Contents

Marketplace Lending

What's in a name?

Classification confusion constraining MPL ABS

Uncertainty over how to define marketplace loans - as securities or whole loans - is restricting securitisation of the assets. However, the US SEC could be considering classifying marketplace loans as securities, signalled by the announcement of its upcoming fintech forum.

Unresolved regulatory issues continue to plague the marketplace loan sector, with issues over true lender status and the Madden case being the most publicised. Julia Corelli, partner at legal firm Pepper Hamilton, comments: "Investors are hesitant over marketplace loans as an asset class because debate is still not resolved. Just as true lender issues - brought up by the Madden case et al - are hampering investors' willingness to buy securitised marketplace loans, so the unresolved debate around whether marketplace loans are whole loans or securities is a factor holding platforms back."

As a result, not only has this ongoing issue deterred investors from buying securitised marketplace loans, but platforms are also being dissuaded from the securitisation route as a funding tool. Corelli notes: "It's fair to say that these ongoing regulatory issues are hampering the development of the asset class and the opportunity for liquidity through securitisation. Given the business model of these companies, typically we would have seen them activate various channels to generate funding and liquidity. More active securitisation efforts would have been expected."

She continues: "Instead, there has been a weak uptake of securitisation and this is in part due to institutional investors wondering what marketplace lending is and still being unsure how to define it and, most importantly, where it is going to go, and therefore how to invest in it."

As well as uncertainty about the asset class itself, there are questions about whether the platforms themselves should be redefined as investment companies. Should that happen, they would come under a whole range of different regulations, such as the Investment Company Act.

Corelli explains: "While other firms - such as banks - may make a loan and then hold it on-balance sheet, making it not meet the definition of a security, it's less clear with marketplace lenders. They essentially pool a number of loans and allow investors to invest in these notes. Investors clearly have an expectation of profits; the question is whether it is an expectation of profits derived from the efforts of others. Lots of people would agree that it is."

In terms of the future of the sector and how platforms might manage this change, they will have to comply with a raft of securities regulations, should marketplace loans be classified as securities. Many may be thinking about how to bypass these regulations, but it could be a losing battle.

"If it's decided that marketplace loans are indeed securities, then it's likely that most platforms looking for liquidity through securitisation will have to comply with the panoply of securities laws applicable to companies which invest in securities, unless they can find an exemption. It's hard to see how they will find one though that fits a securitisation context, short of full registration," Corelli comments.

With the SEC's scheduling of a fintech forum for 14 November, it appears that the regulator is putting the issue higher up its list of priorities, with some saying it could signal its intentions. Corelli concludes: "I think the SEC could well make public a view many say they already have - that marketplace loans are securities."

RB

Secondary markets

Euro CLOs slumber

Activity in the European CLO secondary market has ground to a halt.

"Nothing has really happened in the last week or so," says one trader. "The only action of any note has been in short 1.0s and 2.0 triple-Bs."

The momentum of the mid-September rally has disappeared thanks to external factors, the trader suggests. "Macro headlines, particularly surrounding European financials and hard Brexit, have drained market liquidity and stopped people wanting to get into the space."

The market could receive a boost from a sizeable BWIC on the calendar for today. However, the trader remains sceptical: "It's all 1.0s so there will be plenty of interest, but I'm not convinced that much of it will actually trade."

The predominantly European CLO list is due at 14:30 London time. It involves 44 line items totalling 77.35m original face including a few dollar-denominated bonds and some CDOs.

Due at 14:30 London time the auction consists of: ALPST 2X C, ARESE 2007-1X E, ARESE 2013-6X E, ARESE 7X D, AVOCA V-X D, AXIUS 2007-1X E, CADOG 1 D, CADOG 2X D, CELF 2005-2X C, CELF 2006-1X C, CELF 2006-1X D, CELL 2006-1X B, CORDA 2006-1X C, GCLO 2006-1A B, GOLD8 2014-8X E, GRENP 2006-1X D, HARBM 7X B1, HARBM 7X B2, HARBM 9A D, HARBM 9X D, HARBM PR3X A3, HARVT IV D1, HEC 2007-3X D, HOLPK 1X D, JUBIL 2013-10X E, JUBIL 2014-11X E, JUBIL 2014-12X E, JUBIL V-X C, LEOP V-X D, MRNPK 2012-1A CR, NPTNO 2007-1X C, NPTNO 2007-1X D, OHALF 2013-1X E, PENTA 2007-1X D, PHNXP 1X D, QNST 2007-1X E, REGP 1X D, RENOR 1 B, RPARK 1X D, VENTR 2007-8A C, WODST III-A D, WODST IV-X E, ZOO IV-X A2 and ZOO IV-X B.

Seven of the bonds have covered with a price on PriceABS in the past three months, last doing so as follows: HARBM 7X B2 at 99.55 on 22 September; HARBM 9X D at 95H on 13 September; HEC 2007-3X D at VH80S at 11 July; JUBIL 2014-11X E on 90H at 20 September; JUBIL 2014-12X E on 91.78 at 22 September; RPARK 1X D at MH80S on 7 July; and ZOO IV-X B at MH70S on 20 September.

Secondary markets

US CLO shift

Attention has shifted away from the US CLO secondary market.

"The market is very quiet right now," says one trader. "We are seeing a lot of activity in the re-set/refinancing/new issue space and secondary is having to take a back-seat to that."

At the same time, the trader reports: "There are a lot of bonds sitting on dealer inventory that are priced above par but buyers aren't always willing to go there. So we have a bit of an impasse and need something to happen to get things moving again."

There are six BWICs on the US CLO calendar for today so far. The longest list still to come is a $9.15m collection of eight single-As and one double-A.

Due at 12:00 New York time it comprises: ALM 2014-14A A2, HLA 2012-1A B, NOMAD 2013-1A B, OAKTA 2014-A2 C, OCTR 2013-4A C, PLMRS 2013-2A B, VENTR 2013-15A C, WINDR 2014-2A C2 and ZIGG 2014-1A C. Two of the bonds have covered with a price on PriceABS in the past three months - NOMAD 2013-1A B at 99.5 and OAKTA 2014-A2 C at 99.871, both on 8 August.

Secondary markets

Euro ABS/MBS picks up

Activity in the European ABS/MBS secondary market is picking up.

"There's a fair bit of primary supply at the moment and we're now seeing some rotation activity off the back of that," says one trader. "As a result, there's been a pick up in sellers in the last few days."

Nevertheless, the trader adds: "That paper has been digested easily by the market and there's been no back-up in spreads. In fact, levels remain firm across the board."

There are currently five BWICs on the European ABS/MBS schedule for today. The longest is a 59m euro and sterling mix of UK ABS and RMBS mezz.

The 17 line item auction is due at 14:00 London time and comprises: CELES 2015-1 B, CELES 2015-1 C, CLAVS 2007-1 B1B, GHM 2007-2X DB, LGATE 2007-1 DB, LGATE 2007-1 MB, LGATE 2008-W1X BB, LGATE 2008-W1X CB, NDPFT 2014-1 C, NDPFT 2015-1 C, RMS 28 C, TPMF 2016-GR1X D, UROPA 2007-1 B1A, WARW 1 B, WARW 1 C, WARW 1 E and WARW 1 F. Three of the bonds have covered with a price on PriceABS in the past three months - GHM 2007-2X DB at 61H on 15 July; WARW 1 B at 95.92 on 25 August; and WARW 1 C at 93.5 on 25 August.

Secondary markets

US CLOs patchy

Volumes have been patchy in the US CLO secondary market this week.

"Yesterday there were a decent amount of BWICs and they traded well," says one trader. "Today is back to being pretty quiet again as it was earlier in the week."

Quieter days are a result of no more than participants taking pause after the active summer and strong CLO rally, the trader suggests. "There's nothing obviously big on the horizon so everyone is looking for direction and trying to find the next big thing."

That search is focused round the bottom of the stack today. "There is a big equity list, which could be interesting," the trader says. "Generally speaking, the normal equity buyers have been priced out of top tier names and so there has been a shift towards lower dollar price/NAV type deals and this list should feed into that. At the same time, there has also been increased interest in shorter 2.0 equity as that has not yet been bid as strongly as longer pieces."

There are four BWICs on the US CLO calendar for today so far. The largest is the above-mentioned 18 line mainly equity list, which includes one triple-B tranche and three euro-denominated pieces.

Due at 11:00 New York time the 52.5m list consists of: BABSE 2014-1A SUB, BABSE 2015-1A SUB, BLACK 2014-1A SUB, BLACK 2015-1A M1, BLACK 2015-1A M2, ICEC 2012-1A INC, ICEC 2013-1A D, ICEC 2013-1A INC, OZLM 2015-11A SUB, OZLM 2015-12A SUB, OZLMF 2012-2A SUB, OZLMF 2013-3A SUB, OZLMF 2013-4A SUB, WOODS 2013-10A SUB, WOODS 2014-11A SUBA, WOODS 2014-11X SUBB, WOODS 2014-12A SUB, and ZIGG 2014-1A SUB. Only one of the bonds has covered with a price on PriceABS in the past three months - ZIGG 2014-1A SUB at 48.26 on 10 August.

Structured Finance

SCI Start the Week - 3 October

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

Pipeline
Auto-related ABS dominated the pipeline last week, with a couple of consumer ABS, some RMBS and a CLO also making an appearance. The auto entrants comprised: US$1.025bn AmeriCredit Automobile Receivables Trust 2016-4; US$1bn BMW Vehicle Lease Trust 2016-2; US$450m Exeter Automobile Receivables Trust 2016-3; C$406m MBARC 2016-A; US$361.4m NextGear Floorplan Master Owner Trust Series 2016-2; US$1.06bn Santander Drive Auto Receivables Trust 2016-3; A$756.2m-equivalent SMART ABS Series 2016-2US Trust; and US$1.25bn Toyota Auto Receivables 2016-D.

The €478m Matsuba 2016 and US$674m SMB Private Education Loan Trust 2016-C deals rounded out the newly-announced ABS. The US$345m NRZ 2016-PLS2 and £1.253bn Towd Point Mortgage Funding 2016-Auburn 10 transactions were the RMBS, while the CLO was US$415.1m Clarinda Park CLO.

Pricings
All asset classes were well represented in last week's pricings, although the CLO market saw the highest number of prints at 10. Four of the CLO prints were refinancings.

The US$404.15m Cathedral Lake IV, €411.1m Euro-Galaxy V, US$535.59m Magnetite XVIII, US$655.5m THL Wind River 2016-2, US$608m Voya CLO 2016-3 and US$406.05m Wellfleet CLO 2016-2 deals accounted for the newly issued CLOs. The CLO refinancings were: US$558.75m ALM VIII, US$302.5m Canyon Capital CLO 2012-1, US$349.5m Flatiron CLO 2012-1 and US$514.33m Wind River CLO 2012-1.

Meanwhile, among the ABS new issues were a handful of auto deals: US$438.51m DT Auto Owner Trust 2016-4; €513.6m E-CARAT Compartment 9; €437.8m ROOF Leasing Austria Compartment 2016; €720m Auto ABS Spanish Loans 2016; and €513.5m E-Carat Compartment 9. The US$552.78m Conn's Receivables Funding 2016-B and £138m Marketplace Originated Consumer Assets 2016-1 transactions rounded out the ABS pricings.

€562m Fastnet Securities 12, A$600m Firstmac Mortgage Funding Trust No.4 Series 3-2016, US$300m Green Tree Agency Advance Funding Trust I Series 2016-T1, US$300m New Residential Mortgage Loan Trust 2016-3, US$739m STACR 2016-DNA4 and £345m Finsbury Square 2016-2 made up last week's RMBS prints. Finally, US$540m CGCMT 2016-SMPL, US$885m MSBAM 2016-C30, US$757m WFCM 2016-NXS6 and £2.4bn Griffon Funding accounted for the CMBS pricings.

Editor's picks
Top marks: The final maturity dates on nine FFELP student loan ABS deals were extended earlier this month (SCI 14 September), as the industry continues to get to grips with the recent maturity crisis. Nelnet was able to extend all nine of the trusts that it sought to, largely through making use of DealVector's bondholder communication platform (SCI 22 June)...
Treasure hunt: The UK RMBS universe is set to shrink throughout 2016, exacerbated by limited supply and the redemption of the €4.4bn Aire Valley master trust. Against this backdrop, other sectors could benefit from excess investor cash...
US CLO status quo: The US CLO secondary market is currently little moved by events surrounding it. "Overall, these are interesting times in the primary CLO and loan markets, but that's not feeding through into the secondary market," says one trader. "Volumes are light at the moment - it's still very much the status quo..."
STACR liquidity boost: Fitch recently assigned ratings to seven previously unrated notes from seven Freddie Mac STACR RMBS issued between 2013 and 2014, after its similar action last month in respect of seasoned CAS transactions (SCI 31 August). The market is expected to respond favourably to the move, as the newly rated STACR bonds are now eligible to investors that are mandated to purchase rated securities...
Liquidity focus: Frank Dos Santos, head of North America business strategy for fixed income pricing at IHS Markit, answers SCI's questions...

Deal news
• Freddie Mac is rolling out a new front-end credit risk transfer offering dubbed Freddie Mac Deep MI CRT. Through a forward credit insurance policy provided by a panel of mortgage insurance company affiliates, this pilot structured transaction provides additional coverage beyond the primary mortgage insurance on 30-year fixed-rate mortgages with 80%-95% LTVs, which is placed immediately upon their sale to Freddie Mac.
• Three Chinese issuers are in the market with NPL securitisations (see SCI pipeline). One of them - China Construction Bank - only made its debut in the asset class last week. China Construction Bank is joined by China Merchants Bank and the Industrial and Commercial Bank of China (ICBC).
• Auto lease ABS have meaningful exposures to the recall of faulty Takata-manufactured airbags, notes Moody's. Auto loan ABS have only minimal exposure, but the lease sector is particularly affected due to the timing of when the leases backing outstanding transactions will mature, compared with when vehicle fixes occur and replacement parts are available.
• Officefirst Immobilien's plans for an IPO on the Frankfurt Stock Exchange before year-end are credit positive for the €468m Taurus 2015-2 DEU CMBS, says Moody's. Officefirst intends to use the proceeds primarily to repay existing debt, but also to convert into a REIT next year.
• Dock Street Capital Management has replaced Church Tavern Advisors as collateral manager for Sherwood Funding CDO II. Under the terms of the appointment, Dock Street agrees to assume all the responsibilities, duties and obligations of the collateral manager under an amended and restated portfolio management agreement as well as the applicable terms of the collateral administration agreement.
• Fannie Mae has successfully sold its fifth community impact pool of NPLs. The winning bidder on the pool was The Community Loan Fund of New Jersey, which is an affiliate of New Jersey Community Capital.
• The surge in securitisation activity in India last year has continued into 1Q16, boosted by renewed interest in MBS PTCs, according to a report from Crisil. The agency adds that the general securitisation growth is due to clarity on distribution tax and because of banks shifting to quarterly, rather than annual, assessment of priority sector lending targets.

Regulatory update
• RBS has reached a final settlement with the NCUA to resolve two outstanding civil lawsuits for US$1.1bn. The settlements relate to two RMBS cases that assert claims on behalf of US Central Federal Credit Union and Western Corporate Federal Credit Union.
• The US SEC has instituted public administrative and cease-and-desist proceedings against Nicholas Bonacci, due to misleading conduct while working as an RMBS trader at Morgan Stanley. He has agreed to pay a civil money penalty of US$100,000 to the general fund of the US Treasury.
• The US SEC has voted to adopt new rules to establish enhanced standards for the operation and governance of securities clearing agencies that are deemed systemically important or that are involved in complex transactions. It has also voted to apply the enhanced standards established by the new rules to other categories of securities clearing agencies, including all SEC-registered central counterparties.

Structured Finance

Seller-financed deal debuts

Amherst is in the market with its inaugural single-family rental securitisation, dubbed AMSR 2016-SFR1 Trust. The US$489.3m transaction - which is backed by a single floating-rate loan secured by mortgages on 4,262 properties owned by Altisource Residential Corporation (RESI) - is noteworthy for its unique structure.

The securitisation is part of a seller-financed transaction, whereby Amherst sold the properties securing the loan to RESI for an aggregate purchase price of US$652m, US$163m of which was paid in cash. Amherst provided the balance of the financing to RESI with the securitised loan and will be the recipient of the deal proceeds. The loan requires interest-only payments and has a two-year term (25 months), with three 12-month extension options.

As well as through sales, the borrower (Altisource subsidiary Home SFR Borrower) acquired the collateral from Amherst through the merger of existing property-owning SPEs into a newly formed borrower SPE, with the borrower SPE being the surviving recycled SPE entity. In addition, the equity owner of the borrower acquired equity interests in SPEs that owned properties and was, in turn, sold to Home SFR Borrower.

The underlying properties were acquired by affiliates of Amherst between 2012 and 2016, and were sold to Altisource on 30 September. The homes are located in 14 states, with the three largest state exposures representing 67.3% of the aggregate broker price opinion (BPO) value of the portfolio: Texas (accounting for 32.1%), Tennessee (22.1%) and Georgia (13.1%). The aggregate BPO value of the underlying homes was US$614.6m, yielding a relatively high LTV of 79.6%.

Provisionally rated by KBRA, Moody's and Morningstar Credit Ratings, the transaction comprises: US$202.8m AAA/Aaa/AAA rated class A notes; US$36.9m AA+/Aa2/AA+ class Bs; US$26.1m AA-/A2/AA class Cs; US$24.6m A/Baa2/A class Ds; US$34.42m BBB/NR/BBB+ class Es; US$47.02m BBB-/NR/BBB- class Fs; US$56.85m BB-/NR/BB- class Gs; and US$60.55m NR/NR/B class Hs. There are also unrated class XCP, XNP1, XNP2 and XNP3 notional tranches, each sized at US$60.55m.

The deal is underwritten by Amherst Pierpont, Credit Suisse, Goldman Sachs and Nomura.

CS

CLOs

Risk retention preparedness polled

With the US risk retention effective date just under three months away, JPMorgan CLO analysts say they have uncovered some industry progress in their latest CLO client survey, but more is needed. They note that the majority of respondents (71%) agree that less than half of US CLO managers appear to have a clearly defined risk retention strategy.

Only 2% of respondents view 75%-100% of managers as having a clearly defined risk retention strategy. However, the JPMorgan analysts point out that the proportion of respondents in the 'don't know' category has narrowed, suggesting increased confidence in CLO managers' preparedness for risk retention.

Meanwhile, there was a diverse mix of responses from the managers polled in the survey regarding which risk retention structure their company intends to deploy, with both the MOA and CMV structures expected to be used. The so-called C-MOA structure - a cross between the MOA and the CMV structures - also has a significant presence in the mix, accounting for 27% of respondents, tied with those expecting to use the pure balance sheet structure.

Overall, there seems to have been a general shift in relative value from mezzanine tranches to higher rated tranches compared to last quarter. In the US, this rebalance is centred on increasing interest in the triple-A and double-A tranches.

Indeed, consistent across all global primary and secondary markets, the triple-A tranche is considered the most valuable relative to others. The double-B and equity tranches also garner significant interest across all markets, albeit less than in 3Q16, when double-B spreads were much wider and equity prices were on average lower.

After reaching historical highs in the JPMorgan survey last quarter, 'high' cash levels have dropped by nearly one-fifth, implying that investors have spent some cash entering the final quarter. Similarly, the proportion of 'low' and 'moderate' cash responses increased. Such spending could partly be explained by meeting demand for the highest monthly supply year-to-date, according to the analysts.

Over the next six months, most respondents are planning to add risk in CLO mezz or subordinated debt, perhaps indicating that investors believe spreads will widen to more attractive levels.

Finally, the ratio of buyers to sellers dropped slightly to 17:1, but remains elevated. This measure has been volatile throughout the year, plunging to 6:1 in February, for instance.

CS

NPLs

Deleveraging opportunity

Iain Balkwill, partner at Reed Smith, argues that securitisation is the answer to European NPL woes

The balance sheets of European banks are currently stocked with huge volumes of non-performing loans (NPLs), which have largely festered while the banks have channelled their efforts towards recapitalisation. As recently demonstrated by the European Banking Authority stress tests, balance sheets have largely been strengthened, which has precipitated a marked shift in focus towards deleveraging the banks through the off-loading of NPLs.

To date, the deleveraging process has ranged from single loan sales to the disposal of mega pan-European NPL portfolios. While such disposals have played an integral role in providing a mechanism through which the European banks have been able to de-lever, they have nevertheless proven to be challenging and time-consuming to implement. It is also fair to note that with the exception of a small number of jumbo deals, the size of the majority of NPL portfolio transactions can be considered small relative to the sheer volume of NPLs that banks desperately need to shed.

To capitalise on the NPL opportunity, over recent years Europe has seen a marked increase in the formation and expansion of funds that specialise in the investment of distressed debt (NPL investors). Noting the significant volume of NPLs that are yet to be off-loaded by the European banks, the need for this to take place in a timely manner as well as the continued need for NPL investors to obtain leverage to meet the levels of return demanded by their investors, now would appear an opportune time for European banks to catalyse the deleveraging process by embracing the deployment of securitisation technology as a mechanism to off-load jumbo-size NPL portfolios.

Although there are a myriad of different types of securitisation structure that could be used, a simple structure is likely to involve the establishment of an SPV that would acquire an NPL portfolio partly funded by the issuances of tranched notes (NPL bonds). The remainder of the purchase price will be provided by the NPL investor, which could take the form of either a straight equity contribution, a subordinated loan or the structuring and purchase of a deeply subordinated NPL bond.

In many respects, the European market is neatly poised to embrace this technology and on the face of it, the emergence of NPL bonds would seem to be highly desirable. For an investor in NPLs, it would increase the source and volume of funds available to finance their NPL acquisitions. For the securitisation investors, structures such as this will not only enable them to invest at a level that satisfies their risk and return appetite, but these types of transactions would also give them the volume, yield and variety of paper that their investment portfolios so require.

Despite the clear benefits of NPL bonds and the existence of the capital markets technology required to create such a product, to date there has been limited use of securitisation structures. This could be attributable to the unfavourable regulatory environment that has created a number of challenges and uncertainties for investors and arrangers of securitisations alike. Equally, there could be a simple reluctance to embrace these structures, given the innate complexities of this financial engineering and the stigma attached to securitisation that continues to subsist following the onset of the global financial crisis.

Regardless of these reservations, the tides do, however, seem to be changing and it is becoming increasingly clearer in many quarters that securitisation in some form could have an integral role to play in the European bank deleveraging process. A prime example of this can be found in Italy, where the Italian legislature has devised a state guaranteed securitisation structure to circumvent issues with applying state aid to address the NPL issue. Similarly in Greece and Spain, recent legislation has been introduced that would seem to encourage the application of securitisation technology to off-load NPLs.

The widespread deployment of securitisation is considered by many to be one of the key factors that brought about the global financial crisis. Indeed, for a number of years, any mention of securitisation was regarded as a dirty word and at one point this technology was destined to face certain extinction.

Nine years on though, securitisation is certainly not extinct and is, in fact, experiencing a renaissance - as shown by the European Commission's proposal that simple, standardised and transparent securitisation is one of the building blocks of a European capital markets union. Although only time will tell what role securitisation will have as a financing tool more generally, one thing that is certain is that this technology has the latent potential to play an integral role in off-loading jumbo-sized NPL portfolios from the balance sheets of European banks. For that reason alone, if European banks choose not to at least consider embracing this technology, then they do so at their peril!

Structured Finance

Highland beefs up

Highland Capital Management has hired Brad Eden as global head of marketing and investor relations. It is a newly created position as the firm continues to build out its international business development team.

Eden has more than 30 years' experience in a range of institutional investment roles, including co-founding Fund Evaluation Group - an independent institutional consulting firm. He will be responsible for establishing a bespoke institutional investment offering at Highland.

Structured Finance

RE advisory bolstered

Colliers International Group has acquired ICADE Asset Management and ICADE Conseil (ICADE). The acquisitions will be rebranded as Colliers International - Investment & Asset Management, with current md Romain Fremont becoming md of Colliers International Investment & Asset Management France. The move will help Colliers to build on its existing asset management business and advisory solutions for real estate investors and developers in Europe.

Structured Finance

Credit platform aligned

AXA Investment Managers has merged its alternative solutions and structured finance teams to create a single global alternative credit platform under the leadership of Deborah Shire, head of structured finance. The move is designed to create a simpler and more agile structure to the benefit of the firm's clients.

The merger will provide the platform with a presence in Paris, London and Greenwich, Connecticut. The combined team will comprise 100 professionals, providing management and advisory services to over €31bn of assets, covering loans, private debt, CLOs, ILS, ABS, fund of hedge funds and impact investing.

Eric Lhomond, previously global head of the alternative solutions team, has decided to leave AXA IM in order to pursue a new opportunity.

Structured Finance

Asset managers merge

Henderson Group and Janus Capital Group have agreed to an all-stock merger of equals. The combined company will be named Janus Henderson Global Investors.

The combination of the two businesses is expected to create a leading global active asset manager, with significant scale, diverse products and investment strategies, as well as depth and breadth in global distribution. The merger is currently expected to close in 2Q17, subject to requisite shareholder and regulatory approvals.

The merger will be effected via a share exchange, with each share of Janus common stock exchanged for 4.719 newly issued shares in Henderson. Henderson and Janus shareholders are expected to own approximately 57% and 43% respectively of the combined company, based on the current number of shares outstanding.

The board of directors will comprise equal numbers of Henderson and Janus directors, with Henderson chairman Richard Gillingwater becoming chair of the combined board and Janus' Glenn Schafer becoming deputy chair. The company will be managed by a newly appointed executive committee, whose members will report jointly to co-ceos Dick Weil and Andrew Formica (currently ceo of Janus and Henderson respectively).

Structured Finance

Trading pro tapped

Cairn Capital has hired Asif Godall as its new deputy cio. He will report to cio Andrew Jackson and be responsible for portfolio management within multi-asset credit.

Godall was previously at HSBC for 17 years, where he most recently held the position of global head of traded credit. He has also set up a number of businesses with HSBC, including loan and special situation trading, credit financing and global macro strategies.

Structured Finance

Data deal sealed

Intercontinental Exchange has completed its acquisition of the S&P Securities Evaluations (SPSE) and Credit Market Analysis (CMA) businesses (SCI passim). SPSE will become known as Securities Evaluations and will form part of the data products and services that comprise ICE Data Services. Securities Evaluations will be managed and operated separately from the existing fixed income evaluated pricing services from ICE Data Services until further notice.

Structured Finance

Valuations exec recruited

CBIZ Valuation Group has recruited Karl D'Cunha as md - portfolio valuation. His practice will include performing valuations of portfolios of illiquid securities, as well as working with asset management companies on other valuation and transaction advisory matters.

D'Cunha has over 19 years of experience in managing a wide range of financial advisory projects, including complex valuation engagements, M&A advisory and capital raising transactions. He was previously senior md - investment banking at Madison Street Capital and before that worked at Houlihan Capital, Ernst & Young and PricewaterhouseCoopers.

Structured Finance

ASF adds policy pro

Robert Gallimore is set to join the Australian Securitisation Forum in the role of policy executive. His responsibilities will include working with ASF members on developing policy positions, as well as other member engagement matters.

Most recently, Gallimore was a director - primary markets at RBS, and before that held the role of senior corporate counsel at ABN AMRO. He has extensive experience in the origination and structuring of domestic and global securitisation transactions, and has knowledge of Australia's regulatory framework governing securitisation.

CLOs

CLO expertise added

Amherst Pierpont Securities has hired Erez Biala as md and head of structured credit trading and origination. He is tasked with establishing the firm's structured credit trading and origination platform and will lead its efforts to capitalise on current market opportunities in the CLO and related structured credit markets.

In particular, Biala will be responsible for growing Amherst Pierpont's presence in both the primary and secondary markets. He joins the firm with 15 years of securitised products, structured products and CLO/CDO trading and origination experience.

In his most recent position as md and global co-head of CLO/CDO trading and origination at Jefferies, Biala successfully launched the firm's CLO/CDO platform and originated more than 40 new issue transactions while trading all types of CDOs. He previously held structured products trading and origination roles at Barclays Capital, Lehman Brothers and Morgan Stanley.

CLOs

CLO shop formed

Eagle Point Credit Management, GreensLedge Holdings and Sumitomo Mitsui Trust Bank have jointly established Marble Point Credit Management, a new credit service provider and investment platform focused on the US CLO market. The aim is to provide a 'one stop shop' for all services required in the CLO issuance process by leveraging each party's expertise and functions.

The three firms note that in today's US CLO market, various restrictions make it difficult for a single financial institution to offer services covering all the processes involved in new issuance, including providing bridge finance, sourcing underlying assets, arranging new issuance and investing in CLO equity/mezzanine tranches. They expect Marble Point to benefit from each party sharing its knowledge and experience.

SuMi Trust Bank has 20 years' expertise in the North American bank loan and CLO markets through CLO investments, as well as providing warehouse financings mainly through its New York branch. GreensLedge Capital Markets is among the top 10 CLO/CDO placement agents in the US through 1H16. Finally, Eagle Point is an experienced asset manager specialised in North American CLO security investments.

Thomas Shandell has been named ceo of Marble Point. He was formerly co-head of the loan and CLO business at GoldenTree Asset Management.

CMBS

REIT names new advisor

Realty Finance Trust has appointed Benefit Street Partners (BSP) as its new external advisor. The combination of the two operations is expected to create a 'one-stop-shop' for commercial real estate owners and brokers.

The appointment follows a competitive process for selecting a new advisor, which was conducted by a Special Committee of the company's board of directors. In connection with that process, the Special Committee conducted a thorough analysis of each of the four proposals submitted by parties interested in serving as the company's external advisor, before selecting BSP.

Concurrent with the appointment of the new advisor, the company has appointed BSP president Richard Byrne as chairman and ceo. Additionally, BSP's commercial real estate cfo Jerry Baglien has been appointed to serve as the company's cfo.

The board of directors has been expanded to five directors and Jamie Handwerker and Buford Ortale have been appointed as new independent directors. As a result, four of the five members of the board will be independent.

The company's former executive officers, who were affiliated with it previous advisor (AR Global), have resigned.

The new advisory agreement provides Realty Finance Trust stockholders with substantially improved terms, compared to the previous advisory agreement, in several key areas. These include: computing the management fee based on stockholder's equity instead of assets; revising the annual performance fee to more closely align with stockholder interests; eliminating acquisition fees after US$600m of new investments; and eliminating disposition fees.

The company expects these changes to result in significant savings for stockholders in the future.

BSP's commercial real estate team is led by Scott Waynebern, head of commercial real estate, and Michael Comparato, head of commercial real estate origination.

Insurance-linked securities

Endurance acquisition announced

SOMPO has announced a US$6.3bn acquisition of Endurance, the owner of ILS fund manager Blue Capital Management. The agreement involves a 100% acquisition of the outstanding ordinary shares of Endurance by SOMPO for US$93 per share.

The deal has been approved by the board of directors of Endurance and is subject to Endurance shareholder approval at a shareholders' meeting. It is also subject to clearances and approvals by the relevant regulatory authorities, as well as other customary closing conditions.

The deal will be financed with existing sources of liquidity and supplementary facilities without a financing contingency. It is expected that the transaction will close before 31 March 2017.

Insurance-linked securities

Diversifying strategies unit enhanced

Sara Rejal has been promoted to head of liquid alternatives and Karen Dolenec to head of real assets at Willis Towers Watson within its diversifying strategies department. Rejal will oversee hedge funds, alternative beta, reinsurance and multi-asset strategies, with Dolenec managing real estate, infrastructure and natural resources.

Prior to Willis Towers Watson, Rejal was at HSBC for seven years as part of its alternative investment group. Dolenec was previously a founding member and md at Terra Firma Capital Partners.

The moves come as the firm restructures its global management structure after the departure of Damien Loveday, previously head of diversifying strategies.

Insurance-linked securities

ILS pro promoted

Aon Securities has promoted Danny Bailey to its new head of capital markets. He will be based at the firm's London office.

Bailey has held several senior roles at the company and was previously director of ILS management EMEA, dealing with insurance management of the ILS, catastrophe bond and collateralised reinsurance market. In his new role, he will be responsible for increasing the number of ILS and cat bond transactions undertaken by the firm within the European market.

Insurance-linked securities

Firm opens US office

Leadenhall Capital Partners has set up a US operation, to be led by new hire Brian Weatherholtz. He takes on the role of md and will report to partner and head of business development, Lorenzo Volpi.

Weatherholtz has several years' experience in ILS, having previously worked in senior positions for GE Capital and Swiss Re. The new US operation will be focused on business development and investor relations in North America.

RMBS

Citi settlement payouts due

RMBS trustees involved in the US$1.125bn Citi R&W settlement received IRS approval last month. The expert allocation report was also distributed to bondholders, detailing calculations of the allocable share of the settlement payment for each loan group in each accepting trust. Citi is expected to make the settlement payment to trustees in mid-October, with bondholders therefore likely to receive settlement payouts in November or December.

ABS

Container ABS performance hit

S&P has lowered its ratings on GCA2014 Holdings' class C and D notes (by three notches), as well as Global Container Assets 2014's class A1, A2 and B notes (one notch). The downgrades reflect the agency's view that both transactions are unable to withstand the stresses corresponding to the previously assigned rating levels.

S&P notes that the performance of Global Container Assets 2014's fleet has deteriorated since it assigned ratings to its last issuance in January 2015. The utilisation rate has dropped to 87% from 94%, while the average per diem lease rate has declined to US$0.72 from US$0.92. The high percentage of dry containers (87%) has contributed to the poor performance, as pricing for this type has been hardest hit by the downturn in the container market.

Earlier this year, the ongoing performance deterioration caused a partial deferral of interest and principal payments on GCA2014 Holdings class C and D notes, resulting in their placement on creditwatch with negative implications in May. Collateral performance has declined further since then, with the EBIT ratio test now failing, triggering the complete deferral of interest and principal payments on classes C and D and reducing the performance of classes A1, A2 and B under certain stress scenarios. Given this additional decline, S&P says that the asset portfolio and structure cannot support any of the ratings originally assigned to the senior and repack notes.

Specifically, cashflow analysis indicates that classes A1 and A2 can only withstand stresses up to the single-A minus level; class B up to the triple-B minus level; class C up to the single-B level; and class D does not pay off interest and principal due under the single-B scenario. In the case of class C, cashflow analysis indicates continued deferral of interest payments under the single-B scenario; however, unlike typical container ABS notes, such deferral does not constitute an EOD and all amounts due are paid by the legal maturity under S&P's stress scenario. In the case of class D, while ultimate default appears likely unless conditions improve, such a default would not be imminent (occurring at legal maturity in 2030).

Due to the unique structure of the two affected deals, structured product strategists at Wells Fargo suggest that S&P's move does not necessarily signify negative rating actions on other container ABS deals in the near term. The agency stated last month that its ratings should not be "immediately affected" by Hanjin's bankruptcy and that, except for the GCA deals, it expected a "minimal impact" on the ability of rated container ABS deals to pay scheduled principal.

The GCA portfolio is serviced by a group of 11 different container lessors, which the Wells Fargo strategists note is unique among their container ABS universe. "There are also no other deals within our coverage that contain class C or below notes and there appears to be no other outstanding deals that are currently in non-compliance with their EBIT test," they add.

GCA2014 Holdings is an ABS backed by all US$163m outstanding class A shares of Global Container Assets 2014, which includes the rights to receive cashflow from available payments at the bottom of the securitisation's waterfall. Global Container Assets 2014 is a container securitisation transaction backed by a US$345.04m (net book value) portfolio of 166,072 containers.

ABS

Auto ABS losses jump

US prime and subprime auto loan ABS losses continued to increase last month, according to Fitch. The agency expects losses across the two sectors to increase for the rest of 2016.

Subprime auto ABS losses were 27% higher in August on an annual basis, far more than the 8% Fitch had originally predicted. The agency suggests that subprime losses will break the 10% barrier by year-end.

Factors driving performance could be weaker wholesale vehicle values, higher losses from the 2013-2015 vintage pools and historical seasonal patterns during the fall months. The 2013-2015 vintages had elevated loss rates on extended term contracts that default, which could drive losses higher throughout 2016, alongside slowing consumer demand and rising supply that may put vehicle values under pressure.

New vehicle sales dropped below 17 million units in August, implying the market may have peaked, while used supply is rising due to higher off-lease vehicles and trade-in volumes. Inventory levels and incentives are also rising, which are further negative trends that may pressure used values and potentially lead to longer recoveries in auto ABS deals.

The agency points out, however, that despite higher loss levels in 2016, its initial forecasts remain for the AMCAR and SDART platforms. It adds that as performance has slipped in the past year, it has adjusted the base-case loss proxies for new transactions to address future asset performance expectations.

ABS

Cabela's acquisition boost

Capital One is set to acquire Cabela's credit card operations, including US$5.2bn in receivables and US$5bn in associated funding liabilities. The move has been welcomed for helping resolve the uncertainty in the securitisation market regarding the disposition of the CABMT credit card ABS trust.

Capital One will acquire the operations for par value of the credit card receivables, less the par value of assumed liabilities. The agreement includes revenue and loss-sharing provisions for the ongoing credit card programme.

Wells Fargo structured product analysts believe the transaction will be credit positive for CABMT bondholders. "It removes much of the concern created by speculation over the future of the company," they note. "It also provides a seasoned lender as underwriter and servicer of the card programme. Furthermore, the Cabela's rewards programme is expected to be maintained, which suggests that potential adverse effects on card usage would likely be mitigated."

The acquisition is in connection with Bass Pro Shops' purchase of Cabela's. Capital One will enter into a 10-year programme agreement to issue co-branded credit cards to Cabela's retail customers concurrent with the completion of the merger, which is expected in 1H17.

CABMT had approximately US$4.5bn of ABS outstanding, as of its September 2016 servicer report. As of Q216, Capital One's domestic credit card receivables totalled US$88.6bn, of which only US$28bn are funded in the COMET trust.

The Wells Fargo analysts note that the maturity schedule for CABMT has US$1.6bn of bonds coming due through June 2017. The remaining maturities are relatively widely spaced, with the longest bond due in February 2023.

ABS

VALET exposure eyed

Fitch has affirmed its ratings on and maintained stable outlooks for Volkswagen Auto Loan Enhanced Trust series 2014-2, 2014-1, 2013-2 and 2013-1, as the transactions continue to perform within its cumulative net loss expectations. However, the agency warns that there are large exposures to the vehicles affected by the VW emissions scandal in each pool, which could have a significant negative impact on recovery rates as each deal amortises.

Vehicles impacted by the emissions scandal and more recently the Takata airbag recall comprise respectively 40.68%, 40.59%, 46.15% and 45.05% of the 2013-1, 2013-2, 2014-1 and 2014-2 collateral pools, as of 31 August.

Due to the ongoing vehicle 'stop-sale' action employed by VW on 2.0- and 3.0-litre diesel vehicles affected by the emissions scandal, defaulted vehicles that are repossessed are currently being held by VW and not sold. Cashflows from potential recoveries on the affected vehicles are therefore not flowing back to the trusts. Nevertheless, the outstanding retail loan transactions have not experienced any notable increases in defaults.

Cumulative net losses stand at 0.54%, 0.60%, 0.58% and 0.63% for the 2013-1, 2013-2, 2014-1 and 2014-2 transactions respectively, as of the September reporting period. These loss rates remain comfortably within Fitch's current and original loss proxy assumptions. Equally, hard credit enhancement has increased significantly over the life of each transaction to date, resulting in adequate loss coverage commensurate with triple-A ratings for all notes under the agency's assumed scenario.

VW has proposed a solution for the 2.0-litre diesel vehicles, which was approved by regulators and is expected to be declared final in late October by the US courts. However, the full extent of the required 3.0-litre diesel vehicle repairs and timing thereof - as well as legal implications - are unclear and the situation continues to evolve.

Meanwhile, the Takata airbag recall is ongoing and VW continues to fix vehicles when parts are available. But, given the timing of VW-specific Takata recalls, the company has been unable to obtain parts in a timely manner for many vehicles, which has delayed the recalled vehicle fixes. Consequently, any defaulted and repossessed Takata-affected vehicles are not being sold and are waiting to be fixed once parts become available.

Structured Finance

SME debt fund closed

BNP Paribas Investment Partners has completed a €500m final close of its European SME Debt Fund. The fund attracted a range of European institutional investors and finances SMEs in Europe through a combination of bank lending and fund financing.

The fund reached its target at first close, with investors including insurers and pension funds, as well as the European Investment Fund. The fund offers SMEs funding through a combination of a medium-term bank loan of around five years, with a long-term loan from the fund of between seven to ten years.

The aim is to invest in senior secured debt and is expected to fund 100-150 SMEs across Europe, with a focus on France, Belgium and Italy. It will focus on long-term financing, complementary to bank loans, with loan origination mostly via access to SME deal debt flow from the BNP Paribas Group's European banking network.

Structured Finance

Implicit support guidelines published

The EBA has published guidelines on implicit support for securitisation transactions that aim to clarify what constitutes 'arm's length conditions' and when a transaction is not structured to provide support for securitisations. It builds on the European Commission's securitisation package under the CMU reform and aims to provide clarity on the matter for credit institutions.

The new guidelines propose an objective test for the definition of arm's length conditions and for assessing when a transaction is not structured to provide support. Guidance is also provided on the notification requirements applicable to such transactions, and provisions are included to avoid a scenario whereby support is provided on behalf of the originator by another entity.

The final guidelines take into account feedback received during the public consultation and are intended to be read with the guidelines on significant risk transfer.

CDO

Liquidation order challenged

A district court in Minnesota has ruled on the correct interpretation of the Gramercy Real Estate CDO 2007-1 indenture with respect to liquidating the collateral, as sought by the trustee Wells Fargo. The move follows the filing of motions for judgement on the pleadings by Merrill Lynch and Waterfall Asset Management, as well as the filing of a response to the motions for judgment by King Street Capital.

The order provides for the trustee to sell the assets at the direction of the majority of the controlling class without the direction or consent of a majority of all classes of notes. Further, if the trustee receives a direction to sell or liquidate the assets, no amount of the subordinate collateral management fees will be considered due and payable following an EOD where there are insufficient anticipated proceeds to pay the notes in full.

Merrill Lynch subsequently filed a notice of entry of the order for judgment. However, King Street has since filed a notice of review, requesting that the district court review and change or otherwise vacate the order for judgment. The firm argues that the recommended order would erroneously subject it to a potential loss of approximately US$60m.

A third replacement collateral manager, as proposed by the CRE CDO's controlling class, was last month rejected by noteholders (SCI passim).

CLOs

Spread divergence highlighted

Moody's reports that three-quarters of the 2006-2007 vintage CLOs it rates have junior note coupons that exceed their portfolio WAS. Further, current OC levels for seven of these transactions are not high enough to significantly reduce the risk of future interest coverage test failures, given the expected fall in WAS-WAC difference and the performance of the underlying portfolios.

CLO junior notes can be at risk of interest shortfalls as they deleverage, if they have not generated sufficient OC to compensate for increased weighted average coupon due to cheap senior funding drying up. Because trading during amortisation is limited, Moody's expects WAS in CLO 1.0 portfolios to - at best - remain stable over the next two years.

Currently, the WAS across the 76 CLOs the agency rates that closed in 2006-2007 ranges from 2.8% to 4.7%, with a median of 3.7% compared with 4% in 2013. Junior notes in 25 of these CLOs pay a coupon that is above 4.7%, the highest WAS among CLO 1.0s it rates.

CLOs that maintain high OC levels prior to amortisation should generate enough principal proceeds from asset sales to mitigate the risk of interest shortfall as a result of increasing WAC. Indeed, five pre-2006 CLO 1.0s reported junior IC test breaches resulting from high WAC over the last year, but still paid down their junior notes in full - largely owing to high OC levels, ranging from 116% to 301%.

However, five outstanding 2004-2005 vintage CLO 1.0s - GSC European CDO II, Leopard CLO II, Leopard CLO III, Leveraged Finance Europe Capital III and North Westerly CLO II - have OCs below 100%. These deals are unlikely to be able to redeem their junior notes in full.

Although most CLO 2.0s are at less risk of junior note interest shortfalls than CLO 1.0s, with junior note coupons on the rise lately, Moody's suggests that this could change if they don't preserve OC prior to entering amortisation. The agency notes that recent CLO 2.0s are pricing with disproportionally higher junior note coupons relative to assets spreads, which increases their risk of junior tranche interest shortfalls in the future.

CLOs

Positive returns for CLOIE

The total amount of CLOs paid down in JPMorgan's CLOIE index since the August rebalance through 30 September was US$2.59bn in par outstanding, split between US$1.18bn and US$1.41bn of pre-crisis and post-crisis CLOs. US$6.5bn across 74 tranches from 15 deals was added to the post-crisis CLOIE segment at the August rebalance.

All CLOIE sub-indices saw positive returns last month. The CLOIE pre-crisis segment returned 0.35% and post-crisis returned 0.45%.

The CLOIE post-crisis triple-B, double-B and single-B sub-indices were the top three performers, according to JPMorgan, returning 0.95%, 1.69% and 3.18% respectively. On a year-to-date basis, CLOIE post-crisis double-Bs have returned 16.07%, outperforming high-grade bonds (by 8.99%), high yield bonds (15.93%) and loans (7.45%).

The CLOIE post-crisis segment tightened by 6bp-36bp across the capital structure, while CLOIE pre-crisis widened in the double-A and double-B tranches by 1bp and 7bp.

CMBS

CMBS pay-offs dip

The percentage of US CMBS loans that paid off on their balloon date in September held steady at 66.9%, slightly below the August level of 68.4% and the 12-month moving average of 67.1%, according to Trepp. By loan count as opposed to balance, 67.5% of loans paid off in September.

On this basis, the pay-off rate was about five points lower than the August level of 72.3%. The 12-month rolling average by loan count now stands at 70.2%.

CMBS

Delinquencies reverse course

The Trepp US CMBS delinquency rate reversed course in September, increasing by 10bp to reach 4.78%. The rate remains 50bp lower than the year-ago level and 39bp lower since the beginning of the year.

CMBS loans that were previously delinquent but paid off with a loss or at par totalled about US$850m last month. Removing these previously distressed assets from the numerator of the delinquency calculation helped push the rate down by 17bp.

Almost US$500m in loans were cured last month, which helped push delinquencies lower by another 9bp. However, almost US$1.3bn in loans became newly delinquent, which put 28bp of upward pressure on the delinquency rate. A reduction in the denominator due to the maturation of performing loans accounted for the remainder of the difference.

Excluding defeased loans, the overall 30-day delinquency rate would be 4.99%, an increase of 8bp from August.

CMBS

CMBS liquidations drop

US CMBS liquidation volume dropped to US$611.4m in September, while overall loss severity rose by 1.91 percentage points to 50.76%, according to Trepp. During the first three quarters of 2016, 619 conduit loans totalling US$7.6bn were disposed of at an average monthly loss severity of 50.29%.

Average loan size for September liquidations declined to US$9.4m, falling below the nine-month average of US$12.3m. Focusing only on losses greater than 2%, volume was US$521.6m, with a 59.33% loss severity.

The largest loan disposed of last month was the US$88m Continental Plaza. The loan also incurred the highest loss in September, with an 84.20% severity.

Other noteworthy loans that suffered high realised losses were backed by US office, lodging and retail properties located in the southeast region (see SCI's CMBS loan events database). These loans include the US$33.5m Northridge Business Park (57.52% loss severity), the US$30.5m Holiday Inn - Alexandria (56.90%) and the US$52m Merritt Square Mall (29.66%).

NPLs

Securitisation could lighten load

NPLs in Italy, Spain and Ireland continue to weigh on banks' balance sheets, according to Moody's. It suggests this may be alleviated through securitisation, with recovery processes also playing an important role in collateral performance.

The agency comments that enforcement procedures can be lengthy and volatile, adding to the uncertainty regarding the timing of cashflows from recoveries. Data quality is often not as solid as for performing securitisations, adding to uncertainty around cashflow forecasting.

The burden of NPLs and RPLs on bank balance sheets remains significant, making up a combined 2.3 trillion in non-core assets, and roughly 50% of European NPL stock is within Italy, Spain and Ireland. Of these, 18.1% is in Italy, 9.5% in Spain and 18.4% in Ireland.

Moody's suggests that securitisation can help improve debt markets' efficiency while facilitating asset disposal, with private equity and hedge funds being the major buyers of NPLs and non-core assets. The future of the NPL and non-core asset securitisation market will therefore depend on the overall shape of the European securitisation market, and this should be helped by defining disclosure requirements and alignments of interest.

In Spain, reduction of NPL volumes has been driven by transforming NPL volumes into repossessed real estate properties or by forebearance, converting NPLs into RPLs on bank balance sheets. The agency highlights, however, that such efforts can be misleading as there has been little evidence of banks selling significant amounts of these real estate assets and so the amount of these on banks' balance sheets has not declined significantly.

NPLs

NPL offerings auctioned

Freddie Mac has sold via auction 5,364 deeply delinquent non-performing loans from its mortgage-related investments portfolio (SCI 12 September). Pretium Mortgage Credit Partners I Loan Acquisition, Upland Mortgage Acquisition Company II and Rushmore Loan Management Services were the winning bidders.

The loans are currently serviced by either Wells Fargo Bank or Ditech Financial. The transaction is expected to settle in December and servicing will be transferred post-settlement.

The loans were offered as four separate pools of geographically diverse mortgage loans. Investors had the flexibility to bid on each pool individually and/or a combination of pools. All four pools were sold at a weighted average price in the mid-70s as a percent of the total unpaid principal balance.

The loans have been delinquent for over two years, on average. Given the deep delinquency status of the loans, the borrowers have likely been evaluated previously for or are already in various stages of loss mitigation - including modification or other alternatives to foreclosure - or are in foreclosure. Mortgages that were previously modified and subsequently became delinquent comprise approximately 47.5% of the aggregate pool balance.

The aggregate pool is geographically diverse and has a loan-to-value ratio of approximately 86%, based on broker price opinion (BPO).

Risk Management

Uncleared margin rules adopted

The European Commission has adopted a delegated regulation that specifies how margin should be exchanged for OTC derivatives contracts that are not cleared by a CCP. The Commission says it decided to endorse the joint European Supervisory Agencies' standards with certain amendments, in particular concerning the concentration limits for pension scheme arrangements and the timeline for implementation.

The rules set out the levels and types of collateral that OTC derivatives counterparties must exchange bilaterally for uncleared transactions.

The delegated regulation is now subject to an objection period by the European Parliament and the Council, after which it will be published in the Official Journal. The implementation of the rules will begin one month after the entry into force of the delegated regulation.

RMBS

RBS fined over RMBS

RBS has been fined US$120m by the state of Connecticut in relation to malpractice in the run-up to the financial crisis. The fine specifically relates to 250 RMBS deals worth US$250bn underwritten by the bank from 2005 to 2008, on which it was required to conduct due diligence on the collateral and to ensure that representations to the public and investors about the securities were accurate and complete.

The state alleges, however, that RBS's due diligence process was inadequate, resulting in omissions and misstatements to the public and potential investors. Furthermore, the state alleges that RBS's conduct was dishonest and/or unethical and that the bank made untrue statements in representing its securities products.

Of the fine, the Department of Banking will receive US$250,000 of the settlement funds, with the remaining US$119.75m to go to the state's General Fund. For the next ten years, RBS will also have to certify with the state's Department of Banking its compliance with conditions of the Supervisory Plan approved by the National Adjudicatory Council of the Financial Industry Regulatory Authority.

RMBS

Spanish re-performing deal prepped

Blackstone affiliate Spain Residential Finance is in the market with the €265m SRF 2016-1 RMBS. The transaction is believed to represent the first refinancing of a Spanish legacy mortgage portfolio.

The securitisation is largely backed by seasoned re-performing loans originated by Caixa Catalunya, CaixaTarragona and Caixa Manresa, which were merged to form Caixa d'Estalvis de Catalunya, Tarragona i Manresa and transferred to Catalunya Banc in September 2011. BBVA, in turn, acquired 98.4% of the share capital of Catalunya Banc in April 2015 and the bank will service the portfolio alongside Anticipa Real Estate.

Also in April 2015, Catalunya Banc sold a €6.4bn portfolio consisting of mainly residential mortgage loans to a Spanish securitisation fund set up for the benefit of an entity controlled by Spain Residential Finance. A portion of these assets will be securitised in SRF 2016-1, with Spain Residential expected to subscribe the deal's class D notes and subordinated loans.

The portfolio consists of first-lien mortgages extended to 2,585 Spanish borrowers, with a weighted average current loan-to-value of 55.27%. Three-quarters of the loans have previously been restructured and the remainder have not been restructured. The purchase price of the mortgage loans payable by the fund to the seller is expected to be below par value.

Provisionally rated by DBRS and Moody's, the transaction comprises: €182.8m AAA/Aa2 rated class A notes; €18.6m A/A2 class B notes; and €10.6m BBB/Baa2 class C notes. The class D notes are unrated.

The deal is being roadshowed this week and is expected to price next week.

RMBS

Bank servicers slim down

Falling portfolio volumes and improved loan performance is leading to staff cuts at US bank mortgage servicers, according to Fitch. This contrasts with non-bank servicers, where staff numbers have remained stable, driven by a focus on servicing growth and a general need for more frequent borrower interaction.

At banks, the number of full-time mortgage servicing employees has fallen from 8,000 to 4,000 in the last two years, while the same figures for non-banks have remained static at around 2,000.

A big factor behind reduced staff at bank servicers has been lower mortgage delinquencies and high credit quality portfolio additions brought on by origination activity. Despite this, bank servicers manage over twice the number of mortgage loans per employee compared to non-bank servicers.

Additionally, banks are more active in offering repayment plans to mitigate losses, although they are increasingly using loan modification - which is the most prevalent form of loss mitigations for non-bank servicers, used 15%-20% more frequently than bank servicers. Both heavily use short sales in loss mitigations, with 14% of banks using short sales and 19% of non-banks using them as part of loss mitigation in 2Q16.