RMBS
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Non-agency CMBS goes it alone
The non-agency CMBS market is an orphan of the storm
While a raft of measures to aid liquidity and forestall insolvency have been introduced by the US authorities to asset-backed markets in recent weeks, the non-agency CMBS sector remains outside the umbrella, leading to fears it faces huge losses.
GSE-backed CMBS are considered eligible as collateral under the terms of TALF 2.0, while in the private label sector .......
News Analysis 24 April 2020
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Grandfathering for Dutch CLO issuers
Sector developments and company hires
Grandfathering for Dutch CLO issuers
Market Moves 23 April 2020
The Dutch tax authorities have provided written confirmation to CLO issuers domiciled in the Netherlands that their recently revised position on the VAT exemption (SCI 10 March) will not apply with retroactive effect. Further, the VAT exemption will continue to apply to transactions for a grandfathering period until 1 January 2021. Issuers are continuing a .......
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GSE advancing obligations aligned
Sector developments and company hires
GSE advancing obligations aligned
Market Moves 22 April 2020
The US FHFA has aligned Fannie Mae's and Freddie Mac's policies regarding servicer obligations to advance scheduled monthly principal and interest payments for single-family mortgage loans. Once a servicer has advanced four months of missed payments on a loan, it will have no further obligation to advance scheduled payments. When a mortgage loan is in an .......
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Extension risk
Willingness and ability to call weighed
The Covid-19 fall-out appears to have impacted both the willingness and the ability of some UK issuers to exercise call options, since the public primary securitisation market has contracted and funding sources - especially for non-bank lenders - have become scarce (SCI 17 March). Nevertheless, TFSME-eligible issuers are more likely to call their outstanding transactions, given their ability .......
News 22 April 2020
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Pressured profitability
Building societies sensitive to lockdown
UK residential mortgage originations have decreased significantly due to the current social distancing measures. However, the profitability of building societies depends on their ability to grow their loan books, says KBRA.
Valuations are a significant step in the process of originating and underwriting new mortgage loans. However, property visits are not taking place at the moment.
Joanna .......
News 21 April 2020
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Interest rate mismatches eyed
Sector developments and company hires
Interest rate mismatches eyed
Market Moves 17 April 2020
Moody’s suggests that loan repricing will increase interest rate mismatches for Chinese structured finance deals, posing a higher risk for RMBS than auto ABS, given the longer loan terms and the greater share of floating-rate loans. All Chinese financial institutions must reprice outstanding floating-rate loans to either loan prime rate (LPR)-indexed floating rates or fixed rates .......
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Forbearance risks
Pre-2015 GSE deals could suffer losses
As the coronavirus spreads and servicers offer mortgage forbearance plans to struggling obligors, certain pre-2015 credit risk transfer (CRT) fixed severity deals are set to sustain losses without action from Fannie Mae and Freddie Mac. In contrast, actual loss CRT deals do not automatically suffer losses from credit events, but are exposed to risks from rate reductions, permanent principal .......
News 17 April 2020
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CMBS secured, unsecured sub debt weighed
Sector developments and company hires
CMBS secured, unsecured sub debt weighed
Market Moves 16 April 2020
Senior US CMBS loans with unsecured subordinate debt (such as mezzanine or preferred equity) show significantly lower default rates than senior loans with secured subordinate debt (such as B-notes) at comparable leverage points, according to Fitch. The agency evaluated the performance of 1,001 senior CMBS conduit loans with subordinate debt in place, issued between 2003 .......
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Auto ABS rating withdrawn
Sector developments and company hires
Auto ABS rating withdrawn
Fitch has withdrawn the expected ratings of Swiss Car ABS 2020-1 (SCI 9 April). The rating agency notes that the debt issue is “no longer expected to proceed as previously envisaged”.EMEA
Market Moves 15 April 2020
Reed Smith has appointed Baptiste Gelpi as a partner in its financial industry group, based in Paris. Gelpi joins the firm from Hogan .......
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Price volatility
Liquidity constraints hit credit risk transfer
Acute losses have been suffered in the US credit risk transfer market over the last few weeks, as prices on many classes of bonds have executed a vertiginous descent. But the price action does not tell the whole story, and it is too early to say that investors will be cleaned out.
Covid-19 and the virtual cessation of .......
News Analysis 15 April 2020
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REMIC tax status clarified
Sector developments and company hires
REMIC revenue procedure
Market Moves 14 April 2020
The US Internal Revenue Service has issued a revenue procedure that permits loans subject to certain forbearances and related modifications as a result of the Covid-19 pandemic to be contributed to, and held in, REMICs and grantor trusts without jeopardising the tax status of these vehicles. Cadwalader notes that under the revenue procedure: a mortgage loan’s LTV does .......
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TALF 2.0 eligibility expanded
Sector developments and company hires
TALF 2.0 eligibility expanded
Market Moves 9 April 2020
The US Fed has expanded the range of assets that are eligible collateral for TALF 2.0 to include the triple-A rated tranches of both legacy conduit CMBS and newly issued static CLOs. The size of the facility will remain US$100bn and it will continue to support the issuance of ABS that fund a wide range of .......
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EIF calls for guarantee applications
Sector developments and company hires
EIF calls for guarantee applications
Market Moves 8 April 2020
The European Commission has unlocked €1bn from the European Fund for Strategic Investments (EFSI) that will serve as a guarantee to the EIF and allow it to issue special guarantees to incentivise lenders to provide liquidity to at least 100,000 European SMEs and small mid-cap companies hit by the economic impact of the coronavirus pandemic, .......
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Modelling delinquency deluge
Mortgage market advisers and consultants are struggling to f...
“Our clients are modelling a range of scenarios but are preparing themselves for the worst case including sustained levels of unemployment. Hopefully it won’t be that bad, but they need to prepare themselves,” says Bernadette Kogler, chief executive officer of RiskSpan, a Washington, DC-based analytics and modelling firm which has particular expertise in mortgage markets.
Riskspan clients include .......
News 8 April 2020
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CLO stress scenario updated
Sector developments and company hires
CLO stress scenario updated
Market Moves 7 April 2020
Fitch is set to apply an updated stress scenario to all CLO portfolios involving issuers with greater vulnerability to disruptions caused by coronavirus. The agency’s previous scenario focused on seven industries vulnerable to impacts from the pandemic, but will be expanded to include issuers with loans in CLOs from the automobile industry, as well as all .......
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Improving sentiment
European ABS market update
European ABS secondary market sentiment improved last week, with the return of investor appetite, and spreads across most sectors stabilised or tightened. However, the primary market remains on hold, with no new publicly distributed transactions sold or added to the pipeline.
“Spreads are much tighter than they have been since late-February. It does present a pretty interesting opportunity .......
Market Reports 7 April 2020
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Negative outlook for asset performance
Sector developments and company hires
Negative outlook for asset performance
Market Moves 6 April 2020
Fitch is updating its rating assumptions for all global structured finance sectors to incorporate the economic impact of the coronavirus and related mitigation measures. The agency expects the global pandemic to result in an unprecedented economic contraction and while the rating effects will vary meaningfully across asset classes, asset performance deterioration is anticipated in almost .......
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Breathing space?
EU banks benefit from Basel 3 delay
The Basel Committee's decision last week to delay implementation of the final Basel 3 rules by a year (SCI 30 March) gives banks and supervisors some breathing space to respond to the coronavirus crisis. However, the delay is expected to be more beneficial for EU banks compared to US banks.
Fitch, for one, notes that the delay .......
News 2 April 2020
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Development finance
Securitisation mooted for SME house builders
SME house builders struggle to access finance, despite being responsible for around 13% of new builds. Development finance securitisation is therefore being mooted as one way of helping the UK government achieve its target of building 300,000 new homes per annum.
Gordon Kerr, head of European structured finance research at DBRS Morningstar, says: “We do think development finance .......
News Analysis 2 April 2020
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MBS market buffeted
'Unsustainable' hedges called out
MBS spreads to Treasuries widened again yesterday (1 April), giving those hedging margin calls on TBA shorts a breather. But it is not thought that the US Fed has been frightened off by the MBA’s letter on Sunday admonishing its actions in the previous week.
Agency MBS spreads have backed up again, but volatility continues to be the .......
News Analysis 2 April 2020
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CRR compliance for NHG guarantee
Sector developments and company hires
EMEA
Market Moves 1 April 2020
Addleshaw Goddard has hired structured finance partner Rachel Kelly from McDermott Will & Emery. Kelly has three decades of experience at major international law firms, including as a partner at both Clifford Chance and Macfarlanes. Her work has been across the full spectrum of structured finance and debt capital markets transactions, public and private, national and international, advising the full .......