Contents

Secondary markets

Euro secondary solid

Last week closed on a solid note in the European securitisation secondary market.

Secondary spreads were once again firm across the board on Friday, though volumes were lower than previous sessions. Prime and peripheral assets remain in the foreground.

For the former, focus is primarily on shorter tenors, but levels have held up across the sector more widely. Meanwhile, peripherals have edged tighter led by buying interest in Italian paper, but Portuguese bonds are also continuing to catch a healthy bid.

There is currently only one BWIC on today's European schedule - a single €2.3m line of FAXT 2005-1 A2E due at 14:30 London time. The ABS CDO tranche has not covered on PriceABS in the past three months.

Secondary markets

Euro secondary seeks change

The European securitisation secondary market is still stable and fairly quiet, but that could change quickly.

"The market remains stable as it has been for the last week despite broader market volatility," says one trader. "Not a lot went on yesterday even though the wider market was calm."

However, the trader continues: "Secondary market tone feels constructive and while wider volatility means there is reluctance to push tighter for now, it won't take much to change that. If we see a few more calmer sessions in broader markets, or even a rally, we'll move in."

Activity in terms of BWICs is certainly picking up today after two quiet sessions. There are currently seven BWICs on the European schedule.

The chunkiest auction is a mixed list predominantly involving peripheral RMBS due at 13:30 London time. The eight line €40.8m BWIC consists of: BERCR 8 A, BFTH 13 A2, BFTH 6 A, BFTH 7 A, GRIF 1 A, KNGWD 2015-1 A, LUSI 5 A and VELAH 4 A2. Only two of the bonds have covered on PriceABS in the past three months, both on 24 November - BERCR 8 A at 98.02 and VELAH 4 A2 at 97.9.

Secondary markets

US CLOs stalled

The hoped for New Year revival in the US CLO secondary market is still stalled.

"Everyone is just waiting and watching," says one trader. "Waiting for the secondary market to get going in 2016 and waiting for new issue pricing - there are a few deals marketing, but nothing concrete to go on yet."

Nevertheless, the trader adds: "There's nothing to suggest things are bad. It's mainly a result of last week's stock market volatility holding everything up."

Consequently, the trader says: "Secondary is still in price discovery mode with no decent prints seen yet this year. Yesterday did see a flurry of BWICs announced for this week, which means there's now a few 100 million circulating for trade, but there's not much on those lists that will give us useful clues as to 2.0 levels."

There are currently four BWICs on today's US CLO calendar. The largest of which does involve 2.0 paper and is due at 13:00 New York time.

The eight line $45.5m list comprises: ALM 2013-8A D, BSP 2014-VA E, CECLO 2014-22A C, INGIM 2012-4A C, JTWN 2012-1A C, OZLM 2015-11A D, OZLMF 2012-1A BR and VENTR 2012-11A CR. Only one bond has covered with a price on PriceABS in the past three months - VENTR 2012-11A CR at L97H on 18 November.

Secondary markets

Euro ABS/MBS active

It was an active day across the bulk of the European ABS/MBS secondary market and today looks set to be the same.

Yesterday's activity was led by BWIC activity, where the majority of line items traded well. Prints were notably strong on the Spanish names in for the bid.

Volumes built off the back of BWIC supply and thanks to a continuing broadly positive tone secondary spreads were overall flat to slightly tighter. In particular, demand is still being seen in Italian paper and prime assets. At the same time, rumours of a possible Aire Valley call is fuelling buying interest in the shelf itself and other UK non-conforming/buy-to-let bonds.

There are already six ABS/MBS BWICs on today's European calendar. The largest is a euro and sterling mix of UK non-conforming seniors.

Due at 13:00 London time, the ten line 166+m original face list comprises: ESAIL 2006-3X A3A, MARS4 4X A3C, MFD 2008-1 A2, NDPFT 2014-1 C, RMAC 2003-NS2X A3, RMAC 2003-NS3X A3, RMS 20X A2A, RMS 21X A3C, RMS 22X A3A and RMS 25 A1. Two of the bonds have covered with a price on PriceABS in the past three months, last doing so as follows: ESAIL 2006-3X A3A at 96.677 on 20 October and MARS4 4X A3C at 98.4 on 13 November.

There is also a French ABS OWIC due by 15:30. It consists of up to €50m each of CAR 2014-F1V A, GNKGO 2013-SF1 A, GNKGO 2014-SF1 A, MCCPF 2015-1 A and TTSOC 2015-1 A.

Secondary markets

Euro secondary unchanged

The European securitisation secondary market looks to be keeping to the same pattern seen in previous sessions - quiet away from a reasonably active BWIC calendar.

"This week flows have been relatively quiet because of the very high volatility in broader credit," says one trader. "Today is looking like it will be no different."

There have, however, been some pockets of liquidity, the trader notes. "We're continuing to see interest in peripherals, notably Italian and Spanish bonds. At the same time, UK non-conforming volumes are stabilising from the high levels seen last week, with focus now on select names - Aire Valley and Paragon deals in particular are trading well. Overall, though, it's pretty tough across ABS and MBS."

The same is also true in CLOs, the trader adds. "CLOs are still waiting for something to print in primary to give some clue as to 2016 levels - there was talk of a deal pricing today, but given market conditions it may be delayed. Nevertheless, secondary spreads are holding up - 1.0s are trading well and even though there are not a lot of flows in 2.0s there isn't much movement there."

In common with the last two sessions, today sees a healthy BWIC supply. There are currently six lists on the European schedule - one involving ABS CDOs, three CLO auctions and two UK RMBS lists.

One of the latter is the largest BWIC today - 11 line items amounting to £83.867m original face. Due at 15:00 London time it comprises: ALBA 2005-1 B, ALBA 2007-1 D, BRASS 2011-1 A, CELES 2015-1 C, MANSD 2007-2X B2, MFD 2008-1 A1, MORGT 2014-1 B1, PARGN 10X A2A, RMS 25 A1, SLKRD 2012-1 A and SPF 2005-B A.

Three of the bonds have covered with a price on PriceABS in the past three months, last doing so as follows: BRASS 2011-1 A at 100.4 on 7 January; RMS 25 A1 at 101.95 on 13 January; and SPF 2005-B A at 96.28 on 13 November.

Secondary markets

Euro secondary steady

The European securitisation secondary market continues to see steady activity and pricing levels are for the most part stable.

Once again, yesterday's activity was driven primarily by BWICs and flows off the back of those auctions. The main interest surrounded autos following the Renault raid with a few sellers emerging after the news broke, but by the close buying interest had returned and spreads in the sector were generally unchanged.

Elsewhere, the major points of activity in recent days saw slightly less volume, with peripherals much quieter though continuing demand ensured levels were unmoved. Meanwhile, UK non-conforming also saw a dip in activity and tone softened a little but to negligible effect on spreads.

The BWIC calendar is also diminished today with only two auctions on the European schedule so far, both of which are due at 14:00 London time. One involves a single €400k clip of SIVIG 2012-1 A, which hasn't traded on PriceABS in the past three months.

The other is a 17 line 106.44m mixed list comprising: BCARD 2014-1X A, BUMP 6 A, CHSNT 2014-1 A, DFUND 2015-1 A1, DOLPH 2013-2 A, GFUND 2014-1 A2, GLDR 2015-A A, HYPEN 4 A2, LAN 2014-2A 2A, LEEK 18A A2D, MOTOR 2015-1X A1, PARGN 20 A, PARGN 23 A2, PERMM 2015-1X A2, RMS 19X A2A, SMI 2015-1X 2A2 and WARW 1 A. Four of the bonds have traded on PriceABS in the past three months, last doing so as follows: BCARD 2014-1X A at 99.77 on 12 January; BUMP 6 A at 100 on 17 November; LAN 2014-2A 2A at 99.755 on 9 December; and WARW 1 A at 98.11 on 13 November.

Structured Finance

SCI Start the Week - 11 January

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

Pipeline
Pipeline additions picked up last week as market participants returned to their desks for the new year. As well as six new ABS there was also an ILS, three RMBS, a CMBS and a SME CLO announced.

The ABS were: US$1.2bn AmeriCredit Automobile Receivables Trust 2016-1; CNY2.79bn Driver China Three; ¥30bn Driver Japan Five; US$340m DT Auto Owner Trust 2016-1; €610.3m Globaldrive Auto Receivables 2016-A; and US$260m Westlake Automobile Receivables Trust 2016-1.

US$300m Galileo Re 2016-1 was the ILS, while the RMBS were US$302m Agate Bay Mortgage Trust 2016-1, Gosforth Funding 2016-1 and US$996m STACR 2016-DNA1. The CMBS was US$703.6m CFCRE 2016-C3 and the CLO was Project Salisbury.

Markets
As with the start of 2015, 2016 has begun with difficult global markets. US agency RMBS has not been unaffected by this, with Barclays analysts noting that mortgages underperformed Treasury and swap hedges last week. They say: "FN 3s underperformed their Treasury hedges by 3 ticks, while FN 3.5s were down 2 ticks. FN 4s were almost flat, while FN 4.5s outperformed by 0.5 ticks. The underperformance against swaps was much higher, as swap spreads have tightened 2bp (as of Thursday's close) since last Wednesday."

Anxiety levels are rising in US CMBS, say Citi analysts, as triple-A and triple-B minus spreads widened 5bp and 20bp respectively after the Chinese stock market selloff. They say: "The ripple effect of the overseas developments could potentially lead to real risks to CMBS unlike previous macro events that provoked only spread volatility."

The European RMBS market has made a fairly positive - if quiet - start to the year, report Bank of America Merrill Lynch analysts. They say: "Despite some weakness in broader credit markets, spreads are steady across RMBS sectors. Traders report an overall positive bias, as investors seem to be getting ready to add risk. In the periphery, a couple of BWICs traded strongly (Italian seniors, Spanish sub-IG mezz), supply was low."

Editor's picks
RMBS speeds to jump: Several Alt-A and prime jumbo US RMBS deals could experience significantly higher voluntary prepayment speeds this year as a high number of loans are set to switch from interest-only to amortising. Morgan Stanley analysts identify certain key characteristics to help predict a borrower's repayment fate...
US CLOs lack commitment: The US CLO secondary market is suffering from a lack of investor commitment in all but the most liquid bonds. "It's a new year, but still the same themes," says one trader. "We keep switching back and forth between risk-on and risk-off, primarily taking our cue from high yield spreads..."

Deal news
• Noteholder meetings have been scheduled for 27 January for defunct DSB Bank's Monastery 2004-I and 2006-I, and Chapel 2003-I and 2007-I transactions. The meetings are in connection with offers made by the DSB bankruptcy trustees to the relevant SPVs to settle unpaid duty of care claims in full.
• Based on its monthly review of the CMLT 2008-LS1 CMBS, KBRA notes that four REO assets underlying the transaction were up for bid in online auctions in December, three of which sold and one failed to trade. A total of 28 assets securing the transaction have now been auctioned since September.
• Macy's has announced 36 new store closures as part of a cost-reduction plan. Morgan Stanley CMBS strategists identify 10 loans totalling US$501m across 11 CMBS that have exposure to the closures.The largest loan by allocated balance with exposure is the US$79.3m Valley Mall, securitised in JPMCC 2006-LDP6.
• An auction to settle the credit derivative trades for Abengoa CDS is to be held on 14 January, after a failure to pay credit event was determined in connection with the entity (SCI 14 December 2015). The move follows the company's failure to pay coupons under its €750m Euro CP programme.
• Banca Monte dei Paschi di Siena (BMPS) has sold a non-performing loan portfolio to Epicuro SPV, a securitisation vehicle financed by affiliates of Deutsche Bank. The portfolio is composed of just under 18,000 borrowers, with a total book value of around €1bn.

Regulatory update
• The purchaser of an unrated junior tranche in the CDO transaction STACK 2006-1 adequately pled justifiable reliance by stating that it relied on the credit ratings of the senior tranches, according to a recent New York Supreme Court appellate ruling. Judge David Friedman dismissed an appeal by Morgan Stanley, in a case that has significant implications for the limits on a sophisticated investor's obligation to perform due diligence.
• The US SEC has issued its two annual staff reports on credit rating agencies registered as nationally recognised statistical rating organisations (NRSROs). The reports show the NRSROs have made operational improvements and have enhanced process accountability, controls and governance.

Deals added to the SCI New Issuance database last week:
BBVA Portugal RMBS No. 1; DBL Funding Trust No. 1 series 2015-1PP; Dolphin Master Issuer series 2015-3; Magni Finance; Tombac No. 2; Vela Consumer

Deals added to the SCI CMBS Loan Events database last week:
BACM 2006-1; BACM 2006-5; BSCMS 2005-PWR7; BSCMS 2006-PW13; BSCMS 2007-PW15; CD 2006-CD2; CFCRE 2011-C1; CMLT 2008-LS1; COMM 2005-F10; COMM 2012-CR²; COMM 2014-CR14 & COMM 2014-LC15; COMM 2014-UBS5; CSMC 2006-C1; GECMC 2006-C1; GMACC 2004-C2; JPMCC 2004-LN2; JPMCC 2006-CB17 & JPMCC 2006-LDP9; JPMCC 2006-LDP6; JPMCC 2006-LDP7; JPMCC 2006-LDP9; JPMCC 2007-CB19; LBUBS 2006-C6; LBUBS 2007-C1; MLCFC 2007-5; MLCFC 2007-6; SELK 2014-3A; WBCMT 2007-C30 & WBCMT 2007-C31; WFCM 2015-C31; WFRBS 2013-C15

Structured Finance

Finalised FRTB 'still punitive'

The Basel Committee has released the final version of its fundamental review of the trading book (FRTB). While the final ruling remains punitive for securitisation, it is not as harsh as earlier drafts suggested it might be.

The final version has lower capital requirements than earlier versions recommended. However, the proposed requirements are still higher than the current SSFA standard.

JPMorgan analysts note that the biggest change between the initial proposal and the final ruling is the reduction in the credit spread shocks. Initial proposed multipliers were as high as 34% of high yield CMBS or any 'other' (i.e. non-ABS, RMBS or CMBS) sector, but has decreased to 3.5% for each of those. An initial multiplier of 4% for senior investment grade prime RMBS has now been reduced to 0.9%.

The final ruling also includes a reduction in the residual add-on from 1% to 0.1% of face value. Overall, capital levels for senior bonds will be 2x-5x higher than current levels, while subordinate bonds will continue to require dollar-for-dollar capital, so liquidity pressure is expected across securitised products.

"Despite the improvement in the final rule versus the draft, capital costs remain highly punitive for ABS sectors. ABS backed by high-quality assets and thin credit enhancement (e.g. prime auto loan ABS) will continue to see high capital charges, since the attachment/detachment levels are the main drivers of the capital calculation," say the JPMorgan analysts.

CMBS is subject to some of the highest credit shock multipliers. Taken with the long duration nature of the product, the CMBS sector is facing the most punitive capital charges.

Of the non-agency RMBS sectors, single-family rental and jumbo 2.0 triple-As are the worst affected. The analysts predict that credit risk transfer transactions should not be so dramatically impacted as their capital levels already exceed 100% of market value.

According to the analysts, the risk weight for the FORDO 2015-C A1 tranche, for instance, will increase from the current 61% to 119% under the final version of FRTB. However, this is lower than the previously proposed version, which would have mandated an increase to 137%.

The risk weight for JPMBB 2015-C31 A1 would have increased from 20% to 286%, but will instead be 77%. The JPMMT 2015-4 1A9 tranche risk weight would have increased from 20% to 252%, but will now rise to 67%.

Over the coming months US regulators are expected to modify the FRTB in order to bring it in line with the domestic jurisdiction. The ruling will be implemented on 1 January 2019.

JL

CLOs

CLO market concerns catalogued

While the US CLO market recorded its second-highest full-year issuance in 2015, CLO market participants remain concerned by fundamentals, technicals and liquidity. Oil prices are also a considerable concern, but interest rates are not, while risk retention clarity has continued to increase as the implementation deadline draws closer.

JPMorgan's sixth annual CLO market survey was conducted in December and polled 91 clients, the largest group of which were CLO debt investors, while managers, equity investors and others were also represented. By institution type, asset managers, hedge funds and banks were the most active survey participants, with asset managers accounting for a third of respondents.

While fundamentals are the biggest concern on a standalone basis, including supply and demand techincals and liquidity into a broader concern shows investors are most worried about the market's ability to absorb supply. JPMorgan analysts believe this is "quite telling" about the current market regime, as changing regulations significantly impact investor sentiment.

With the official implementation of risk retention requirements due later this year, there has been progress in developing risk retention strategies since last year's survey. Just over half of the survey respondents believe that less than half of managers in the market have a clearly defined risk retention strategy.

Whereas last year a full 35% of respondents believed that fewer than 25% of US CLO managers had a clear strategy, this year only 20% feel that way. Similarly, while last year only 15% felt that 50%-75% of managers had a strategy, this year the total has increased to 20%. The proportion of respondents who do not know how mangers are positioned has increased from 10% to 20%.

The buyer/seller ratio has improved to 14:1, while investors also apparently have less cash to spend. Of the survey respondents, 45% hold low cash (defined as 0%-5% cash). This is most likely related to the heavy issuance last year and the challenge of raising fresh funds when so many markets lost money.

Another 25% say that they have moderate cash levels (5%-10%). Around 15% have high cash levels (10%-15%) and the remainder claim to have very high (more than 15%) cash levels.

Lastly, while triple-A paper is still seen as cheap, equity is increasingly being seen the same way. Both US primary and secondary triple-A paper is judged to be cheap, as is US secondary equity. While there has been interest in US primary single-A paper, there has also been an increase in demand for European equity in both primary and secondary.

JL

CMBS

Distressed resolutions gather pace

January US CMBS remittance reports show that several larger loans from CWCapital's bulk liquidations have been resolved. JPMCC 2006-CB17, MLMT 2006-C1 and CD 2007-CD4 have so far been the main beneficiaries of the auctions, with the disposal of US$395m, US$231m and US$934m respectively across 60 loans.

The sales came in at slightly below appraisal, with net proceeds of about US$944bn on US$992bn in appraised value for the three deals' liquidated loans, according to Barclays CMBS analysts. "The underperformance was driven by weak malls that continue to take outsized losses and prices were also somewhat disappointing in large offices, such as the US$363m Bank of America Plaza and the US$89m Cerritos Corporate Center, both of which sold below appraisal. The US$225m Riverton Apartments in New York City sold above appraisal but likely below expectations, based on the strong performance of the Stuyvesant Town apartment complex, which has a similar history," they observe.

CD 2007-CD4 saw 30 loans resolved for total proceeds of US$520m, although liquidation expenses amounted to US$244m, resulting in about US$640m losses to the trust. The largest loan in the transaction - the US$225m Riverton Apartments - was sold with net proceeds of US$202m, above the latest appraisal of US$159m, but realised a US$112.5m loss after repaying about US$90m in liquidation expenses. The US$136m Citadel Mall was sold with net proceeds of US$20m (versus the latest appraisal of US$44.5m), but realised a US$131m loss after repaying about US$15m in outstanding advances and ASER.

The highest loss was on the US$117m Loews Lake Las Vegas property, which sold with net proceeds of US$24m, below its US$31m appraisal. As a result of losses previously taken, as well as large outstanding advances and ASER, the loan realised a US$132m loss (about a 113% severity). The Barcap analysts note that the proceeds were insufficient to repay servicer costs and so a US$15m charge was applied against interest proceeds this month.

The liquidations contributed to pay-downs of about US$206m and US$122m on the A4 and A1A tranches, while the losses wrote off all tranches below AJ, including US$41m of the AJ tranche. Interest recoveries paid off outstanding shortfalls for the D to H tranches and a portion of the J tranche.

Meanwhile, the largest loan liquidated was the US$363m Bank of America Plaza, pari passu securitised in JPMCC 2006-CB17 and JPMCC 2006-LDP9. The CB17 - which accounts for US$263m of the loan - remittance report implies principal proceeds of about US$159m were received and about US$42m in outstanding advances and ASER was repaid. This left US$116.6m distributable to the trust, realising a US$146m loss at a 56% severity.

Proportional numbers are expected to be applied to JPMCC 2006-LDP9 as well, once the remittance is available for the transaction.

Another large liquidation from JPMCC 2006-CB17 was the US$57m CityView Portfolio II, which received US$46m in liquidation proceeds. After repaying about US$29.6m in expenses, US$16.6m was available for distribution.

An additional 11 loans with US$75bn in balance were liquidated at 61% severity. Total losses wrote off the tranches below the B tranche, leaving it with about US$16.8m in ending balance. US$143.5m and US$42.5m was distributed to the A4 and A1A tranches respectively, while the ASB class received about US$5m in principal distribution.

Finally, MLMT 2006-C1 saw the US$88.5m Cerritos Corporate Center and the US$54.7m Raintree Corporate Center 1 & 2 loans resolved. An additional 15 smaller loans with US$88m in balance were also liquidated at a 56% severity.

The Cerritos Corporate Center sale resulted in proceeds of US$56m, which repaid US$6m in outstanding advances and ASER, realising a loss of US$38m to the trust. Raintree Corporate Center 1 & 2 received US$50m in proceeds, but had to repay US$36m in expenses, realising a US$41m loss to the trust.

Total losses for the deal came to US$121m, writing off tranches up to and including the D tranche, leaving the bond with US$16m in outstanding balance. About US$24m interest shortfalls were reimbursed from ASER and interest refunds, which reimbursed all outstanding shortfalls down to the J tranche, according to Barclays figures.

CS

CMBS

StuyTown pay-offs emerge

MLCFC 2007-5 has become one of the first CMBS to report distributions from the pay-off of the US$3bn Stuyvesant Town/Peter Cooper Village loan, resulting in the largest liquidation in the market's history with no loss (SCI passim). However, Barclays CMBS analysts note that the remittance report fails to answer key questions about excess proceeds and the amount paid for a mezzanine debt settlement.

Net proceeds of US$1.23bn repaid all advances (US$198.53m), ASER (US$53.37m) and principal on the US$800mn pari passu piece of the loan to the MLCFC 2007-5 trust. All previously applied special servicing fees were also repaid (US$15.54m).

But prepayment penalties were not repaid as expected and the amount available to the trust appears to be US$164m more than what was distributed. In addition, there is a US$532m gap between the gross and net sales price, which the Barclays analysts suggest could be related to a lawsuit or trustee US Bank seeking court opinion on how to handle default interest. There is also a gap between the reported sales price and the gross liquidation proceeds, which may be related to selling costs and the potential settlement with mezzanine debtholders over the deed-in-lieu possession of the property.

"We continue to expect yield maintenance eventually to be paid, based on our interpretation of the PSAs of the deals involved, and a sizeable amount of proceeds to CWCapital for delinquent interest - in addition to additional potential excess gain-on-sale recoveries after those are paid first," the analysts observe. "However, these pay-outs will likely be delayed until a decision is made on how to distribute the proceeds. If the extra proceeds not yet paid are eventually paid as yield maintenance and default interest is paid to CWCapital, this would imply a gain-on-sale distribution of about US$478m on the entire loan."

MLCFC 2007-6 has also posted its remittance report, showing that the US$202.2m piece of the StuyTown loan had been repaid. There were also sizable repayments of prior interest shortfalls.

All five of the deals with StuyTown exposure are expected to roll over the next few days.

CS

Structured Finance

SEC punishes insider trading

The US SEC has prohibited Steven Cohen from supervising funds that manage outside money until 2018 in order to settle charges that he failed to supervise a portfolio manager who engaged in insider trading while employed at his firm. Cohen's family office firms will also be subject to SEC examinations and must retain an independent consultant to review their activities.

The SEC found that Cohen failed to supervise Mathew Martoma, who was employed at CR Intrinsic Investors. Cohen is alleged to have missed red flags which should have prompted action and also to have placed similar trades himself, as well as having encouraged Martoma to talk to a doctor about non-public drug trial results to inform trading decisions. Based on such activity, Cohen's hedge funds earned profits and avoided losses of around US$275m.

Cohen is prohibited from serving in a supervisory role at any broker, dealer or investment adviser until 2018, must retain an independent consultant and adopt consultant recommendations and must submit to on-site SEC examinations of his registered or unregistered firms. The SEC is also able to extend the length of the settlement terms if it brings a new action against Cohen, a related entity or an employee supervised by him.

Cohen's entities, including CR Intrinsic, paid US$1.2bn to resolve criminal charges brought by the US Attorney's Office for the Southern District of New York in July 2013. CR Intrinsic also paid US$600m to settle SEC charges earlier that year. Cohen neither admits nor denies the SEC's latest finding that he failed to reasonably supervise Martoma.

Structured Finance

European property platform boosted

HIG Capital has added Graham Emmett to its real estate team. He joins as md and will be based in London.

Emmett was most recently an investment partner in Cheyne Capital's real estate division. He has also worked at firms such as ICG Longbow and was head of the European mezzanine debt investments team for Goldman Sachs' special situations group in a career spanning more than 25 years in the real estate sector.

Structured Finance

UK Mortgages staff strengthened

TwentyFour Asset Management has recruited Silvia Piva as a portfolio manager in its ABS team. She joins the team to work primarily on UK Mortgages, the firm's closed-ended fund launched in July 2015, which invests in UK residential mortgage pools and funds them in the UK RMBS market (SCI passim).

Piva was most recently a director in RBS's UK & Ireland asset-backed finance team. Prior to RBS, she was in corporate finance at Garnell Advisory in Milan.

Additionally, Shilpa Pathak is moving internally to focus on UK Mortgages. She joined TwentyFour in 2013 as an analyst on the ABS team with specific responsibility for developing system architecture and security modelling.

Structured Finance

AXA IM boosts SF team

AXA Investment Mangers has appointed The Duy Nguyen as senior portfolio manager. He will be based in Paris and report to co-head of securitised and structured assets Alexandre Martin-Min.

Nguyen will be responsible for managing multi-asset class portfolios within AXA IM's structured finance team. He was most recently at Natixis and has also worked at Société Générale.

Structured Finance

Client services bolstered

Rockstead has recruited Andrew Salter to act in the newly created role of director of client services. He previously served in Investec Bank's credit trading and investment unit, but before that was head of structured finance and head of funding at Kensington.

Additional recent hires at Rockstead include Liz Wade, who joined as head of operations, while Karen de Luca was named head of finance.

Capital Relief Trades

Fund offers core assets access

AXA Investment Managers has launched a fund offering investors access to the core lending activity of major European commercial banks. The AXA IM Partner Capital Solutions fund raised €230m last year.

As banks increase lending to their core professional clients, regulatory requirements to provide more upfront capital provide an opportunity for capital relief trades where the fund identifies suitable lending portfolios on the banks' balance sheets and provides junior exposure to those portfolios. AXA says the fund will combine the core lending capabilities of the commercial banks with its own ability to select the appropriate credit portfolio and negotiate the terms of each transaction.

The fund is targeting 8%-10% performance per annum. The team running the fund has worked with 15 banks over the last 15 years, giving it an edge when it comes to sourcing assets.

The team selects transactions made up of underlying assets from large cap corporate loans to small or mid cap loans portfolios. The portfolio selection process applied varies from line-by-line portfolio analysis to a more statistical and granular approach.

CDO

'Drag-along' rights disputed

In adjourned meetings, subordinate noteholders of Panther CDO III, IV and V last week passed an extraordinary resolution seeking to allow the issuers to pay legal costs in connection with a suit against Hayfin Capital Management. Class B and C noteholders of Panther CDO III and IV also passed the resolution.

The CDOs - which are managed by M&G Investment Management - hold class A and class B shares in ETG Holdings Jersey 1, which is the parent company of the EurotaxGlass Group. The ETG Group is party to senior and subordinated debt facilities advanced to Candle Holdco UK.

A shareholders' deed for the company includes rights of first refusal (ROFR) that require shareholder instruments to first be offered to existing shareholders on a pro rata basis prior to them being transferred. The deed also contains 'drag-along' provisions that permit a shareholder, who - as a result of a proposed transfer of shareholder instruments - would hold a majority of voting shares in the company, to require existing shareholders to transfer their shareholder instruments to it.

Cadogan Square CLO II last July served a transfer notice on M&G and other holders of ETG shares, in respect of a proposed transfer by it of shareholder instruments to funds managed by Hayfin. Hayfin contended that the effect of the Cadogan transfer would be that it and its affiliates would together own over 50% of the voting shares in the company and that it was therefore able to exercise drag-along rights under the shareholders' deed.

M&G disputes that Hayfin is eligible to exercise drag-along rights following completion of the Cadogan transfer, contending that the transfer notices did not comply with the requirements of the shareholders' deed as they failed to disclose the fact that Hayfin was also acquiring senior debt from the same third parties who were purportedly transferring the shareholder instruments to it. M&G believes that the connected, simultaneous transfers of senior debt allowed Hayfin to upwardly distort the price at which it was seeking to acquire the shareholder instruments.

M&G consequently commenced legal proceedings in the English Court on 18 November against Hayfin and ETG Holdings Jersey 1 in order to seek declarations that the transfers were void and that the drag-along rights are not exercisable. The Panther CDO issuers intended to support these legal proceedings either by joining the litigation as an additional claimant or by agreeing with M&G to bear a proportion of the costs and rewards of the suit as if it were a party thereto.

By supporting the proceedings, the issuers would become liable for a pro-rata amount of liabilities, costs, expenses and settlement amounts incurred, calculated with reference to its holding of class A shares in ETG pro rata to the class A shares held by M&G. The portfolio manager says it would keep the costs incurred under careful review at each stage of the legal proceedings to determine whether it is in the best interests of noteholders to continue to support the suit and to incur further costs.

M&G contends that supporting the legal proceedings increases the probability of the issuers retaining their shares and any consequential upside as a result of the continued holding, which is expected to outweigh the possible downside of incurring costs, expenses and settlement amounts in connection with the legal proceedings. In addition, the manager says that supporting the proceedings is important to "ensure that behaviour of the type that M&G believes has occurred in relation to the purported transfers does not become acceptable practice".

The extraordinary resolutions were therefore proposed to allow the issuers to pay legal costs in connection with the suit. However, the manager states that if the proposal is not approved by noteholders, the issuers will not support the legal proceedings.

CMBS

Online lender taps CRE pro

RealtyMogul.com has brought in Michelle Paretti as senior md, head of originations and underwriting. She joins following roles as senior md for the small balance CRE finance group at Guggenheim Partners and coo for Guggenheim CRE finance group.

Paretti has also previously been coo of illiquid alternative investments at Credit Suisse. In addition, she served as head of Credit Suisse's real estate finance and securitisation group's small balance loan programme.

CMBS

CBRE Dutch team bolstered

CBRE had hired Aart Visser as associate director in its Netherlands debt and structured finance team. He joins from Berlin Hyp, where he was commercial manager in real estate finance, responsible for sourcing and structuring CRE loans in a range between €20m and €200m.

CMBS

CMBS unit moves to sole ownership

Walker & Dunlop is to take full ownership of Walker & Dunlop Commercial Property Funding (WDCPF), its CMBS lending platform. Bob Restrick will join WDCPF as ceo.

Restrick has 25 years of experience in CMBS, having most recently served as md at Annaly Capital Management. WDCPF was formerly a joint venture between Walker & Dunlop and a fund managed by an affiliate of Fortress Investment Group.

CMBS

Real estate firm adds CMBS vet

Greystone has appointed Gregory Forester as md to lead its newly-formed hospitality-focused lending and investing practice. His initial focus will be on CMBS fixed- and floating-rate financing.

Forester has more than 28 years of experience in debt transactions originated for balance sheet, CMBS and loan syndication executions and was most recently commercial leader and md for GE Capital Real Estate's hotel lending group. He will be based in Greystone's Rockville, Maryland, office and report to Mark Jarrell, evp of the firm's non-agency lending activities.

Insurance-linked securities

ILS pro moves up

KPMG in Bermuda has made a number of promotions to its team, including Eric Heinrichs to md. Heinrichs is currently a partner for the firm, specialising in the insurance/reinsurance market. His experience extends to ILS funds in a number of classes. Prior to Bermuda, he was positioned as audit senior in Canada for KPMG.

Risk Management

BGC, GFI merger closes

BGC Partners has completed its merger with GFI Group. The announcement marks the end of a process that began in 2014 and included a bidding war with CME Group (SCI passim).

"While the front office operations of BGC and GFI will remain separately branded companies, we continue to make excellent progress on integrating our back office, technology and infrastructure," says Shaun Lynn, president of BGC. "We remain on target to reduce our financial services expense annual run-rate by at least US$90m by the first quarter of 2017."

In the process of closing the deal, GFI's previously largest stockholder Jersey Partners agreed upon a merger with BGC. The resulting subsidiary subsequently merged with GFI shortly afterwards, leaving the GFI brand as the surviving entity in this part of the deal.

The back-end mergers allowed BGC to acquire the remaining 33% of the outstanding shares of GFI common stock, giving it 100% ownership. Outstanding shares of GFI common stock following the merger were converted into the right to receive an amount in cash equal to US$6.10 per share.

As a condition to closing, Michael Gooch and Colin Heffron have resigned from the board of directors of GFI. Gooch retains the titles of vice chairman of BGC and chairman of the GFI division, while Heffron continues to be ceo of GFI.

RMBS

Chase settlement edging to end

JPMorgan has now paid US$3.68bn in consumer relief to 3,695 borrowers through 30 June 2015, according to the latest figures from RMBS Settlement Monitor Joseph Smith. The payments are part of an agreed settlement following claims that Chase, Bear Stearns and Washington Mutual packaged and sold bad RMBS.

The latest figures reveal a further US$126.25m in claimed credit through the first six months of 2015. In total, the bank is required to provide US$4bn in credit consumer relief by 31 December 2017.

Chase's internal review group reported that the bank claimed an additional US$206.24m in consumer relief in 3Q15, which would bring the total to nearly US$3.89bn. The Monitor is currently in the process of validating this relief.

RMBS

Working Group settlement agreed

Goldman Sachs has reached an agreement in principle to resolve the ongoing investigation of the RMBS Working Group of the US Financial Fraud Enforcement Task Force, relating to the firm's securitisation, underwriting and sale of RMBS from 2005 to 2007. The settlement will resolve actual and potential civil claims by the US Department of Justice, the New York and Illinois Attorneys General, the NCUA and the Federal Home Loan Banks of Chicago and Seattle.

Under the terms of the agreement, the firm will pay a US$2.385bn civil monetary penalty, make US$875m in cash payments and provide US$1.8bn in consumer relief. The consumer relief will be in the form of principal forgiveness for underwater homeowners and distressed borrowers; financing for construction, rehabilitation and preservation of affordable housing; and support for debt restructuring, foreclosure prevention and housing quality improvement programmes, as well as land banks.

The settlement is subject to the negotiation of definitive documentation. It is expected to reduce the firm's 4Q15 earnings by approximately US$1.5bn on an after-tax basis.

ABS

Nevada sets 'negative' solar standard

New tariffs approved by the Public Utilities Commission of Nevada are credit negative for the solar ABS sector and could spur other states to follow precedent, according to Moody's latest Credit Outlook publication. The tariffs, which went into effect on 1 January, cut the rates at which consumers with installed rooftop solar systems can sell excess power to the electric grid.

Under the new metering rules, utility subsidiaries of NV Energy - a unit of Berkshire Hathaway Energy Company - are to gradually lower through 2020 the credit that residential and small commercial customers receive for each kilowatt hour of excess solar power they sell to the grid. This will be reduced from the retail rate to the much lower wholesale rate.

The rules will also increase electric bills for solar customers who acquire electricity from the grid when their rooftop solar systems are unable to generate enough power. Monthly fixed service charges that solar customers must pay to the utilities will also rise.

Moody's believes this could prompt other states to enact similar rules, reducing the economic benefits to such consumers. But the agency notes that the Nevada rates alone will have little to no effect on publicly issued outstanding solar ABS because these transactions have limited exposure to obligors in the state. The share of Nevada contracts in the transactions totals less than 1%, according to public data.

In addition, despite limited historical performance data on payment behaviour in the sector, the agency believes solar obligors have a strong incentive to make contract payments. The exception will be if the combined costs of rooftop generated and grid power begin to exceed the costs for electricity provided solely by the utility.

The fallout from such a scenario could cause increasing regulatory risk to the solar ABS sector, as customers attempt to modify their solar financing contracts to remedy the lack of cost savings. Customers may even be unwilling to continue paying for their photovoltaic system without a contract modification. In response, solar providers would likely be willing to reduce the cost of the customers' solar power, if doing so was cheaper than removing the solar panels from the obligors' roofs or suing the obligors for failure to pay.

In response to the rules, SolarCity has said that it would immediately cease solar sales and installations in Nevada. Sunrun also announced on 7 January that it had ceased all operations in Nevada, where it said about 16,000 existing solar customers will be hurt by the new rules. The Nevada Bureau of Consumer Protection, a division of the state attorney general's office, filed a motion seeking to halt implementation of the commission's ruling.

Moody's adds that a proposed net metering change in California, which faces a vote by the California Public Utilities Commission as early as 28 January, also would grandfather existing solar customers.

ABS

African off-grid solar deal debuts

Oikocredit and solar energy provider BBOXX have teamed up to produce the first securitisation for off-grid solar in Africa. The firms will fund the distribution and financing of solar technology for low income households in Kenya.

The structure was created by setting up an SPV called BBOXX DEARs. The SPV bundles the contracts of BBOXX customers who have bought solar home systems which are paid off in instalments. BBOXX DEARs then issues notes and sells them to Oikocredit, the value of which are based on future receivables on the customers' contracts.

The DEARs notes have an average net present value of US$300. The sale of the contracts in these notes provides BBOXX with capital to supply approximately 1,200 new solar home systems to households with limited or no access to grid electricity, which is expected to benefit an estimated 7,000 people.

"[Securitisation] is the only financial structure that can scale to billions," says Mansoor Hamayun, ceo of BBOXX. "We now have a methodology to bring solar electricity to off-grid customers at a larger scale."

Oikocredit notes that the off-grid sector has encountered difficulties in attracting sufficient investments to finance what is perceived as a risky business model, involving relatively new technology, doing business in developing countries and clients with little or no credit history. However, BBOXX is attempting to alleviate such fears by utilising its 12 years of data history as a reassurance to risk-averse investors.

ABS

Soccer deal debuts

XXIII Capital has launched its inaugural securitisation - a US$72.9m ABS backed by nine receivable purchases and loans tied to European football clubs. Kroll Bond Rating Agency has assigned a single-A rating to the US$64.2m of class A notes in XXIII Capital Financing I.

The remaining US$8.8m of class B notes in the transaction are unrated, with the maturity date for both classes being 26 June 2021. Each receivable in the portfolio will be subject to a credit insurance policy that covers 90% of all losses, which includes payment default for each underlying receivable in the pool. The weighted average tenor of the receivables is approximately 19 months.

The receivables are specifically associated to media rights fees and transfer fee payments due to the football clubs. KBRA indicates that the targeting of European soccer for securitisation is a positive aspect for the deal, with cumulative revenues of the 'big five' European soccer leagues - those in England, Germany, Spain, France and Italy - having increased by 15% to €11.3bn, as of June 2015. The total European market has now grown beyond €20bn and continued revenue growth could pave way for opportunities for further short-term financings.

Growth of European soccer could also provide further revenue opportunities in the future via sponsorships and partnerships. This may occur as other sectors of the market attempt to capitalise on the the leagues' growing popularity.

KBRA adds that the structure of the deal benefits from sufficient credit enhancement and accelerated payments to notes upon weakening asset performance. The class A notes benefit from subordination provided by the class Bs and overcollateralisation from the expected payments by the soccer clubs. At closing, the overcollateralisation relative to the aggregate principal balance of the portfolio is 10%.

Launched in 2014, XXIII Capital was founded by an experienced management team in the sports and entertainment lending sector.

ABS

Debut receivables deal hits China

Country Garden has brought a new ABS transaction to the market that packages part of its contract receivable rights, a deal that the Chinese property developer claims to be the first of its kind in the industry. The CNY2.95bn deal was issued via Zengcheng Country Garden and was approved by the Shanghai Stock Exchange on 25 December.

The deal includes certain contract receivables rights in the mainland property sector not used before, as well as being the largest by scale and longest in tenor to date in the Chinese property sector. Issuance commenced at an interest rate of 5.1% and tenor of four years.

Proceeds from the deal will be used for Country Group's general working capital purposes. Country Group and its subsidiaries achieved contracted sales of approximately CNY140.2bn, with contracted GFA of approximately 21.53 million square-metres in 2015.  

CITIC Securities acted as lead manager on the deal.

Structured Finance

Green bond RFC issued

Moody's has issued a request for comment on its proposed approach and methodology for evaluating an issuer's management, administration and reporting on environment projects financed through green bonds. The rating agency's green bonds assessment will apply to fixed income securities that raise capital for use in projects or activities with specific climate or environmental sustainability purposes.

This would include debt obligations and securitisations that collateralise projects or assets whose cashflows provide the first source of repayment. A reported US$36.6bn of green bonds were issued in 2014 and US$42bn in 2015.

Moody's proposed assessment of green bonds will focus on organisation structure and decision-making, use of proceeds, disclosure on the use of proceeds, management of proceeds and ongoing reporting and disclosure. The agency will also introduce a scorecard that will assign weights to each of those five factors.

Moody's is seeking market feedback on its proposed methodology by 12 February.

Structured Finance

New French debt class proposed

A proposal by the French Ministry of Finance to modify the hierarchy of claims in liquidation during 2016 could boost the ability of French banks to issue loss-absorbing instruments, according to S&P. The agency says that the process would also subsequently protect more senior obligations.

If enacted, the draft amendment would establish a new debt category made of securities ranking senior to subordinated debt, but subordinated in liquidation to other existing senior obligations under the existing hierarchy. S&P anticipates that the new class of senior debt - referred to as senior-junior - would likely be eligible for inclusion in the Financial Stability Board's measure of total loss-absorbing capacity.

The draft amendment states that this new debt category would only include securities that have an initial maturity of one year or more and which are not categorised as 'structured' - a definition that still needs to be provided. Further, the proposal specifies that contracts for these new securities would have to make their ranking in the hierarchy of creditors explicit.

S&P says that the amendment would create a new class of senior debt and grant a legal preference to all creditors whose claims rank equal with existing senior unsecured categories. However, it would not alter the ranking of legacy senior unsecured investors whose claims date from before the draft amendment becoming effective.

Broader implications could see the amendment deterring 'no creditor worse off' legal challenges, which means resolution actions should not impose greater losses on creditors than they would incur in a traditional insolvency. The amendment would also likely increase clarity regarding the ranking of claims in case of liquidation, giving investors the opportunity to better assess where a debt instrument would stand during the resolution process and its level of credit protection. Further, S&P says that allowing banks to continue to issue 'senior-senior' unsecured securities will enhance their access to more-diversified funding at a lower cost.

The agency anticipates that the French parliament could vote on the draft amendment in 1H16, which would pave the way for banks to issue such notes toward the second part of the year. Issuance could possibly affect S&P's view of their future loss-absorbing capacity, but market appetite for these instruments - in terms of volume and price - remains uncertain. Rating implications are also shrouded in uncertainty until further clarification is made.

Capital Relief Trades

Capital relief deal agreed

Dutch pension fund PGGM and Banco Santander have entered into a risk-sharing transaction regarding a €2.3bn portfolio of SME loans originated in Spain. The portfolio of the synthetic transaction consists of more than 6,000 Santander loans to its clients and will see PGGM sell credit protection against potential losses on a portion of the loans.

Mascha Canio, head of credit and insurance-linked investments at PGGM, says: "In light of the European Commission's legislative proposal on securitisations - in which it proposes preferential regulatory treatment for simple, transparent and standardised securitisations - this is a transaction that supports the relevance of synthetic securitisations next to true sale securitisations."

The deal is believed to be PGGM's first risk-sharing transaction in Spain and its third with Santander. PFZW, a client whose funds are manged by PGGM, will reportedly receive a premium from Santander under the transaction.

"This cooperation with PFZW assists us to manage our exposures in the SME sector and to recycle the freed-up capital in new lending to this strategically important client base in Spain," adds Pablo Roig, cfo for Santander Spain.

CDS

ISDA strengthens DC rules

ISDA has voted to make a number of changes to its Credit Derivatives Determinations Committees (DC) rules. The trade organisation says the move is part of an effort to strengthen its process for determining whether a credit event has occurred in the credit derivatives market.

The changes, which are set to be implemented from mid-February, primarily focus on reinforcing controls and procedures. This will be done by setting globally consistent minimum standards on the internal conduct of DC member firms.

The changes will include explicit requirements for written policies or procedures to be in place at all member firms concerning the identity of DC decision-makers, management of potential conflicts of interest and record keeping. Specifically, limits have been set on the individuals who can act on a DC member firm's behalf. This will prevent them from carrying out core activities in various business lines, such as credit trading, hedging, lending, investing and advisory.

An additional rule requires a description of the DC member firm's internal process of deciding how to vote. The policies or procedures set to satisfy these requirements must be retained by the firm for at least five years.

ISDA will continue to assess policies as it continues to look for ways to make the process more robust and transparent, and help DC member firms in the credit derivatives market.

CDS

Novo Banco questions mulled

ISDA's EMEA Determinations Committee continues to mull two questions submitted to it at end-December and beginning of January in connection with the Bank of Portugal's retransfer of five senior domestic bonds from Novo Banco to Banco Espírito Santo. Market participants are querying whether a governmental intervention credit event has occurred with respect to Novo Banco and if there is a successor to the entity.

The external review process has been triggered in respect of the governmental intervention question, as there was no supermajority. However, no external review pool members have been appointed for the EMEA region, so ISDA members were invited to send their nominations and candidates are due to be selected today (14 January).

The Bank of Portugal says the retransfer completes the resolution measure applied to Banco Espírito Santo. "Based on evidence that the economic and financial situation of Novo Banco has been negatively affected since the date of its setting-up by additional losses which are referable to events predating the resolution date, Banco de Portugal decided to confer again on BES the responsibility for certain issues of non-subordinated bonds issued by the latter and intended for institutional investors," it states. "The original resolution decision expressly provides that Banco de Portugal, as the resolution authority, in use of its powers, may at any time retransfer assets and liabilities between Banco Espírito Santo and Novo Banco. This measure is necessary to ensure that, as stipulated in the resolution regime, the losses of Banco Espírito Santo are absorbed by this institution's shareholders and creditors and not by the resolution fund or the taxpayers."

The nominal amount of the bonds retransferred to BES totals €1.94bn and corresponds to a balance sheet amount of €1.99bn, thereby positively impacting the equity of Novo Banco by approximately €1.99bn while imposing a loss on bondholders. Together with the recent agreement with the European Commission on the commitments to be applied to Novo Banco, the central bank notes that these developments "remove uncertainties and make a positive contribution" to the relaunch of the sale process of Novo Banco this month.

A recent TwentyFour Asset Management blog points out that Novo Banco failed the ECB stress tests with a capital shortfall of €1.4bn and it appears that the Bank of Portugal has bailed-in the BES bonds to make up the shortfall. The blog also suggests that while the recapitalisation of BES and the creation of a 'good bank' cost €4.9bn, bid indications for Novo Banco during last year's sales process were about €2.9bn.

CMBS

EMEA default rate stable

The 12-month rolling loan maturity default rate for the European CMBS in S&P's rated universe decreased slightly to 10% from 10.5% at end-December 2015. Overall, the senior loan delinquency rate decreased to 47.7% from 48%.

The delinquency rate for continental European senior loans decreased slightly to 60.2% from 60.3%. The rate for UK loans remained stable at 20%.

CMBS

Ground lease protections revisited

Moody's says that prudent ground lease lenders include two key provisions in mortgage loan documentation - a robust new lease clause and terms ensuring the superiority of the ground lease to fee mortgages. The agency notes that although the vast majority of ground leases contain such provisions, many do not have fully credit-neutral versions of these lender protections.

Unlike a fee ownership interest - where the property owner holds all ownership rights in the land and building for an unlimited period - a ground lease tenant may only use and occupy the land and building for a finite, terminable period. When a ground lease ends or goes away for any reason, the ground tenant's possessory interest reverts to the ground landlord.

"The binary nature of the property interest where there is a ground lease involved - that is, the collateral either exists or it does not - makes leasehold financing inherently more involved than fee financing," says Moody's svp Dan Rubock. "It also necessitates a complex array of 'financeability' provisions in loan documentation to assure that a leasehold lender's collateral won't vanish like a popped balloon."

Moody's disagrees with the argument that robust lender cure rights can make up for the lack of new lease clauses. Such clauses mitigate three key risks: ordinary operational failings and imperfections; the uncertainty and loss of control that can arise when a landlord and tenant go to court over a lease's requirements; and inadequate efforts to cure for whatever reason.

Similarly, the agency disputes the argument that a subordination, non-disturbance and attornment (SNDA) agreement negates any need for a landlord to subordinate its fees mortgage to a ground lease. Because the lender promises don't disturb the tenant, it is said, there should be no concern about the ground lease being extinguished in a fee foreclosure.

"An SNDA does not sufficiently lower inherent risks when fee financing is superior to the lease and leasehold mortgage," Rubock says. "An SNDA may be deemed an executory contract and rejected by the fee lender in its own bankruptcy or declared unenforceable upon the fee lender's insolvency and take-over by the FDIC. And poorly drafted SNDAs may not even mention essential leasehold lender protections, such as a lender's ability to cure defaults."

CMBS

Hotels drive delinquency improvement

US CMBS delinquencies finished 2015 down by 17% by balance from year-end 2014, according to Fitch's latest index results for the sector. The overall delinquency rate stood at 4.02% for the year, lower by 14bp from the previous month and by 60bp from a year ago. This is the lowest level seen since October 2009.

CMBS delinquencies finished 2015 at US$15.3bn, down from US$18.5bn at year-end 2014. Similar to 2014, resolutions outpaced new delinquencies in 2015, ending the year at US$8.5bn and US$5.6bn respectively, compared to US$11.5bn and US$6.5bn in 2014. Surprisingly perhaps given 2015 new issuance volumes, the portfolio run-off of US$65bn exceeded Fitch-rated new issuance volume of just under US$60bn, causing a decrease in the index denominator.

Fitch notes that hotel, industrial and multifamily saw triple-digit improvements in 2015, while office and retail saw only modest declines in their delinquency rates. Current and previous delinquency rates are: 5.20% for retail (from 5.27% in November and 5.37% at YE 2014); 4.61% for office (from 4.71% and 5.01% respectively); 3.82% for hotel (from 4.23% and 6.2%); 4.19% for multifamily (from 4.27% and 5.22%); 3.88% for industrial (from 4.38% and 5.25%); 2.73% for mixed use (from 2.99% and not calculated at YE 2014); and 0.89% for other (from 0.90% and 1.15%).

In December, both the largest resolution and the largest new delinquency were office loans. The largest resolution was the original US$180.9m DRA-CRT Portfolio I loan (securitised in JPMCC 2005-CIBC13), which was liquidated for a 69% loss (see SCI's CMBS loan events database). The largest delinquency was the US$48.8m Wachovia Tower (COMM 2006-C7), which fell 60 days past due in December.

Additionally, two larger loan resolutions in the MLCFC 2007-9 transaction helped to further reduce the hotel and industrial delinquency rates. The original US$130.1m DLJ West Coast Hotel Portfolio asset and the original US$52.45m St Louis Flex Office Portfolio asset were liquidated with losses of 46% and 65% respectively.

The hotel delinquency rate recorded the biggest improvement in 2015, falling by 238bp year over year. Hotel resolutions of US$1bn during the year far surpassed new delinquencies of US$279m. Several larger hotel assets were disposed of during the year, including the US$140m Hyatt Regency-Bethesda (GCCFC 2007-GG9) and the US$134.3m Westin Casuarina Hotel & Spa, while the largest new hotel delinquency in 2015 was the US$56.9m Scottsdale Plaza Resort (JPMCC 2006-CIBC15).

Industrial saw the next largest improvement in 2015, with its delinquency rate falling by 137bp. Industrial resolutions of US$540m outpaced new delinquencies of US$321m.

Multifamily experienced a 103bp decline in its delinquency rate in 2015, driven by US$915m of resolutions outpacing US$363m of new delinquencies, as well as strong multifamily issuance during the year. The largest multifamily resolution in 2015 was the original US$335m Empirian Portfolio Pool 2 (MLCFC 2007-8), which was modified at end-July into A/B notes.

Office saw a smaller 40bp decline in its delinquency rate in 2015, as resolutions of US$2.7bn edged out new delinquencies of US$2bn. The largest office delinquencies in 2015 included the US$203.25m Lafayette Property Trust (JPMCC 2007-LDP10), the US$163.75m Jericho Plaza I & II (CSMC 2007-C1) and the US$122.61m IRET Portfolio (CGCMT 2006-C5). As the second largest office delinquency, the Jericho Plaza I & II loan was also the largest office resolution during 2015.

Retail showed the slowest improvement among the major property types in 2015, with its delinquency rate falling by only 17bp. Resolutions of US$2.6bn edged out new delinquencies of US$1.9bn.

The largest retail loan resolution in 2015 was the original US$67.5m Green Oak Village Place loan (BACM 2007-5), which was modified in June into A/B notes. The largest retail delinquencies in 2015 included the US$74m Collin Creek Mall (JPMCC 2001-CIBC2) and the US$57m Merritt Square Mall (MSC 2006-IQ11).

The delinquency rate for CMBS 1.0 vintages faces pressure from approximately US$62bn of loans expected to mature in 2016, with a further US$73bn in 2017. However, Fitch projects that overall delinquencies will fall to between 2.5% and 3% by end-2016 after factoring in the ultimate resolution of the Peter Cooper Village/Stuyvesant Town and Riverton Apartments assets and assuming continued strong new issuance this year.

Risk Management

Margin tool offered

TriOptima has launched triResolve Margin, a web-based end-to-end margin processing service delivered in collaboration with AcadiaSoft. The tool aims to assist market participants meet the challenges posed by the new regulatory requirements for margining uncleared OTC derivatives by automating the margin process in a comprehensive, scalable and cost-effective solution.

Through the partnership with AcadiaSoft, triResolve Margin delivers exception-based processing with straight-through-processing rules. The tool calculates margin requirements by leveraging information from triResolve's reconciled trade, collateral balance and CSA data, and communicates the automated margin calls through AcadiaSoft's MarginSphere. It also flags disputed calls and references portfolio reconciliation data for further investigation.

Risk Management

CCP connectivity offered

4sight Financial Software and Pirum have collaborated to deliver a new interface between their platforms, allowing users of 4sight's Securities Lending & Borrowing product to seamlessly integrate with Pirum's Real-Time Post-trade Automation services. The interface can be used to process various parts of the securities finance post-trade lifecycle in real time, including bilateral and tri-party collateral management, and for connectivity to central counterparties (CCPs). The offering builds on the existing 4sight/Pirum module, which provides connectivity to Pirum's contract and billing compare services.

Risk Management

Market risk requirements revised

The Basel Committee has issued revised minimum capital requirements for market risk designed to ensure that the standardised and internal model approaches to market risk deliver credible capital outcomes and promote consistent implementation of the standards across jurisdictions. The final standard incorporates changes that have been made following two consultative documents published in October 2013 and December 2014, as well as several quantitative impact studies.

The key features of the updated framework include: a revised boundary between the trading book and banking book; a revised internal models approach for market risk; a revised standardised approach for market risk; a shift from value-at-risk to an expected shortfall measure of risk under stress; and incorporation of the risk of market illiquidity. The revised framework produces market risk risk-weighted assets (RWAs) that account for less than 10% of total RWAs, compared to approximately 6% under the current framework.

Compared with the current market risk framework, the revised market risk standard would result in a median (weighted mean) increase of approximately 22% (40%) in total market risk capital requirements. These impact estimates take account of the calibration refinements endorsed by the Committee in December 2015.

The revised market risk framework comes into effect on 1 January 2019. Over the implementation period, the Committee will continue to monitor the capital impact of the revised standard in order to ensure consistency in the overall calibration of the Basel capital framework.

Separately, the Committee has agreed to complete its work to address the problem of excessive variability in risk-weighted assets by end-2016.

RMBS

Unique features boost SFR deal

Home Partners of America's (HPA) unique tenant-driven property acquisition and rent-to-own business strategy will benefit the performance of its first single-family rental (SFR) securitisation, Home Partners of America 2016-1, says Moody's. HPA 2016-1 hit the market on 12 January.

HPA acquired the properties backing the transaction based on requests from prospective homeowners who desired to rent the properties with eventual options to purchase. It is therefore likely to delever faster than other single-borrower SFR transactions because HPA will prepay at a premium to release properties from the transaction when renters exercise their options. A slightly higher release premium for HPA 2016-1 compared to other SFR deals will also increase the rate of delevering.

"The strategy could benefit property recovery values because renters with purchase options are incentivised to maintain their properties well, and consumer-chosen properties are more likely to be higher quality and in more desirable locations (such as those with better school districts) than properties acquired through bulk foreclosure sales," says Moody's. While the transaction's legal structure differs from typical SFR deals, it should not have a significant effect on the transaction's credit quality.

RMBS

Fannie to offload more NPLs

Fannie Mae has announced another sale of NPLs, including a second community impact pool. The community impact pool is a geographically-focused, high-occupancy pool being marketed to encourage participation by smaller investors, non-profits and minority-owned businesses.

The four larger pools contain approximately 6,700 loans totalling US$1.35bn in unpaid principal balance. The community impact pool has around 60 loans from the Miami area totalling US$14.5bn in unpaid principal balance.

Bids from qualified bidders are due by 3 February for the large pools and on 18 February for the community impact pool.

RMBS

Reduced doc risks mitigated

Reduced documentation loans increase the risk of default in Alt-A, subprime and prime private label RMBS backed by these loans unless mitigated by a borrower's strong credit profile, says Moody's. Such mitigants include both quantitative and qualitative factors.

Delinquencies of 60 days or more on outstanding pre-2005 private label RMBS reduced doc loans were more than 50% higher than comparable full- and alternative-documentation loans as of November 2015, notes the rating agency. Quantitative factors to mitigate this, such as higher borrower credit scores and lower LTVs, as well as qualitative factors such as higher liquid reserves, limitations on DTI ratios and consistent, verifiable borrower income can offset the increased risks.

Current mortgage programmes require full or alternative documentation verification of a borrower's income and assets, while Dodd-Frank guidelines require lenders to verify and document certain aspects of a borrower's financial and credit profile to be compliant with ability-to-repay rules. Therefore, strong compensating factors continue to shape the mortgage lending market and the risk that reduced documentation programmes pose to RMBS should be lower than the risk posed by pre-2005 reduced documentation programmes.