Contents

Capital Relief Trades

AXA boosts risk transfer foothold

AXA IM's structured finance unit raised over €1bn in total commitments for the AXA IM Partner Capital Solutions VII fund at the end of September, following its launch in July 2017. The capital was raised from repeat and new clients and is the largest amount that AXA IM has raised for capital relief trades, reflecting an increased asset management foothold in the alternative credit space.

"Raising more than €1bn in the regulatory capital relief space is an achievement for AXA IM as it is a complex asset class requiring investors able to invest in the long term, while having the capacity to understand these transactions," says Christophe Fritsch, co-head of securitised and structured assets at AXA IM. "It is also a proof of their trust. To put this number in perspective, Partner Capital Solutions VII more than doubled its predecessors in size."

As with AXA IM's previous capital solutions funds, the private equity-like structure features commitments and capital calls, a lock-up period where the assets will be reinvested for more than four years, and is targeting high single digit net returns. "In practice, investors have committed capital to the fund and this will most likely be called during the next two years," says Fritsch.

According to the Global Legal Entity Identifier Foundation (GLEIF) the legal form of the fund is an FCP, a common investment fund with no legal personality, which must be managed by a fund management company.

The fund seeks to provide access to quality credit, representative historically of the European economy, from SMEs and mid-caps to large corporates, while aiming to offer exposure to diversified portfolios selected by AXA IM in core bank financed performing credit portfolios. However, despite more cash to put to use, Fritsch expects the market to remain a niche one.

"One of the key challenges for issuers is to ensure that investors understand the structural features and can safeguard confidential information. In AXA IM's view, therefore, the limit is not the appetite for banks to issue CRTs, but the number of investors they can trust," he says.

Oliver Fochler, ceo at Stone Mountain Capital, expresses similar views. He says: "CRTs are restricted to banks and insurance firms, since they are the ones who have the structuring expertise and the capital need to do them. For other investors in alternative credit it is just much more convenient to do an outright sale or an acquisition."

Fochler confirms a wider investment base among insurers, along with more cash to put to use.

AXA IM is riding a wave of asset management activity in alternative credit. According to Willis Towers Watson, the world's largest 100 alternative asset managers - including AXA IM - saw assets under management increase by 10% in 2016, rising by US$4trn.

The Willis survey, which captures long-term institutional investment trends by seven main investor groups across 10 alternative asset classes, showed that of the top 100 alternative investment managers, real estate managers have the largest share of assets (35%, over US$1.4trn), followed by private equity fund managers (18%, US$695bn), hedge funds (17%, US$675bn), private equity funds of funds (12%, US$492bn), illiquid credit (9%, US$360bn), funds of hedge funds (6%, US$228bn), infrastructure (4%, US$161bn) and commodities (1%).

In terms of growth by asset class among the top 100 asset managers, illiquid credit saw the largest percentage increase over the 12-month period, with assets under management rising from US$178bn to US$360bn. Conversely, assets allocated to direct hedge fund strategies among the top 100 asset managers fell over the period, from US$755bn to US$675bn.

Insurance company assets managed by the top 100 alternative asset managers grew from 10% to 12% of total assets.

Partner Capital Solutions VII is still open for subscriptions. AXA intends to launch new Partner Capital Solutions funds every two to three years on average, but this will also depend on investor appetite and market environment.

SP

ABS

Airline bankruptcy exposure gauged

A number of aircraft ABS have been impacted by the bankruptcy of several large carriers in Europe, with the Castlelake 2015 and 2016 transactions disproportionately affected, according to a new Deutsche Bank analysis. However, in most cases, narrow-body aircraft are expected to have little difficulty finding a new home - helping to mitigate the impact on investors in these deals.

The Deutsche Bank study highlights transactions with exposure to five airlines that have recently gone bankrupt - Air Berlin, Alitalia, Monarch Airlines, VIM Airlines and Island Air. ABS analysts at the bank note that 30.5% of the CLAST 2015-1 portfolio has exposure to both Air Berlin (5.6%) and Alitalia (24.9%), while CLAST 2016-1 has 29.8% portfolio exposure to Air Berlin (2.2%), Alitalia (22.5%) and Monarch (5.1%).

Additionally, AASET 2014-1 has 2.6% portfolio exposure to Monarch Airlines and AASET 2016-1 has 5.3% exposure, while AASET 2016-2 has 8.8% total exposure to Air Berlin (5.3%) and Alitalia (3.5%). AERLS 2007-1 has 6.3% exposure to Monarch and AIRSP 2007-1 has 4.8% portfolio exposure to VIM Airlines.

DCAL 2015-1 has 22.2% exposure to Air Berlin (2.2%) and Alitalia (19.5%), while DHA 2015-1 has 13.3% exposure to just Alitalia. EAFL 2013-1 has 16.3% exposure to Air Berlin (7.3%) and Alitalia (9%), ECAF 2013-1 has 4.2% exposure just to Air Berlin. FAL 2017-1 sees 4.5% exposure to just Air Berlin, while HAIL 2016-1 sees 9.8% exposure to Air Berlin (5.1%) and Alitalia (4.7%).

LAFL 2016-1 has only 1.9% exposure to just Air Berlin, Prop 2017-1 has 13.3% exposure to Island Air (the only transaction with exposure to this airline) and RISE 2014-1 has 5.9% exposure to just Air Berlin. SHNTN 2015-1 has 11.9% exposure to Air Berlin (7.9%) and VIM airlines (4%). Finally, SJETS 2017-1 has 5.6% exposure to Air Berlin only.

The Deutsche Bank analysts note that the majority of Air Berlin aircraft have already transitioned to the new operators that have acquired parts of the now defunct airline. At Alitalia, all aircraft are in service and lease payments are reportedly being made as the reorganisation process - which is due to close in 2018 - moves ahead. The analysts add that Monarch's planes are now being marketed to new operators and that, given the demand for A320 and A321 aircraft, they should find a new home soon.

Widebody aircraft are likely to encounter greater challenges than narrow-body aircraft, however, such as in the case of the now bankrupt VIM Airlines. For example, a widebody A330-200 plane - an asset of the Airspeed 2017-1 transaction - took over 18 months to find a new home after storage, and the analysts anticipate a lengthy marketing process following the bankruptcy.

In terms of other widebodies, they note that it is not yet clear how many A330s will be retained by the operators that are taking on parts of the Air Berlin operation, but they are expected to experience challenges in finding new homes. Furthermore, the fate of widebodies at Alitalia, along with the rest of its aircraft, awaits a final decision on the bids made for all or parts of the airline.

The analysts add that risks remain to any financing, even when aircraft are retained after a bankruptcy by the original operator or are transitioned seamlessly to a new operator that has acquired all or part of a bankrupt airline. New operators - or a restructured operator - may seek concessions on the previous lease rate and other terms, which could ultimately result in reduced revenue.

RB

ABS

Agricultural equipment ABS debuts

DLL Finance, a Rabobank subsidiary, is in the market with an inaugural equipment ABS. Dubbed DLL Securitization Trust 2017-A, the US$501.5m transaction is backed by 24,080 loans and leases mostly originated by dealers to finance primarily agricultural equipment.

S&P and Moody's have assigned provisional ratings to the transaction of A1+/P1 on the US$120m class A1 notes (which are expected to price with a coupon of 1.65%), AAA/Aaa on the US$165m class A2 notes (2.14%), AAA/Aaa on the US$155m class A3 notes (2.43%) and AAA/Aaa on the US$61.50m class A4s (2.68%). The notes have maturity dates of 15 November 2018, 15 July 2020, 15 December 2021 and 17 November 2025 respectively.

While the transaction marks DLL's first equipment ABS, the company has a long history and extensive experience in various types of commercial lending, including on agricultural equipment. Historically, it funded originations through its parent company, Rabobank, and S&P notes that DLL's position as a financially strong servicer and the highly rated parent company supports the deal.

The rating agency highlights that the deal's payment structure is unusual, whereby the priority principal payment amount and pass-through principal payment amount are calculated using the pool balance, which subtracts defaulted contracts. Defaulted contracts represent a gross loss without credit to recoveries, which increases the likelihood of a priority principal payment resulting from a short-term spike in gross losses, since the lower pool balance considers gross rather than net losses.

Otherwise, the transaction benefits from strong collateral characteristics, with significant seasoning on the loans of an average of 21 months and a high percentage of new equipment, at 88%. The loans are to mainly commercial and consumer obligors at 75% and 25% respectively, and most of the equipment comprises compact tractors, which typically display long, useful lives and retain their value.

The transaction is also supported by the initial hard credit support of 10.30% in the form of overcollateralisation and a cash reserve. The overcollateralisation has a target and a floor of 11.50% of the initial pool balance, while the cash reserve - which will be funded at closing - equals 1% of the initial pool balance and is subject to a floor of the same amount. Additionally, there is 1.86% of annual excess spread based on the unstressed estimate.

The transaction is expected to close on 16 November. Credit Suisse is the underwriter on the deal.

RB

ABS

Aqua preps debut ABS

Aqua Finance is marketing its first public term securitisation. US$194m Aqua Finance Trust 2017-A (see SCI's deal pipeline) is collateralised by a pool of retail instalment sale contracts and agreements primarily used for water treatment equipment and home improvements.

The US$174.5m class A notes have been provisionally rated single-A by Kroll Bond Rating Agency. Kroll has also rated the US$16m B notes triple-B and the US$3.5m C notes triple-B minus.

Aqua acquires both closed-end and open-ended simple interest retail contracts from dealers who originate consumer receivables by providing point-of-sale financing to customers. These products include water treatment systems and home improvement projects such as roofing, window replacement, heating, ventilation and air conditioning, among others.

The company was formed in 1985 and initially only provided financing for water treatment equipment for farmers. It began acquiring and servicing home improvement contracts and other types of consumer financing in 2012, and so there is limited static pool performance data, which Kroll views as a credit negative.

The pool balance as of the cutoff date was US$150m, with a weighted average current loan balance of US$7,126. Weighted average FICO is 707 and weighted average original term was 118 months, with a weighted average remaining term of 103 months.

There is little geographic concentration. The most-represented state is Texas, which accounts for 17.17% of the pool, followed by Florida at 13.34% and California at 11.27%.

Foundation Finance Trust 2016-1 and Spruce ABS Trust 2016-E1 (see SCI's deal database) make for logical comparison transactions, as both securitised unsecured consumer loans collateralised by retail instalment sale contracts primarily used for home improvements. Weighted average current loan balance and FICO are both slightly higher for Aqua 2017-A than for Foundation Finance Trust 2016-1, but considerably lower than Spruce ABS Trust 2016-E1. Geographic concentration also closely mirrors Foundation Finance.

However, credit enhancement is much lower for Aqua than for the other transactions. Initial overcollateralisation for Aqua 2017-A is 3%, whereas it was 13.5% for Foundation Finance and 14.5% for Spruce.

JL

Structured Finance

SCI Start the Week - 6 November

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

Pipeline
It was full steam ahead once more for the pipeline. There were 13 ABS, an ILS, three RMBS, two CMBS and a CLO added.

The ABS were: US$1.3bn AmeriCredit Automobile Receivables Trust 2017-4; Auto ABS UK Loans 2017; A$329.3m Eclipx Turbo Series 2017-1; US$502m DLL Securitization Trust 2017-A; US$456.23m DriveTime Auto Owner Trust 2017-4; US$890m Hyundai Auto Lease Securitization Trust 2017-C; A$542.5m Latitude Australia Personal Loans Series 2017-1; US$750.9m Navient Student Loan Trust 2017-6; PCL Funding III; US$591m SoFi Consumer Loan Program 2017-6; Toyota Auto Receivables 2017-D; US$373.8m Volvo Financial Equipment Master Owner Trust Series 2017-A; and US$578.4m WAVE 2017-1.

US$400m Ursa Re Series 2017-2 was the ILS, while the RMBS were US$865m Invitation Homes 2017-SFR², US$255m RCO 2017-INV1 and US$320.3m Sequoia Mortgage Trust 2017-CH2. The CMBS were US$250m CSMC Trust 2017-CALI and US$1.2bn FREMF 2017-K728, while the CLO was €371m Aqueduct European CLO 2-2017.

Pricings
A large number of deals also departed the pipeline, with a fairly even distribution by asset class. There were seven ABS prints, as well as nine RMBS, seven CMBS and 11 CLOs.

The ABS were: US$207.25m CFG Investments 2017-1; £1.45bn Delamare 2017-1; US$585m METAL 2017-1; US$1.25bn Nissan Master Owner Trust Receivables Series 2017-C; €770m SME Grecale 2017; US$676m SMB Private Education Loan Trust 2017-B; and US$265m Tesla 2017-1.

The RMBS were: US$170.2m Bayview Opportunity Master Fund IVb Trust 2017-RT6; US$207.2m CoreVest American Finance 2017-1; US$638.1m CSMC 2017-HL2; US$305m Deephaven Residential Mortgage Trust 2017-3; US$486m Flagstar Mortgage Trust 2017-2; C$520m Fortified Trust Series 2017-1; US$911m JPMMT 2017-4; A$300m Sapphire 2017-2; and US$743m Towd Point Mortgage Trust 2017-5.

The CMBS were: US$977.1m CGCMT 2017-C4; US$1.3bn FREMF 2017-K68; US$1.2bn FREMF 2017-K728; US$519m JPMCC 2017-FL11; C$407m REAL-T 2017; US$743m UBS 2017-C5; and US$705m Worldwide Plaza Trust 2017-WWP.

The CLOs were: US$378m AMMC 2013-12R; US$658m Ares CLO 2015-4R; US$1.008bn CBAM CLO 2017-4; US$484m CFIP CLO 2017-1; €617m Dryden 56 Euro 2017; US$1.5bn Fortress Credit Opportunities CLO 2017-9; US$507.4m KKR Financial CLO 11 2015-11R; US$530m KKR CLO 19; US$611.6m THL Credit Wind River 2017-4; US$715m Venture XXX CLO; and US$609m Voya CLO 2017-4.

Editor's picks
Pre-emptive lawsuits envisaged: The threat of significant losses has sparked concern that the US subprime auto ABS sector could see pre-emptive legal actions emerging. With spreads continuing to tighten in the face of increasing delinquencies, investors may start to question whether they are being adequately compensated for the risks involved...
STS rules welcomed: The European Parliament last week approved new common rules for securitisation in the EU, while also finalising the simple, transparent and standardised (STS) framework. The long-awaited legislation has been welcomed by the market, although it features numerous legal uncertainties, which are expected to be resolved at the regulatory technical standards level...
Secured warehouse use broadens: Be-Spoke Loan Funding (SCI 3 October), a direct lending warehouse facility set up as a cashflow securitisation, exemplifies one of the ways in which secured warehouse financing continues to evolve. While the sector has already demonstrated adaptability, rising interest rates could pose a significant challenge...
Legal issues weigh on Earnest acquisition: Navient's recent acquisition of Earnest is seen as a bold move, given its ongoing legal challenges (SCI 13 October). While the takeover could lead to a surge in refi student loan ABS from the firm, investors in future transactions may need to consider whether they are buying into additional risks...
Secured exposures eyed: The ECB's recent proposal regarding higher non-performing loan provisioning is expected to have a modest impact, in particular for unsecured loans. However, the provisioning backstop for secured exposures poses a challenge...
Balance sheet optimisation continues: Rabobank has transferred part of the risk on a €3bn commercial credit portfolio to pension fund Pensioenfonds Zorg en Welzijn (PFZW). The synthetic securitisation forms part of the lender's efforts to optimise its balance sheet and follows the disposal of a €600m mortgage portfolio to La Banque Postale (SCI 27 October)...
US CLO stand-off: The US CLO secondary market is caught in a supply-demand stand-off. "The secondary market has effectively reached stalemate," says one trader. "Levels are such that for many buyers prices are too high, but holders aren't seeing enough value or alternatives to warrant selling, so it has been very quiet over the past few weeks..."
Using insurance to lay off risk: Alan Ball and Fiona Walden, senior underwriters leading the structured risk solutions team at Liberty Specialty Markets, answer SCI's questions...

Deal news
• The first securitisation of income-contingent repayment (ICR) student loans originated by the UK government (SCI 29 March) has been re-jigged after being postponed due to the UK general election in June. Dubbed Income Contingent Student Loans 1 (2002-2006), the £3.94bn ABS is the first of its type globally and has been relaunched with structural changes and revised provisional ratings.
• The first Australian personal loan ABS is marketing. The A$542.5m Latitude Australia Personal Loans Series 2017-1 transaction (see SCI's deal pipeline) securitises a portfolio of Australian unsecured and partially secured personal loans originated by Latitude Personal Finance.
• Loss coverage ratios on a number of World Omni Auto Trust class A ABS bonds should have been adequate before the recent introduction of a cash-trapping mechanism, according to a new Wells Fargo study. However, the analysis suggests that loss coverage ratios on class B bonds have been lagging, particularly for 2016 vintage deals.

Regulatory update
• Plans to establish Singapore as an Asian insurance-linked securities hub were unveiled today at the Singapore International Reinsurance Conference. Lim Hng Kiang, minister for trade and industry and deputy chairman of the Monetary Authority of Singapore (MAS), outlined a three-pronged strategy aimed at closing what he described as a "protection gap" in the region.
• The UK PRA has published its final approach and expectations in relation to the authorisation and supervision of insurance SPVs (SCI passim). In light of public consultation, a new safeguard has been introduced that removes the need for multi-arrangement insurance SPVs (MISPVs) to notify supervisors of proposals to assume new risks before they take effect. The authority has also issued additional guidance on the fully funded requirement and the senior insurance managers regime (SIMR).

Structured Finance

EMIR inaction could be 'grave'

The risks from industry inaction regarding EMIR are "grave" and could have "serious negative consequences" on the European securitisation sector, according to Bank of America Merrill Lynch European securitisation analysts. Along with a recent ISDA whitepaper, they outline recommendations to limit the regulation's detrimental effect on the market.

The BAML analysts say that major negative consequences will result from the EMIR proposal for securitisation special purpose entities (SSPEs) to be re-classified from 'non-financial counterparties minus' (NFC-) to 'financial counterparties' (FC), which must clear and post margin for derivatives agreements. They add that the failure to exempt SSPEs from clearing and collateral posting will make securitisation economically unviable and tilt the playing field further in favour of covered bonds, bank balance sheet encumbrance and a rise in systemic risk.

The analysts state that the SSPE proposal may not be possible to implement in a viable securitisation because of the highly customised nature of the swap agreements that SSPEs are party to, meaning that the clearing requirement may not be possible to meet. Additionally, SPEs in securitisation - and covered bond - transactions are entities without extra assets - so to post collateral under a swap agreement, an SSPE must borrow or acquire it from a third party, adding cost and complexity without clear benefits.

A recent EMIR draft proposes an exemption for SSPEs issuing STS securitisations from clearing and collateral posting, while maintaining the requirement for non-STS deals. The BAML analysts say that this is not sufficient and that exempting STS deals, without exempting non-STS deals, makes "little sense and renders the latter unviable."

They point to the need for an impact study, which may underline, for example, that a securitisation SPE has clearly defined parameters related to a given transaction. As such, swap counterparties must meet many predefined criteria established by rating agencies.

An impact study may also find that securitisation swaps already have a number of requirements that help mitigate the risk to an SSPE. Additionally, the risks to the swap counterparty created by the SSPE are mitigated by several structural features.

The analysts add that an impact study would find that, judging by the EU's perspective, the swaps in securitisations cannot be standardised due to the multiplicity of jurisdictions, reference rates, exchange rates and the need for cross-border and cross-currency financing. Finally, it might find that swapless securitisations cannot be executed on a large scale without a radical change in the EU's capital market structure.

Meanwhile, the ISDA whitepaper suggests that the efficiency of clearing, reporting and margin rules can be enhanced without diluting the intention of the EMIR framework to combat systemic risk. The association suggests that tackling complexity, unnecessary costs and burdens in the rules would further encourage trading, investment and hedging.

ISDA agrees that the financial counterparty definition under EMIR would be particularly damaging for SSPEs, which would become subject to clearing and margining rules, despite the securitisation swaps conducted by these entities being already fully collateralised. The association notes that "SSPEs don't have the systems, controls, staff or authority to exchange further regulatory margin or clear derivatives, which would fundamentally alter the economics of securitisation."

As a result, the whitepaper recommends that an adjustment in the proposed re-categorisation is necessary to avoid potential impacts to the EU securitisation market. ISDA suggests all transactions with EU and non-EU central banks, debt management offices and multilateral development banks should be exempt from the EMIR requirements, in line with the treatment in other jurisdictions.

The association adds that the EC's proposals on clearing could be enhanced to make the threshold calculation optional, so those firms that want to clear - or believe their derivatives activity is in excess of the threshold - are not required to conduct the calculation. The NFC proposal could also be made more consistent by clarifying that NFCs exceeding the clearing threshold in one asset class should also be exempt from non-cleared derivatives margining requirements in other asset classes, as well as being exempt from clearing.

RB

CLOs

Equity-friendly features on the rise

Demand for CLO paper and an unintended consequence of risk retention rules have led to a rise of equity-friendly features in US CLO indentures, according to Fitch. The agency suggests that the trend also reflects the growing influence of CLO equity investors as CLO debt becomes more broadly distributed.

"Compliance with risk retention rules has stimulated CLO asset managers either to re-align with institutional sponsors or raise third-party funds to invest in their CLO management platforms to comply," Fitch explains. "Several billion dollars were raised to satisfy the new regulations, a significant portion of which will be used to purchase horizontal CLO equity retention interests. Meanwhile, the number of CLO debt investors is growing, especially from overseas, seeking investments with positive-yielding return."

Such fragmentation of the investor base has enabled managers to incorporate more flexibility into CLO documentation, including looser conditions around reinvestments, adjustments to weighted average spread (WAS) calculations and mechanisms to streamline CLO note refinancings. Indenture provisions for reinvestment after the end of the reinvestment period have been shifting for concentration limitations, collateral quality tests and amend and extend (A&E) loans, making it easier for managers to trade after the reinvestment period ends.

"Under some indentures in recent transactions, a manager has more discretion to approve A&E requests for underlying loan issuers, even when the loan issuer is not in distress. Extension of loans beyond the maturity of the CLO subjects debt investors to market risk if the collateral needs to be liquidated at the CLO's stated maturity," Fitch observes.

In its analysis of Dryden 54 Senior Loan Fund, which priced in September (see SCI's primary issuance database), the agency noted the provisions regarding the manager's ability to consent to A&E requests on underlying loans without any conditions for complying with the WAL test. It ran an additional scenario to account for this, assuming a 12-year WAL for the stressed portfolio. Modelling results indicated an incremental decrease in the performance of the senior notes, passing at the double-A plus rating level.

CLO documentation that includes applicable margin reset (AMR) provisions is also proliferating, whereby equity investors or CLO managers can refinance one or more classes of notes through an automated auction procedure (SCI 27 June). AMR procedures are modelled on the mechanics used in the auction-rate securities market, including the provision by independent auction service providers of a platform through which broker-dealers submit bids to purchase CLO securities for their clients. In order to satisfy risk retention requirements, retention holders can submit retention orders, which commit to retain a given principal balance of CLO securities of a certain AMR class on the applicable AMR date.

Fitch says that in its ratings of the Catamaran CLO 2014-1 and Atlas Senior Secured Loan Fund VIII transactions, the AMR provision was considered to be rating neutral for the notes, since the only envisioned change to the capital structure would be a lower cost of funding. The agency adds that its analysis incorporates fees payable under the AMR process, such as expenses incurred by the auction services provider and settlement agent.

Meanwhile, an increasing number of CLOs permit a grossing-up WAS using the discount on assets purchased below par. Under some agreements, a manager can use the stated interest rate spread divided by the purchase price to gain credit in the WAS test for the discount.

"Transactions with this feature may have varying degrees of adjustment permissible to WAS test and, in each case, the manager must designate the assets to be treated in this manner," Fitch notes.

Year-to-date new US CLO issuance stands at over US$100bn, with another US$115bn of existing CLOs that refinanced or reset through October. During this timeframe, triple-A CLO spreads tightened to 115bp from 155bp, indicating that increased CLO supply is yet to satisfy demand.

CS

CLOs

Manager BWIC activity highlighted

A new JPMorgan study sheds light on the relationship between BWIC activity by US CLO manager versus AUM. The analysis suggests that managers with higher outstandings tend to see higher BWIC volumes on a notional basis.

The JPMorgan study includes all post-crisis issued US CLO BWIC data from 2012-2017, as of 29 September. US$72.66bn in aggregated BWIC volume was recorded during this period, across 122 US CLO managers.

The analysis shows that the top 10 managers in terms of BWIC notional are: CIFC (with US$3.28bn), GSO (US$2.66bn), Carlyle (US$2.45bn), CSAM (US$2.38bn), PGIM (US$2.33bn), MJX (US$1.91bn), Octagon (US$1.77bn), Invesco (US$1.77bn), Ares (US$1.73bn) and Och-Ziff (US$1.72bn). The top 10 and top 20 US CLO managers by notional amount respectively accounted for 30% and 50% of total BWIC volume during 2012-2017.

A count of 15,624 BWIC line items was recorded during this period. CIFC (with 647), Carlyle (566), GSO (563), PGIM (524), CSAM (506), Voya (431), MJX (428), Octagon (423), Invesco (384) and Ares (352) are the top 10 managers in terms of BWIC line item count. The top 10 and top 20 US CLO managers by BWIC line item account for 31% and 51% of total BWIC volumes from 2012-2017.

In terms of managers that have the highest BWIC percent of total AUM at the start of 2017, Z Capital (accounting for 15.55%), OFS AM (11.81%), Zais (11.25%), Hillmark (11.15%), KVK (10.12%), Valcour (9.10%), Saranac (6.82%), Acis (5.93%), PineBridge (5.68%) and Marathon (5.37%) top the list. "Interestingly, we find that the top managers on this list tend to be in the bottom half of CLO managers in terms of AUM. In the top 20 CLO managers adjusted for AUM outstanding in 2017, 13 (or 65%) were in the bottom half of mangers in terms of AUM," JPMorgan CLO strategists observe.

Similarly, the top 20 managers with 2016 BWIC volumes adjusted for manager CLO AUM ranged from 19.62% to 8.98% and averaged 12%, according to the study. Again, the top managers on this list tend to be in the bottom half of CLO managers in terms of AUM.

During 2012-2017, there was US$62.67bn in debt BWIC volumes from 121 managers and US$10bn equity BWIC volumes from 94 managers. The top 20 managers account for 48% of total debt BWIC volumes and 63% of equity BWIC volumes.

The JPMorgan strategists acknowledge the difficulty in accurately measuring CLO secondary activity, given that not everything trades on BWICs and that managers have varying retention strategies, which effectively locks up paper. Further, they suggest it's incorrect to infer that simply because a certain manager's bond is on a BWIC more often it is necessarily more liquid, as a CLO manager that is in high demand may experience less secondary activity due to the buy-and-hold investor base. Their main take-away from the analysis is that as the CLO market grows, a "liquid, varied and active" secondary market has developed, offering the ability to access different kinds of bonds and issuers.

CS

CMBS

Las Vegas SASB CMBS prepped

Caesars Entertainment Operating Company emerged from bankruptcy last month. The restructuring of its affairs has resulted in the preparation of a CMBS, which is now marketing.

The US$1.6bn Caesars Palace Las Vegas Trust 2017-VICI CMBS (see SCI's deal pipeline) has been provisionally rated by both S&P and Kroll Bond Rating Agency. The collateral is a five-year, fixed-rate interest-only US$1.55bn commercial mortgage loan secured by the fee simple and leasehold interest in Caesars Palace Las Vegas, the full-service hotel, casino and entertainment resort located in that city.

The loan was co-originated by JPMorgan, Barclays, Goldman Sachs and Morgan Stanley. It is structured with a five-year term and requires monthly payments based on a fixed interest rate of 4.36%. The loan sponsor is the newly-formed VICI Properties, which intends to qualify for REIT status by year-end.

The US$535.5m class A notes have been rated triple-A by both S&P and Kroll. The US$200.5m class B notes have been rated double-A minus by S&P and double-A plus by Kroll, while the US$142.6m class C notes have been rated single-A and double-A minus, the US$206.7m class D notes have been rated triple-B minus and triple-B plus, the US$312.3m class E notes have been rated double-B minus and double-B, the US$61m class F notes have been rated single-B plus and double-B, and the US$91.4m horizontal risk retention class has been rated single-B by S&P and double-B minus by Kroll.

Kroll notes that Caesars Palace Las Vegas is an iconic trophy asset with strong brand name recognition. S&P adds that it has a more diversified revenue stream than traditional hotel resorts due to its array of restaurants, gaming and entertainment venues, with room revenues accounting for only around 25% of total revenues on a trailing 12-month basis.

Caesars Entertainment Operating Company and certain subsidiaries filed voluntary petitions for reorganisation under chapter 11 of the US bankruptcy code in January 2015. It was confirmed in January of this year and became effective last month.

As a result, Caesars Entertainment Corporation has merged with Caesars Acquisition Company. The newly combined company has sold much of its casino real estate in the US to VICI Properties and will rent the property from the investment trust, while still owning and running the operations of its gaming business.

The main source of revenue available to the borrower for making payments on the mortgage loan is derived from master lease payments received from CEOC under the CPLV master lease. The borrower is entitled to an annual master lease base rent of US$165m for the initial seven years of the CPLV lease term, subject to adjustment thereafter using a formula consisting of a base rent component and a percentage rent component.

JL

RMBS

RMBS divestments resumed

The Australian Office of Financial Management has resumed its RMBS divestment programme, after putting it on hold two years ago, having failed to sell any assets in its fifth auction (SCI 5 November 2015). The Treasurer has determined that RMBS market conditions have improved sufficiently to warrant restarting the regular auction process.

Consequently, the next auction will be held on 23 November. Bids close at 11am Australian time and the results will be announced at 2pm the same day. Settlement will be via Austraclear on 27 November.

The securities to be auctioned are: A$87.7m in original face value of Firstmac 2-2011 A3 bonds (which have a reserve price of 100.7), A$129.1m of Firstmac 1-2012 A2s (101.8), A$128.75m Progress 2012-1 As (100.92), A$157.5m Puma P-17 A2s (100.14), Torrens 2011-1E A3s (100.26), A$282.5m Wide Bay 2009-1 A2s (100.46) and A$81.2m Wide Bay 2010-1 A2s (100.11). The AOFM is seeking to sell the entirety of its holdings in these bonds, subject to reserve prices.

The auction process remains largely the same as before, including the mechanics regarding bid submissions. However, based in part on feedback received regarding previous auctions, three changes will be made going forward.

First, the AOFM will disclose a reserve price at the time each auction is announced, expressed in terms of the clean price per A$100 face value. Second, it will no longer provide notice of the forward pipeline of its specific divestment intentions, but will provide at least two weeks' notice of each auction. Finally, the amount sold will be the amount offered, subject to a sufficient volume of bids being received at prices that are not less than the relevant reserve price for each note.

Barclays Bank has withdrawn from the divestment panel since the last auction, leaving ANZ, CBA, Citi, Deutsche Bank, Macquarie, NAB and Westpac on the panel.

CS

RMBS

Investment property RMBS prepped

An unusual US RMBS transaction is being marketed (see SCI's deal pipeline). The US$127.332m RCO 2017-INV1 RMBS is collateralised by residential rental mortgage loans.

Morningstar Credit Ratings has assigned a preliminary rating of triple-A to the US$75.827m class A notes. It has also rated the US$25.594m M1, US$8.34m M2, US$7.13m B1, and US$4.393m B2 classes single-A, triple-B, double-B and single-B respectively. The rating agency has not rated the US$6.048m B3 notes or the US$127.332m XS class.

The collateral is unusual and is comprised of business-purpose rental mortgage loans backed by residential properties. Morningstar's analysis of the pool shows that most of the loans are backed by a single property per loan and most loans were extended to borrowers with only one loan in the pool.

"However, some loans are backed by multiple properties, and some borrowers have multiple loans in this pool. Cross-default is sometimes required when a borrower has two or more loans. Morningstar is credit neutral to the cross-default feature because it provides the lender with flexibility and control in managing underperforming assets," the rating agency adds.

Morningstar addresses the risk of loans backed by multiple properties by rolling up property-level attributes to the loan level. For example, a loan backed by three cash-out refinance properties making up 65% of a total loan balance and one rate-term refinance property representing the other 35% is treated as a cash-out loan.

Just over half of the loans - 52.8% by current balance - are backed by properties in Florida, New Jersey, Georgia, New York and Maryland. Florida accounts for 14.1% of the pool, with no state accounting for more than that.

The loans are originated by Lima One Capital and Visio Financial Services. Morningstar considers it to be an underwriting weakness that the originators do not require properties to be leased when they approve loans.

All 909 rental loans in the pool were current as of the cutoff date. There were 19 loans, accounting for 2.1% by unpaid balance, that had been previously delinquent and subsequently cured.

The weighted average original LTV is 67.5% and 99.9% of the loans have an original LTV of 75% or lower. However, only 79.7% of the properties were leased as of loan origination.

Compared to the previous RCO 2016-SFR1 transaction (see SCI's deal database), the 2017-INV1 transaction has slightly fewer loans and fewer properties, but a higher average current loan balance and higher average FICO. Weighted average issuer DSCR at origination was 1.5x for 2016-SFR1 and 1.6x for 2017-INV1.

JL

Structured Finance

Job swaps round-up - 10 November

EMEA

Ares Management has hired Rory McHugh as md. McHugh was previously md, head of alternative finance, specialist lenders and fintech at RBS. Prior to that he was head of structured finance derivatives and automated treasury solutions also at RBS.

Scope has founded Scope Investor Services to support institutional investors in the selection of fund managers and investment vehicles across all asset classes, as well as in the conception of portfolio strategies. Rather than provide ratings, Scope Investors Services advises clients on the analysis and selection of indirect investments independent of product suppliers. The new services will be led by Sven Janssen and Wolfgang Kubatzki. Janssen has over 18 years of experience in international capital markets and advising investors. He previously held positions at, among others, Banque Oddo, Macquarie, Sal. Oppenheim and Bankhaus Metzler. Kubatzki has been active in the real estate and fund sectors for more than 30 years - 16 of which were spent in senior positions within the FERI group.

North America

Brian Gerson has joined FS Investments as head of private credit, tasked with expanding the firm's BDC and credit platform. Based in New York, he will report to FS Investments president and cio Mike Kelly. Gerson previously served as group head and md at LStar Capital, where he developed and maintained relationships with the financial sponsor community and middle market intermediaries, while expanding the firm's corporate credit business. Prior to that, he was a founding member of Solar Capital Partners and an md in CIBC's leveraged finance and financial sponsors group.

Redpoint Capital Group has hired Spring Hollis as portfolio manager. She will be responsible, with Dan Adashek, for managing the firm's investments and structuring future transactions. Hollis was most recently coo for Digital Contact and was previously md at Deutsche Bank in the global principal finance group and a member of the senior management team.

Värde Partners has hired Ria Nova as head of Americas business development and investor relations, based in New York. Nova has nearly 20 years of industry experience delivering alternatives investment solutions to institutions, intermediaries and family offices. She spent the past 14 years serving in various leadership roles at Neuberger Berman in the US and Asia, where she focused on the development and distribution of alternatives solutions, including private equity and hedge funds.

BlueMountain Capital has hired Albert Selius as a portfolio manager overseeing ILS, based in New York. Selius was previously a portfolio manager at Pine River Capital also working on ILS.

Ram Sundaram, global head of structured credit trading at Goldman Sachs, is to also run the newly formed structured finance and lending group for the Americas. He has previously been head of fixed income currency and commodities Latin America trading at the bank and served has its global head of principal funding and investment.

ILS

Centaur Fund Services has appointed Neil MacGuinness as head of investor services at the Bermuda office. MacGuinness has previously worked at Citi Hedge Fund Services and Horseshoe Fund Services in Bermuda, after working with State Street in Dublin.

Horseshoe Group has hired Keenan Press as svp, head of investor services and Gordon Paterson as svp, group manager. Press was previously senior manager and compliance officer at Arthur Morris and Company, while Paterson was previously head of operations, fund accounting at Equinoxe Alternative Investment Services.

DC tender

ISDA has reissued an invitation to tender for the secretarial role on the credit derivatives determinations committees, following its inability to reach agreement on ICE Benchmark Administration assuming the role of DC secretary (SCI 13 October). The DC secretary, a role currently held by ISDA, is responsible for administrative duties and does not vote on whether credit events have occurred. The association says it will work with the DC and the new secretary during a transition phase to ensure minimum disruption to the credit derivatives market.

Capital market MOU

The Finance Ministries of Estonia, Latvia and Lithuania have signed an MOU in respect of their cooperation to develop a pan-Baltic capital market, including the deepening of the region's covered bond and securitisation sectors. The ministries have agreed to create and implement an action plan to achieve this goal, driven by a steering committee. They may apply for technical assistance from third parties, such as the European Commission and the EBRD.

Partial acquisition

GreensLedge, the owner of an independent group of affiliated companies has sold a preferred, non-voting 20% ownership interest to Sumitomo Mitsui Trust Bank (SuMi Trust). GreensLedge is a top ten CLO, CDO arranger and placement agent, having completed over 55 transactions worth US$26bn in issuance volume and the investment by SuMi Trust will provide capital for growth. The transaction is scheduled to close November 2017 and GreensLedge suggest that it is the only boutique investment bank with the expertise and product suite to achieve this type of milestone.