Contents

Structured Finance

Excess baggage

Reg AB 2 loan-level disclosures weighed

Loan-level disclosure requirements under Regulation AB 2 are expected to have a limited impact on ABS issuers and investors when they come into effect on 23 November. While the rules aim to boost deal transparency, scepticism prevails about the value they will bring.

There has been much speculation about the preparedness of market participants in terms of providing and handling the resulting data. Dan Castro, president of Robust Advisors, suggests that it could be intermediaries that struggle.

"For investors, many don't get that information directly anyway. They tend to get it from data providers like Intex or Bloomberg. The question is whether these firms will be able to provide it. They have very capable systems, but I wonder whether they are ready just yet," he says.

Furthermore, while the goal of the regulation is to provide more information to investors, how beneficial - or wanted - this information is remains up for debate. Castro elaborates: "Everyone generally agrees that greater transparency is a good thing. However, there is already a lot of information there and investors buying triple-A rated senior notes are not necessarily going to demand such a high level of disclosure."

He continues: "If you're buying lower down the structure - like the subordinate notes, first-loss piece or even a private placement, for example - you are going to demand more information. The new regulation might have some benefit. When investing in that kind of stuff, you might want further clarity and depth."

Castro also suggests that some firms might have issues with finding the extra resources needed to stay in line with Reg AB 2. Smaller issuers "might struggle with the costs associated with complying with the new loan level disclosure rules," he comments.

As one larger issuer, Ally Financial concurs that Reg AB 2 won't have a significant impact on its operations and intends to maintain its regular issuance. The firm comments: "The ABS markets remain an important funding source in Ally's diversified funding strategy and, as always, we are committed to complying with any regulations for securitisations, including Reg AB 2."

Indeed, the firm appears to be unphased about the impact of the loan-level disclosure requirements and does not anticipate that it will have "a material impact on [its] strategy for issuing securitisations going forward".

The broader regulations that have been introduced post-crisis appear to have had a greater impact on the securitisation sector than loan-level disclosure requirements and, as a result, Reg AB 2 isn't expected to greatly affect supply and demand. Castro confirms: "I don't think it will have a huge impact on supply and demand. Disclosure requirements aren't the biggest imposition or burden on firms or the market. Other regulations relating to risk retention and capital requirements - such as Dodd-Frank - are a far bigger imposition on the market, slowing things down."

Reg AB 2 seemingly is unlikely to go far in either averting another financial crisis or helping the securitisation industry flourish. Indeed, the sector may be reaching its limit and could begin pushing back as the burden of regulation becomes too heavy.

Castro concludes: "It's hard to say where things are going, but there's an argument now that we've entered overregulation territory. It's possible that the pendulum could start to swing back the other way - although, for the US SEC and other regulators to ease up, you need political pressure to play a role. And that will only happen if it's clear credit is restricted and the real economy is being negatively impacted."

RB

Marketplace Lending

Scaling up

Platforms eager to issue further marketplace ABS

Funding Circle and Zopa intend to tap the securitisation market on a regular basis, following their debut transactions this year. Both platforms recently discussed their experiences issuing ABS at marketplace lending conference Lendit and expressed enthusiasm for pursuing the funding method further.

Funding Circle issued its inaugural SBOLT deal in April, backed by SME loans originated through its online platform. Sachin Patel, global co-head of capital markets at the firm, commented that the platform is keen to "issue more deals going forward". He added that the ABS was part of a wider philosophical commitment to make SME loans a more widely understood asset class, which more investors will invest in, as well as a tool "to fund the real economy".

Meanwhile, MOCA 2016-1 - the inaugural securitisation of Zopa loans - hit the market last month. Jonathan Kramer, head of capital markets at Zopa, was similarly enthusiastic about securitisation. He commented that the transaction was important for the firm because it "helps to bring funding stability and brings diverse sources of funding to the table" and that it was a "validation of the Zopa loan product".

It was noted that the SBOLT deal priced wider than MOCA at 220bp on the senior notes, provoking comment that the deal lacked investor interest. Deutsche Bank's Harlan Rothman commented on the causes for the pricing differences, stating that the primary reason was the "market conditions at the time".

Rothman added that there was "slow issuance pre-Brexit, with spreads widening considerably post-Brexit". He suggested that the technicals were a strong factor, with the value of sterling having an impact. Additionally, SBOLT 2016-1 received a triple-B rating from Moody's on the senior notes, meaning it didn't price as tightly as the MOCA transaction (which had a double-A minus rating).

Although the deals were backed by different collateral - with SBOLT backed by loans to SMEs and MOCA by consumer loans - Armin Krapf, analyst at Moody's, stated that they had several similarities. The deals have "similar methods of origination, similar exposures [and] the platforms have similar reputations". The deals also had similar reps and warranties, with both also having a static structure with no replenishment, and the platforms taking a 5% stake in the underlying.

"The product too is similar in that it's a single-deal product. Both similarly have back-up servicers and a certain degree of liquidity in the structure. The most pertinent differences are the credit risk due to the loan types," he continued.

Both platforms agreed about the challenging nature of the securitisation process, but stressed that it was a rewarding venture. Patel commented: "There were no precedents for this deal, or other P2P deals. There was a lot reporting work to do; it was incredibly expensive and extremely hard work - but worth it for a number of reasons, one of which was opening up to a wider number of institutional investors. [It] made us up our game and brought our standard up."

Kramer expressed a similar sentiment about the difficulties his firm's deal presented, but hopes that it will create a "template" that will be "replicable in future". He also suggested that the process was more unpredictable than expected because "with securitisation there is so much we can't control in terms of the markets. Some things were totally out of our control."

Patel concurred with the concept of his firm's deal laying the foundation for further issuance, pointing to Funding Circle's ambitions to tap the ABS markets regularly. He commented: "Ideally, we can get to a point where we're like a regular issuer in the US - like some of the auto firms. We want the investor base to have to do little work in terms of due diligence, for the deals to be very similar every time and investing in them very similar."

Developing a familiar product that investors feel comfortable with is something that chimed with Kramer. He stated that it is important to help develop a more "homogenous asset" that will help bring a greater number of investors to marketplace lending. However, he pointed out that this would be more achievable with larger deal sizes as, even with MOCA, "institutional investors would have ideally liked to have seen a bigger deal size, especially in the mezzanine tranches."

Rothman added that these deals "proved the market is very receptive to marketplace lending securitisation." He concluded that small deal size could be a hindrance, but "if it can scale up and be bigger, the investors will be there."

RB

Secondary markets

Euro secondary solid

The European securitisation secondary market remains solid in the face of strong supply.

Yesterday was relatively slow thanks to the US public holiday, but last week was busy up until with Friday's close as BWICs across ABS/MBS and CLOs continued to emerge as investors sought to make room for the current hefty amount of new issuance. With much of the secondary supply hoovered up by the Street the market absorbed it easily and spreads continue to hold firm.

There are currently six BWICs on the European schedule for today. The largest is an eight line 27.755m original face euro and sterling mix of RMBS.

Due at 14:00 London time the list consists of: AYT 11 B, CELES 2015-1 A, CHSNT 2014-1 A, FLEX 7 A, GMG 2015-1 A, LUSI 5 B, MORGT 2014-1 A1 and RMS 28 A. Two of the bonds have covered on PriceABS in the past three months, last doing so as follows: CHSNT 2014-1 A at 100.065 on 31 August and FLEX 7 A at 98.21 on 14 September.

Secondary markets

Euro ABS/MBS active

The European ABS/MBS secondary market is staying active this week.

"The busy primary market is taking a lot of attention, but there's still a lot of activity in secondary," says one trader. "That activity mainly surrounds bid lists where we're seeing bonds from all sectors and up and down the capital structure. For the most part those lists are being met with good demand both from real money and dealers building their balance sheets."

However, the trader adds: "Yesterday we started to see a number of DNTs creeping in - it's not clear whether that's due to high seller expectations or the boil coming off the market a little because people feel the rally has gone far enough for now or just continued distraction from primary. Nevertheless, secondary spreads continue to hold firm."

There are currently three BWICs on the European ABS/MBS schedule for today. The largest is a CMBS and RMBS combination due at 14:30 London time.

The 12.3m five line list comprises: BPMO 2007-2 C, CFHL 2015-2 D, DECO 2006-C3X A1B, GRIF 1 B and RIVOL 2006-1 B. None of the bonds has covered on PriceABS in the past three months.

Structured Finance

SCI Start the Week - 10 October

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

Pipeline
The pipeline was once again dominated by auto-related ABS last week. Trios of CMBS and RMBS were also announced.

The auto ABS that entered the pipeline were: US$206.34m CPS Auto Receivables Trust 2016-D, Securitized Term Auto Receivables Trust 2016-1, €742.5m VCL 24 and US$550m Westlake Automobile Receivables Trust 2016-3. The US$147.1m Oportun Funding IV series 2016-C and US$250m Sierra Timeshare 2016-3 Receivables Funding securitisations rounded out the newly announced ABS.

The US$890.7m COMM 2016-COR1, US$400m JPMCC 2016-WIKI and US$196m Vertical Bridge series 2016-2 were the CMBS entrants. Finally, the RMBS comprised US$489.3m AMSR 2016-SFR1 Trust, US$343.16m Sequoia Mortgage Trust 2016-3 and €212m SRF 2016-1.

Pricings
New issuance was also dominated by auto-related deals, as well as CLOs. Additionally, a couple of RMBS priced.

The auto ABS prints consisted of: US$1.2bn AMCAR 2016-4, US$1bn BMW Vehicle Lease Trust 2016-2, US$450m Exeter Automobile Receivables Trust 2016-3, US$437.35m NextGear Floorplan Master Owner Trust Series 2016-2, €1bn Red & Black Auto Germany 4, US$1.27bn Santander Drive Auto Receivables Trust 2016-3, US$500m SMART ABS Series 2016-2US Trust and US$1.25bn Toyota Auto Receivables 2016-D. A number of consumer ABS were also issued: US$204.19m Murray Hill Marketplace Trust 2016-LC1, US$426m Nelnet Student Loan Trust 2016-1, €651m Purple Master Credit Cards Series 2016-1, US$674m SMB Private Education Loan Trust 2016-C and US$512.6m SoFi Consumer Loan Program 2016-3.

Of last week's CLO prints, the bulk were refinancings: US$460m Atrium CDO VIII, US$219.8m Cathedral Lake I, US$503.4m Dryden XXV Senior Loan Fund, US$518.8m GoldenTree Loan Opportunities IX, US$498.5m OZLM Funding II, US$338m Shackleton II CLO, US$344.39m Venture X and US$553.5m Venture XV. New issue CLOs comprised: US$459.86m AMMC CLO 19, US$716.5m Apidos CLO XXV, US$480.1m BlueMountain CLO 2016-3 and €542m Voba No.6.

The RMBS pricings were the US$345m NRZ 2016-PLS2 and US$607.43m-equivalent Pepper Residential Securities Trust No.17.

Editor's picks
Plan B: Over a year has passed since BNY Mellon suffered its NAV outage, resulting in almost a week of NAV calculation disruption for hundreds of funds. With increased emphasis on the need for a contingent - or back-up - NAV, funds are preparing to put appropriate measures in place...
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..."
Deleveraging opportunity: Iain Balkwill, partner at Reed Smith, argues that securitisation is the answer to European NPL woes...
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...
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...

Deal news
• 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.
• 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.
• 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.
• 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.
• 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.

Regulatory update
• 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.
• 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.
• 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.

CMBS

Mall performance gauged

Regional mall liquidations amounting to US$3.89bn have since 2010 resulted in US$2.88bn in CMBS losses, or a 74% loss severity, according to Morningstar Credit Ratings. The agency estimates that a further US$3.81bn (or 7.8% of the balance) of loans backed by malls are in special servicing, while US$2.82bn are scheduled to mature through next year, many of which are likely to be unable to refinance.

Some US$48.6bn in CMBS loans are backed by US regional malls. As online shopping, the diminishing importance of department stores and store closures all contribute to the changing retail landscape, malls have suffered. But Morningstar notes that factors including location, competitors and underwriting affect the performance of loans across the sector.

The agency projects about US$1.88bn in losses on 53 specially serviced mall-backed loans with an unpaid principal balance of US$3.4bn, suggesting a 55.3% loss severity. Many of these properties are lesser quality Class B or C malls in markets lacking a sufficient customer base to support ongoing operations. Other loans are backed by properties underwritten at the peak of the market, with high debt leverage and little to no amortisation.

Of these loans, Morningstar forecasts that three will incur losses of more than US$100m: the US$240m Westfield Centro Portfolio (securitised in JPMCC 2006-LDP7), US$133m Galleria at Pittsburgh Mills (MSC 2007-HQ11) and US$124m The Source (CMAT 1999-C1). Its largest forecast loss - of US$146.6m - is in respect of the Westfield Centro Portfolio and is based on a June 2016 appraisal that valued the asset at US$124.9m, a 63.9% reduction from the US$345.9m original appraised value.

The US$305m Riverchase Galleria loan, accounting for 36.5% of BACM 2006-6, is the largest specially serviced CMBS mall loan. Only three mall-backed loans issued since 2010 are specially serviced: the US$49.1m Hudson Valley Mall (CFCRE 2011-C1), US$17.6m Wausau Center (WFRBS 2011-C4) and US$13.2m The Crossings (COMM 2013-CR12) (see SCI's CMBS loan events database).

The agency notes that loans that have been in special servicing for a longer period generally run the risk of higher loss severities. It finds that loans with three or more years in special servicing are likely to incur a 22% higher expected loss severity compared with more recently transferred loans, as some servicers may have a harder time disposing of poorly performing properties.

Meanwhile, there are 24 master-serviced mall-backed loans totalling US$1.38bn on the Morningstar watchlist. Of these, the asset with the largest value deficiency - an estimated US$90m - is the US$278.19m Franklin Mills loan, with two pari passu notes that comprise 5.9% of JPMCC 2007-LD11 and 2.3% of GSMS 2007-GG10.

To date, the US$136m Citadel Mall (CD 2007-CD4) has generated the highest loss amount - of US$130.9m - among mall loans. But the US$61m Highland Mall loan (JPMCC 2002-CIB4) registered the highest loss severity at 120%.

Since 2010, 357 loans with an outstanding balance of US$40.54bn on 320 malls have been securitised. Morningstar points out that the weighted average LTV has declined to 56.3% for mall loans originated since 2010, from 69.8% for those originated before 2010. Indeed, mall-backed loans originated this year have an average LTV of 51.4%, down from 62.8% for similar loans originated during 2H15.

Nonetheless, investors are increasingly wary of second-tier malls, which has led to a widening of cap rates and declining prices when these properties are sold. For instance, the US$58m Newgate Mall (UBSBB 2012-C4) was sold in July for US$69.5m, at an implied cap rate of nearly 200bp higher than the one implied by the issuance appraisal of US$83m.

At the other end of the spectrum, Morningstar highlights The Aventura Mall as an example of a successful shopping centre, with in-line sales of over US$1,400 per square foot in 2014. The property secures a US$1.2bn interest-only loan securitised in AVMT 2013-AVM.

CS

CMBS

Pari passu loans proliferating

A combined US$64.1bn (original balance) of pari passu loans have been issued across single-asset/single-borrower (SASB) and conduit CMBS 2.0 deals, according to Deutsche Bank figures. US$52bn of the loans were securitised in conduit CMBS and account for 20% of total US CMBS volume since 2010.

"Smaller deal sizes - declining from US$1bn-plus to US$854m in 2016 - have coincided with a higher percentage of pari passu loans," Deutsche Bank CMBS analysts observe. "Creating pari passu loans allows dealers to do smaller deals and de-risk more quickly, compared with warehousing more collateral over a longer time and doing a larger deal where the loan might not need to be split."

Similarly, cutting a pari passu loan for conduit execution helps ensure a SASB triple-A bond is not too large for the market to absorb. When a pari passu loan is split from a SASB deal, the low leverage pari passu loan can also lift conduit quality metrics.

The Deutsche Bank analysts note that some deals in 2016 had as much as 64% of collateral that was split with other deals, compared to as much as 28% in 2011. Their research shows that the biggest share of conduit pari passu loans are in the office and retail sectors.

From a maturity profile perspective, pari passu loans typically have a 10-year term. From a shelf perspective, programmes vary in their average exposure to pari passu loans, ranging from 14% (JPMCC and MSC) to 29% (CSAIL).

The largest 2.0 pari passu loan by original balance is the US$1.2bn Houston Galleria, which is split between HGMT 2015-HGLR and JPMBB 2015-C28. The US$1.075bn 11 Madison Avenue loan, meanwhile, is split between the largest number of deals: COMM 2015-CR²6, COMM 2015-CR²7, COMM 2015-LC23, MAD 2015-11MD, MSBAM 2015-C26, WFCM 2015-C31 and WFCM 2015-NXS3.

CS

RMBS

Euro RMBS shelves debut

The inaugural rated deals from two new European RMBS programmes have been announced. Both platforms are backed by asset managers active in the structured finance space.

The first transaction to hit the screens was London Wall Mortgage Capital's debut UK RMBS. Dubbed Fleet 2016-01, it is backed by a £238m pool of UK first-lien buy-to-let home loans originated by Fleet Mortgages and is the first deal under the 'Fleet' label.

Moody's and Fitch have assigned provisional ratings to the RMBS of respectively Aaa/AAA on the class A notes, Aa1/AA on the class Bs and A1/A on the class Cs. The retained Z notes are unrated.

London Wall Capital Investments is an entity sponsored by Blackrock clients. The provisional pool has an average seasoning of nine months and the current LTV equals 67.4%. Rabobank credit analysts note that 95.5% of the loans are interest-only, with the Greater London region accounting for 28.4% of the pool balance.

The second transaction is a Dutch RMBS dubbed DCDML 2016-1. The deal is backed by €272m of prime residential mortgages originated by Dynamic Credit Woninghypotheken under the Elan Hypotheken label.

Moody's has assigned provisional ratings to the transaction, which comprises €250.2m Aaa rated class A notes, €6.9m Aa2 class Bs, €6.7m A1 class Cs, €3.7m Baa2 class Ds and €4.4m B2 class Es. The class F and the RS notes are unrated.

The rating agency expects a portfolio loss of 1.5% of current balance of the portfolio at closing and the MILAN credit enhancement (CE) of 11% served as input parameters for its cashflow model. Moody's states that the MILAN CE number is higher than the Dutch prime RMBS sector average because of the limited historical performance of the originator's portfolio, the weighted average current loan-to-market value of 98.4% and the weighted average seasoning of 0.4 years. The pool has a maximum vintage concentration of 55.2% in 2015.

The deal is a joint effort between Dynamic Credit Partners and Goldman Sachs, with Goldman retaining a 5% vertical slice, according to the Rabobank analysts. They note that the pool is "skewed towards the high LTV segment", with almost 65% of the obligors having LTVs of 100% or higher. The analysts points out, however, that this isn't atypical for a new originator and a young portfolio in the Dutch market.

The transaction securitises 880 loans with an average balance of €313,096. The portfolio will be serviced by Quion Services, while Intertrust Management will act as issuer administrator.

Separately, Junglinster (the Blackstone, CarVal and TPG consortium) is also in the market with its latest UK non-conforming RMBS - Hawksmoor Mortgages 2016-2. The assets comprise the remaining GE Money and Igroup mortgages pooled in the Virage portfolio. The class A tranche has been pre-placed at a discount margin of 135bp.

RB

Structured Finance

Illiquid credit head hired

ICBC Standard Bank has appointed Juliano Mattar to the newly created role of head of investor sales - local markets and illiquid credit. He is tasked with developing and managing the distribution of primary and secondary illiquid credit instruments, as well as emerging market rates and FX products to investors globally.

Reporting to Guido Haller, head of financial markets at ICBC Standard Bank, Mattar has over two decades of experience in fixed income and emerging market sales and distribution. He was previously head of emerging markets at Stifel Nicolaus and before that at StormHarbour. His experience also includes building emerging markets focused teams and FICE capabilities at UBS, BNP Paribas and Deutsche Bank.

Structured Finance

Investor nabs loans vet

NN Investment Partners has hired Gabriella Kindert to its alternative credit boutique. She will be responsible for all illiquid fixed income strategies, including real estate, corporate private debt, project finance and commercial real estate loans.

Kindert has over 20 years' experience in banking and asset management and has held several managerial positions with firms, including MeersPierson and BNP Paribas, where she was global head of loans.

Structured Finance

Senior management shuffled

Clayton Euro Risk has announced a number of changes to its senior management team. Among those affected is Simon Collingridge, who takes on the newly-created role of client solutions and strategic delivery director.

Collingridge has been a consultant with the firm since March, but now becomes a full-time member of staff, dividing his time between the Bristol and London offices. He previously provided advisory services for Bishopsfield Capital Partners and before that was md of S&P's structured finance surveillance and market outreach divisions. He was also head of mortgage operations at Alliance & Leicester.

Clayton Euro Risk's other management changes include Paul Hobbs being appointed vp, client services and operations, with responsibility for operational delivery of all client services and projects. Finally, Jeremy Wren has been named senior manager, client services and relations.

Structured Finance

Private markets platform prepped

Man Group is set to acquire the entire issued share capital of Aalto Invest Holding and launch Man Global Private Markets (GPM), forming the firm's private markets offering. The aim is to provide clients with access to longer-term investments with a complementary risk-reward profile to the firm's current product suite.

Aalto is a US and Europe-based real asset-focused investment manager, with US$1.7bn of funds under management, as of 30 September 2016. The firm will form the real assets platform of Man GPM, which will over time develop strategies across private markets, such as real estate, credit and infrastructure.

Founded in 2010 by Mikko Syrjänen and Petteri Barman, Aalto specialises in the management of real estate equity and debt strategies, including direct investments in single-family homes in the US and lending to commercial and residential real estate in Europe and the US. The team has a strong track record of deploying capital in markets where pricing inefficiencies arise, having invested in European CMBS since 2011, US residential real estate since 2012, European CRE senior loans since 2013 and European/US real estate construction financing since 2015.

Aalto has 33 employees and is headquartered in London, with offices in the US and Switzerland. The management team will continue under the leadership of the firm's founders.

In addition, Barman and Syrjänen will be appointed co-heads of real assets within Man GPM, taking on a broader role in the strategic development of Man GPM's offering in real assets. The pair will report to Jonathan Sorrell, president of Man Group, and will join the firm's executive committee.

The acquisition is expected to complete in January 2017, subject to regulatory approvals and other customary conditions.

CDO

Manager replacement mooted

A meeting of the Stanton MBS I controlling class has been convened for 31 October to pass an extraordinary resolution that would see Cairn Capital replace Cambridge Place Investment Management (CPIM) as the ABS CDO's third collateral manager. Instead of receiving direction in writing from at least a majority of the controlling class, the trustee is seeking direction from two-thirds of the controlling class under the extraordinary resolution.

In order for the resignation of the second collateral manager to be effective, the proposed successor must be an eligible successor, as defined in the master interpretation and construction schedule dated 4 November 2004. This definition requires direction in writing from at least a majority of the controlling class.

CPIM - which wishes to resign - is also offering to pay a consent fee of 10 cents per €100,000 original principal amount of notes for the controlling class to consent to the appointment of Cairn Capital.

A class A1 noteholder (then comprising the controlling class) meeting was previously convened on 26 April to appoint a replacement collateral manager, but was adjourned due to a lack of quorum. The class A1 notes were subsequently redeemed on 4 May and the issuer requested the new controlling class to identify themselves.

Uniqa Alternative Investments was the original collateral manager on the deal, but its appointment was terminated following the resignation of Marcus Klug as md of the firm.

CLOs

CLO vet poached

Brian Horton has joined Onex Credit as a portfolio manager. He will work with fellow portfolio manager Paul Travers to continue growing the firm's CLO platform.

Horton was previously md, portfolio manager at Covenant Credit Partners. Before that, he was svp, senior portfolio manager at ING Investment Management.

Insurance-linked securities

Law firm poaches ILS pro

Dentons has hired John Sarchio as partner in its insurance regulatory practice. He will advise on insurance industry mergers, acquisitions and financings, reinsurance transactions, self-insurance and captive programmes and insurance regulatory consulting and compliance.

Sarchio has a range of experience, including insurance securitisations, catastrophe bond transactions and other insurance-linked securities transactions, and has previously counseled state and foreign governments on insurances issues. He will be based in the firm's New York and Miami offices.

Risk Management

Electronic trading association launched

BrokerTec Europe, MarketAxess Europe, MTS Group and Tradeweb Europe have founded the Electronic Debt Markets Association Europe (EDMA Europe). The initiative aims to represent the interests of companies whose primary business is the operation of regulated electronic fixed income trading venues in the region.

EDMA Europe will act as a source of consultation between its members in order to develop collective views on regulatory developments affecting electronic fixed income trading venues in Europe. The association's primary aim is to promote the collective views of its members and have these inputs recognised by the relevant authorities. These efforts will take into account a number of key principles: open access and fair, effective and appropriately transparent markets; diversity of electronic trading protocols for fixed income markets to suit the range of instruments and different needs of market participants; and equivalent regulatory treatment of all electronic trading platforms and a consistent European regulatory approach.

Membership of EDMA Europe is open to all market participants that meet the established minimum membership criteria. The activities of the association will be governed by EDMA Europe's executive committee, who are elected by the general membership. The association has appointed David Bullen to act as secretary-general.

ABS

Conn's re-offers notes

Conn's has entered into an agreement to sell the previously retained class C notes issued as part of its Conn's Receivables Funding 2016-A consumer ABS from March (see SCI's new issue database). The face amount of the class C notes is approximately US$70.5m and Conn's will receive upfront proceeds of around US$71.5m, net of transaction costs.

The notes were issued with a 12% coupon rate. The residual equity will continue to be retained by an affiliate of the company.

ABS

Indian ABS collateral 'improving'

The underlying performance and asset quality of retail loans backing Indian ABS will improve over the next two years, according to Moody's. This is despite an uptick in NPLs, resulting from tightened recognition criteria.

The new criteria will result in NPL ratios reported by non-bank financial companies (NBFCs) rising over the next two years, but the improving underlying performance will be reflected in lower delinquencies. Furthermore, data from ICRA (Moody's Indian affiliate) shows improving commercial vehicle loan performance over the last six months, reflecting improving overall operating conditions in the country.

Moody's comments that Indian ABS are "largely immune" from the growth in NPLs in the Indian banking sector because they are exclusively backed by loans originated by NBFCs and not banks. Additionally, the majority of ABS are backed by retail or small loans, while the increase in NPLs has been mostly due to poor performing corporate loans, with banks' retail loans having seen improved performance over the past five years.

The move to categorise delinquent loans as NPLs at an earlier stage will also bring the Indian market more in line with global practices and so help comparisons of the Indian ABS sector with others globally.

Structured Finance

Duration guidelines finalised

The EBA has published final guidelines on corrections to modified duration (MD) for debt instruments, which set out what type of adjustments to the MD - as defined by the Capital Requirements Regulation (CRR) - have to be performed in order to appropriately reflect the effect of prepayment risk. The guidelines will contribute to the implementation of the European Commission's securitisation package under the CMU, helping to provide clarity to credit institutions.

The CRR established two methods to compute capital requirements for general interest rate risk - maturity-based calculations for general interest rate risk and duration-based calculations for general risk. These new guidelines apply to institutions using the duration-based calculation and establish two approaches to correct the modified-duration calculation.

Structured Finance

Wireless spectrum deal prepped

Sprint Corporation is in the market with a rare wireless spectrum securitisation. Dubbed Sprint Spectrum Securitization Series 2016-1, the US$3.5bn transaction features a three co-issuer structure intended to maintain the separate silos of license holders that exist prior to the transfer of the licenses to the issuers.

The three issuers are Sprint Spectrum Co, Sprint Spectrum Co II and Sprint Spectrum Co III. The deal is backed by a single lease for a portfolio of spectrum licenses, including in the 2.5 GHz and the 1.9 GHz bands, which is enhanced by a senior guarantee from Sprint.

The lessee - Sprint Communications Inc (SCI) - will contribute a portion of its spectrum licenses and third-party lease agreements for spectrum licenses to the issuers, which will then transfer the licenses to wholly-owned subsidiaries of the issuers. These license holders will lease the collateral back to SCI under a long-term 'hell-or-high-water' lease, under which the lessee has extremely limited termination rights. Noteholders will not have a security interest in the directly-held licenses due to restrictions imposed by the communications laws; rather, they will have a security interest in the proceeds derived from the directly-held licenses.

The transaction comprises three tranches of senior notes - classes A1, A2 and A3 - each of which are provisionally rated BBB/Baa2 by Fitch and Moody's. The notes have different principal payment schedules and anticipated repayment dates - respectively in five, seven and 10 years. The notes will be issued under a master trust structure, which provides for the issuance of up to US$7bn of notes.

Moody's says it used an approach similar to rating credit-tenant lease obligations to rate the deal. Certain features of the transaction permit the notes to achieve considerable uplift beyond the lessee's rating, including the low probability that the lessee would liquidate under a Chapter 7 bankruptcy, the importance of the spectrum portfolio to the lessee, and the value of the spectrum lease guarantee and the availability of a liquidity reserve.

Moody's notes that because the present value of the lease payments significantly exceeds the balance of the notes, even a relatively low 50% recovery on the guarantee claim would be sufficient to repay the class A notes in full.

Goldman Sachs is lead structuring agent on the deal, along with JPMorgan and Mizuho as structurers.

Structured Finance

Securitisation revival supported

The European Parliament is due to discuss proposed amendments to the draft regulation for simple, transparent and standardised (STS) securitisation today. Ahead of this exchange, eight European trade associations have released a paper highlighting the importance of securitisation for jobs and growth in Europe and underlining their commitment to supporting a safe and sustainable market that serves the real economy.

AFME, the Dutch Securitisation Association, the European Banking Federation, the European Fund and Asset Management Association, LeaseEurope and Eurofinas, ICMA and Pensions Europe have all signed the paper, which makes a positive case for the revival of securitisation for the benefit of Europe's businesses, borrowers and consumers. As a key component of the Commission's flagship Capital Markets Union initiative, the associations believe that a new STS securitisation framework could generate €100bn-€150bn in additional funding for the real economy and act as a key driver in encouraging investor participation in European capital markets.

Among the paper's key points are that securitisation can support SMEs and households in many different ways, as well as help diversify risks, thereby making the financial system more stable. The paper also notes that transparency and disclosure standards are already robust, pointing out that further requirements should build on existing infrastructure and be carefully calibrated. Similarly, investor due diligence is important, but unnecessary duplication should be avoided as it disincentivises investment.

It further highlights that tranching is common across all debt markets and is an essential feature of the securitisation technique to meet investors' needs. Additionally, the associations stress that lessons from the financial crisis have been learned and reflected in EU regulations, and that the existing rules ensure alignment of interests and sufficient 'skin in the game' for those who securitise.

A consensus vote on the STS bills in the ECON committee is scheduled for 11 November, with a vote in a plenary session of the European Parliament due a month later.

Structured Finance

European issuance tracked

€40.2bn of securitised product was issued in Europe in 3Q16, according to AFME's latest data snapshot of the sector - a decrease of 46.4% from 2Q16 (€75bn) and 30.2% from 3Q15 (€57.6bn). Of this, €16bn was placed (representing 39.8%), compared to €29.3bn placed in 2Q16 (representing 39.1% of €75bn) and €18.6bn placed in 3Q15 (32.3% of €57.6bn).

UK RMBS led placed totals last quarter, followed by pan-European CLOs and Dutch RMBS. Nevertheless, UK RMBS volume decreased from €11.6bn in Q2 to €3.7bn in Q3; pan-European CLO volume decreased from €4.6bn to €3.4bn; while Dutch RMBS issuance increased from €1bn to €2.9bn.

Structured Finance

Chinese slowdown APAC's 'biggest issue'

The slowing Chinese economy is the major issue for the Asia Pacific securitisation and covered bond markets in the next 6-12 months, according to Moody's. The agency's comments are based on the responses from a survey undertaken at its recent Asia Pacific Structured Finance Conference in Singapore.

The other major factors cited by respondents were the outcome of the US elections in November and capital flows into and out of emerging market assets. Despite concerns about the Chinese economy, over half of those polled felt that delinquencies in the Chinese auto ABS sector will remain stable.

A widely held view was that ABS law and regulatory support is a major factor in the healthy development of the Chinese structured finance sector, with data and market transparency also key to its growth. Those surveyed suggested that Australian RMBS delinquencies are likely to rise mildly in 2017, which chimes with the rating agency's expectation of moderate rises in Australian RMBS delinquencies in line with below-average GDP growth.

Nearly half of respondents suggested regulation is a significant impediment for the development of the securitisation and covered bond market in Asia, although over a third felt that covered bonds have the highest potential for issuance in 2017-2018.

CLOs

Combo note criteria updated

Moody's has updated its methodology for rating securities backed by both secured debt and equity tranches of CLOs, following a request for comment on its proposals (SCI 2 August). The updated methodology aims to account for the risks associated with a potential refinancing of the CLO secured debt tranches in such securities and will result in the ratings of a number of combination securities being placed on review for downgrade.

The updated methodology adds a CLO refinancing scenario to Moody's analysis of securities backed by both CLO secured debt and equity tranches, when the security's documentation permits refinancing. The move is designed to capture the combined effects of loss of future coupon payments from the refinanced CLO secured debt tranches, as well as the impact on the instrument's weighted average life or duration.

Moody's says it will no longer assign new ratings to combination securities backed by both CLO secured debt and equity tranches that have a rated balance that differs from the entire contractual promise of these securities. However, it will monitor all ratings currently outstanding for such securities, the ratings of which continue to be based upon the rated balance and not the contractual promise.

CMBS

Defaults continue climbing

The 12-month rolling loan maturity default rate for the European CMBS in S&P's rated universe increased to 29.8% from 24.4% at end-September. The delinquency rate for continental European senior loans increased to 67.8% from 63.9%, while the rate for the UK increased to 32.7% from 25.4%. Overall, the senior loan delinquency rate increased to 54.5% from 50%.

CMBS

Delinquencies inch up

US CMBS delinquencies climbed slightly higher last month, largely due to the shrinking denominator, according to Fitch's latest index results for the sector. Loan delinquencies rose by 3bp in September to 3.18% from 3.15% a month earlier.

Resolutions of US$541m edged out new delinquencies of US$511m. However, delinquencies rose overall due to a US$9bn portfolio run-off that significantly exceeded Fitch-rated new issuance volume of US$5bn from six transactions in August.

Approximately 47% of total resolutions in September were REO dispositions. The largest resolution was the US$51.9m Merritt Square Mall asset (securitised in MSCI 2006-IQ11), which became real-estate owned in June. The loan was liquidated with a loss severity of 27% on the original loan balance of US$57m (see SCI's CMBS loan events database).

The largest new delinquency - which contributed to the majority of the 13bp increase in the office delinquency rate - was the US$68.75m Dulles Executive Plaza loan (BSCMS 2006-TOP24). The loan defaulted at its September maturity date.

Although the industrial delinquency rate increased by 12bp, overall activity volume was low. There were only US$34m of new delinquencies from three loans outpacing US$26m of new resolutions from five loans.

Current and previous delinquency rates by property type are: 4.77% for retail (from 4.79% in August); 4.68% for office (from 4.55%); 3.88% for hotel (from 3.85%); 0.79% for multifamily (from 0.79%); 4.17% for industrial (from 4.05%); 3.94% for mixed use (from 4.01%); and 0.75% for other (from 0.72%).

CMBS

Deutsche opts for horizontal slice

The first-ever risk retention-compliant single-borrower CMBS has hit the market. The US$214m COMM 2016-667M is secured by a first lien on the borrower's fee interest in 667 Madison Avenue, a 25-story office building in Midtown Manhattan's Plaza District submarket.

The trust loan is part of a US$254m whole loan, of which the seller (German American Capital) is retaining US$40m as a non-trust companion loan that will rank pari passu to the senior A1 trust note. In addition, the class E certificate is intended to be an eligible horizontal residual interest.

A third-party purchaser - PCSD PR CAP IV NR Reten Private, which is a Singapore private limited company advised by Prima Capital Advisors and formed for the purpose of investing in the securitisation - will retain the class E certificate, which represents slightly more than 7% of the trust balance. Any transfer of the residual interest will not be permitted until five years after the closing date.

Provisionally rated by DBRS and S&P, the CMBS comprises: US$116.67m AAA/AAA rated class A notes, US$25.93m AA/AA- class Bs, US$24.77m A/A- class Cs, US$30.52m BBB/BBB- class Ds and US$16.12m BBB/BB class Es. There are also US$116.67m AAA/AAA class XA notional notes.

The loan is interest-only for its entire 10-year term and has a 3.1990% fixed interest rate. The borrower is The Hartz Group and the arranger is Deutsche Bank.

CMBS

Hurricane Matthew exposure eyed

KBRA has identified 1,307 properties that secure 1,016 loans with an aggregate allocated loan balance of US$14.5bn across 157 CMBS that have exposure to Hurricane Matthew. Almost 90% of the properties were located in Florida (accounting for 59%), North Carolina (18%) and South Carolina (12%).

To identify the potentially affected CMBS collateral, KBRA queried its database of rated CMBS transactions, comprising 267 deals with an outstanding balance of US$230.9bn. The location of the CMBS properties were then compared to areas that received a disaster declaration from the Federal Emergency Management Agency.

Two of the transactions with exposure to Hurricane Matthew are single-asset, single-borrower (SASB) deals, with collateral located in FEMA-designated Florida counties. The properties include the Altamonte Mall in Altamonte Springs and the Pembroke Lakes Mall in Pembroke Pines. Based on KBRA's discussions with mall management at both properties, neither sustained any structural property damage from the hurricane.

The largest exposure falls outside the FEMA disaster area. The transaction, BHMS-2014 ATLS, is a US$1bn SASB deal that is collateralised by the Atlantis Paradise Island Resort.

Based on KBRA's discussions with hotel personnel, most of the facility's guest activities and offerings are back online. The hotel is in the process of assessing whether there is any structural damage.

CMBS

ACICS hit highlighted

Morningstar Credit Ratings believes that the US Department of Education's termination of its recognition of the largest accrediting agency of for-profit colleges - the Accrediting Council for Independent Colleges and Schools (ACICS) - intensifies default risk on US$400.6m of CMBS. Overall, 19 CMBS loans with an allocated property balance of US$549.5m have exposure to for-profit colleges that are accredited by ACICS.

The move may force some for-profit schools to cease operations because their students may lose federal financial aid. However, most loans are not at risk in the short term, as the affected schools have 18 months to find a new accreditor.

Should they be unable to receive accreditation from another agency, the schools face a potentially fatal halt in federal funds, according to Morningstar. Accreditation is crucial for colleges because students are unable to use federal student aid to pay for classes at unaccredited schools.

Morningstar identified 13 loans backed by 11 properties with an allocated property balance of US$400.6m that face the greatest risk of default. These loans either have a debt service coverage ratio below 1.2x or the collateral vacancy rate would fall below 80% if the for-profit education tenant were to vacate. Nine of these assets were securitised in the past three years, including one asset in a 2016 transaction.

While the Herald Center backs three pari passu loans with a combined balance of US$255m and is the largest exposure, cashflow should remain above break-even without the for-profit college tenant's rent.

Le Cordon Bleu College of Culinary Arts leases 44% of the office property backing the US$32.9m Galleria Building loan securitised in GSMS 2013-GC10. Although the tenant is no longer in occupancy, as it stopped enrolling new students, its lease expires in 2018. If the school fails to adhere to the terms of its lease, Morningstar foresees the loss of more than half of the base rent, as well as significant costs in converting classroom space to office or retail space.

Finally, West Coast University is the largest tenant in the US$29.6m Ontario Airport Tower asset (WFCM 2015-LC20), leasing 42.4% of the space with a lease expiration of July 2021. Assuming a worse-case scenario - that the school vacates the property in 2018 - Morningstar values the property at US$33.4m.

Risk Management

Cross-border thresholds proposed

The US CFTC has voted to propose rules and interpretations addressing the application of certain swap provisions of the Commodity Exchange Act and regulations to cross-border transactions. The proposal defines key terms for cross-border transactions and addresses the cross-border application of the registration thresholds and external business conduct (EBC) standards for swap dealers and major swap participants. It also addresses whether and to what extent these thresholds and standards would apply to swap transactions that are arranged, negotiated or executed (ANE) using personnel located in the US.

The proposals define the terms 'US person' and 'foreign consolidated subsidiary' (FCS), based on the definition of these terms in the Commission's recent cross-border margin rule-making. Under the rules, a US person would be required to count all swap dealing transactions, irrespective of the counterparty. A non-US person that is an FCS, or whose swap transactions are guaranteed by a US person, would be required to do the same.

Other non-US persons would count swap dealing transactions with US persons and with non-US persons that are FCSs (or whose swap transactions are guaranteed by a US person), unless the swap is executed anonymously on a registered platform and cleared.

Additionally, US swap dealers (except their foreign branches) would be required to comply with applicable EBC standards. Non-US swap dealers and foreign branches of US swap dealers would be required to comply with applicable EBC standards only for their transactions with a US person counterparty, except that certain EBC standards prohibiting fraud, manipulation or other abusive conduct would apply to ANE transactions.

The comment period on the proposed rules ends 60 days after their publication in the Federal Register.

Risk Management

Accounting provisions paper published

The Basel Committee has released a consultative document and discussion paper on policy considerations regarding the regulatory treatment of accounting provisions under the Basel 3 capital framework. This follows the adoption of provisioning standards based on expected credit loss (ECL) by the IASB and FASB.

The Committee supports the use of ECL approaches and encourages their application in a manner that will achieve earlier recognition of credit losses than incurred loss models, while also providing incentives for banks to follow sound credit risk management practices. Despite this, the Committee is considering the implications for regulatory capital, as the new accounting provisioning models introduce fundamental changes to banks' provisioning practices.

The consultative document therefore sets out the Committee's proposal to retain, for an interim period, the current regulatory treatment of provisions under the standardised and internal ratings-based approaches for credit risk. The Committee is also seeking comments on whether any transitional arrangements are warranted to allow banks time to adjust to the new ECL accounting standards, to be uploaded online by 13 January 2017.

The Committee is also issuing a discussion paper on policy options for the long-term regulatory treatment of provisions under the new ECL standards. The paper is intended to elicit feedback from interested stakeholders that will inform future deliberations.

Risk Management

Debut collateral trade executed

Elixium, a multilateral trading facility (MTF) for collateral and secured deposits, has executed its first collateral financing transaction between buy-side collateral and liquidity providers. Citibank executed on behalf of CME Clearing Europe as cash management agent, while Insight Investment executed on behalf of a UK pension fund.

Elixium hopes to provide participants in the repo market with collateralised liquidity on a fair, low-cost and equitable basis in order to address the impact of regulation, balance sheet pressures and deteriorating levels of liquidity. The platform was developed in response to the industry requirement for an all-to-all marketplace in collateral and secured deposits.

The firm aims to enable institutions to gain standardised access to a diverse range of high-quality liquid assets that can be traded as collateral on an all-to-all basis and support pre-trade bilateral anonymity.

RMBS

Reperforming loans up for bid

Fannie Mae has begun marketing its first sale of reperforming loans, as part of its ongoing effort to reduce the size of its retained mortgage portfolio. The pool of approximately 3,600 loans, totalling US$806m in unpaid principal balance, is available for purchase by qualified bidders

The terms of Fannie Mae's reperforming loan sale require the buyer to offer sustainable loss mitigation options to any borrower who may re-default after the sale and prohibit the buyer from 'walking away' from any home that might become vacant. The sale is being marketed in collaboration with Citi. Bids are due on 1 November.

Separately, Fannie Mae also announced its latest sale of non-performing loans, with bids due on 3 November. The five pools of approximately 7,300 loans totalling US$1.39bn in UPB are available for purchase by qualified bidders. This sale of NPLs is being marketed by Wells Fargo.

RMBS

Data error reviewed

Moody's has placed the ratings of eight tranches from four RMBS issued by Nationstar HECM Loan Trust on review with the direction uncertain. Affecting US$278m of securities, the action follows notification of incorrect data provided by Nationstar when Moody's assigned its ratings.

The affected transactions are Nationstar HECM Loan Trust 2015-2, 2016-1, 2016-2 and 2016-3. Nationstar informed Moody's on 4 October that the unpaid balance at the called due date provided at the time of issuance was incorrect for approximately 500 loans across the four transactions.

The called due balance was overstated by between US$8,000 and US$45,000 per loan, with the overall overstated amount totalling roughly US$15m. Nationstar advised that the error was due to its receipt of incorrect information from a third-party originator at the time of loan boarding and that it identified the error while conducting review procedures.

The unpaid principal balance at the called due date is the balance of the loan at the time the loan becomes due and payable. The unpaid balance at the called due date is used when filing insurance claims with HUD and a downward revision to this variable implies that insurance proceeds could be lower than initially expected.

Moody's says it is awaiting the revised closing and remittance tapes from Nationstar. Once these are received, the agency will assess the credit rating impact.

The ratings were placed on review because they could be negatively impacted by the overstatement of the unpaid balance at the called due date. However, the rated bonds have built up significant credit enhancement since issuance that could offset any negative impact from the data error.

Moody's notes that it has also observed delays in the recognition of gross write-offs across the four transactions. Such delays have a negative impact on performance by increasing the length of time between when a loan is fully liquidated and when the servicer reimburses the trust due to servicing errors. Nationstar says that the delays will be addressed within the next few months.

RMBS

Canadian housing data prioritised

In its 2016-2020 Corporate Plan, the Canada Mortgage and Housing Corp (CMHC) prioritised identifying gaps in Canadian housing market information to support insightful analysis and housing-related decisions. S&P considers this 'data gap initiative' to be a positive step towards reducing the Canadian residential mortgage market information gap.

This information gap exists due to the limited public availability of detailed performance data on residential mortgages in the country. "Increased transparency of Canadian residential mortgage performance over economic cycles would, in our view, lead to more informed decisions on Canadian housing risks and highlight the unique characteristics of the Canadian residential mortgage market. In addition, we believe that the availability of this data may foster the growth of risk-sharing between public-sponsored mortgage funding programmes and private sector residential mortgage funding alternatives, similar to those in other developed mortgage markets," S&P notes.

For example, over the past several years, Fannie Mae and Freddie Mac in the US have released mortgage loan-level historical performance data on their portfolios to help the market better understand and analyse the credit of mortgages backing their credit risk-sharing programmes. For acquired mortgages originated from 1999, the GSEs make acquisition and monthly performance data available. As of 2Q16, Fannie Mae's and Freddie Mac's mortgage datasets covered about 23 million and 22 million mortgage loans respectively.

Among other actions, CHMC plans to continue feeding its Housing Market Information Portal with new data sources to support decision-making.

RMBS

Model-implied tool launched

Fitch has launched a new online tool that will enable investors to conduct their own model-implied rating analysis on underlying loan level portfolios backing RMBS. Dubbed 'Resi Investor', the tool acts as an overlay to Fitch's RMBS presale reports, providing investors with a combination of the agency's own credit analysis and their own preferred scenario testing.

The solution allows investors to vary Fitch's rating assumptions to calculate their own expected losses and model-implied rating outcomes. It also allows investors to generate pivot table-type stratification tables, interactive charts and transaction comparisons.

"Fitch's Resi Investor tool is a first for the RMBS market globally. The combination of bespoke scenario testing with our own fundamental credit analysis significantly improves transparency on RMBS transactions, which in turn will help investors make more informed investment decisions," comments Philip Walsh, head of EMEA structured finance business and relationship management.

Resi Investor is initially available for the UK RMBS market and will be expanded to incorporate other key global RMBS markets in due course.

RMBS

Risk-transfer re-REMIC announced

The first-ever re-REMIC securitising GSE credit risk-transfer securities has hit the market. The US$159.61m Bayview Opportunity Master Fund IVb Trust 2016-CRT1 is collateralised by 12 CRT securities, comprising M2 classes from various Fannie Mae Connecticut Avenue Securities (CAS) transactions and M3 classes from various Freddie Mac Structured Agency Credit Risk (STACR) transactions.

Provisionally rated by Fitch, BOMFT 2016-CRT1 comprises: US$63.84m single-A minus rated class M1 notes; US$54.27m triple-B minus class M2s; US$25.54m double-B class B1s; US$13.97m single-B class B2s; and US$1.99m unrated class B3s. There are also US$63.84m single-A minus class M1X and US$54.27m triple-B minus class M2X notional notes.

All of the underlying securities were issued between 2014 and 2015, and all but one of the underlying transactions rely on a fixed tiered loss severity schedule that is determined by the amount of cumulative credit events in the reference pool. Fitch currently holds public ratings on eight of the 12 underlying securities, ranging from single-B plus to double-B plus.

RMBS

Recovery rates set to improve

Securities backed by defaulted Italian mortgage loans may benefit from legislation aimed at expediting property foreclosures, says Moody's. The Bank of Italy has previously said changes implemented last year could reduce both bankruptcy and foreclosure procedures for mortgage loans to around three years.

"At present, the lengthy time to recovery is credit negative for Italian MBS, since noteholders bear the carry costs as foreclosure timelines lengthen," says Nicolas Odella, an analyst at Moody's.

The agency expects the foreclosure and the recovery timeline to improve, as three key legislative initiatives should accelerate property sales at executive auctions by reducing the time taken to complete specific procedural steps. "Our current recovery rate assumption ranges from 45% to 60% over the next five to six years for Italian RMBS and are well placed, given the anticipated legislative changes," says Carole Sanz-Paris, a vp and senior analyst at Moody's.

Limited sales of foreclosed properties for Italian RMBS are associated with low cumulative recoveries. Moody's analysis of approximately 13,000 defaulted loans across three mortgage servicers showed very few property sales. Average foreclosure time currently ranges from five to seven years and in some cases it can take up to 10 years.

Across the three servicers, the recovery rate upon the sale of the foreclosed properties averaged 57%. Moody's findings show that the recovery rate on foreclosed properties varied, depending on the LTV of loans at time of default, but were in line with its current recovery rate assumptions. Across the agency's Italian RMBS portfolio, the average cumulative recovery rate was 35%.