015-1; €1.12bn Foncaixa PYMES 6; US$407.55m Golub Capital Partners CLO 26(B); and US$620m Magnetite XV.

Markets
The new issue US ABS market has continued its October boom, with US$8bn pricing last week - the busiest week since May, note Barclays analysts. They say: "Spreads widened 2bp-5bp week-over-week in credit card, student loan, and equipment ABS, while prime auto spreads on bonds from the most liquid shelves were unchanged. Investors continue to be selective on new purchases, demanding higher spreads from more off-the-run issuers."

Months of spread widening have increased the attractiveness of US CLOs, say Bank of America Merrill Lynch analysts. They add: "Secondary activity picked up moderately this week in the US with BWIC items totalling over US$800m by current face value. The vast majority of bonds came from the 2.0/3.0 universe with triple-A tranches contributing c.US$300m of the total and triple-B to single-B tranches contributing c.US$150m."

The slack in the European ABS primary market did not lead to secondary spreads making headway inside their current levels, say JPMorgan analysts. They say: "While BWIC volumes remained modest, a lack of firm conviction of the direction of the market resulted in spreads moving broadly sideways and ended the week unchanged across the universe"

Editor's picks
Moving pieces: Widening US CMBS spreads have accompanied looming risk retention requirements in reshaping the investment landscape for CMBS B-piece buyers. While short-term investors could be pushed out of the space, single-asset/single-borrower (SASB) deals could provide new opportunities...
Surprise StuyTown deal agreed: The Stuyvesant Town/Peter Cooper Village apartment complex has been sold for US$5.3bn, despite an appraisal as recently as September of US$3.5bn. The timing of the deal also comes as a surprise, with CMBS payoffs possible as soon as the November remittance...
HAMP payment ramp begins: In the more than six years that HAMP has been in effect, there have been eight million modifications. As a growing number of mods reach 60 months of performance, increased borrower payments are expected to increase the number of prepayments, delinquencies and refinancings...
US RMBS active: Activity continues to be strong in the US non-agency RMBS secondary market. Risk perception continues to abate and high yield continues to tighten, which is positive for RMBS...

Deal news
• Fannie Mae has priced its latest credit risk sharing transaction - CAS 2015-C04 - which is the first to use an actual loss framework. The GSE says that this structure will be the standard for its CAS programme going forward, and follows in the footsteps of Freddie Mac after it debuted its first actual loss issuance earlier this year (SCI 8 April).
• BOC Aviation has sold a portfolio of 24 aircraft to Shenton Aircraft Investment I, in what is believed to be the first aircraft lease ABS from an Asian-based sponsor. SHNTN 2015-1 has issued two tranches of notes to finance a portion of the purchase.
• StoneCastle Financial has closed Community Funding CLO, believed to be the first pooled bank credit securitisation to print since 2008. Citi arranged the transaction.
• Crédit Agricole has closed FCT Crédit Agricole Habitat 2015, a self-led retained securitisation of French home loans. The transaction is the bank's first true sale RMBS in France.
• The pending defeasance of the Ty Warner Hotel portfolio in MSC 2012-C4 has prompted Kroll Bond Rating Agency to place its ratings on the class B and C certificates to watch upgrade. The portfolio is the second largest loan in the transaction, comprising 9.1% of the pool.
• Up to €2.6bn worth in loans and leases packaged into Volkswagen auto ABS transactions have exposure to the EA189 EU5 engines that were supposedly built with emissions-cheating software. The German deals are: VCL 18, 19, 20 and 21; and Driver ten, eleven, twelve and thirteen. Two Australian (Driver Australia one and two), two French (Driver France one and two), two UK (Driver UK two and three) and one Spanish (Driver Espana two) deals also have exposure.

Regulatory update
• The National Association of Financial Market Institutional Investors (NAFMII) has published a new set of rules on the issuance of ABS backed by consumer loans in China. The rules are the fourth set released by the regulatory organisation, following guidelines for auto ABS, RMBS and loans for urban redevelopment.
• The US Fed, FDIC, OCC, Farm Credit Administration and the FHFA have approved a joint final rule establishing margin requirements for swaps that are not cleared through a clearinghouse. The rule was developed in consultation with the CFTC and the SEC.
• Bank capital charges attached to market risk in the trading book could increase by 2.2 times for those involved in securitisation, according to a joint report by ISDA, the Global Financial Markets Association and the Institute for International Finance. The report analyses impact studies submitted by 28 banks to the Basel Committee regarding the regulator's framework for the fundamental review of the trading book.
• A pair of UBS advisory firms have agreed to settle US SEC charges that they failed to disclose a change in investment strategy by UBS Willow Fund. UBS Willow Management and UBS Fund Advisor will pay US$17.5m to settle the charges, more than US$13m of which will be returned to investors.
• Barclays has agreed to pay US$325m to settle NCUA claims that it sold faulty RMBS. It is the latest in a string of settlements (SCI passim) and brings the NCUA's total recoveries to over US$2bn.
• Wachovia has agreed to pay US$53m to resolve NCUA claims arising from losses related to purchases of RMBS securities by corporate credit unions. This brings the agency's total recoveries from litigation against banks that sold faulty RMBS to corporate credit unions to US$2.2bn.
• A report has been filed by the monitor of the US National Mortgage Settlement, Joseph Smith, revealing the results of Ocwen's compliance with the National Mortgage Settlement servicing standards during 3Q14 and 4Q14. Filed with the US District Court for the District of Columbia, the report reveals that Ocwen failed four metrics in the second half of 2014.
• Brazil's capital markets regulator Comissão de Valores Mobiliários (CVM) recently released guidance to trustees and auditors of fundos de investimentos em direitos creditórios (FIDCs) on procedures to determine non-performing loan (NPL) provisioning levels. Moody's notes in its latest Credit Outlook publication that the move is credit positive for senior tranches of securitisations because it will divert more collateral cashflow to them sooner when forward-looking measures of collateral credit quality are signalling increased expected losses.

Deals added to the SCI New Issuance database last week:
Cairn CLO III (refinancing); Capital Auto Receivables Asset Trust 2015-4; Community Funding CLO; Domino's Pizza Master Issuer series 2015-1; Exeter Automobile Receivables Trust 2015-3; FRESB 2015-SB5; GSMS 2015-GC34; Harvest CLO XIV; ICG US CLO 2015-2; JPMBB 2015-C32; LCM XX; OCP CLO 2015-10; Santander Drive Auto Receivables Trust 2015-5; Sierra Timeshare 2015-3 Receivables Funding

Deals added to the SCI CMBS Loan Events database last week:
BSCMS 2007-PW16 & BSCMS 2007-PW17; CD 2006-CD3; CLNY 2014-FL2; COMM 2014-CR18; CSMC 2006-C3; CSMC 2006-C4; CSMC 2007-C2; CSMC 2007-C5; DECO 6-UK2; DECO 8-C2; ECLIP 2006-3; ECLIP 2006-4; FHSL 2006-1; FIP Funding; GSMS 2013-GC14; JPMCC 2014-DSTY; LBUBS 2006-C1; LBUBS 2006-C1 & LBUBS 2006-C7; MLMT 2002-MW1; MSC 2007-IQ14; MSC 2007-XLF; MSC 2012-C4; TMAN 6; UBS 2012-C1; WBCMT 2006-C23; WBCMT 2007-C33; WFRBS 2013-C12; WFRBS 2013-C14; WINDM X; WINDM XIV; WTOW 2007-1

CMBS

Concerns rise for recent CMBS

October remittance indicates that US$2.3bn of US CMBS 2.0 loans were newly watchlisted, including a concerning number of recent-vintage loans. The 2015 vintage accounted for almost US$200m of these watchlistings, which is the highest amount yet for the new vintage.

The 2014 vintage contributed the highest watchlistings total at US$726m, although the 2011 vintage was not far behind at US$720m. Several watchlistings appear to be due to performance-related issues such as declining performance and tenants vacating after lease expiry.

The curing of the US$96m Ty Warner Hotel portfolio in MSC 2012-C4 (SCI 21 October) contributed to a decline in the balance of loans in special servicing. However, six loans for a total of US$108m across 2010-2015 vintages were transferred into special servicing for the first time, while eight loans of US$79m in balance turned 30 days delinquent.

The largest loan, by outstanding balance, transferred into special servicing was Fontainebleau Park Plaza in MSBAM 2015-C21 (see SCI's CMBS loan events database). This is one of the fastest transfers to special servicing for a CMBS 2.0 loan and is the result of consistently late mortgage payments.

Special servicing commentary for the Fontainebleau loan indicates that the borrower has failed to cure a 30-day delinquency and that there is a US$615,000 mechanic's lien, suggesting the borrower has also failed to pay bills on the property. "While the property itself appears to be in decent shape, it is unclear why the borrower is failing to pay the mortgage," comment Barclays analysts.

The US$24m Woodlands Square Shopping Center matured in August and was transferred for maturity default in the JPMCC 2010-C2 trust. The loan has performed above underwriting DSCR, with most recent 1H15 DSCR of 1.71x, and while the borrower is looking to pay off the loan through a short-term refinance or sale, the analysts note that it does face near-term lease expiration risk in the next few years.

The US$19m Value Place Williston loan in MSBAM 2014-C18 was transferred to special servicing, which the analysts attribute to the slowdown in regional oil drilling. While DSCR in the 12 months to July 2014 was solid at 1.7x, the analysts believe there has most likely been a rapid drop in performance in more recent months.

The month's most concerning new delinquency appears to be the US$13m Pathmark-Linden loan in MSBAM 2015-C22, where the underlying store has closed. Pathmark parent A&P has filed for bankruptcy, which could put lease payments in jeopardy despite the lease extending until 2025, and the analysts believe the loan "faces a high probability" of transferring to special servicing and potentially being liquidated.

"Just as in our special servicing list this month when loans were transferred due to a maturity default and refinancing, a couple of loans in our 30-days plus delinquent list have also gone delinquent as maturity occurred. The Rancho Cucamonga, California, retail property Haven Village Shopping Center with about US$10m in outstanding balance in COMM 2010-C1 matured in early October, with the borrower looking to extend the payoff date, according to watchlist commentary," say the analysts.

The US$7m Hilton Ocala Hotel loan matures this month with the borrower looking for payoff through either a sale or refinancing. Youngsville Crossing is also deemed delinquent with maturity this month.

The largest loan to go delinquent is the US$13.6m 840 Westchester loan. Commentary reveals that it reached covenant compliance default by failing to submit operating statements and rent rolls.

JL

CMBS

CMBS loan repeat use to grow

Over US$17bn of loans from prior securitisations has returned to US CMBS in the form of acquisition and refinance loans so far in 2015. Repeat borrowers are running at around 36% of total 2015 conduit issuance, although the figure is expected to grow over the next two years.

Deutsche Bank analysts cross-checked prior securitisation lists against various market sources to ensure loan comparisons were appropriate. While the overall figures are lower than the analysts expected, it is possible that their data does not capture all previously securitised loans, not least because new acquisitions are likely to be more challenging to track relative to refinancing activity.

Of the previously securitised CMBS loans, only 15% of repeat CMBS loans are acquisitions, while the other 85% were used to refinance. Filtering down the over 1,200 loans that have been reused for CMBS, a focus on single property loans reduces the balance to US$7.7bn across 450 loans.

"The majority of the 2015 repeat CMBS borrower population came from 2005 (US$3.8bn), consistent with the expectation that the refi-wave from the peak period is quickly coming due. Also interesting, a number of recently issued loans from 2014-2010 prepaid or were five years approaching maturing and prepaying slightly early," the analysts note.

Comparing prior appraisal values versus 2015 appraisals for the single property loan group reveals greatest appraisal growth for the self-storage sector at 48%, while hotel and multifamily growth of 37% and 33% respectively continues this strong trend. Valuation growth can be driven by multiple sources and, as only 2015 originations are being used to measure the growth, there is of course the potential for idiosyncratic factors to exert undue influence.

With many CMBS loans coming due over the next two years, the CMBS market will be provide a critical source of financing for a number of them. The analysts expect the proportion of resecuritised loans to grow.

"We would expect that previously securitised loans will increase as a percentage of new securitised loans, though the ability to cash out on these loans should decline. The one key uncertainty will be how larger loans are securitised (SASB or pari passu in conduit deals) and whether some of these loans shift back towards balance sheet lenders," comment the analysts.

JL

CMBS

Drug store deal CMBS impact weighed

Walgreens Boots Alliance is set to acquire Rite Aid for US$17.2bn, in a move which will impact almost US$10bn of CMBS conduit loans. There is slightly more 'high risk' exposure in legacy CMBS than in 2.0 deals.

Morgan Stanley analysts note that there are an estimated 12,674 Walgreens and Rite Aid stores across the US, with 3,248 of these located within five miles of the rival brand. These 3,248 stores are regarded as being at high risk of potential closure.

In total there are 1,640 CMBS conduit loans totalling US$9.8bn with exposure to either Walgreens or Rite Aid, with 439 loans (US$2.6bn) with exposure to high risk stores. The greatest exposures are US$100m in Greensboro, North Carolina and US$77.7m in Lynwood, California.

Of the 439 loans with high risk exposure, 285 are legacy loans and 154 are 2.0 loans. By balance this works out to US$1.5bn for 1.0 and US$1.1bn for 2.0.

"GSMS 2013-GC12 has the greatest [CMBS 2.0] exposure, with two loans totalling US$117.9m, or 10.2% of the total deal balance," note the analysts. "CD 2006-CD2 has the greatest [legacy] exposure, with seven loans totalling US$74.1m, or 6.2% of the total deal balance."

As for the CMBS indices, the index with the greatest exposure is Markit CMBX.3. There are 57 loans totalling US$336m referenced in that index, while CMBX.5 has 43 loans totalling US$334.3m and CMBX.4 has 33 loans totalling US$137m.

"Walgreens management is targeting US$1bn in synergies from internal efficiencies and a greater platform to sell Walgreens private-label brands. Our equity analysts note that management confirmed there is a divestiture cap in place, though details about its size were not disclosed," the analysts add.

JL

Structured Finance

SF head restored

William Moretti has been appointed md and head of MetLife's structured finance group for the second time. His role includes monitoring ABS/CMBS structures, opening new asset classes for investment and acquiring/selling public and private securities across all ABS sub-sectors, CMBS and CLOs.

Moretti most recently led a team of technical derivatives specialists/quantitative analysts after his first stint as structured finance head. Previously, he has worked in structured finance at PaineWebber and as a senior auditor at Arthur Andersen.

Structured Finance

Paloma adds portfolio manager

Sam Choi has joined Paloma Partners as a portfolio manager. He was previously md at Citadel and has also held senior roles at JPMorgan, Bear Stearns, Visible Markets and Lehman Brothers. His experience encompasses ABS and MBS management, as well as derivatives trading.

Structured Finance

ABS analyst brought in

Craig Branca has joined CoreLogic as vp, strategic accounts. The securitisation data analyst moves from Bloomberg, where he worked on mortgage products. He has also been involved in producing and managing ABS and RMBS data products for Lewtan.

Structured Finance

Underwriting duo poached

Kirk Meyers and Randy Newman have joined Wells Fargo's securitisation underwriting team. Both are working on ABS and MBS transactions, arriving from Hilltop Holdings.

Meyers has held a number of senior roles where he has worked in ABS, including at Southwest Securities and Banc of America Securities. Newman's previous roles have included a number of positions at Bank of America Merrill Lynch, including as an associate in structured finance and as an analyst focusing on RMBS.

Structured Finance

Moody's taps MBS reporter

Moody's has hired Jody Shenn as an analyst for its RMBS and ABS services. He was most recently a mortgage bond reporter at Bloomberg. Shenn's reporting roles have also included stints at American Banker and The Wall Street Journal.

Structured Finance

Investment manager makes changes

Mariner Investment Group has agreed to a number of strategic changes with majority stakeholder ORIX USA, including a reorganisation of its management structure. Mariner will continue to expand its lines of business, including the onboarding of some of ORIX USA's investment teams to develop new asset management opportunities for its clients.

The objective is to allow ORIX USA to leverage Mariner's infrastructure and distribution expertise to attract third-party capital to many of ORIX USA's own core investment strategies. Over the next six to 12 months, other ORIX USA teams are also due to be integrated into Mariner's product offerings.

Meanwhile, changes to Mariner's management structure are headlined by the establishment of a five-person operating committee, which will be responsible for executing strategy and day-to-day operations for the firm. The committee comprises of Mariner mds Charles Howe, Basil Williams and John Kelty, as well as two ORIX USA representatives, Christopher Suan and Allan Toole. The committee will report to the board of managers.

In addition, Bracebridge Young will step down as Mariner's ceo, as he moves on to become the new ceo for GATE Global Impact. Young will remain a member of Mariner's board of managers and serve as chairman of Mariner's impact investing advisory committee - which is set to be formed in the near future. However, Mariner founder William Michaelcheck will remain co-cio and chairman of the board of managers.

Mariner debuted its first CLO early this year, led by the effort of a credit team produced by ORIX USA members (SCI 9 January). Orix USA made its majority purchase into Mariner in 2010.

Structured Finance

Data firm inks rating partnership

Silverfinch is teaming up with Fitch Solutions to provide its insurer clients with access to Fitch's credit ratings. Fitch says that the credit ratings will help allow insurers to comply with Solvency 2 regulatory reporting and risk management capital requirements for their investment portfolios.

Fitch's 34,000 global credit ratings will now be included in Silverfinch's Solvency 2 look-through service. Asset managers who use Silverfinch will be able to incorporate the credit ratings at no additional cost.

Structured Finance

Law firm expands in California

Baker Botts is opening an office in San Francisco. It will be the firm's second office in California and it is expected to work closely with the team already established in Palo Alto.

Patricia Stanton, chair of the firm's real estate practice, will move from its Dallas office to take the role of partner-in-charge in San Francisco. The firm expects to grow the office and its practice capabilities quickly to meet client demand and take advantage of growth opportunities.

Structured Finance

SF team bolstered

Ashurst has recruited partners Scott Pierpont and Lee Ann Anderson to its structured finance team, based in New York and Washington, DC respectively. In a separate move, Eric Bothwell has been appointed partner in New York and Cameron Saylor has been appointed partner in the London office.

Pierpont joins the firm from Jones Day and has experience in structured finance, with a particular emphasis on CLOs and credit funds. Mitch Naumoff - who also has extensive experience in CLOs, structured finance and derivatives - has additionally been poached from Jones Day, as counsel in Washington, DC.

Anderson was previously at Sullivan & Cromwell and has experience in public and private securities offerings and derivatives transactions, with a focus on structured note and structured CD programmes. She also has expertise in structured finance and fixed income products transactions.

Bothwell was the former head of Goldman Sachs' CLO team and has been a CLO and funds practitioner for over 20 years in various capacities. Saylor has extensive experience across the securitisation market and has a particular focus on CLOs. He advises arrangers and collateral managers on both European and US transactions.

CLOs

CRE CLO initiative set up

CRE lender Hunt Mortgage Group has hired Amy Shah to help launch and build a CLO platform for the firm. She joins as vp in the proprietary lending team and will report to Hunt director Michael Becktel.

"In addition to establishing a CLO programme for Hunt Mortgage Group, Amy will also focus heavily on placing bridge loans and will work to help expand the balance-sheet lending programme," says Becktel. He adds that the proprietary lending group plans to begin issuing CRE CLOs as a part of a long-range securitisation plan.

Prior to joining Hunt Mortgage Group, Shah was with Resource Real Estate as vp in its CRE capital markets division. During her tenure there, she structured, priced, securitised and managed several CRE CLO transactions. Before that, she was a real estate finance attorney at Ledgewood Law Firm, where she drafted documents for first mortgage, mezzanine, preferred equity and capital markets transactions.

Risk Management

ICE set to buy data giant

ICE is set to acquire Interactive Data Corporation in a US$5.2bn deal from Silver Lake and Warburg Pincus. The deal will include a payment of US$3.65bn in cash and US$1.55bn in ICE common stock, as ICE seeks to expand its service to markets by adding technology platforms and increasing new data and valuation services.

With the acquisition, ICE will obtain IDC's services that provide financial data for  mutual fund, bank, asset management, hedge fund, securities and financial instrument processing, and administration sectors. The combined company will offer customers an integrated platform from the two service providers.

Terms of the agreement were unanimously approved by the boards of both companies, with the value of the transaction based on the 10-day volume weighted average price of ICE's stock on 23 October. The agreed purchase figures present a split of 70% in cash and 30% in shares to be paid by ICE.

The aggregate number of ICE common shares offered is 6.5 million shares and up to 2.2 million additional ICE common shares based on a sliding scale from US$179.07 to US$238.76. This is in the event that ICE's weighted average stock price over a specified period leading up to closing is less than US$238.76.

ICE says that IDC revenues for 3Q15 are expected to be US$238m. Expense synergies of US$150m are to be largely completed by the third year following the completion of the transaction - which is expected to close by the end of this year. Adjusted earnings accretion of approximately 5% is expected in the first year post-closing, excluding deal-related amortisation.

ICE's lead financial advisor for the deal is Broadhaven Capital Partners, with financing being provided by Wells Fargo and Bank of America Merrill Lynch. ICE's legal advisors are Sullivan & Cromwell and Potter Anderson Corroon. The principal financial advisers to IDC were Goldman Sachs and Credit Suisse, with Simpson Thacher & Bartlett providing its legal advice.

RMBS

Agency charged over misrepresentation

DBRS has agreed to pay nearly US$6m to the US SEC over charges that it misrepresented its surveillance methodology for rating certain RMBS and re-REMICs. The rating agency allegedly failed to conduct a monthly monitor of the transactions over a three-year period.

According to the charges, DBRS' rating methodology involves a three-step quantitative analysis of each transaction, followed with a review by a surveillance committee. However, DBRS supposedly failed to fulfill either obligation. Further, it is believed that the committee only reviewed a limited subset of the outstanding RMBS and re-REMIC ratings when it did choose to convene.

"DBRS did not have adequate staffing and technological resources to conduct surveillance for each of its outstanding RMBS and re-REMIC ratings monthly, as stated in its surveillance methodology," the charges state. They add that DBRS did not disclose changes to certain surveillance assumptions as the methodology stated that the firm would do.

DBRS will pay over US$2.74m for rating surveillance fees that it collected from 2009 to 2011, plus prejudgment interest of US$147,482 and a penalty of nearly US$2.93m. The rating agency also agreed to be censured and retain an independent consultant to assess and improve its internal controls.

ABS

Marketplace ABS approach outlined

KBRA has set out its methodology for rating securitisations of consumer marketplace loans in a new report.

The rating agency's approach to the asset class is based on the methodology it uses to rate typical ABS, but it says it is aware that marketplace lending is a new and rapidly changing industry. Any rating of a marketplace lending securitisation would therefore need to take account of this.

KBRA says that it looks more favourably on marketplace lending platforms that "fund loans directly on their balance sheet and retain a portion of the credit risk of borrower loans," as opposed to those that "only originate, sell and service such loans".

In the report, the agency highlights the difference in how R&Ws are issued in a typical ABS and a securitisation of marketplace loans, stating that the marketplace lending sector hasn't yet evolved to the point where there are standardised R&Ws. KBRA takes a more favourable view if R&Ws are provided by "financially strong companies and are similar to those seen in standard credit card and consumer loan securitisations".

As well as adequate R&Ws, a rating of securitised consumer online marketplace loans would be bolstered by loan originations coming from more established platforms with strong management as well as sufficient performance history on the loans.

The agency states that a marketplace loan securitisation may be limited by "issuer and servicer operational capabilities and experience, asset quality and performance history, MPL platform structure, transaction structure, including R&Ws, and legal and regulatory risks."

Structured Finance

APAC ratings 'stable'

Fitch affirmed a total of 133 APAC structured finance tranches in 3Q15. No ratings were upgraded, downgraded or withdrawn during the quarter.

Of the affirmed tranches, 53 were prime and non-conforming RMBS bonds backed by Australian or New Zealand properties, while 47 were CMBS backed by Japanese properties and 14 were ABS backed by loans in New Zealand. The remaining affirmations include: five Korean ABS, five Singaporean ABS, three Indian ABS, four structured credit ratings, a CMBS rating from Singapore and an RMBS rating from Japan.

Fitch says that APAC economies continue to be supportive of structured finance asset performance, citing Australia specifically. The country's macroeconomic outlook has seen mortgage arrears drop to significant lows relative to current rate. The agency warns that significant increases in unemployment or decreases in property prices will inevitably have a negative effect on asset performance, but adds that ratings will likely remain unchanged in the medium term.

Most long-term ratings in APAC have stable outlooks. The exceptions are three Australian RMBS tranches placed on rating watch negative in June and three Australian ABS tranches, which have positive outlooks.

Structured Finance

Asian deal analysis set out

The analysis of securitisation transactions in emerging Asian economies requires thorough examination of various qualitative and quantitative factors, says Moody's. Credit considerations for developing Asian markets include legal and regulatory factors, as well as the quality of underlying assets.

On the legal front, Moody's says that there should be consideration of whether transactions have sufficient bankruptcy-remoteness protection. This includes the establishment of a bankruptcy-remote SPV and protection from the potential bankruptcy of the transaction's sponsors or sellers. In the case of China, the use of a special purpose trust provides stronger protection for the ring-fencing of the entrusted assets from the bankruptcy estate of a defaulted originator or issuer.

The underlying asset quality is the most important driver of the credit ratings of any securitised notes, adds Moody's. Areas in need of scrutiny include the probability of default on the assets, the chance of recovery in the event of default and the uncertainties associated with these default probabilities and recoveries. The agency is aware, however, that the lack of historical data works in contrast to the importance of data quality.

Moody's third consideration is operational and counterparty risk, noting that the strength of a securitisation depends heavily on the performance of all third parties, such as the servicer, cash manager and trustee. In some Chinese auto loan ABS, the diversified nature of the collateral pools highlights the risk of a disruption in servicing and the lack of replacement servicers.

A further consideration is currency and interest rate risk, as the hedging of currency mismatches is important in cross-border securitisations. In the case of the Chinese market, the underlying loans pay fixed rate interest to the originator in some transactions.

However, the interest rate on some classes of notes might be linked to the benchmark deposit rate that the People's Bank of China sets, which changes in accordance with changes in monetary policy. Therefore, a deregulation of interest rates could amplify such a mismatch.

Other considerations that Moody's cites are structure and credit enhancement, and local and foreign currency country risk ceilings. For the latter, risks could entail political instability, conflict and regulatory and legal uncertainty over, for example, the enforceability of contracts.

Structured Finance

Russian arrears could 'accelerate'

Moody's reports that the rate of arrears in Russian structured mortgage deals could accelerate if a further drop in oil prices exerts downward pressure on the country's economy. The agency says that Russia's struggling economy has already pushed up arrears in RMBS and ABS from the jurisdiction.

Delinquencies of 60 days and above increased by 10% or more in 1H15 in about two-thirds of the outstanding Russian RMBS transactions that Moody's rates. The agency currently rates 39 outstanding Russian RMBS and two Russian ABS deals.

"Russian property values are decreasing significantly in US dollar terms due to the rouble's devaluation," says Maria Divid, avp and analyst for Moody's. "This will increase the loss severity on defaulting loans denominated in foreign currencies. On the other hand, losses will be more contained for rouble-denominated mortgage loans, owing to low LTV ratios in loan portfolios and stable nominal house prices in rouble terms."

Nonetheless, Moody's notes that the low proportion of US dollar-denominated mortgages alleviates the impact of the rouble's depreciation on Russia's housing market. The agency warns, however, that a number of issues could still arise, including macroeconomic pressure causing borrowers' real incomes to fall, unemployment increasing and a drop in borrowers' ability to pay their debt.

RMBS deals from less creditworthy originators, and which comprise loans denominated in US dollars, are believed to be more susceptible to performance pressure. Moody's observes that deals from less creditworthy originators will suffer more, underlined by a more pronounced disparity in deal performance.

"Our overall expected loss assumptions still reflect our expectations regarding defaults and losses in Russian mortgage deal portfolios," adds Divid. "But for weaker originators, the worsening performance of the portfolios may impact our assumptions. However, most of the outstanding transactions have benefited from deleveraging that may offset the effect of an assumption increase."

Structured Finance

Safe harbour rule finalised

The US FDIC's board has approved a final rule regarding the treatment of financial assets transferred in connection with a securitisation. Certain provisions adopted by the criteria for a securitisation safe harbour are set under the final rule.

A recent Chapman and Cutler memo notes that the rule clarifies requirements with respect to the retention of an economic interest in securitised financial assets linked to the effectiveness of risk retention regulations adopted under Section 15G of the Securities Exchange Act. It specifically sets out that the FDIC, as a receiver or conservator of an insured depository institution, will not exercise its authority to repudiate contracts and recover or reclaim financial assets transferred in connection with securitisation transactions.

The rule specifies that the securitisation safe harbour requirements for risk retention are satisfied if the transaction documents require retention of an economic interest in accordance with Section 15G regulations. In order to benefit from the safe harbour, the documents governing the issuance of ABS deals must require retention if the issuance occurs on or after the date on which compliance to the regulations are required.

As a result, the safe harbour does not require inquiry as to whether any party actually complies with the risk retention requirements of the transaction documents. The rule also clarifies that no action need be taken with respect to issuances of ABS that close prior to the regulations' applicable compliance date. Finally, the rule permits adoption by securitisation sponsors to comply with the Section 15G requirements earlier than the mandatory compliance date.

CDO

Trups upgrades to 'temper'

Fitch suggests that the rate of future upgrades for US bank Trups CDOs could temper due to slowing bank collateral redemptions. The lack of apparent impetus for redemptions to accelerate further supports the argument of an impending slowdown.

Fitch explains that the cost of capital will be at the forefront of issuers' decisions to redeem early with their Trups, in contrast to changes in the regulatory treatment of Trups in more recent years. While almost half of the issuers deferring at the end of 2Q13 have cured, re-deferrals have picked up most recently. In addition, many re-deferrals took place shortly after issuers cured, which may suggest that some of the re-performing banks have not fully recovered and may need additional time to strengthen their capital base.

In addition, a relative contribution from excess spread to CDO note amortisation diminished compared to 2014. This trend is expected to continue as more coverage tests come to compliance. Further, increasing portfolio concentration and expected slowdown in redemptions could get in the way of future bank Trups CDO upgrades, especially at an investment grade level.

CLOs

CLO ratings continue to rise

Upgrades continued to dominate the US CLO market in 3Q15, reports S&P. The rating agency raised 141 ratings from 42 transactions, while there were no downgrades.

"Several of these upgraded US CLOs benefited from liability paydowns, which have increased the overcollateralisation ratios. These conditions and the CLOs' low exposure to defaulting and distressed issuers have increased the credit support available to the notes and made these tranches eligible for upgrades," says S&P credit analyst Jimmy Kobylinski.

CMBS

Watch positive for StuyTown CMBS

The anticipated pay-off of the Stuyvesant Town/Peter Cooper Village loan (SCI 21 October) has prompted Fitch to place 12 bonds in four CMBS on rating watch positive. The rating agency has also revised its outlook for one class of notes.

The positive watch placements are due to the potential sale of the loan for US$5.3bn, which is likely to result in a full pay-off of the loan including fees, expenses and advances, as well as additional funds for gain-on-sale reserves for the individual transactions (SCI 21 October). The agency's actions do not reflect the potential for interest or principal loss recoveries based on gain-on-sale provisions.

The classes placed on rating watch positive are: COBALT CMBS Commercial Mortgage Trust Series 2007-C2 classes AMFX, AM, AJFX and AJFL; MLCFC Commercial Mortgage Trust Series 2007-5 classes AM and AMFL; MCCFC Commercial Mortgage Trust Series 2007-6 class AM; and Wachovia Bank Commercial Mortgage Trust Series 2007-C30 classes AM, AMFL, AJ, B and C.

The revised rating outlook is for the MLCFC 2007-6 US$728.9m A4 class, which is rated triple-A. The outlook has been revised from negative to stable.

CMBS

RFC on triple-net lease approach

S&P is requesting comments on its proposed methodology for rating North American single-tenant real estate triple-net lease-backed securitisations. The proposed criteria would apply to all new and outstanding triple-net lease securitisations backed by commercial properties in North America.

S&P explains that a triple-net lease is a lease agreement between a lessor and a lessee where the lessee is generally responsible for all of the costs related to the leased asset, in addition to the rent paid under the lease. These responsibilities may include the payment of real estate taxes, insurance and maintenance on the leased asset.

Comments on the proposed criteria can be submitted to the agency by 12 November.

Risk Management

Loan analytics service launched

Markit has launched a new information service covering credit and portfolio analysis for investment professionals focused on bank loans. Markit WSO Credit Manager centralises data to assist portfolio managers and credit analysts in selecting investments, monitoring credit performance and identifying risk.

Credit Manager streamlines credit selection with screening functions that filter investment opportunities based on specific criteria. It also alerts users about changes to portfolio holdings and provides dashboards in the application, which display portfolio level risk and performance information.

The product includes portfolio management services, loan pricing, loan indices, loan reference data, agent servicing portals, automated trade settlement, loan messaging hubs, counterparty identifiers, and data and front office solutions. CVC Credit Partners and other industry experts are accredited with helping design the product.

RMBS

South African affordability analysed

South African borrowers whose mortgage debt backs RMBS are "much more likely" to make regular payments than other borrowers, says Moody's. This is expected to remain the case, even if interest rates rise materially.

Should interest rates rise by 3%, only an additional 1% of borrowers would have difficulties repaying their mortgages. To affect an additional 10% of borrowers, rates would have to increase by up to 9%, according to the agency.

The savings rate in South Africa has been negative since 2005 and the labour market also remains weak, impacting borrower affordability. However, Moody's notes that borrowers who have loans in securitised pools typically have stronger credit profiles, which mitigates suchs risks.

South African RMBS loans are all linked to floating interest rates, but collateral pools are well seasoned and average LTVs are low. Average DTI is also very low compared to unsecured loans and securitised borrowers have stronger credit profiles, higher salaries and more seasoned loan profiles - at an average of 6.7 years for securitised mortgages - than the general population.

RMBS

RMBS servicers 'improving'

US RMBS servicers are showing improvements in managing challenged portfolios amid difficult circumstances, says Fitch. This includes the difficulty of working within a framework of tighter compliance and regulatory scrutiny.

Fitch notes that the costs of servicing continue to rise in concert with an increased compliance focus and enhanced regulatory scrutiny, while higher capital requirements may become an issue for smaller servicers. More capital may also be required to be set aside as rates rise and mortgage servicing rights values increase. As a result, rising costs could ultimately lead to smaller servicers seeking strategic alternatives.

Nonetheless, Fitch believes that its current ratings and outlooks for servicers in the market are indicative of generally good performance and improved stability. For example, 9% of servicers rated by the agency that work within RMBS receive a level rating of one or one-minus, the highest rating number by the agency. Meanwhile, 54% receive a level two rating and no servicers carry a level five rating - the lowest rating level.

According to Fitch's criteria, level one servicers demonstrate superior performance in overall ability, with all areas of the organisation operating at top efficiency and productivity. Level two servicers show high overall performance, while level five servicers would demonstrate limited to no proficiency in servicing ability.

No servicer ratings are on rating watch, also indicating that there is not a heightened probability of rating changes in the near term. There is a stable outlook for 65% of the US RMBS servicer ratings, with 18% of the ratings on outlook positive and 17% on outlook negative.

RMBS

Largest ACIS yet inked

Freddie Mac has obtained its largest insurance policy to date under its ACIS programme. The transaction transfers much of the remaining credit risk associated with STACR 2015-DNA2.

The policy transfers up to US$502.6m of losses on a pool of single-family loans acquired from August to November 2014. It brings Freddie Mac's total insurance coverage up to US$1.5bn this year through seven ACIS transactions.

"We are pleased to announce the execution of this latest ACIS policy. The size of this transaction reflects the continued significant interest from the industry and demonstrates that the insurance sector has strong, deep capacity for this risk," says Kevin Palmer, Freddie Mac single-family strategic credit costing and structuring vp.

RMBS

Invitation extension in the balance

Kroll Bond Rating Agency has placed all of its outstanding ratings for Invitation Homes 2013-SFR1 on watch developing. The agency will keep this status in effect until it receives details from the servicer, Midland, as to whether the borrower will exercise one of its three one-year maturity extension options prior to the loan's current maturity date of 9 December.

Midland recently placed the loan on its watchlist since the borrower has not yet submitted the required written notice to extend, despite now being within 90 days of maturity. Nonetheless, the loan is currently performing, which has no connection to the watchlisting decision.

To exercise the first extension option, the borrower must deliver written notice to the servicer no later than 9 November. In addition, the borrower must obtain and deliver to the servicer one or more replacement interest rate cap agreements from an approved counterparty in a notional amount equal to the outstanding principal balance of the loan. Such a cap agreement must be effective for the duration of the extended loan term.

Provided that the borrower satisfies the conditions for extension, the servicer will extend the maturity date of the loan to 9 December 2016. Kroll will also resolve the current watch developing placement. If the borrower elects not to exercise the extension option, all unpaid principal and interest due in respect of the loan must be paid in full no later than 9 December this year.

RMBS

Novel RMBS marketing

TSB Bank has begun roadshowing its debut UK prime RMBS. Duncan Funding 2015-1 will not be issued from a regular master trust structure, but will maintain a revolving period of five years, with the ability to add new assets.

The transaction is expected to offer senior tranches denominated in both sterling and euros. The A1 tranche has a WAL of three years, whereas the A2A is structured at 5.1 years.

A slow-paying A2B tranche will be retained, along with all other subordinated tranches. The A1 tranche will follow scheduled amortisation, whereas all other senior and mezzanine notes are pass-throughs.

Credit enhancement for the senior tranches equals 10.2% and consists of subordination and a 1.7% reserve fund, with the FORD scheduled for December 2020. Although tranche sizes have not yet been set, Fitch says that the pool's preliminary size totals £2.3bn.

The average loan balance within the pool stands at £112,122, with seasoning averaging 3.4 years and LTVs averaging 63.7%. The pool is geographically well diversified across Great Britain, with no area having a concentration of more than twice the population.