Contents

Capital Relief Trades

Dual speed

Standard Chartered follows with tranche carve-up

Standard Chartered has completed a US$297.5m financial guarantee that references a US$3.5bn trade finance portfolio. Dubbed Sealane 4, the transaction is a replacement trade for Sealane 3 - which matures in December - and is structured as a dual mezzanine tranche to appeal to a broad base of investors and address the EU Securitisation Regulation’s higher capital requirements.

The junior mezzanine tranche (representing 0.5% to 6.5% of the capital structure) attracts the typical capital relief trade investor, such as hedge funds, whereas the senior mezzanine tranche (6.5% to 9%) targets real money investors. The remainder (0% to 0.5% first loss tranche) has been retained by the bank.

Re-tranching is a practice that has been employed by other banks - most notably Credit Suisse (SCI 9 March) - and it involves slicing into two the junior risk, in order to address the higher capital requirements of the new Securitisation Regulation. The rise in senior risk weights is expected to force issuing banks to mitigate the capital increase by structuring deals with thicker junior tranches. However, thicker tranches come with lower returns, which in turn give rise to the re-tranching technique.

The latest transaction follows three other risk transfer deals in 2H18 by Standard Chartered (see SCI’s capital relief trades) and signals the UK bank’s return to capital relief trades following a near three-year hiatus. PGGM was the investor in one of these deals, a corporate deal dubbed Sumeru 3. The Dutch pension fund has invested in previous Standard Chartered CRTs in the form of second loss investments, such as Sumeru 2 (corporate loans) and Shangren 3 (trade finance loans).

The deal features a weighted average life that does not exceed three months, a 3.25-year replenishment period and a 4.5% cumulative default trigger that brings replenishment to an end if the trigger is breached. Another feature is the early termination of the protection, which will be triggered if the aggregate loss in the portfolio has exceeded the detachment point of the sold tranche (9%).

Moody’s has rated a separate deal to Sealane 4 called Trade Finance Transaction 2018-2 that, however, shares the same portfolio with Sealane 4. The transaction is composed of three rated tranches, which have been retained on Standard Chartered’s balance sheet.

The retained tranches consist of US$105m Aaa rated class A notes, US$192.5m A1 rated class B notes and US$70m A3 rated class C notes.   

The portfolio has several positive characteristics, such as high granularity – the effective number of borrowers is not lower than 200 - and geographical diversification. Approximately 58% of the initial portfolio is concentrated in Asia and the remainder is in the Indian Subcontinent (21%), Middle East and North Africa (11%) and several other regions. The top five locations are Hong Kong (17%), India (14%), China (12%), Singapore (10%) and the United Arab Emirates (6%).

However, Moody's has considered the possibility that portfolio composition may change over time. Elaine Ng, vp at Moody’s, explains: “The loans are short tenor since they can be as short as one month or not exceed 366 days, and can be replenished over a 3.25-year period. So there is a challenge when it comes to assessing the credit quality of future loans. Accounting for this meant focusing our analysis on replenishment criteria and portfolio covenants, such as the short weighted average life, the cumulative default trigger and the exposure limits on obligors with low credit quality.”

The portfolio comprises 15,005 underlying loans of 1,620 corporate reference entities. Most of the loans are short-term senior unsecured loans.

The top five industries in the initial reference portfolio are metals and mining (11%), consumer goods (including non-durable) (10%), beverages, food and tobacco (10%), high tech industries (10%) and chemicals, plastics, and rubber (9%).

Stelios Papadopoulos

RMBS

Diverging dynamics

Aussie non-banks driving change

Around A$30bn of Australian RMBS issuance is expected for full-year 2018, over 50% of which will be originated by non-bank lenders. A confluence of demand and regulatory factors is driving growth in non-bank issuance and changing the shape of the market.

Jordan Batchelor, director, structured capital markets at ANZ, says that a divergence is emerging between RMBS originated by Australian non-banks and banks. The main difference is that non-banks are primarily reliant on securitisation for funding and hence tend to issue more frequently when capital market conditions permit.

He notes that prime RMBS deals issued by non-banks generally have less conservative characteristics than those originated by banks. For example, non-bank RMBS deals typically have weighted average LVRs closer to 70% versus 60% for banks, while weighted average seasoning can be anywhere from a few months to above 20 months versus bank deals that typically have around 30 months of seasoning.

“APRA’s macroprudential rules introduced progressively since 2014 have limited annualised investor loan growth to 10% and interest-only loan originations to 30% of all new originations, which has created significant opportunities for non-banks,” Batchelor adds. “For some banks, IO loans had historically accounted for up to 50% of all mortgage originations; originations of IO loans in the mid-teens percent is much more common. Non-banks again have picked up market share in the prime space from ADIs and are seeing annualised growth above 20% in home loan portfolios, compared to mid-single digits for ADIs as a sector.”

A further regulatory headwind for Australian bank RMBS origination is the fall-out from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (SCI 5 October). The Commission released its interim report in September and is due to issue its final report by 1 February 2019, which is expected to usher in tighter underwriting practices and more interventionist regulatory supervision.

Jonathan Rochford, portfolio manager at Narrow Road Capital, anticipates that Australian banks will consequently become more thorough about individual expense items and checking income - while borrowers will likely have to meet increased and stricter criteria. “The long-term result of the Royal Commission is more conservative lending against Australian property. The credit availability that had pushed up house prices is now tightening and turning into a headwind for the property market,” he observes.

Against this backdrop, three areas of concern have emerged for banks - property investors, overseas borrowers and interest-only loans. Rochford suggests that two groups of borrowers have suffered due to such tightening bank lending.

The first group is borrowers with tight income and expenses ratios. “For these borrowers to get a mortgage, they will either need to raise more equity or raise their income and reduce expenses,” Rochford says.

The second group comprises overseas investors and self-managed superannuation funds, whose financing needs are being absorbed by non-bank lenders. A portion of these loans are ending up in securitisations.

At the same time, private equity investment has provided the larger non-banks with a bigger platform (SCI 19 June), while multiple offshore banks have acted as lead managers on deals in 2018 for the first time in over a decade.

“Because their origination volumes are so large, the biggest non-banks can’t only rely on domestic securitisation investors and are therefore increasingly proactive about courting foreign investors. Roadshows are lengthening, and visiting Asia, Europe and the US is common. Originators are becoming more regular in their issuance patterns, in order to facilitate liquidity and engage with investors,” Rochford notes.

Batchelor agrees that Australian RMBS as a sector continues to receive solid offshore demand from Japan and Europe, but says this complements a solid Australian investor base, with domestic accounts typically taking the majority of issuance. He adds: “With the rule changes that have been introduced around derivatives, there has been limited issuance placed in non-Australian dollar currencies, due to the additional cost of providing swaps (particularly due to contingent collateral and prepayment). Due to this, many offshore investors are buying in Australian dollars on a relative value basis, attracted by the spread differential between bonds in their local currencies and Australian bonds. Given this, changes in the basis can see investors enter and leave the Australian dollar securitisation market.”

Meanwhile, the universe of investors for mezzanine Australian RMBS paper has increased sizably over the last few years. While non-banks have always issued down the capital stack, the majority of authorised deposit-taking institutions (ADIs) have historically issued funding-only deals (in other words, with no mezzanine tranches publicly offered).

However, the revision to APS 120 announced in 2017 and effective from 1 January 2018 provided ADIs with clarity around capital relief for RMBS, while other changes to regulatory requirements - such as NSFR - have made funding-only deals less appealing on a relative basis. “These regulatory changes, coupled with LMI rating requirement changes since 2011, have meant there has been a substantial increase in the volume of double- and single-A issuance, which has facilitated greater investor involvement at this part of the capital stack,” Batchelor concludes.

Corinne Smith

Structured Finance

Dry powder

International ABS market update

Pepper Group is prepping an Australian RMBS that is expected to be sized at A$500m-equivalent and include a short US dollar tranche and a Euro-denominated pass-through tranche. Elsewhere in the European primary securitisation market, Tesco’s Delamare Cards MTN Issuer Series 2018-1 deal – the senior tranche of which is being talked at one-month Libor plus 70bp – is expected to perform well, after the company was recently upgraded.

There is skepticism over the timing of Banca Popolare dell’ Alto Adige’s re-offer of the A2 tranche from its Voba 7 Italian SME transaction, however. “This is probably not the best time to be bringing it to the market as a whole,” remarks one trader. “There is only half a tranche on offer, so it’s a bare bones issue.”

Rumours have also surfaced of several CLO transactions originally due for 2019, which may be brought forward into the current year.

While European primary market activity appears to be slowing down, secondary trading has picked up over the course of the week. “We have been able to pick up a few decent pieces on BWIC,” says the trader. “Most dealers are relatively light. There is a degree of dry powder in terms of dealer participation – a lot are picking up cheap paper, which they plan to shift at the start of next year.”

Tom Brown

Structured Finance

Selling stagnation

European ABS market update

Activity in the European ABS primary and secondary markets has slowed this week, with volumes generally stabilising across both segments.

“It feels a little softer on the secondary market,” says one trader. “There has been between a 5bp to 10bp drop in spreads across the board, although a decent bid remains for 2.0 paper. There are fewer sellers in the market, so it is hard to gauge demand.”

Fluctuations in sterling have not significantly affected the European ABS market, the trader notes, and new issuance is expected to continue as normal for this time of the year. In the primary market, a pair of Dutch RMBS are in focus – NIBC Bank’s €476.2m Dutch MBS XIX and Elan Woninghypotheken’s €337m EDML 2018-2.

Tom Brown

CLOs

Winding down?

US CLO market update

The US CLO primary market is seeing steady issuance as the remaining trading days continue to expire. Primary activity is presently more robust than secondary activity, which is said to be “a little squishier.”

Currently, there is a good bid for double-B CLO paper, whereas preference for triple-B and single-B paper varies from deal to deal. Generally the arbitrage is not considered attractive enough to drive further secondary market supply.

“What you are seeing in the US is a general wind-down as we get towards the end of the year,” says one trader. “It is difficult to get trades done, unless spreads start to widen significantly.”

The trader continues: “Next week is the Thanksgiving holiday, and then the Opal CLO Summit is the following week. After that we are into December. People are looking at this week and saying this has got to be it.”

The trader notes that the default of Fullbeauty Brands has not had a notable impact on the CLO market. “The company was known to be troubled – anyone who was surprised by that default should be ashamed of themselves.”

Meanwhile, the trader confirms that certain new issue European CLOs are being fast-tracked in reaction to the implementation of the European Securitisation Regulation (SCI 15 November). “Nobody wants to have to figure out the new rules that will be in effect from January. Most people are not even close to being prepared for them.”

Tom Brown

CMBS

Trading countdown

US CMBS primary market update

The US CMBS market is facing a heavy primary calendar this week, which is overshadowing secondary market activity and causing risk aversion.

“We have seen healthy issuance volumes over the past few weeks,” says one trader. “As far as the markets are concerned, it does not feel as though there is an appetite for added risk.”

He continues: “The supply needs to be absorbed, so the primary market is taking precedence. There is a lot to digest in a short amount of time.”

The trader says that CMBS is on track for a healthy year in the final quarter, with similar annual growth to 2017 expected. “The premium on high quality trades is higher,” explains the trader. “Expanding US rates has caused volatility, which in turn has led mortgage spreads to the US Treasury to widen over the past six weeks. This has helped add investment grade credit to all our sectors.”

The trader says there are only 10 to 12 “real trading days” left in the year before the final quarter is over – stressing the need to push deals through before the year ends. He concludes: “People who have made their bogies are not likely to take risk at this stage; neither are people who have not made their bogies – as they do not want to lose what they have.”

Tom Brown

CMBS

Less liquidity

US CMBS secondary market update

Risk aversion continues in the US CMBS market, with flows described as “anaemic” due to the volatility seen over the past few weeks.

“I’m hearing that The Street went into this heavy on paper and they are feeling that quite a bit,” says a trader. “It seems most buyers are aware of it too – anything behind triple-B is about 23bp back. There’s not much of a bid out there for CMBS 2.0 paper either; not a lot of liquidity in the market.”

The trader points to the reservation of dealers to pursue new options after a tumultuous year. “Why would they make a higher bid at this point?” he asks.

“Most guys have done very well,” the trader concludes. “We have seen consistent tightening this year – they don’t want to rock the boat now. The buyside will chase opportunities if they smell blood in the water and are trying to buy bonds from The Street.”

Tom Brown

RMBS

Paper prioritised

European RMBS market update

Spreads have widened in the European RMBS sector, with secondary market activity remaining slow amid ever-increasing primary issuance. A BWIC with a concentration in peripheral names - including Spanish auto loan and RMBS bonds – is out for the bid today and predicted to perform poorly in current market conditions.

One trader says that ECB-eligible paper is being prioritised over other issuance. “I do not see why there is not paper in the secondary market, considering the amount of new issue supply,” he comments. “My theory is non-ECB eligible paper is not picking up because people know that the ECB bid will disappear over the next few months.”

There is also concern about the lack of response to the implementation of the STS regime in January. The trader states that he and many colleagues are “already worried about flows.”

A Brexit deal, or no-deal, is expected to be finalised in the coming weeks. “I think it is going to be a no-deal from the way things are looking,” says the trader. “Non-conforming RMBS is likely to widen significantly in that scenario.”

Tom Brown

RMBS

Tranche tinkering

US RMBS market update

Freddie Mac has restructured some of the mezzanine tranches in its most recent credit risk transfer RMBS, STACR 2018-HRP2, which references high LTV re-performing mortgage loans. IPTs for the transaction are similar to those of previous STACR deals, with the third mezzanine tranche split into two classes of notes.

“Credit has been good and has been performing fundamentally well, particularly at the top of the stack,” says a trader. “Spreads are at about 24bp. It was refreshing from an investor perspective to see the amount of demand for the deal.”

Regarding the impact of the midterm elections, the trader suggests that markets are no different fundamentally from where they were a month ago. “As spreads widen, we have seen credit widening too - particularly at the top of the stack, whereas the bottom of the stack has tended to remain steady. That creates opportunities for people with money to spend.”

The trader points to the macroeconomic factors affecting the US RMBS sector in the final quarter of 2018, including spreads widening in every sector, oil prices dropping by 2.4%, high yield widening by 40bp-50bp and the stock market dropping to 2017 levels. Against this backdrop, the trader indicates that non-QM is the fastest-growing asset class on the residential landscape, and that credit risk transfer deal volume will continue to grow into 1Q19.

Tom Brown

Structured Finance

SCI Start the Week - 12 November

A review of securitisation activity over the past seven days

Market commentary
The Dilosk No. 2 Irish legacy RMBS was in focus in the European primary market last week (SCI 6 November).

“It has been taking up all of my time because the extension risk is significant,” explained one trader. “The bonds are pricing with a set of discount margins, with the aim of mitigating extension risk.”

Initial price thoughts of 90bp-95bp DM were released for the transaction’s senior notes, which eventually printed at 90bp DM, with a three-month Euribor plus 75bp coupon.

Meanwhile, European CMBS issuance is expected to pick up in the coming months (SCI 5 November). Morgan Stanley is currently in the market with a Dutch deal named ELOC 32 (Oranje), while Blackstone’s Arrow CMBS 2018 is set to price this week.

“CMBS is a class that has been lagging behind the rest of the sector and we are now seeing a come-back in the last few months of the year,” another trader explains. “We are waiting to get some colour on where the main CMBS in Europe is at. These two deals will let me know if there is room for more new issues in the space.”

In the US, high new issue volumes continued in the CLO market, with managers paying more to get their deals away before year-end (SCI 8 November). BWIC activity also remained strong, in line with the market rally resulting from the US midterm election results.

One trader reported a divergence between primary and secondary spreads. “BWICs are doing quite well, but new issues are drifting wider than expected,” he noted.

The trader explained that the secondary market is well bid and it could either “follow new issues wider” or “just bounce around sideways” in the coming week.

Transaction of the week
The EBRD is boosting its foothold in the Greek non-performing loan market with co-investments in Piraeus Bank and Alpha Bank (SCI 8 November). The transactions are the first to be carried out under the bank’s NPL resolution framework.

The EBRD’s first transaction under its NPL resolution framework was a €25m co-investment in Alpha Bank. The EBRD invested alongside Waterfall Asset Management and B2Holding.

The initial NPL portfolio sale from Alpha Bank to B2Holding was announced in March as part of Alpha Bank’s efforts in meeting the non-performing exposure (NPE) reduction targets it had agreed with the Bank of Greece and the ECB’s Single Supervisory Mechanism (SSM).

In the Piraeus deal, the IFC, the EBRD, APS Delta and Balbec Capital are jointly investing €50m in an unsecured NPE portfolio. The EBRD’s portion is €15m.

The EBRD launched its €300m NPL resolution framework in November 2017 to support efforts aimed at resolving the persisting challenge of high levels of NPLs in many of its countries of operations. It invests alongside partners in central, eastern and south-eastern Europe, Greece, Cyprus and Turkey.

The facility allows the bank to acquire minority stakes in NPL servicers, invest in NPL portfolios and provide senior debt instruments to co-investors for the purchase of NPL portfolios. According to Andreea Moraru, head of NPL investments at the EBRD, all three types of investments would be right for the Greek market.

Other deal-related news

• Banca Popolare del Lazio has transferred €120.5m in non-performing loans to a securitisation vehicle called Pop NPLs 2018 (SCI 8 November). The senior notes are expected to be guaranteed under the GACS scheme.
• The trustee for the ACIS CLO 2013-1, 2014-3, 2014-4, 2014-5 and 2015-6 deals has filed proofs of claim on behalf of the secured parties in the Acis Capital Management bankruptcy case (SCI 2 November). Unless otherwise instructed prior to the close of business on 13 November, it does not intend to vote, object or submit pleadings with respect to the plan. However, Highland Capital Management has filed a motion for an order dismissing the debtors' Chapter 11 cases or, as an alternative, converting the cases to Chapter 7 for Cause (SCI 9 November).

Regulatory round-up

• The EBA’s recent stress tests point to a limited capital impact from the implementation of IFRS 9 (SCI 9 November). The negative impact of IFRS 9 first implementation on banks’ aggregate CET1 ratio is -20bp on a fully loaded basis and -10bp on a transitional basis, according to the stress tests. Individual bank figures range between negative 104bp to positive 97bp, with Hungarian, Irish, Italian and Polish banks experiencing the largest declines.
• The US Department of Justice has notified UBS that it intends to file a civil complaint against it related to UBS's issuance, underwriting and sale of legacy RMBS (SCI 8 November). UBS anticipates that the complaint will seek unspecified monetary civil penalties under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) regarding RMBS transactions that date back to 2006 and 2007. The bank says that the DOJ’s claims are not supported by the facts or the law, and it will contest any such complaint vigorously because it was not a significant originator of US residential mortgages and suffered massive losses on its investments in US mortgage-related assets when the housing market collapsed.

Data

Pipeline composition by jurisdiction (as of 9 November)

Pricings
The primary US ABS market saw heightened activity last week, with about US$4bn pricing on 7 November alone. CLOs accounted for much of the remaining prints.

Non-auto related ABS made up the bulk of last week’s new issues: US$1.11bn DLL 2018-2, US$166.38m Fortiva Retail Credit Master Note Business Series 2018-One, US$315.47m Marlette Funding Trust 2018-4, US$275m Mariner Finance Issuance Trust 2018-A, €1.14bn Multi Lease AS, US$688.39m Navient Private Education Refi Loan Trust 2018-E, US$549m SoFi Consumer Loan Program 2018-4 and US$320m Wingstop Funding Series 2018-1. The auto-related new issues were: US$198.2m First Investors Auto Owner Trust 2018-2, US$1.13bn Ford Credit Floorplan Master Owner Trust A Series 2018-3 and US$573m World Omni Select Auto Trust 2018-1.

Last week’s CLO pricings included €409.5m Avoca CLO XIX, €411m Dryden 66 Euro CLO 2018, US$405.1m ICG US CLO 2018-3, US$817m Madison Park CLO XXXI, €412m OZLME V and US$153.7m Peaks CLO 3. There were a handful of CLO refinancings too: US$422m Octagon Loan Funding, US$581.4m OZLM VIII, US$140m TCI-Symphony CLO 2016-1 and US$618.97m THL Credit Wind River CLO 2015-1.

The sole RMBS print was €286m Dilosk RMBS No. 2.

BWIC volume

Source: SCI PriceABS

Conference
The speaker line-up is confirmed for SCI’s 4^th Annual Marketplace Lending Securitisation Seminar, which is being held on 14 November, at 250 West 55^th Street, New York. Hosted by Arnold & Porter, among the topics that the event will explore are how new technologies are impacting the ABS market, how marketplace ABS structures have evolved and relative value opportunities across the asset class. The keynote speaker is Senator Christopher J Dodd. Click here for more information and to register.

Capital Relief Trades

Risk transfer round-up - 16 November

Capital relief trade sector developments and deal news

Deutsche Bank is rumoured to be executing a bilateral trade finance capital relief trade from its TRAFIN programme this month, as a replacement trade for TRAFIN 2015-1. TRAFIN 2015-1 was due for November 2022 (see SCI’s capital relief trades database), but the German lender has decided to call it and reportedly replace it with a new deal. The bank announced last month that it would execute an early termination of the transaction on 15 November.

The alleged deal follows another trade finance trade issued by Standard Chartered (SCI 14 November). Deutsche Bank has been one of the most active risk transfer trade issuers this year, having issued a corporate deal and an SME deal from the CRAFT and GATE programmes respectively. Additionally, a leveraged loan transaction is expected from Deutsche Bank in 4Q18. 

RMBS

Double Dutch

Dutch RMBS market sees surge of activity

The Dutch RMBS market has seen a surge of activity with two new Dutch RMBS transactions marketing, both of which are backed by prime Dutch residential mortgages and touted as STS compliant. NIBC is back on the scene after a five-year hiatus with the €476.2m Dutch MBS 19 deal, while also marketing is the Goldman Sachs-mandated €337m EDML 2018-2 transaction from its Elan shelf.

Rabobank analysts point out that after NIBC's Dutch MBS 18 was called earlier this year, this left the lender with no RMBS funding in place. The RMBS analysts add that it is “surprising” to see the bank return to RMBS as it is a “vivid covered bond issuer”, but they add that it is a welcome development both for the wider market and in terms of providing a “diverse palette of funding instruments” for the lender.

It is, however, a vanilla RMBS with a “classical” portfolio swap and a non-revolving pool. Rabobank’s analysts suggest that the pricing is possibly non-traditional as it is expected to be above-par, with the coupon on the single-offered senior tranche set at three-months Euribor plus 40bp. The WAL is also relatively short at 3.9 years and has a relatively high 8% CPR.

Fitch seconds Rabobank’s view, saying that the portfolio comprises Dutch residential mortgages with no adverse type of concentration and that it compares well with other Dutch RMBS deals, with high seasoning and much lower LTV ratios than its peers. The main risks are a high proportion of loans originated prior to 2013 having looser underwriting compared to current standards, and a higher than average proportion of borrowers with temporary employment contracts.

Rabobank's analysts point out that the transaction is “STS ready” and compatible with STS+ criteria for a preferential (future) treatment in CRR and Solvency II. The analysts add however that, while NIBC expects the deal to be STS complaint, not all details for compliance are known yet and so a decision to make an STS notification has yet to be made.

Additionally, the transaction has been provisionally rated by Moody’s and Fitch, respectively, as Aaa/AAA on the €447.3m class A notes (three-month Euribor plus 40bp), Aa1/A+ on the €8.1m class B notes (plus 80bp), Aa1/A+ on the €9.9m class Cs (plus 150bp), A1/A- on the €10.9m class Ds (plus 175bp) and the €4.7m class E notes are not rated but have a coupon of three-month Euribor plus 200bp. The class A note is the only offered note with all the rest being retained.

The Goldman Sachs-mandated €337m EDML 2018-2 RMBS features certain departures from previous transactions, although it has similarities with one being that it is backed by newly-originated Dutch prime mortgages. Like the other deals from the shelf, it is arbitrage-driven with the loans originated by Elan Woninghypotheken and the warehouse facility funded by Goldman Sachs, which is securitising the new exposures.

According to Rabobank’s analysts, this RMBS features several differences from other Elan deals however such as in the general reserve account, the cash advance facility and the swap. Likewise, the number of tranches has been reduced compared to the previous deal and all the tranches are on offer but the residual RS notes have been pre-placed.

The RMBS analysts suggest too it has a relatively low WAL of 2.8 years on the senior tranche and CPR assumption of only 2.5% per annum, meaning the FORD is driving the expected maturity. Notable too, the analysts suggest, is the “remarketing option” or, an economic call, with Goldman Sachs giving the RS noteholders incentives as they have to exercise the call option.

Like the NIBC deal, too, this is “STS ready” according to Goldman Sachs but this is not guaranteed given that regulatory developments have yet to follow. Rabobank’s analysts suggest that - like the NIBC RMBS - if it becomes STS “it’s also our understanding that the deal will meet the so-called ‘STS+’ additional (pool) requirements, resulting in a potential preferential treatment under CRR and Solvency II.“

EDML 2018-2 has been provisionally rated by Fitch and DBRS, respectively, as triple-A on the €307.5m class-A notes, triple-A/double-A on the €7.6m class Bs, single-A plus/single-A on the €6.7m class Cs, single-A/triple-B on the €5.1m class Ds, triple-B/double-B (low) on the €3.4m class Es, while the €6.7m class F notes are not rated. Pricing has not been disclosed although the notes will be tied to three-month Euribor with all the classes offered.

Looking more broadly at the Dutch mortgage market, Rabobank’s researchers comment that while the number of house sales in the Netherlands continued a declining trend in 3Q18, prices rose more quickly by an average of 9.2%. The bank’s RMBS analysts say this has prompted them to raise their expectations of price rises from 8.7% for 2018 to 9% this year.

The RMBS analysts add that house prices are increasing rapidly across a number of developed countries, although declines are being seen in Australia, Sweden and the UK. They comment that declines are driven by policy changes, such as higher stamp duty for buyers of second homes, and they highlight that declines in the UK can be a precursor for a drop in the Dutch housing market.

As a result of this, the analysts state that they are lowering their price forecasts for 2019 from 7% to 6%, although this will still represent a large rise in house prices, with the average home in the Netherlands hitting €300,000. The analysts suggest, therefore, that house sales are likely to decline to around 225,000 homes in 2018 and down again in 2019, to 210,000.

Richard Budden

Structured Finance

NPL transaction markets

Sector developments and company hires in structured finance

NPL deal markets

Banco Santander Totta is in the market with Hefesto STC (Guincho), a €98m securitisation backed by a €481m portfolio, by gross book value (GBV), of Portuguese non-performing residential, commercial and unsecured loans originated by Banco Santander Totta. DBRS and Scope have assigned provisional ratings, respectively, of triple-B (low)/triple-B minus to the €84m class A notes and triple-C/single-B minus to the €14m class B notes.

Most loans in the portfolio defaulted between 2014 and 2017 and are in various stages of resolution. The secured loans disbursed to individuals are serviced by Whitestar Asset Solutions, the secured loans disbursed to corporates are serviced by HG PT, Unipessoal, and the unsecured loans are serviced by Proteus Asset Management, Unipessoal.

Approximately 51.4% of the pool by GBV is secured. 73.2% (by GBV) of the pool benefits from a first-ranking lien. The secured loans included in the portfolio are backed by properties distributed across Portugal, with concentrations in the judicial districts of Lisbon, Porto and Setubal.  Interest on the Class B notes, which represent mezzanine debt, may be repaid prior to the principal of the Class A notes unless certain performance-related triggers are breached.

RMBS settlement reached

Wells Fargo, along with a group of funds affiliated with BlackRock and PIMCO, has reached a settlement to resolve two class action lawsuits in federal and state court over Wells Fargo’s role as trustee for certain RMBS trusts. Under terms of the agreement Wells Fargo, who denies the claims in the litigation, will pay US$43m. The agreement, which is subject to approval by the court, resolves claims regarding the fulfilment of Wells Fargo’s duties as trustee, including providing certain notifications to certificate holders, for 271 RMBS trusts created between 2004 and 2008. Separate from the settlement amount the company is paying, up to US$70m from trust reserve accounts established in connection with the litigation will be released. The settlement amount was fully accrued as of 30 June 2018.

Spin-off announced

BGC Partners is separating from Newmark Group through the distribution of all the shares of Newmark Group held by the company to stockholders of BGC, and the company will distribute these shares through a special pro rate stock dividend. The spinoff will be effective 30 November 2018 to BGC stockholders of record as of the close of business on 23 November 2018. Following the spin-off, BGC will no longer hold any shares of Newmark and Newmark's class A float will increase from approximately 23 million shares to approximately 150 million shares as a result of the spin-off. Goldman Sachs, Cantor Fitzgerald and Bank of America Merrill Lynch served as financial advisors to BGC in connection with the spin-off, while Wachtell, Lipton, Rosen & Katz and Morgan, Lewis & Bockius served as legal advisors.

Structured Finance

CMBS desk launched

Sector developments and company hires in structured finance

Europe

Simmons & Simmons has hired James Grand to lead its CLO offering. Grand was previously a structured products partner at Freshfields where he spent over 20 years, specialising in advising both the sell-side and the buy-side on CLOs, as well as contentious and non-contentious derivatives work, structured credit, tax structured products, regulatory capital and prime brokerage.

Partnerships

Alexandria Capital has selected Eagle Point Credit Management as a strategic partner for Alexandria Capital’s family office and high net worth client platform. Eagle Point’s investment focus will allow Alexandria to access investment opportunities in CLO securities for its clients and leverage Eagle Point’s expertise in these investments.

Taberna case dismissed

The US Bankruptcy Court for the Southern District of New York last week dismissed an involuntary Chapter 11 bankruptcy petition against Trups CDO Taberna Preferred Funding IV, which Moody’s describes as credit positive because it upholds the basic tenets of non-recourse securitisations and bankruptcy remoteness. In June 2017, three investors in the Taberna IV class A1 and A2 notes filed the petition after several failed attempts to liquidate the collateral, but were opposed by the issuer, its collateral manager (Fortress), TP Management and five investors in notes junior to the senior notes. In dismissing the petition, the court determined that the notes are non-recourse and therefore the claims are limited to the collateral, but the petitioning creditors are still receiving payments pursuant to the transaction’s indenture.

US

BTIG has announced that the fixed income, currency and commodities division has added a CMBS desk led by Weston Friedman, who joins as md and head of CMBS. Friedman will be based in the firm’s New York office and will report to Drew Doscher and Darren Haines, both mds and co-heads of fixed income credit at BTIG. Before joining BTIG Friedman was a CMBS trader at Baycrest Partners.

Victory Park Capital has hired Connell Hasten and Joshua Platek to lead the firm’s new insurance services division. Hasten, who joins as partner, and Platek, appointed as vp, will serve as co-founders of the insurance services platform, primarily responsible for sourcing, underwriting, executing and managing investment opportunities for insurers. Hasten and Platek join from EquiTrust, where they worked as md and vp respectively.

Structured Finance

STS documents released

Sector developments and company hires in structured finance

ILS

Hiscox has made three new appointments to its ILS division. Mike Schindel has been promoted to head of North America underwriting from head of international underwriting. Schindel will continue to be based in Bermuda. Nick Orton has been promoted to head of international, based in London, and worked most recently as a senior underwriter within the international team. Finally, Daniel Vestergren has joined Hiscox as chair of international, with responsibility for driving the strategic direction of the international book. He will join the business in May 2019, and be based in Bermuda. Vestergren joins from Ariel Re, where he spent five years as head of retro.

Repository standards

ESMA has issued a set of documents that aim to implement the new European regulatory framework for securitisations and help promote STS securitisations, including draft regulatory and implementing standards on the information to be provided as part of an application by a firm to register as a securitisation repository with ESMA, as well as the operational standards and access conditions for information collected and maintained by securitisation repositories. ESMA has also published its Final Technical Advice to the Commission on fees to be charged by ESMA for registering and supervising securitisation repositories, as well as further guidance to market participants on its arrangements for being notified of a securitisation’s STS status, such as reporting instructions and an interim STS notification template (pending the development of ESMA’s STS Register in the coming months). Finally, the authority has released a statement addressing various topics related to its near-term implementation activities under the Securitisation Regulation, including information to facilitate industry understanding around its deliverables.