Contents

CMBS

Fresh blow adds to CMBS retail woes

The retail sector's well-publicised woes are affecting both primary and secondary CMBS. While the high retail concentration in outstanding US CMBS continues to concern the market, the retreat of lenders from the retail space means that now even healthy malls are struggling to attract financing.

Large-scale store closures by retailers such as JC Penney, Macy's and Sears have become a familiar story, with varying impacts on outstanding CMBS (SCI passim). This week it is Bon-Ton that is the latest retailer to slate CMBS-exposed stores for closure.

Morningstar Credit Ratings sees elevated risk in US$416m in loans on Bon-Ton properties backing securitised commercial mortgages. Bon-Ton intends to shut 40 of its 260 stores by the end of next year.

The specific Bon-Ton stores have not yet been identified, but there are 59 loans with an allocated property balance of US$2.38bn in CMBS with exposure to one of Bon-Ton's branded stores. Bon-Ton is far from alone, but the retail sector's difficulties do not just imperil outstanding CMBS.

Lenders are re-evaluating the sector in a more fundamental way, and increasingly concluding that the risks of new lending outweigh the benefits. CMBS is becoming less and less important in financing CRE.

"The reality is that banks are much less willing to lend in this space and leverage has decreased dramatically. Retail worries have put off a lot of lenders and retail is certainly something we spend much more of our time and due diligence on these days," says Kin Lee, senior portfolio manager, Angel Oak.

CMBS issuance was over US$200bn in 2007, but 10 years later, in the post-crisis world, annual issuance is closer to US$75bn. Commercial debt is increasingly held by insurance companies and pension funds rather than by banks which might then securitise. While this is an issue for the CMBS market generally, it is also significant for retail properties.

Deutsche Bank analysts note that class B and C malls are facing a "credit crunch creep" as they no longer need to be distressed to be considered an unacceptably high risk for lenders, "especially for a new loan with a 10-year horizon where the borrower has very little equity basis in the property". The Mall of Acadiana in Lafayette, Louisiana, exemplifies this credit crunch creep for malls with weak performance, they say, showing the negotiating power that mall operators currently have with lenders.

For the Mall of Acadiana loan, a modification is better than the bid from distressed retail capital. The US$125m loan is planned to be split into a US$65m A note and a US$60m B note. The analysts note that the modification would shift to interest-only and interest on the B note would be deferred, along with an extended maturity date.

The Louisiana-located Mall of Acadiana loan represents 62.8% of BACM 2007-2 and defaulted at maturity back in April (see SCI's CMBS loan events database). The mall is in an interesting part of the nation from a wider retail perspective.

Retail loans make up 33% of the total Southwest Central region - which along with Louisiana is comprised of Arkansas, Oklahoma and Texas - loan balance. Texas-backed retail loans account for US$10.1bn of outstanding debt, according to figures from Trepp.

Oklahoma and Louisiana are both retail-heavy states. That retail concentration is somewhat concerning, with retail loans comprising around 60% of each of their delinquent CMBS balances.

However, these concerns may be exaggerated. While the shorter term outlook for retail - and apparel retailers in particular - may be concerning, that is not to say that the mall has had its day.

"There is certainly a camp that believes that many malls are spiralling to their death, but there are other people who think there is still a positive future so long as these malls can be repositioned a bit. A lot of the distressed malls are coming out of the legacy market and need to be dealt with today, so there may not be time to reposition the properties," says Lee.

Struggling malls can reposition by leaning more heavily on entertainment and dining, and less on clothing stores. They can also be more fundamentally repurposed, for example into data centres, churches or community colleges. The Deutsche Bank analysts note that they could also transition to a larger mix of mom-and-pop retailers and fewer national ones.

Lee adds: "If a borrower gets a loan on a retail property today, will the operators need and be able to turn the property around in the next five years? Malls are frequently in good locations so there is potential, but they need to transition from an over-reliance on apparel to a better mix of food and entertainment. That is the long-term vision but there might be too many details to work out in the time available."

JL

NPLs

Fino phase two initiated

UniCredit has closed Fino 1 Securitisation, marking the beginning of phase two of Project FINO, its plan to sell down a portion of the retained exposure relating to a €17.7bn portfolio of non-performing loans (SCI passim). The lender can now apply for the Italian GACS guarantee and sell the senior notes to investors, a first for GACS senior notes.

The €5.3bn (gross book value) portfolio - comprised of secured and unsecured Italian NPLs - backing Fino 1 benefits from the highest rating assigned so far in Italy for a GACS securitisation. Rated by Moody's and DBRS, the capital structure comprises €650m A2/BBB (high) rated class A notes, €29.6m Ba3/BB (high) class B notes and €40m B1/BB class C notes.

The Moody's ratings, however, were assigned without considering the GACS guarantee. According to Monica Curti, vp at Moody's: "We considered it only in terms of cost, since they have to pay a premium to get the GACS, but we assigned the rating to the notes without considering the guarantee."

Following the rating, Eurocastle - together with other affiliates of Fortress Investment Group - agreed to acquire from UniCredit additional interests in the junior notes of both securitisations that collectively own the FINO portfolio. The transaction entails an anticipated investment by Eurocastle of approximately €8m and is expected to close by end-January 2018. Eurocastle believes that the implementation of the GACS guarantee will allow it to raise attractive financing, enhancing the expected returns on its overall investment in the portfolio.

The majority of the loans in the portfolio defaulted between 2010 and 2017 and are in various stages of the resolution process. The loans are serviced by doBank.

In its analysis, DBRS assumes that all loans are disposed of through a judicial resolution strategy or auction process - although UniCredit utilises other options, such as discounted payoffs (DPOs). Both the DBRS timing and value stresses are based on the historical repossession data of the servicer. Its triple-B (high), double-B (high) and double-B ratings assume haircuts of 23.9%, 19.5% and of 19% respectively to the servicer's business plans for the portfolio.

The rating agency views the granularity of the portfolio, the presence of a cash reserve and the experience of the servicer as mitigating factors for this risk. Another mitigating risk factor is a cap agreement with HSBC, which enabled UniCredit to balance the interest rate risk the rating agencies wanted to cover versus the cost.

Under the cap agreement, HSBC will receive an upfront payment, which is in turn used to pay the issuer, in case three-month Euribor exceeds the strike price. The strike price starts at 0.50% and increases to 1.5%.

"The cap isn't unique to this deal," says Curti. "You have cash recoveries coming in, but the NPL portfolio isn't linked to a Euribor index, while on the liability side you have rates of margin over the reference rate."

She continues: "Instead of covering completely the interest mismatch, the cap covers it from the current Euribor up to 0.50% initially and later on up to a maximum of 1.5%. So, in other words, you are partially hedged within the limits of the strike price."

The transaction also benefits from an amortising cash reserve equal to 5% of the class A notes (equivalent to €32.5m at rating date assignment), which will be funded by a limited recourse loan extended by Natixis, in case of any shortfall on the first payment date in January 2018. The short-term loan is repaid on a priority basis and acts as a liquidity backstop.

The cash reserve does not cover class B and C interest: unpaid interest on these notes is deferrable without accruing interest. Furthermore, interest on the class B and C notes move to a more a junior position upon certain performance triggers being breached. Moody's has factored into its rating of the class B and C notes the high likelihood of a prolonged period of deferral of interest without accruing interest.

UniCredit is expected to receive approval for the GACS guarantee by mid-December, before distributing the notes by year-end - although this may extend into January. The size of the FINO portfolio declined to around €16.2bn, as of end-June.

SP

Secondary markets

Euro ABS/MBS stable

The European ABS/MBS secondary market continues to remain stable.

"It's been a sporadically active month - our total volumes and flows indicate November is the busiest since July," says one trader. "However, market tone is still strong and we're not seeing any areas of weakness."

As a result, the trader says: "Secondary spreads remain well-supported, so we continue to steadily grind tighter. Overall, the outlook is stable."

There is only one European ABS/MBS BWIC on today's schedule so far. However it is a sizeable one - a 25 line €89.65m ABS, CMBS and RMBS mix due at 13:00 London time.

It involves: AYTGH VI A2, BCJAF 9 C, CORDR 2 C, CORDR 4 D, CORDR 4 E, DOURM 1 A, ESAIL 2006-1X D1A, GHM 2007-1 DB, HIPO HIPO-7 A2, INFIN SOPR E, ITALF 2005-1 C, ITALF 2007-1 A, LUSI 2 A, MAGEL 3 A, MAGEL 4 A, MESDG DELT A, NGATE 2007-3X BB, PARGN 10X C1B, PARGN 13X A2B, RMAC 2005-NS2X B1C , RMAC 2005-NS3X B1C , STAB 2007-1 E, TDAC 4 A, TDAC 5 B, WINDM VII-X D

Only LUSI 2 A has covered on PriceABS in the past three months - at 100.011 on 16 November.

Secondary markets

Euro CLOs soften

Spreads are softening in the European CLO secondary market as liquidity dissipates ahead of year-end.

"Secondary liquidity has now gone and we're seeing that in new issue too," says one trader. "The market has got weaker over the month, which is primarily due to seasonal factors combined with a bit of high yield nervousness permeating into the CLO space."

The trader continues: "Triple-As have widened 5DM in the past month and triple-Bs 50DM, so not huge amounts. There is more disparity in single-Bs where weaker bonds are now trading in the mid-high 90s, while stronger higher coupon deals are still trading above par."

Overall, November has been a busy month in terms of BWICs with double-Bs, single-Bs and equity particularly active. However, there has been an uptick in DNTs at the bottom of the stack in recent sessions, especially around sizeable equity pieces.

Nevertheless, the trader is sanguine: "If you're going to BWIC larger positions at the end of November it's always going to be difficult as any buyer will have to hold the paper over year-end. So you'll get poor end-user bids and wide dealer bid-asks, which means bonds won't trade if the sellers don't need to sell."

The trader expects the current pattern to now run into next year. "The lack of liquidity will likely continue to mid-December where trading effectively stops and in the second week of January we'll take stock of where the market is more generally and CLOs will move on from there."

There is currently only one euro CLO line item on today's BWIC schedule. €5.6m of OZLME 1X E appears on a larger US dollar list due at 14:30 London time. The bond last covered on PriceABS at 102.32 on 11 August 2017.

Secondary markets

US CLOs rising

US CLO secondary market volumes and pricing levels are once again rising.

"Overall November has been an up month for CLOs across the board," says one trader. "Secondary spreads remain firm to slightly tighter despite high BWIC volumes."

The trader continues: "We've seen less auction activity in triple-As but volumes are strong elsewhere, particularly in mezz. With few broader credit concerns supply continues to meet with plenty of demand and dealers are still supporting the market into year-end."

The trader sees nothing untoward in the recent boom in BWIC volumes after the lower levels in the previous few months, which began in the run up to Thanksgiving and has returned this week. "There's no sense that the selling is anything other than profit taking," he says.

There are currently 11 lists on today's US CLO BWIC calendar. Of those due this afternoon, the largest is a nine line $17.75m double-B auction at 14:00 New York time.

It consists of: BRCHW 2014-1X E1, CATSK 2017-1X D, LCM 15X ER, SYMP 2015-16X E, SYMP 2016-18X E, THRPK 2014-1X E2, TSYMP 2016-1X E, WINDR 2016-2X E2 and WINDR 2017-1X E. None of the bonds has covered on PriceABS in the past three months.

ABS

Supply/demand imbalance to support spreads

JPMorgan's latest international ABS investor survey suggests that the current supply/demand imbalance in European securitisation will persist in 2018. Indeed, sentiment appears somewhat surprisingly bullish, despite the significant spread compression seen throughout 2017 and the investment challenges presented by a combination of stretched valuations and limited scalability.

The JPMorgan ABS Investor Confidence Index - which attempts to quantify survey participants' perception of both current and future ABS market conditions - shows that investors' view of the market has improved. While the previous reading of the index indicated a cautiously positive view of ABS market conditions at mid-year, with a reading of +1.5 (down from +2.1 heading into 2017), the most recent reading regarding expected conditions over the next six months has risen to +2.4 - marking the highest level since 1H15.

Breaking down the composition of responses indicates a relatively strong consensus view, as 67% of investors that participated in the survey believe ABS market conditions in 1H18 will be 'good', with another 15% expecting conditions to be 'neutral' and 18% 'poor'. Generally, investors view the re-emergence of macro volatility and a broader financial market correction, Brexit developments, central bank actions and adverse regulatory developments as the primary threats to the sector in 2018.

Comparing ABS to other financial markets, investors appear to hold a similarly positive view of the covered bond market, with 50% of survey participants expecting 'good' conditions in covereds over the next six months and another 14% citing 'excellent' conditions. At a high level, investors appear to anticipate more favourable conditions across secured funding markets relative to unsecured markets, with just 36% expecting 'excellent' or 'good' conditions in unsecured markets in 1H18 and another 45% 'neutral'.

Although ABS spreads across sectors have rallied in 2017 year-to-date, pushing levels in the senior portion of the capital structure to record post-crisis tights, valuations across other European financial markets have also been squeezed in the ongoing search for yield. "Thus, while the absolute appeal of ABS has declined year-over-year as achievable returns have diminished, on a relative basis it remains one of the more attractive investment opportunities for investors with cash to put to work in the region," JPMorgan international ABS analysts observe.

Just under 50% of participants in the latest survey cited ABS as offering better relative value across European financial markets, which is below the proportion seen in the year-end 2016 survey and below CLOs at 60%. However, on a combined basis, investors overwhelmingly continue to see better relative value in European structured credit versus rates, unsecured credit and equities.

Accordingly, as the reach for yield persists into 2018, 87% of survey participants indicated that they intend to add or maintain their current exposure to ABS in the first half of the year. The need to reinvest paydowns is expected to remain a significant component of demand next year, with nearly 75% of those polled citing an intention to reinvest ABS portfolio paydowns at least partially back into the market in 2018 (followed by CLOs, at 45%).

At the same time, investor expectations of distributed primary supply in Europe indicate only marginal growth, with a median forecast from survey participants of €70bn (versus €59.5bn in 2017 year-to-date). Of the investors polled, 65% indicated that they find sourcing European ABS difficult or extremely difficult.

"In our view, as volatility remains muted, the gap between supply and demand will continue to be the primary technical driver keeping spreads supported in the new year," the analysts conclude.

CS

Structured Finance

SCI Start the Week - 27 November

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

Pipeline
As might have been expected, there were very few additions to the pipeline last week. In fact, all that remained by the end of the week were two new ABS and two RMBS.

US$330m Consumer Loan Underlying Bond Credit Trust 2017-P2 and €527m SapphireOne Auto 2017-1 accounted for the ABS. The RMBS were RedZed Trust 2017-2 and €6bn TDA Sabadell RMBS 4.

Pricings
A fair flow of names went the other way, however. There were seven ABS prints as well as four RMBS, five CMBS and five CLOs.

The ABS were: US$174.5m Aqua Finance Trust 2017-A; €770m Fino 1 Securitisation; €696m Ginkgo Compartment Sales Finance 2017-1 (re-offer); US$1.187bn Honda Automobile Receivables 2017-4 Owner Trust; €850m SC Germany Consumer 2017-1; CNY3bn Toyota Glory 2017 Phase II; and €600m Volta V.

The RMBS were: €1.458bn BBVA RMBS 18 FT; €260m Grand Canal Securities 2; A$600m Firstmac Mortgage Funding Trust No.4 Series 3-2017; and €2.5bn Wendelstein 2017-1.

The CMBS were: US$855.3m CSAIL 2017-CX10; US$427m MSC 2017-ASHF; £348m Taurus 2017-2 UK; US$258.5m Velocity Commercial Capital 2017-2; and US$220m WFCM 2017-HSDB.

The CLOs were: €466m BlackRock European CLO IV; €1.85bn Caixabank PYMES 9; €334m Halcyon Loan Advisors European Funding 2017-2; £4.3bn Nightingale Securities 2017-1; and US$611.45m OCP CLO 2017-14.

Editor's picks
Thinking outside the box: Investor demand is driving an expansion of the US prime RMBS credit box. Following years of issuance focused on what could be termed 'super prime' mortgage securitisations, the market has now moved on to what may instead be classified as 'expanded prime'...
African appetite for structured products: Standard Bank has launched a new US dollar-denominated credit derivatives product, opening up African credit opportunities to global investors hungry for structured products. The programme will issue credit-linked notes (CLNs), providing exposure to otherwise inaccessible African credit and meeting growing African investor demand for portfolio diversification...
NPL secondary 'needs AMC blueprint': The European Commission has confirmed progress on NPL secondary markets. It has highlighted the creation of NPL secondary markets through improved data standardisation as well as work towards a blueprint for an asset management company (AMC)...
Inaugural inventories ABS is sector 'holy grail': Trafigura has launched a 'pioneering' debut commodities securitisation marking a milestone for the sector. The US$470m non-recourse funding programme, Trafigura Commodities Funding (TCF), is backed by inventories of crude oil and refined metals and is structured with a senior and junior tranche...

Deal news
• NatWest has originated a capital relief trade dubbed Nightingale Securities 2017-1. Unusually, the £390.2m CLN references a mixed portfolio of asset classes. It is also the first DBRS-rated synthetic securitisation for the RBS Group.
• My Money Bank (MMB) is marketing an inaugural €527m static cash auto ABS. The transaction, titled SapphireOne Auto 2017-1 (see SCI's deal pipeline), is backed by 39,122 non-delinquent auto loan (64%) and lease (36%) contracts to borrowers in the French overseas territories of La Reunion, Guadeloupe, Martinique and French Guiana.
• Taurus 2017-2 UK, a rare single-loan UK CMBS (SCI 17 November), has priced. All offered tranches were well covered and final spread levels were set below initial price talk and at the tighter end of guidance, although concerns have also been raised.

Regulatory update
• Attendees of a public hearing on the EBA's SRT discussion paper have raised concerns in relation to excess spread, time calls and commensurate risk transfer tests (SCI 28 September). The EBA has acknowledged the concerns, but as its consultation is still ongoing it has not provided detailed responses.

Capital Relief Trades

Risk transfer round-up - 1 December

Raiffeisen has completed ROOF Slovakia 2017, a €1.2bn financial guarantee from its Slovak subsidiary Tatra banka, referencing a portfolio of corporate loans and project financings. The transaction is believed to be the first synthetic securitisation of Slovak assets and enabled capital relief to be achieved at RBI Group level, with the P&L of Tatra banka unaffected.

The SPV is a Luxembourg registered vehicle that issued a CLN subscribed by investors. The structure comprises senior, mezzanine and junior risk positions. The credit risk of the mezzanine tranche was sold to a European institutional investor, while RBI retained the credit risk of the junior and senior tranche.

Sources also mention that UBS is prepping a US leveraged loan risk transfer trade, while Mizuho is readying another one referencing Spanish assets.

Capital Relief Trades

Risk transfer come-back

Bank of Ireland has returned to the risk transfer market with Mespil Securities 2017-1. The lender's latest capital relief trade will increase its common equity Tier 1 capital ratio by 0.45% and comes a year after it carried out a similar transaction on around €3bn of loans from its business banking and corporate banking divisions in Ireland (see SCI's capital relief trades database).

Mespil Securities 2017-1 reduces Bank of Ireland's credit risk exposure through a risk-sharing structure, whereby fund managers assume the credit risk for about US$205m of potential credit losses on the referenced loan portfolio, in return for an initial annual coupon of circa US$24m. The transaction pays three-month dollar Libor plus 11.85% and references a US$1.71bn portfolio of predominantly North American and European leveraged acquisition finance loans across various industry sectors.

The deal features a sequential amortisation structure, with a three-year replenishment period and a tranche thickness of 0.5%-12.5%. Other features include 0.5% per annum of synthetic excess spread and an eight-year credit protection period, as well as a call option, three years after the first coupon payment date on 28 January 2018 - subject to an IRR under the CDS of at least 3% on the call date.

Investors in the trade sought exposure to leveraged acquisition finance, which is a core business of the Bank of Ireland Group, which has a 20-plus year track-record in the sector. The business originates and manages predominantly senior secured loans for private equity-sponsored companies in the European and US mid-market.

The lender understands that there is no significant overlap between the referenced assets and other similar market transactions. Future capital relief trades originated by the Bank of Ireland are possible, although it has confirmed that more programmatic issuance is unlikely.

SP

RMBS

BTL RMBS risk profile eyed

The UK buy-to-let (BTL) market could see a drop in lending volumes and RMBS issuance, following the introduction of new regulations by the PRA. New energy requirements coming into force in April may also strain the sector, although they could lead to the emergence of a green UK RMBS asset class.

From April 2018, rental properties in England and Wales will be subject to minimum energy efficiency standards (MEES). Under these requirements, a property will need at least an 'E' certificate - reflecting certain energy performance standards - to be rented as a residential property or renewed to existing tenants. Properties that fall short of these standards could lead to civil penalties for landlords.

The new regulation could result in the emergence of a new energy efficient UK RMBS market, according to DBRS. The agency adds that green UK BTL RMBS could allow issuers to diversify their investor base and achieve more desirable pricing, particularly with certain investors having a mandate to invest a portion of funds in green investments.

Green RMBS has already emerged in the Netherlands, with Obvion's Green Storm 2016 and 2017 deals, backed only by properties with at least an EPC energy certificate of A or B (SCI passim). The transactions were oversubscribed, with green investors chosen over others when the bonds were allocated.

DBRS reports that an estimated 20% of private sector rentals are below an E level energy rating, which could lead to increased void periods while landlords update their properties. Rental rises and house price depreciation could therefore follow, which may result in heightened refinancing risk for non-green BTL properties.

In terms of working around these void periods, landlords have some protection from additional rental coverage requirements, but the effectiveness of this depends on the availability and application of additional funds. Void periods could ultimately lead to increases in BTL arrears rates, while BTL lenders may become wary of possible resale limits of sub-standard properties and constrain access to credit.

Risks may then emerge for BTL RMBS deals because borrowers may be less able to refinance at the end of teaser periods, especially with interest-only BTL mortgages in the UK. Such a scenario would be worsened by economic factors, such as a rise in interest rates. DBRS believes, however, that there is unlikely to be any immediate rating actions on BTL transactions as a result of the new requirements.

Meanwhile, S&P suggests that the size of the BTL lending and RMBS sectors will be affected by regulatory changes made by the UK PRA in September. The rating agency highlights that the new regulations will impose strict affordability assessments on BTL lending and reduce the amount of mortgage financing costs that can be deducted from revenues for income tax purposes.

Additionally, there will be a stamp duty surcharge of 3% on the purchase price of a residential property when the acquirer already owns at least one residential property. The rating agency adds that there has also been a removal on the wear-and-tear allowance on furnished lettings, along with removal of the 'supporting factor', which is used when calculating lenders' capital charges on BTL lending.

The new tax regime for BTL lending will also likely reduce net cashflow to BTL investors, S&P suggests. Currently, interest and mortgage finance fees are treated as a 100% deduction from income. But from April, tax deductibility will be reduced to 20% of the actual interest expense over a four-year period to 2021.

The main impact will be a drop in loan sizes and origination volumes, according to the agency, with longer-term fixed-rate loans becoming increasingly common. Additionally, BTL properties in London and the South East could become less economically attractive, while higher-yield properties will become more attractive, along with those bought through limited companies.

Further, S&P expects LTVs of BTL loans in securitisations to fall. However, as lenders are forced to lend in a narrow LTV range, they are likely to develop other products that justify charging higher loan margins. As such, the agency concludes, this may alter the risk profile of BTL lending.

RB

RMBS

Repo RMBS changes tack

LoanDepot is in the market with a US$300m repo RMBS transaction, marking the first issuance under the Station Place programme (SCI 5 February 2016) in which the non-bank lender is acting as repo seller, as well as sponsor and servicer. Dubbed LoanDepot Station Place Agency Securitization Trust 2017-1, the deal comprises a revolving warehouse facility collateralised by newly originated first-lien, fixed-rate residential mortgage loans eligible for purchase by Fannie Mae and Freddie Mac or for guarantee by Ginnie Mae.

Moody's has assigned provisional ratings to the transaction of Aaa on the US$168m class A notes, Aa3 on the US$38.7m class Bs, A3 on the US$16.8m class Cs, Baa2 on the US$7.5m class Ds and Ba1 on the US$7.5m class Es. The US$16.5m F and US$5.4m G notes are unrated, as well as the US$9.6m trust certificate.

In previous Station Place transactions, the repo seller was an investment grade entity, such as Jefferies in the 2016-1 deal. In the latest transaction, Moody's says LoanDepot's role as repo seller is of detriment to the deal because the firm is unrated and therefore not "financially strong."

The rating agency adds that LoanDepot "may lack the financial wherewithal to repay the facility at the end of the two-year term", although it notes that its rating analysis assumes failure of the repo seller and auction failure. The rating analysis nonetheless assumes that the notes will still be repaid through collections on the remaining static pool of mortgage loans.

Moody's says that the transaction will be backed by high-quality agency-eligible mortgage loans, with each mortgage in the pool to be fully funded in compliance with agency eligibility and underwriting requirements. The mortgages must be fully amortising, with a weighted average LTV of 85% and average FICO score of 715.

The rating agency adds that the transaction benefits from ongoing due diligence checks on the quality of the loans, with Clayton Services fulfilling this duty every 90 days on 100 randomly selected loans. Moody's cautions, however, that repo transactions can occur every day and by the time due diligence is completed, the loans may have exited the facility.

It also notes that the review is limited and will not test every aspect of the loans. Margin maintenance requirements in the transaction increase the likelihood, however, that the notes will pay off in the event of a default.

Moody's notes that the deal is operationally complex, due to the revolving nature of the transaction. This involves, for example, numerous processes to confirm the collateral is tracked and backed by eligible mortgage loans.

Furthermore, the rating agency suggests that bankruptcy of LoanDepot would require the indenture trustee to exercise the trust's legal rights to take control of the mortgage loan collateral, which could result in delays due to the operational complexity of the transaction.

The securitisation facility has a two-year term and at the end of this, LoanDepot is required to pay the aggregate repurchase price, which in turn will be used to pay off the notes in full and terminate the facility. If LoanDepot fails in this, the facility will term out, becoming a static pool of mortgage loans whose collections will pay down the notes.

The transaction is structured as a master repurchase agreement between LoanDepot (the repo seller) and the LoanDepot Station Place Agency Securitization Trust 2017-1 (the issuer).

RB

NPLs

Provisioning differences highlighted

UniCredit and Intesa Sanpaolo recently revealed differences over the ECB's provisioning guidelines, with the spotlight falling on non-performing loan recovery mechanisms. Speaking at IMN's Investors' Conference On Italian & European NPLs, representatives from the lenders also discussed their NPL strategies going forward.

Carlo Viola, head of strategies and solutions at Intesa Sanpaolo, observed: "Automatic provisioning has to take into account the quality of the recovery mechanism. For instance, we closed a consumer finance deal, which would take three years to close with the ECB's provisions."

Meanwhile, Jose Brena, md and global head of distressed asset solutions at UniCredit, suggested that his firm is "prepared for the outcome".

The ECB's addendum - announced on 4 October (SCI 4 October) - proposes a prudential provisioning backstop that will apply to new NPLs from January 2018. It requires banks to fully provision for unsecured NPLs over two years, with seven years allocated to secured NPLs.

Over the last two years, Intesa has executed 10 NPL transactions totalling €4bn. Disposals covered mainly unsecured, old vintage, widely worked portfolios. More recently though the lender has moved into the mixed/secured space, where it is currently working on two mid-sized secured transactions.

At the same time, UniCredit has been proceeding with its deleveraging through its €17.7bn NPL securitisation dubbed Project FINO (SCI 14 December 2016). The first phase has been finalised, which involved divesting a 51% stake in the portfolio, with UniCredit retaining a 49% stake. The managing-down of the stake is proceeding as planned and is on target to be below 20% by year-end 2017.

The Italian lender is now progressing to phase two of the project, having printed the €719.64m FINO 1 Securitisation notes. The bank will now apply for the GACS guarantee on the most senior tranche, which is rated A2/BBB by Moody's and DBRS respectively.

Looking ahead, Brena added: "We are now working on making saleable the unsaleable pieces in Project FINO. UniCredit aims to improve recovery through different channels, such as disposals, where it has been active. Asset segmentation is particularly important in this regard."

He continued: "The more you segment the assets, the better the outcome."

Regarding Intesa Sanpaolo's deleveraging strategy, Viola noted: "We are in line with ambitions of a 50% deleveraging target, assigned three years ago to the Capital Light Bank, our non-core business unit. The focus has been on internal workout, as well as on disposals."

He cited the establishment of a ReoCo and the fact that 85% of auctions are adjudicated by the market as further signs of progress. Intesa will continue to focus on internal workouts, with benefits expected from improved market conditions and the efficiency of the recovery process.

SP

Structured Finance

Job swaps round-up - 1 December

EMEA

CBRE has hired Paul Coates as executive director and head of debt and structured finance EMEA. He will report to Richard Dakin, md of CBRE Capital Advisors. Coates was previously md, head of UK real estate finance at RBS.

North America

THL Credit co-ceo Christopher Flynn has been named sole ceo of the firm, following the resignation of co-ceo Sam Tillinghast. The current management team - including James Fellows (cio), Brian Good (senior md), Terrence Olson (coo and cfo) and Sabrina Rusnak-Carlson (general counsel) - will continue to manage the business under Flynn's leadership.

Morgan Lewis has hired Keith Krasney as a partner in the firm's structured transactions practice, based in the New York office. Krasney advises clients on all aspects of secondary market transactions involving mortgage loans, including RMBS and CMBS, mortgage financing, loan sales and purchases, financings of master servicing rights and risk retention financing facilities. He was previously partner at Locke Lord, where was chair, securitisation and structured finance practice group.

JVB Financial has hired Tommy Antonaros, Eric Cappelmann and Joseph Ilardi in connection with the launch of JVB's matched book repo and reverse repo funding business. Ilardi is hired as director and head of the mortgage repo group, with over 25 years of experience in agency MBS repo trading, most recently with UBS in group asset and liability management. Antonaros is hired as director of repo operations and brings over 15 years of fixed income experience, most recently with Cantor Fitzgerald, where his responsibilities included trading and funding a multi-billion dollar agency MBS repo matched book. Cappelmann joins the firm as md and head of matched book repo counterparty credit, with over 20 years of experience in credit and risk management, most recently as head of global counterparty credit at Pine River. JVB has also hired Devin Wicker as md of sales and special projects, where he will be responsible for helping JVB build out its distribution of agency debt, mortgages and corporates, and further develop JVB's repo business. Wicker has over 17 years of experience, including positions at Goldman Sachs and managing his own broker-dealer firm for several years. In addition, JVB has hired Linda Langley from Northeast Securities as svp of institutional sales and Joseph Miller from Stifel Nicolaus as an executive director of corporate high yield and distressed trading.

Fitch has hired Tom Egan and Ryan Munro to its US corporates business development team. Egan joins Fitch as md with responsibility for developing its west coast private equity, banker and investor relationships. Based in San Francisco, he reports to Jill Zelter, md and global head of business for corporates and structured credit. Egan was most recently md and head of European leveraged capital markets for Barclays in London. Munro joins Fitch as a senior director on the banker team, based in New York where he reports to Matthew de Mendonca, md. Munro spent more than 10 years at UBS, most recently as executive director of leveraged finance.

Acquisition

New Residential Investment Corp is set to acquire Shellpoint Partners for approximately US$190m, plus a potential additional consideration pursuant to a three-year earnout based on the performance of Shellpoint after closing. Shellpoint has a servicing portfolio totaling around US$50bn and annual origination volume of US$6.6bn, and the acquisition is expected to create new complementary revenue channels for New Residential, as well as provide additional servicing capacity to diversify its servicing relationships and help accelerate transfer timelines for its MSR purchases. Consummation of the acquisition is expected to occur in two stages: the purchase of US$8bn UPB of Fannie Mae and Freddie Mac MSRs, which is expected to close in January; and the acquisition of 100% of the outstanding equity interests of Shellpoint, which is expected to close in 1H18.

Joint venture asset disposal

BBVA has agreed to create a joint venture with a subsidiary of Cerberus for its real estate business in Spain, reducing almost entirely its exposure to non-core real estate assets. On the closing of the agreement, BBVA will sell an 80% stake in the joint venture to Cerberus for approximately €4bn. The transaction also includes an agreement between BBVA and Haya Real Estate, a Cerberus group company, for the provision of servicing for the real estate portfolio held by BBVA, once the transaction has been executed. Once the operation is complete, expected in 2H18, BBVA will have the lowest relative real estate exposure among the major Spanish financial institutions.

Minority stake

Moody's has made a minority investment in Rockport VAL, a provider of cloud-based commercial real estate valuation and cashflow modelling tools. Moody's investment is intended to accelerate and broaden Rockport VAL's product roadmap and drive its adoption among CRE market participants. In collaboration with Rockport VAL, Moody's Analytics will expand its offering of CRE solutions, which include CMBS and related economic data, probability of default models and loan underwriting software.