Contents

Secondary markets

Euro secondary stalemate

With the US absent and continuing improvements in broader markets, it was stalemate in the European securitisation secondary market yesterday.

"Market tone is generally OK," says one trader. "But with the US holiday not a lot went on yesterday."

However, he adds: "We did see a couple of BWICs come out in the afternoon and all but one 1.0 CMBS line traded. Overall, though, there was no real price movement."

There is currently one BWIC on the European calendar for today - an 18 line 22.2m mixed euro- and sterling-denominated CLO and RMBS list due at 13:30 London time. It comprises: AUBN 9 D, CORDR 1 C, CORDR 3 B, EGLXY 2015-4X C, ESAIL 2006-2X D1A, ESAIL 2006-4X B1A, GHM 2007-1 BB, LEEK 17X MC, LEEK 19X CC, LEEK 19X DC, NGATE 2006-1 BB, OHECP 2015-4X D, RMAC 2005-NS2X M2C, RMACS 2006-NS2X M2C, RMACS 2006-NS3X M1C, RYEH 1X D, WARW 1 C and WARW 2 C.

Only one of the bonds has covered with a price on PriceABS in the past three months - LEEK 17X MC at 98.55 on 21 January.

Secondary markets

Euro secondary improves

Tone in many European securitisation secondary market sectors continues to improve in line with broader markets.

"Yesterday, tone was bit better overall in our space as credit in general continued to improve," says one trader. "But the biggest story was Portugal."

The trader continues: "The tender announcement from BCP for MAGEL 2  and 3 combined with rising sovereign bonds and real money buying in Portuguese RMBS sent a very positive signal for the sector. Senior paper was up between one and five points on the day, with MAGEL 3 unsurprisingly the best performing bond."

Elsewhere, the usual suspects continued to stay positive, the trader reports. "Prime assets are still holding up well and German multifamily CMBS is better bid, with the TAURS bonds most likely to be called leading the way and up 10-15 cents."

There are still some laggards, however. "There's a lack of transparency in some sectors - for example, most of the CLO and mezz bonds on yesterday's large mixed BWIC did not trade as reserves weren't met," the trader says.

There are currently no BWICs on the European schedule for today.

Secondary markets

US CLOs active

Participants in the US CLO secondary market are keeping active despite the current lack of BWIC supply.

"There's a lot of activity even though the volume of lists isn't high," says one trader. "A lot of energy being is expended on trying to figure out where prices are and should be, as well as in out of comp trading."

The trader continues: "Most activity is taking place higher up the capital structure as that part of the stack has not been so adversely affected by recent widening. Participants, including real money, are looking to invest cautiously again, but are having to be selective as there is no huge catalyst to tighten right now. Overall, there's a lot of horse trading around vintages and asset quality."

Lack of transparency continues to be an issue on-BWIC too, the trader says. "Not a lot of pricing is being released off the lists even where bonds do trade. I'm not sure if that's an attempt to keep things murky to facilitate more opportunistic bidding or the result of a need to protect marks."

There are currently three US CLO BWICs on the calendar for today. First up is the largest - a 12 line $48.16m triple-A auction due at 10:00 New York time.

The list comprises: ALM 2015-12A A1, APCF 4A A1, BLUEM 2015-1A A1, BLUEM 2015-3A A1, CECLO 2013-19A A1A, GALXY 2015-19A A1A, INGIM 2014-1A A1, JAXM 2015-1A A, NEUB 2014-16A A1, OAKC 2014-10A A, OHALF 2014-1A A1 and WAMI 2014-1A A1. Only two of the bonds have covered with a price on PriceABS in the past three months - JAXM 2015-1A A at 98.13 on 26 January and NEUB 2014-16A A1 at L99S on 23 November.

Then, at 10:30 there are five triple-Bs totalling $17.135m - APID 2013-12A D, KEUKA 2013-1A D, LCM 13A D, MAGNE 2015-15A D and SYMP 2013-12A D. Only LCM 13A D has covered on PriceABS in the past three months - at 93.72 on 14 January.

At 11:00 there are two more triple-As - $18.08m APID 2014-17A A1A and $14.3m TRMPK 2015-1A A. Only TRMPK 2015-1A A has covered on PriceABS in the past three months - at 99.01 on 22 December.

Secondary markets

Euro ABS/MBS split

There continues to be a strong split in where activity is taking place in the European ABS/MBS secondary market.

"Tone over the past few days has been much more positive in line with the macro trend," says one trader. "However, there is still a marked divergence over where activity is centred."

The trader continues: "Most focus continues to surround prime and seniors, notably Dutch prime, STORM bonds in particular, German multifamily and senior Spanish RMBS. Away from that it's much quieter and there's not a lot of transparency."

The other active area of recent days, Portugal, is slowing a little, the trader adds. "There's still a lot of talk around the Magellan tender and some activity as clients look to sell into it, the 3As in particular, but there's not a huge amount of follow through away from that."

There are currently two BWICs on the European schedule for today. At 14:30 London time there is three line €10.8m mixed RMBS list consisting of BERAB 3 A, BVA 2 A and DILSK 1 A. Two of the bonds have covered on PriceABS in the past three months, last doing so as follows: BERAB 3 A at 100.61 on 24 November and DILSK 1 A at 100.062 on 12 February.

At 15:00 there is a five line €4.6m ABS CDO and RMBS combination comprising: CFHL 2014-1 D, CFHL 2014-1 E, CHMT 2007-1E B, FAXT 2004-1X A-2 and FAXT 2005-1 A2E. None of the bonds has covered with a price on PriceABS in the past three months.

Secondary markets

Euro CLOs stabilising

The European CLO secondary market looks to at last be stabilising.

"This week so far has been more or less the same as last week," says one trader. "Accounts have been selling via BWIC or away from them with dealers acting as liquidity providers - though this week has been less frantic than last there's still a ratio of 90% dealer buying to 10% dealer selling."

However, the trader continues: "We're starting to see client interest in triple-As, single-As and, to a lesser extent, triple-Bs, but as yet not much trading on the back of it. Nevertheless, the impact of broader market improvement and activity in the US CLO market should stabilise things still further and we should start to see more of an even two-way flow."

There are currently no BWICs on today's European CLO calendar, but there is already one auction scheduled for tomorrow. Due at 15:00 London time it involves six lines of 1.0 mezz totalling €22.5m.

The list comprises: GARDC 2006-1X E, JUBIL I-RX E, MUNDA 1X D, OCI 2007-1X E, SPAUL 1X D and WODST I D1. None of the bonds has covered with a price on PriceABS in the past three months.

Secondary markets

Euro secondary fades

Levels and activity are fading in the European securitisation secondary market as the broader market rally runs out of steam.

Activity remained patchy across the board yesterday, with prime assets once again leading the way, albeit in lower volumes than in previous sessions. Meanwhile, the appetite for Portuguese paper of recent days has faded somewhat and kept spreads slightly off expected levels.

Overall, liquidity remains very thin and caution prevails in light of broader market volatility. Nevertheless, secondary spreads look to be mostly holding up for now.

In addition to the 1.0 mezz CLO auction highlighted yesterday, there are currently two further BWICs on the European schedule for today. At 13:30 London time there is a single £8m line of EURO 27X A, which hasn't covered on PriceABS in the past three months.

Then at 14:00 is a four line Spanish seniors list comprising: €30m HIPO HIPO-10 A2, €30m HIPO HIPO-11 A2, €40m IMPAS 3 A and €15m TDA 24 A2. None of the bonds has covered on PriceABS in the past three months.

Structured Finance

SCI Start the Week - 15 February

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

Pipeline
As with the previous week, pipeline additions last week were dominated by ABS. There were seven new ABS deals announced, as well as an ILS, an RMBS and two CMBS.

The ABS were: US$556m ARI Fleet Lease Trust 2016-A; US$300m Avant Loans Funding Trust 2016-A; US$446m Flagship Credit Auto Trust 2016-1; US$1bn GM Financial Automobile Leasing Trust 2016-1; US$1.025bn Honda Auto Receivables 2016-1 Owner Trust; US$125m Oportun Funding II Series 2016-1; and US$156.382m Tidewater Auto Receivables Trust 2016-A.

US$225m Caelus Re IV was the ILS and Silverstone Master Issuer Series 2016-1 was the RMBS. The CMBS were US$765m 225 Liberty Street Trust 2016-225L and US$875m WFCM 2016-NXS5.

Pricings
Unsurprisingly, ABS deals also accounted for most of the week's prints. As well as 11 ABS there were four RMBS and two CLOs.

The ABS were: US$1bn BMW Vehicle Lease Trust 2016-1; US$850m CNH Equipment Trust 2016-A; Y64bn Driver Japan Five; US$112m Earnest Student Loan Program 2016-A; US$799m Enterprise Fleet Financing Series 2016-1; US$198.8m First Investors Auto Owner Trust 2016-1; US$750m Ford Credit Floorplan Master Owner Trust A Series 2016-1; US$455m GreatAmerica Leasing Receivables Funding Series 2016-1; US$400m PFS Premium Finance 2016-A; US$1.6bn Santander Drive Auto Receivables Trust 2016-1; and £395m Turbo Finance 6.

US$950m CAS 2016-C01, £487m Darrowby No.4, £790m Trinity Square 2016-1 and US$400m WinWater Mortgage Loan Trust 2016-1 accounted for the RMBS. The CLOs were €410m BlackRock European CLO I and US$348m NewStar Commercial Loan Funding 2016-1.

Markets
Banks are expected to switch from Treasuries to US agency RMBS, which is a sector that Citi analysts believe is cheap for investors with a horizon of three to six months. They add: "The rally in rates has pushed down yield bogeys and further pushed out the risk to a taper in the reinvestment program. Investment grade spreads are looking attractive but the impending downgrades in the sector will continue to incentivise money managers to own RMBS."

With US CLO spreads widening significantly, JPMorgan analysts advocate short-to-mid duration triple-As. They say: "We believe the name of the game right now is earning carry while preserving capital. The triple-A term curve is flat and levels have blown out as risk re-priced."

Editor's picks
Right to return: Attempts to reinvigorate the US non-prime RMBS market appear to be gaining traction. However, the sector still needs to overcome being tarnished by the subprime stigma...
Potential PMI boost for RMBS: The recovery of the private mortgage insurance (PMI) industry suggests that there is value to be found in legacy non-agency RMBS. Even insurers in run-off are making payments and bond values are expected to improve significantly for legacy deals backed by loans with PMI underwritten by still-active insurers...
US CLOs challenged: Internal and external factors are making things difficult in the US CLO secondary market. "There's not a whole lot happening - it's a very challenging market at the moment," says one trader. "Secondary isn't helped by primary being hung as well - it's too difficult to get a deal away with secondary spreads 100+ wider than new issue..."

Deal news
• The US$94.2m Gateway Salt Lake loan - securitised in JPMCC 2010-C1 - has been assumed at US$78.5m and modified, following its acquisition by an investor group that reportedly includes Vestar and Oaktree (see SCI's CMBS loan events database). Morgan Stanley CMBS strategists expect the move to result in significant interest shortfalls and a loss to the trust of roughly US$15.7m.
• The first loan default in the US$251.6m Colony American Finance 2015-1 multi-borrower single-family rental (SFR) securitisation is expected to have little impact on the transaction's performance, as the US$1.1m loan accounts for just 0.4% of the collateral pool. The loan transferred to the special servicer - Midland Loan Services - in November 2015, a month after the transaction closed.
• S&P says that its single-D rating on the MultiCat Mexico series 2012-I class C notes is unaffected following a triggering event. The agency received an event report for Hurricane Patricia from the calculation agent AIR Worldwide Corp, which confirms that a triggering event has occurred in relation to the catastrophe bond, resulting in a principal reduction of US$50m for the series 2012-I class C notes.
• Patriarch Partners is stepping down as collateral manager of Zohar CDO 2003-1, Zohar II 2005-1 and Zohar III. The firm says it will work with a new collateral manager - whose appointment has yet to be announced - to ensure a smooth transition.
• MSBAM 2016-C28 contains a series of non-investment grade exchangeable classes, which is a nuance not seen before in a CMBS 2.0 transaction. Fitch believes the feature raises the question of sufficient tranche thickness and maintains that insufficient thickness - particularly below 1% - creates accelerated downgrade risk and a higher rate of loss given default.

Regulatory update
• The European Commission has announced a one-year extension for firms to comply with its MiFID 2 standards as it seeks more time to set up the complex technical infrastructure entailed within the package. The new deadline is now 3 January 2018.
• The European Commission and the US CFTC have reached an agreement on a common approach regarding requirements for central counterparties (CCPs). The move means that European CCPs will be able to do business in the US more easily and that US CCPs can continue to provide services to EU companies.
• The US SEC has voted to adopt rules requiring non-US companies that use personnel in the US to arrange, negotiate or execute security-based swap transactions to include such transactions in determining whether those companies should register as security-based swap dealers. These rules aim to ensure that both US and foreign dealers are subject to Title VII of Dodd-Frank.
• The UK Financial Conduct Authority has fined Achilles Macris £792,900 for failing to be open and cooperative with the regulator. He was head of JPMorgan's international chief investment office (CIO) in London, responsible for a number of portfolios - including the synthetic credit portfolio - at the time of the 'London whale' trades (SCI passim).
• Morgan Stanley has agreed to pay out on another settlement involving failed MBS assets that it sold in the lead-up to the financial crisis. According to New York Attorney General Eric Schneiderman, the bank will pay a total of US$3.2bn, US$550m of which will go to helping New York State residents repair mortgage issues.
• The OCC has terminated mortgage servicing-related consent orders against US Bank and Santander, and assessed civil money penalties against the banks for previous violations of the orders. The consent orders were terminated after the OCC determined that the institutions now comply with the orders.
• The US Justice Department, the Department of Housing and Urban Development and the CFPB, along with 49 state attorneys general and the District of Columbia's attorney general, have reached a US$470m agreement with HSBC to address mortgage origination, servicing and foreclosure abuses. The settlement reflects a continuation of enforcement actions to hold financial institutions accountable for abusive mortgage practices, with negotiations beginning after the announcement of the US$25bn National Mortgage Settlement from February 2012 (SCI passim).

Deals added to the SCI New Issuance database last week:
CLI Funding VI series 2016-1; Darrowby No. 4; Exeter Automobile Receivables Trust 2016-1; FREMF 2016-KJ03; FRESB 2016-SB12; HERO Funding Trust 2016-1; Nissan Auto Receivables 2016-A Owner Trust; OneMain Financial Issuance Trust 2016-1; Trinity Square 2016-1; Turbo Finance 6

Deals added to the SCI CMBS Loan Events database last week:
BL Superstores; BSCMS 2007-PW15; BSCMS 2007-PW17; BSCMS 2007-T26; CFCRE 2011-C2; COMM 2006-C7; CSMC 2007-C1; CWCI 2007-C2; ECLIP 2006-2; ECLIP 2007-2; EURO 25; EURO 26; EURO 28; GMACC 2006-C1 & GECMC 2006-C1; INFIN CLAS; JPMCC 2010-C1; LBUBS 2006-C1 & LBUBS 2006-C7; MSBAM 2013-C8; TMAN 7; WBCMT 2006-C25; WBCMT 2006-C28; WBCMT 2006-C29

CDS

Governmental intervention test resolved

The three-judge external review panel convened by ISDA in connection with the Novo Banco governmental intervention credit event (GICE) question (SCI 29 January) has ruled that CDS referencing Novo Banco were not triggered on 29 December 2015 when the Bank of Portugal re-transferred five senior bonds back to Banco Espirito Santo. This marks the first time that the external review process has been used by ISDA's EMEA credit derivatives determinations committee and the first test of the GICE, which was added to the 2014 ISDA credit derivatives definitions to address regulations for resolving failing financial institutions.

The external review procedure was invoked because the DC failed to reach the required super-majority, voting 11-4 that the re-transfer of the bonds did not constitute a GICE. On behalf of the committee's 11 'no' voters, Mayer Brown - instructing Robert Miles QC and Andrew de Mestre - submitted a written brief and presented oral arguments to the panel.

The panel agreed with the arguments advanced by Mayer Brown as to why the re-transfer fell outside of the scope of the governmental intervention provisions and therefore was not a credit event for purposes of CDS contracts. The panel unanimously concluded that that "the better answer is that a government intervention credit event did not occur and that the 'no' position is the better answer."

Mayer Brown London banking & finance partner Chris Arnold comments: "The decision clearly demonstrates the effectiveness of the external review process and provides the market with additional clarity on the intended scope of the new governmental intervention credit event."

In its deliberations, the panel noted that the expression of 'transfer' was not included as an event within the definition of a GICE. Further, it viewed the re-transfer as neither a cancellation of the bonds (because they continued in existence), nor a conversion (as they weren't altered into another category of obligation). Nor was the re-transfer an exchange, as the bonds weren't cancelled in exchange for a new bond on different terms.

"The bonds remained the same instruments or obligations, with no alteration in their existence or status, other than that the obligor altered first from BES to NB and then back to BES again. Their ISIN remained the same. We agree with the submission of the 'no' position that it is not apt to describe a case as an exchange where there is one continuing instrument whose terms remain unchanged, but with the obligor changing or being substituted by operation of law," the panel states.

The 'yes' position was advocated in written and oral submissions by Timothy Howe QC, instructed by Linklaters.

Meanwhile, a determination regarding the Novo Banco succession event question is expected tomorrow (18 February). The deadline for resolving the question was extended last month in order to establish up-to-date information on the outstanding principal amount of the relevant obligations in relation to the reference entity, including in particular central bank funding. Given that the half-year financials were prepared as at 30 June 2015, the DC decided that it was prudent to wait for updated financials before making a determination.

CS

CMBS

CMBS spread widening to continue?

An analysis of previous US CMBS corrections undertaken by Morgan Stanley CMBS strategists suggests that the current sell-off in the market is not as pronounced, despite it being the longest on record. The study indicates that while there may be periodic tactical rallies, CMBS spreads can continue widening for four primary reasons until the S&P 500 index troughs.

The start of 2016 has seen CMBS new issue spreads widening by as much as 30bp for triple-A rated bonds and by around 240bp for triple-B minus bonds, levels last seen in 2011. "In our view, the recent widening in CMBS triple-A spreads is a catch-up sell-off to the weakness observed in the investment grade corporate bond market, as the risk of tighter financial conditions came into focus. The widening was more pronounced in CMBS triple-B minus bonds, with a shift in CMBX risk positioning serving as a catalyst for the widening in cash spreads as three new issue deals priced at the end of January," the Morgan Stanley strategists observe.

Excluding the financial crisis, they identify five historical corrections of more than 50bp for CMBS triple-As - the Russian debt crisis, the dot-com bubble, the eurozone sovereign crisis, renewed concerns over Greece and the taper tantrum - and 100bp for triple-B minus bonds (June to November 1998, May to October 2011, April to July 2012, May to July 2013 and July to October 2014). Beginning in June 2015, the current correction in triple-A spreads is the longest on record, but spreads remain on average 20% below prior corrections. Beginning in May 2015, the correction in triple-B minus spreads is also the longest on record, but spreads were wider in both 2011 and 2012.

The reasons put forward by the strategists for spread widening to continue are: spreads remain below previous corrections; all-in yields remain below previous corrections, given the decline in swap rates; re-pricing of the risk premia to reflect that many CMBS 2.0 triple-B minus bonds are first loss, given expectations of mid-to-high single-digit losses; and increased tiering across deals may lead to further widening across the CMBS complex as the lowest common denominator prevails. However, they note that historical analysis shows that an eventual trough in the S&P 500 provides support for spread stabilisation.

Against the backdrop of tightening financial conditions, the strategists have reduced their CMBS 2.0 private label issuance projections to US$70bn and their price appreciation projection for commercial real estate from 5% to zero for 2016, with risk to the downside.

CS

ABS

VW settlement foundation formed

A Volkswagen Investor Settlement Foundation has been established to provide a non-litigation and no-cost vehicle for investors to recover damages incurred on VW securities in connection with the emissions scandal, pursuant to the Dutch Collective Settlement Act. The Act enables parties to resolve international disputes by allowing a Dutch foundation representing investors and VW to jointly petition the Amsterdam Court of Appeals to approve a settlement providing for payment to investors and a release of claims against the company.

Charles Breyer of the US District Court for the Northern District of California, the federal judge presiding over the litigation involving consumer and securities actions across the US arising out of the emissions cheating scandal, last month appointed the Foundation's US legal counsel Bernstein Litowitz Berger & Grossmann (BLB&G) as sole lead counsel in the class action involving Volkswagen. BLB&G has been working with the former president of the Enterprise Chamber of the Amsterdam Court of Appeals, Huub Willems, to establish the Volkswagen Investor Settlement Foundation using the Dutch Collective Settlement Act to recover investor losses on Volkswagen securities that were publicly traded outside the US.

The Act creates a procedural device, similar to a US class action settlement, to resolve mass claims and group litigation. Procedurally, it allows a defendant and a foundation - led by a board and supported by representatives of the broader investor class - to jointly petition the Amsterdam Court of Appeals for approval of a settlement.

After notice to all investors, the Court will review the merits of the proposed settlement and, if approved, institute a settlement binding on all investors that do not exercise their rights to opt out of the settlement. Investors that do not opt out receive payment and the defendant receives a release of claims. Investors who have opted out remain free to pursue their individual claims.

The Volkswagen Investor Settlement Foundation represents investors that purchased or held VW ordinary shares, preference shares, bonds or other publicly traded securities during the period 23 April 2008 to 4 January 2016, who suffered losses on those securities due to the emissions scandal. The Foundation has retained BLB&G as US counsel and Allen & Overy as Dutch and German Counsel.

It is governed by the Dutch claim code and led by a board consisting of: Willems, Jean Frijns (former cio of the ABP pension fund and former chairman of the supervisory board of Delta Lloyd), Frans van der Wel (part-time member of the Enterprise Chamber of the Amsterdam Court of Appeals and former chair of the Netherlands Institute of Chartered Accountants) and Rob Okhuijsen (co-author of the Dutch governance code for claim foundations). The Supervisory Board comprises: Ben Knüppe (court-appointed trustee in Bankruptcy for DSB Bank and former ceo of Dexia Bank Nederland), Hans de Munnik (part-time member of the Enterprise Chamber of the Amsterdam Court of Appeals and former chair of the Dutch Accounting Standards Board) and Astrid Stadler (professor of law at Konstanz University in Germany and former professor of comparative mass litigation at Erasmus University in the Netherlands).

Institutional investors can join the Foundation by signing a participation agreement.

Structured Finance

P2P lender poaches ABS pro

Dipesh Mehta has joined Funding Circle as a director in its capital markets team following a period of consulting for the P2P lender. In this role, he focuses on secured lending and serving institutional clients.  

Mehta previously worked as an analyst in European ABS research strategy for Barclays. His core sector coverage was on consumer ABS, with a primary focus on UK and European RMBS. He has also been an associate analyst in RMBS at Moody's.

Structured Finance

Direct lending head hired

Stuart Aronson has joined Whitehorse Capital in New York as direct lending group head. The unit provides customised financing solutions to sponsor and non-sponsor mid-market borrowers. Previously, he was president and ceo of GE Capital's sponsor finance unit from February 2003 to December 2015, and before that worked in the firm's structured finance and capital markets groups.

Structured Finance

ABS trader recruited

Natixis has brought in Peter Cui as a director, trading ABS and CLOs. He moves from Jefferies, where he was svp and traded ABS and CDOs. Cui's previous experience also includes similar roles at Cohen & Co and UBS.

Structured Finance

SF pro switches law firm

Colleen McDonald has moved to Sheppard, Mullin, Richter & Hampton as partner, following the same role at Reed Smith. Working in the firm's finance and bankruptcy practice group in San Francisco, she will focus on securitisation, structured finance, commercial finance transactions and complex financial products.

McDonald advises financial institutions regarding the acquisition and sale of assets primarily involving newly originated, seasoned and distressed residential mortgage loan pools. Her experience ranges across private and agency RMBS, as well as various aspects of ABS in the US and Canada, including credit cards, trade receievables, auto loans and consumer loans.

Structured Finance

Permanent chief named

GLI Finance has appointed Andy Whelan permanent chief executive. He was previously interim ceo of the company and will combine the role with leading the growth of Sancus, which it acquired in November 2014. Together with Whelan, GLIF's executive team comprises Emma Stubbs (cfo), Marc Krombach (md) and Louise Beaumont (head of public affairs & marketing).

Structured Finance

Risk management pro promoted

NXT Capital has promoted Stacia Kopplin to md of risk management. She will be responsible for all risk management activities, including loan review, operational risk management, risk rating implementation and monitoring, data governance and portfolio management. She was previously a director in risk management.

Before joining NXT, Kopplin worked at Merrill Lynch Capital until 2008. She also spent 14 years at Heller Financial and GE Capital.

CLOs

Manager replacement sought

IMC Asset Management tendered its resignation as investment manager for the Strawinsky I CLO by written notice to the issuer on 31 December 2015, recommending Dynamic Credit Partners Europe as successor manager. The collateral management agreement provides that a manager's resignation shall not be effective until a successor manager has been appointed.

Consequently, the issuer has notified noteholders that it or the trustee may, within 45 days of notice of the resignation, appoint a successor investment manager. The controlling class has the right to disapprove, by way of an ordinary resolution, any proposed successor. Subordinated noteholders are therefore advised to contact the trustee, should they wish to direct it by way of ordinary resolution to appoint a successor investment manager.

In the absence of such a direction from the subordinated noteholders, the issuer does not intend to exercise its discretion in the appointment of a successor investment manager.

Insurance-linked securities

Markel names coo

Markel CATCo Investment Management has appointed Mark Way as its first coo. The move follows the rebranding of the firm after Markel's acquisition of CATCo late last year (SCI 9 December 2015).

In his new role, Way will be responsible for the firm's day-to-day operations and will report to ceo Tony Belisle. He has been with CATCo since its inception in 2011, following a role as managing partner at Madano Partnership.

Meanwhile, Ly Lam will also continuing working as a consultant for the firm after the former CATCo coo helped in the management of its sale.

Risk Management

Bank's clearing head replaced

JPMorgan has promoted Nick Rustad to lead its global clearing business, which includes CDS. He replaces Emily Portney, who was global head of agency clearing and collateral management in New York.

Rustad was previously head of EMEA emerging markets rates. He will report to the bank's global head of prime services, Jason Sippell, with the role shifting to London.

At the same time, Dave Olsen is stepping down from his role as global head of futures, options and OTC clearing. However, he will be staying with the bank.

Risk Management

OTC specialist promoted

NetOTC has promoted derivatives risk management specialist David Maloy to coo, expanding his responsibilities for the strategy, management and development of the firm's global operations. Prior to the appointment, he oversaw NetOTC's US-based activities.

Before NetOTC, Maloy served as global head of collateral management at Credit Suisse, where he looked after margin management and valuations. He is also one of the founders of the ISDA Collateral Committee and was previous co-chair.

Maloy will work closely with ceo Roger Lidell and contribute to the 2016 launch of the NetOTC bilateral platform. The firm specialises in managing margin for uncleared OTC swaps.

ABS

Timeshare delinquencies push up

US timeshare ABS delinquencies hit a three-year high last quarter, according to Fitch's latest index results for the sector. In total, delinquencies moved up to 3.41% in 4Q15 from 2.96% the previous quarter.

The percentage is the highest level that Fitch has observed since delinquencies reached 3.55% in 4Q12. The agency says that the increase was evident across all issuers and driven by overall market normalisation, as well as the seasonal trend to increase in the winter months. However, the level is still well below a high of 5.26% that was registered in 1Q09.

Defaults also moved up in 4Q15 to 0.61%, a slight increase over 0.59% in 3Q15 and 0.55% in 4Q14. On a rolling 12-month basis, defaults stood at 6.77% for 4Q15, again up from 6.64% for 3Q15. It is the second quarterly increase after three years of consecutive quarterly improvement.

Fitch expects some additional nominal increases in delinquencies and defaults in the near term as a result of performance normalising after recent year-over-year improvement. However, the delevering structures found in timeshare transactions and ample credit enhancement levels mean that the agency's outlook for the sector remains stable.

ABS

PACE 'green' bonds hit landmark

The US PACE ABS market hit US$1bn in 'green' bonds last week after Renovate America closed its second deal of its kind. The US$217.5m HERO Funding Trust 2016-1 securitisation, which is secured by over 9,000 PACE assessments levied against residential properties in California, received double-A ratings on its class A notes from both Kroll and DBRS (see SCI's new issuance database).

The PACE assessments have an average balance of approximately US$24,236, a weighted-average annual rate of 7.94% and a weighted-average original term of 14.78 years. This second PACE green bond means more than US$1bn in private capital has helped lower utility bills, reduce carbon emissions and create clean energy jobs at no cost to taxpayers, says Renovate America ceo JP McNeill.

The firm adds that PACE green bonds have received significant interest in part because they do not fund aspirational or speculative projects. The proceeds have already been invested in projects with verified environmental impact.

The latest deal is part of the firm's HERO programme, which partners with local governments to assist homeowners in financing a wide variety of product installations to help conserve water and energy. Its first green PACE bond, issued late last year, was reportedly the first in the market (SCI 27 November 2015). The new high in issuance is also in line with a DBRS prediction that the overall PACE ABS market will grow at a faster rate (SCI 16 September 2015).

Morgan Stanley served as underwriter for the deal. Sustainalytics again worked with Renovate to verify the bonds.

Structured Finance

Credit assessment proposals finalised

The EBA has published its final draft implementing technical standards (ITS) for the mapping of external credit assessment institutions' (ECAIs) credit assessments for securitisation positions. The ITS will be part of the EU's Single Rulebook for banking and insurance, and will allow securitisation credit ratings to be used for the calculation of institutions' capital requirements.

Specifically, the standards will map out the steps that shall determine the allocation of appropriate risk weights to credit ratings issued by ECAIs on transactions where the standardised approach or the internal ratings-based approach for securitisations are used. In the short term, the new ITS maintain the current mapping in place for all ECAIs.

The EBA is also considering developing a securitisation-specific systematic mapping methodology mainly based on the historical performance of securitisation ratings, but this will likely be reviewed at a later date. For now, a number of factors are keeping the EBA cautious, including the representativeness of the data used and the ongoing review of the capital requirements regulatory framework on securitisations at both the international and EU levels.

Nonetheless, the EBA says that the challenges based on the historical performance of securitisation ratings should not exempt investors from performing the appropriate due diligence. In addition, it says that the ITS include a proposal to review the mapping of securitisation ratings where default of securitisation positions are observed. It also proposes to regularly monitor the performance of issued securitisation ratings by assessing the appropriateness of the mapping for any particular ECAI.

The ITS follow two joint proposals on ECAI credit assessments last year (SCI 12 Nov 2015). The EBA says that only minor changes were made following a consultation.

Structured Finance

CMU package progresses

The European Parliament is today expected to begin discussing the EU's securitisation initiative, comprising the new securitisation regulation and the amendment to the CRR. Approval by the parliament is the last major step towards implementation of the rules and follows the European Council's approval of the package in December (SCI passim).

Following the first exchange of views today, the presentation of a draft report is due on 16 March and the deadline for amendments by MEPs is on 5 April, according to Rabobank credit analysts. A vote by the Economic and Monetary Affairs Committee is scheduled for 23 May, after which there will be a plenary vote in the European Parliament on 4 July.

"All in all, if this last leg goes smoothly, it seems that the new regulatory package will be adopted by this summer. For an EU regulation, such an implementation period would be very quick and shows that the regulatory push for STS is subject to quite some momentum," the Rabobank analysts observe.

Structured Finance

SFR operating expenses up

Net operating expenses for most single-family rental (SFR) securitisations issued in 2013 and 2014 are slightly above underwritten assumptions, which Moody's describes as slightly credit negative for the affected transactions. Exceptions to this trend are the Invitation Homes (IH) and Silver Bay deals.

The first six months of operating cashflows for 2013 and 2014 SFR transactions suggest that non-contractual costs - such as repairs and maintenance (R&M), turnover-related expenses, general and administrative (G&A) expenses and other expenses - are above underwriting expectations and are driving total operating expenses slightly higher than anticipated, thereby reducing the amount available to repay the securitisation notes. However, contractually or legally established costs - such as home owners association (HOA) fees, management fees, insurance and taxes - are generally in line with underwriting assumptions.

Moody's notes that the slight credit negative impact of higher operating expenses is partially offset by rising rent revenue. Furthermore, SFR operators are expected to optimise their expenses as they gain more experience managing the rental portfolios.

"Despite the increase in net operating expenses, the operating margins are still in line with our closing assumptions, which are more conservative than the underwriting assumptions," the agency states.

IH shows the best expenses metrics, with actual operating expenses as a percentage of effective gross income (EGI) lower than initial expectation by 0.5% to 5.3%. Silver Bay operating expenses are trending in line with underwriting assumptions.

In comparison, expenses for AH4R's first two transactions are 5.5%-6.5% higher than initial expenses. Colony shows the highest discrepancy, with total operating expenses trending 7%-9% higher than underwriting levels for its 2014-1 and 2014-2 transactions. Progress and Sway are exceeding their underwriting levels by 2.7%, while ARP shows that total operating expenses are 1.8% higher than underwriting assumptions.

For most sponsors, total operating expenses are inclusive of tenant charge-backs and so operating expenses should be slightly lower after deducting expenses charged back to tenants. For instance, when excluding tenant charge-back expenses from AH4R's EGI and total operating expenses, AH4R 2014-3 expenses fall in line with underwritten assumptions. The same adjustment on both AH4R 2014-1 and AH4R 2014-2 reduces the difference between actual operating expenses and underwritten expenses to 3.1% and 4.4% respectively, which remains above initial underwriting expectations.

For the January to June 2015 period, only IH kept its total R&M and turnover costs in line with underwritten assumptions. In comparison, when deducting expenses charged back to the tenant from both EGI and total R&M costs, AH4R transactions still show total R&M expenses exceeding underwriting levels by 0.5%-3.3% for its 2014 vintage SFR transactions.

IH's average vacancy rates generally remained around 3.5% from September 2014 to June 2015, while other sponsors' vacancies generally ranged between 5%-8% during the same period. "IH's more favourable lease expiration schedule gave the sponsor stability during the vacancy period. Other transactions had a high number of expirations at the end of 2014 and during the first half of 2015, which led to more vacancies and subsequently higher turnover expenses for the sponsors of these transactions," Moody's says.

Other expenses that were not originally budgeted at closing, such as G&A, have increased total operating expenses for most SFR issuers. For instance, both of Colony's 2014 transactions and ARP incurred about 3% G&A and/or other expenses for the first six months of 2015. Similarly, Progress incurred about 2.4% of G&A expenses.

The agency indicates that IH's centralised property management and economies of scale are the main drivers of its low operating expenses. Centralised managers are generally more effective because they have the resources to manage large numbers of properties and the systems to allow full oversight of marketing and leasing, rental pricing and R&M. By January 2016, most SFR operators completed their internalisation process by bringing their property management in-house - a move that will likely reduce their R&M and turnover costs throughout the year.

Structured Finance

Russian bankruptcy law gauged

A new Russian bankruptcy law that came into effect in October 2015 will only impact a limited number of ABS and RMBS in the country, Moody's reports. The law introduces a legal mechanism for individual debt restructuring and encourages lenders to devise repayment plans rather than sell the assets in the event of a borrower's bankruptcy.

Moody's notes that the new law is unlikely to drive many domestic servicers to materially change their servicing processes, while recoveries on secured lending - including principal due on ABS and RMBS noteholders - will not be materially affected since they cannot be written off. In contrast, the agency adds that the bankruptcy process will actually increase principal recoveries on unsecured lending, through safeguards against excessive write-offs.

The time from default to repossession may increase because a lender cannot repossess in between the case being accepted and the restructuring plan being finalised. It could also increase over the duration of the repayment plan if the sale of the property is not agreed as a part of such plan.

Moody's assumes an average of three years to foreclosure for Moscow and St Petersburg, and four years for other Russian regions in its RMBS methodology. The maximum duration of a repayment plan under the law is three years.

"However, the increase in the late-stage arrears in consumer debt in Russia observed in 2015 may prompt an increase in the number of declared bankruptcies under the new law," says Greg Davies, a Moody's avp. "It remains an open question as to the degree to which bankruptcies will rise as a consequence of higher consumer debt arrears, albeit that potential performance issues will be limited by the small number of cases that we expect will arise in the securitised pools."

Structured Finance

Second SME facility closed

The British Business Bank (BBB) has partnered with the European Investment Fund (EIF) to provide £51m to LDF, a non-bank finance provider. The EIF will guarantee 50% of the facility to complete the second transaction under the BBB's ENABLE funding programme (SCI 1 December 2015).

The £51m facility will fund a portfolio of newly originated small business asset finance receivables, with the aim of allowing LDF to expand its provision of asset finance to smaller businesses.

The ENABLE programme is an aggregation vehicle and is building the critical mass necessary to refinance the assets through securitisation. The programme will be announcing similar agreements with other funders during 2016 and hopes to attract institutional investors to a large and highly diversified pool of SME debt. Reinald de Monchy, md of wholesale solutions at BBB, states: "We now have provided two facilities totalling £151m and we anticipate further transactions throughout 2016. Our intention remains for these facilities to be refinanced through the capital markets once we achieve a required critical mass of £300m or more."

CDO

Trups defaults keep low

Combined defaults and deferrals for US bank Trups CDOs remained at 17.4% at the end of January, according to Fitch's latest index results for the sector. Two performing issuers representing US$7.7m across two CDOs redeemed their Trups during the month, while there were no new deferrals, defaults or cures.

Across the 74 Fitch-rated bank and mixed bank and insurance Trups CDOs, 228 defaulted bank issuers remain in the portfolio, representing approximately US$5.2bn of collateral. In addition,104 issuers are deferring interest payments on US$1.3bn of collateral. This is down from 167 bank issuers with US$1.9bn of notional deferring at the end of January 2015.

CDS

Novo Banco deadline extended

ISDA's EMEA Determinations Committee has further extended the deadline for holding a binding vote on the Novo Banco succession event question until the end of April (SCI 17 February). The DC has been advised under Portuguese law that the 2015 Annual Accounts of Novo Banco must be published by then, but if the accounts become available earlier, it says it will reconvene and make a determination as soon as reasonably practicable thereafter.

CMBS

Delinquencies post largest decline

US CMBS delinquencies posted the largest month-over-month decline in January since Fitch began tracking the segment 15 years ago, reflecting the resolution of the Stuyvesant Town/Peter Cooper Village asset (SCI passim). Loan delinquencies fell by 109bp last month to 2.93% from 4.02% at end-2015, while the dollar balance of late-pays fell by US$4.2bn to US$11.1bn. The last time delinquencies dropped to below 3% was in June 2009.

The portfolio run-off of US$10.3bn in January exceeded Fitch-rated new issuance volume of US$7.6bn in December, causing a decrease in the index denominator. January resolutions of US$4.8bn overwhelmingly outpaced new delinquencies of US$637m.

By balance, nearly 95% of total resolutions were REO liquidations, largely from the StuyTown pay-off (representing US$2.8bn in Fitch-rated transactions), as well as the liquidation of nine other REO assets (totaling US$1.2bn) that had loan balances greater than US$50m. By property type, the REO liquidations included 10 multifamily assets (totaling US$3.1bn), 22 office assets (US$775m), 27 retail assets (US$472m), six hotel assets (US$158m), four industrial assets (US$50m), five mixed-use assets (US$32m) and one self-storage asset (US$12m).

Besides StuyTown, the REO liquidations last month were concentrated among three transactions, all specially serviced by CWCapital Asset Management (SCI 15 January). Many of the assets were disposed of through an auction process: CD 2007-CD4 saw 26 REO assets totaling US$882m sold, JPMCC 2006-CIBC17 saw 11 REO assets totaling US$387m sold and MLMT 2006-C1 saw 15 REO assets totaling US$220m sold.

Delinquency rates declined for all property types: retail fell to 4.96% (from 5.20% at YE 2015); office to 3.82% (from 4.61%); hotel to 3.41% (from 3.82%); multifamily to 0.82% (from 4.19%); industrial to 3.38% (from 3.88%); mixed use to 2.57% (from 2.73%); and other to 0.90% (from 0.89%). Multifamily now has the lowest delinquency rate among all property types, with the largest improvement.

The StuyTown resolution accounted for 305bp of the 337bp decline in the multifamily delinquency rate, along with the liquidation of the US$225m Riverton Apartments asset (which accounted for 24bp) and the US$60.2m CityView Portfolio II asset (6bp).

The 79bp decline in the office rate was primarily attributable to the resolution of the US$363m Bank of America Plaza asset (see SCI's CMBS loan events database). Other large notable REO resolutions included the Cerritos Corporate Center, 1111 Marcus Avenue and Raintree Corporate Center 1 and 2 assets. The largest office delinquency was the US$34.6m Belk Headquarters (securitised in BACM 2006-2).

Industrial saw a 50bp decline from US$66m of resolutions, compared to only one new industrial delinquency of US$2m. The largest industrial resolution was the US$33.3m Lakewood Industrial Portfolio (CD 2007-CD4).

Hotel had a 41bp decline from US$162m of resolutions, outpacing only US$15m of new delinquencies. The largest hotel resolution was the US$117m Loews Lake Las Vegas loan (CD 2007-CD4).

Retail - which continues to comprise the largest percentage of Fitch's delinquency index by balance and remains the slowest property type to recover - had a 24bp decline from US$605m of resolutions, outpacing US$368m of new delinquencies. The largest new delinquency was the US$132.9m Triangle Town Center (LBUBS 2006-C1 and LBUBS 2006-C7), although the loan will be removed from the delinquency index next month as a loan modification has been executed this month. Retail resolutions included the US$136m Citadel Mall (CD 2007-CD4) and the US$125.6m Northwest Arkansas Mall (CD 2007-CD4) loans.

Fitch expects the delinquency rate to fluctuate between 2.50% and 3% during the year. The primary reason is that maturity defaults on 2006-vintage loans - primarily those that are highly leveraged and have weaker performance - are expected to increase and liquidations of already delinquent assets are expected to continue.

CMBS

CMBS oil exposure analysed

Kroll Bond Rating Agency has designated US$684m of CMBS 2.0 oil exposed loans in both KBRA-rated (21) and non-rated transactions (seven) as KBRA loans of concern (K-LOCs). Among the agency's rated transactions, North Dakota and Texas include collateral with oil-exposed K-LOCs. Oklahoma and Colorado have also been identified with oil-exposed K-LOCs in non-KBRA rated transactions.

K-LOCs are loans that are either in default or at a heightened risk of default in the near term. Loss estimates for the 27 K-LOCs in KBRA-rated transactions ranged up to 87.9%, with North Dakota (19 loans) ranging from 23.8% to 87.9% (weighted average of 62.2%) and Texas (eight) from zero to 23.3% (weighted average of 2.6%). In the aggregate, for the K-LOCs that had losses (23), the weighted average loss severity is 53.1%.

When including the other four loans that didn't have losses, the weighted average loss severity decreased to 30%, reflecting some large-balance Houston office properties that skewed the averages. In many of the Houston properties, the losses were due to more company specific events, as energy related companies downsize their workforce and space requirements.

By property type, they downturn has had the biggest impact on multifamily and lodging sectors. Due to their short-term leases, they adjust to downturns much more quickly than the other major property types. Multifamily properties typically have fairly short-term leases (one year or less) when rents can be adjusted, while lodging room rates can change daily.

Individual K-LOC losses run as high as 87.9% and 56.1% respectively for these two property types. In total, the loss severity is 71% for multifamily and 37.7% for lodging.

According to Smith Travel Research, on a full year-over-year 2015 comparison, RevPAR fell by 3.3% for Houston, but increased by 6.3% for all US markets.

Vacant office space is also increasing in Houston, as companies reduce their space requirements through lease terminations, non-renewal of expiring leases and sub-lease of their excess space. KBRA has assigned US$217m of Houston office loan collateral K-LOC status.

For the other major property types, retail is expected to be impacted, especially in markets where there have been major employment losses, with fewer shoppers to support existing centres. Warehouse space may also come under pressure, especially for facilities used for storing oil drilling supplies and equipment.

KBRA believes that the fall-out from the oil decline will mostly be confined to properties in energy-related markets. However, in these and other markets, CMBS collateral with tenants that are primary and ancillary suppliers to the energy sector may also ultimately succumb to the downturn's persistence.

The agency has placed the ratings of four classes from three transactions - COMM 2013-CCRE10, COMM 2013-CCRE12 and MSBAM 2014-C18 - on watch downgrade, based on its loss estimates for energy-related CMBS loans in North Dakota's oil patch. In total, US$67.3m of securities have been affected by the move.

NPLs

Italian NPL losses to be recognised?

The Italian government's guarantee of senior notes under its NPL securitisation proposal (SCI passim) is expected to facilitate increased lending by Italian banks. However, banks may also have to recognise losses if sales to SPVs are made at a discount, Moody's notes.

The proposal will allow banks to securitise their non-performing loans, subject to certain conditions. The structure must be strictly sequential and all returns to junior noteholders must be subordinated to the senior notes being completely repaid. The guarantee will be available to investors so long as the senior notes are of investment grade quality and at least 50% of the junior notes are sold.

Moody's expects the impact on the reconstitution of bank balance sheets to be limited in the short term, although the proposal should allow banks to reduce bad loans at better values than sales in the market. The reduction in NPLs is expected to be gradual.

The rating agency calculates that the total stock of Italian NPLs is €350bn, or 18% of total loans. Of the €350bn, the government's plan would cover €200bn of bad loans.

RMBS

MAGEL tender offer unveiled

Banco Comercial Português has launched separate tender offers for the respective €930m and €1.41bn class A notes of Magellan Mortgages No. 2 and No. 3. The bank says the purpose of the offers is to proactively manage its outstanding liabilities and capital base.

The prices BCP will pay for validly tendered RMBS bonds will be determined pursuant to an unmodified Dutch auction procedure. However, the maximum purchase price for MAGEL 2 and 3 notes will be 97% and 83.5% respectively.

The bank currently proposes to accept for purchase up to €300m in aggregate principal amount of the notes, although it reserves the right to accept less than or more than this amount. If a valid tender is greater than the acceptance amount, BCP may accept it for purchase on a pro rata basis, with priority given to notes tendered pursuant to non-competitive tender instructions.

Noteholders should deliver a valid tender instruction by 23 February, with the results expected to be announced on 24 February and settlement due two days later. This schedule is subject to the right of BCP to extend, re-open, amend or terminate any tender offer.

RMBS

FNMA aims for liquidity

Fannie Mae has priced its latest credit risk sharing transaction under the Connecticut Avenue Securities series. To promote additional liquidity, the GSE for the first time sought a credit rating for the M2 bonds in a CAS transaction. It is also for the first time selling a portion of the first loss position, further reducing taxpayer exposure to credit losses.

The US$945.1m CAS 2016-C01 RMBS marks the tenth securitisation under the CAS programme, bringing total issuance to US$13.4bn in notes and transferring a portion of the credit risk of single-family mortgage loans with an outstanding unpaid principal balance of over US$467bn.

The 1M1, 2M1, 1M2 and 2M2 tranches priced at one-month Libor plus 195bp, 210bp, 675bp and 695bp respectively with ratings of Baa3/BBB (Moody's/KBRA), Baa3/BBB-, Ba3/BB- and B1/B+. Pricing for the unrated 1B tranche was one-month Libor plus 1175bp.

JPMorgan was lead structuring manager and joint bookrunner on the deal, with Citi as co-lead manager and joint bookrunner. Bank of America Merrill Lynch, Barclays, Credit Suisse and Wells Fargo were co-managers. CastleOak Securities and Loop Capital Markets participated as selling group members.