Structured Credit Investor

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CONTENTS

News AnalysisCMBS

Challenging times

CDSMiFID moves

RMBSREITs rise

Market ReportsABS

Primary focus continues in Euro ABS

CLOsEuro CLO appetite building

CMBSSluggish start for US CMBS

RMBSUS RMBS market regains strength

NewsCLOs

CLOs attractive as OC levelsimprove

CMBSTRACE to reshape secondary

CMBS?Aussie pub deal prepped

RMBSStrong bid seen in Maiden Lane

auction

Job SwapsABS

Paris SF lawyer swaps firmsReporting structure realigned

CDS

Client service advisor addedVendor expands Asia-Pacific

presenceSolutions provider names UK mdUBS fined over misleading PPNs

New ISDA chair namedCredit hedge fund acquired

Promotion for credit derivatives pairDTCC chairman recruitedClient services svp named

Reporting solutions acquisitionagreed

CLOs

News Analysis

Euro CMBS investors call for better disclosure

European CMBS servicers continue to face challenges, with enforcement set tofeature increasingly in workouts. At the same time, investors are calling for moredetailed information on loan developments.

Janaka Nanayakkara, head of ABS and real estate strategy at Chalkhill Partners,confirms that bondholders are seeking more information and clarity on CMBS loandevelopments. "In some cases bondholders are in positions similar to lenderstaking a loss on loans. However, unlike traditional lenders, they have access to farless information," he explains.

Although she acknowledges that the publication of special notices is increasing,Fitch senior director Gioia Dominedò agrees that better quality information andmore explanation of servicers' thought processes would still be welcome. Shenotes that Morgan Stanley, for one, is good at telling the market when they haveturned down an extension request. "Other servicers are turning down requests too,but they don't always tell the market about it."

Greater visibility around CMBS workouts has facilitated increased investorinvolvement in restructurings. "It's positive that more investors are getting involved,but individual noteholders can be expected to act in their own interests/push theirown agenda," notes Jim O'Leary, director at Capita Asset Services. "Seniornoteholders are typically more active than junior lenders, who are usually happierto maintain the status quo. This means that servicers have to tread carefully asthey have contractual responsibilities to maximise recoveries and must act in theinterests of all parties."

One London-based CMBS investor acknowledges that servicers are in a difficultsituation and that their hands are largely tied by documentation. Consequently, hesays that servicing standards need to be better defined.

"It is right that investors have some influence because they are the ones that maylose money," the investor adds. "In terms of improving the alignment of interestsbetween noteholders and servicers, the two main things I would like to see arebetter definition of decision-making processes and also better underwriting."

Nanayakkara suggests that for special servicers a remuneration structure thatrewards recovery makes sense - albeit it would be hard to document.

O'Leary expects servicers to be central to the development of CMBS 2.0 and willlikely input more fully to documentation to reflect this. He also suggests that ratingswill help differentiate servicers when the market returns.

However, there is currently little consistency between the approaches ratingagencies take towards servicer ratings, according to CB Richard Ellis LoanServicing head and executive director Paul Lloyd. He cites as an example the factthat the quality of a servicer's parent is key for one rating agency and its stability issupposed to be critical for investment into the servicing business, yet this hasbeen undermined by Barclays Capital Mortgage Servicing's decision to sell itsbusiness to Capita (see SCI 24 February).

Structured Credit Investor http://www.structuredcreditinvestor.com/print_issue.asp?ISS=

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Boost for structured products head

CMBS

Euro CMBS 2.0 committee formedReal estate investment trio hired

RMBS

MBS strategy head hiredAsset manager adds director

News Round-upABS

US credit cards show mixedperformance

Securitisation's come-back surveyedGreek SF downgrades continue

New index shows 1Q declines forSLABS defaults

Further Portuguese downgrades hitExchange-linked deal prepped

Warning issued on counterpartycriteria

CDS

Fifth consecutive rise for subprimeCDS

OTC operations service offeredRFC issued on swap margin

requirementsEnhanced CVA portal releasedJapanese CDS clearing service

readiedCollateral management service

launchedCVA solution enhanced

Index options model strengthened

CLOs

CLO comment period extended

CMBS

CMBS loan sale underwayJapanese CMBS property sales

eyedCMBS loss severity drops in March

First CMBS late-pay fall sinceOctober

Second MEPC prepayment made

RMBS

AOFM extends RMBS investmentNew MBX, TRX series planned

Lloyd says his firm is happy with an annual ratings review and nothing more -unless there is a substantial benefit to doing so in the future. He suggests thatrating agencies should get together to sell the benefit of the servicer rating as ithas lost the credibility that it once stood for.

"It is fine to have benchmarking, as long as everyone has a public rating to enablethe comparison to work properly and to be beneficial. This should be no differentthan the US process," he remarks.

Clarence Dixon, md at Hatfield Philips, indicates that if competitors aren't seen tobe fulfilling the same ratings criteria, the role of the rating agencies isquestionable. But he points to passivity rather than preferential treatment as apossible reason for this.

"Servicers need to be able to demonstrate a proven capability in certain areas,such as technology, documentation, contingency planning and training. We allneed to be measured by the same standard," Dixon argues.

O'Leary agrees that the independence of the rating agencies is important. "Werecognise the benefit of rating agencies forming an independent opinion onservicer track records and financial standing. Whether a servicer is rated or not,and their respective rating should also affect pricing at issuance," he suggests.

Looking ahead, enforcement is expected to feature more in CMBS workouts inEurope. Historically, there haven't been many enforcements because the market isonly now going through the first cycle of maturities.

Caroline Philips, md and head of structured debt products Europe at Eurohypo,notes that the White Tower workout (SCI passim) is an example of a 'goodenforcement' because the CMBS was backed by prime properties. "But sometimesexit options are far more limited. When you're still receiving a coupon, you may aswell buy time, delever as much as possible from surplus rent and try for an orderlydisposal," she comments.

Some deals simply aren't capable of being restructured and, as they approachlegal final, time is needed and it can be difficult to liquidate in an illiquid market."Attracting new equity is difficult at current LTVs, so there is an ongoing focusabout carving out cashflows from subordinated lenders in restructures/extensions,"O'Leary says.

But he warns that enforcement is harder in certain jurisdictions, such as Germany,where value can be destroyed in insolvency. He also notes that swap breakagecosts can be an impediment to enforcement.

"Many swaps go out beyond the loan maturity, which is problematic," O'Learyconcludes. "This is a specific issue to be addressed with new transactions.Cleaner hedging arrangements can be written into documentation and potentiallygreater use of caps."

CS & JL

7 April 2011 49:00 PM

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News Analysis

European CDS regulations scrutinised

The extension of the Markets in Financial Instruments Directive (MiFID) to OTC products has sparked concern overtransparency and reporting in the European CDS market. At the same time, other regulatory moves - including theimplications of organised trading facilities (OTFs) - are under scrutiny by the end-user community.

The key issues in organised derivatives trading focus on the split between European and US approaches and models,according to Adam Jacobs, assistant director of European policy at ISDA. "Whereas Europe's new category has beenintroduced in the form of organised trading facility, US policymakers are grappling with the concept of swap execution


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facilities. In both cases, there are questions of scope and design, as well as the matter of what the requirements mean forexisting trading models," he explains.

He adds: "If you're going to talk about trading venues, you also need to take into account what's happening in thepost-trade environment. In Europe, the European Market Infrastructure Regulation (EMIR) will greatly enhance the role ofCCPs and trade repositories. On all these issues, it is worth considering the differences between the US and the EU -both in terms of how markets work and the rules that have been proposed."

Both the US and the European authorities started from the common position of the G20 commitments. But, so far, theyhave taken a divergent approach in how they implement the arrangements.

In the US, the CFTC and the SEC have detailed exactly what the trading model should be. Roger Barton, founder ofFinancial Reform Consultants, explains that the two agencies have virtually stipulated that for any trades other than blocktrades execution is required to be electronic.

"In Europe, the situation is less clear and a lot will depend on what the definition of an OTF is. The European Commissionhas clearly indicated that it does not intend to prescribe the precise trading model that must be followed - provided itmeets requirements, such as transparency and multilaterality," he continues.

But Scott Fitzpatrick, global head of sales at GFI Group, argues that the EC is attempting to preserve the current diversityof the existing. "If we take the definition of OTF as it stands in the Commission's MiFID Consultation Paper, then I think it'sfair to say that - whereas the intention is to bring more regulatory control to the execution of OTC derivatives - there hasbeen a concerted effort under this definition to enable all execution methods to be preserved, with the caveat that wherepossible electronic execution should be encouraged. Is this feasible? I and the other WMBA member firms would argue:yes, it is."

Increasing post-trade transparency, meanwhile, is another regulatory goal in both the US and Europe. The USrequirements indicate that trade details will be made public within very short periods, aside from block trades, which willhave a fifteen-minute delay.

While Barton believes post-trade transparency will increase in Europe, he doubts it will be as demanding as in the US,however. "The big question in Europe at present seems to be whether EMIR should apply not just to OTC derivatives, butlisted derivatives too. If so, the effects could be very far reaching."

John Wilson, former global head of OTC clearing at RBS, suggests that national interests are being keenly fought over inthe discussions about widening the scope of EMIR. "What we're being shaped by is not necessarily a pragmatic sensibleapproach; it's about horse trading between countries. So don't be surprised to see some odd rules coming out of all of this- after all, the rules of the road are being written by people who've not necessarily sat in a car or been on the road," hesays.

The pre- and post-trade transparency requirements are also expected to dramatically change risk appetites, as banks willbe reluctant to take on inventory risk for large positions as they will quickly have to make public the trade they've taken ontheir book. This could result in banks refraining to trade in size and instead offering to work the orders for their client, whocan no longer get immediacy and has to bear the inventory/market impact risk.

Indeed, bank business models are fundamentally changing, driven by the division of sales and trading functions. "Today,the sales and trading teams are working together. But going forward it won't be like that, as the sales guys will have toshow the trade to a SEF/MTF; as a result, traders will become price makers or price takers versus the SEF," Wilsonnotes.

He suspects that many SEFs will launch in the coming months, whose number will inevitably dwindle over the years. But,in the meantime, the fragmentation of liquidity will have a devastating effect on many end-users and on transparency."The only person who succeeds in the fragmentation of liquidity is the dealer."

Clearing is ultimately anticipated to act as a leveller of these competing interests, albeit some interesting nuances arealready kicking in. Wilson cites as an example SwapClear, where - providing it is possible to map out the cashflows -trades can be cleared without needing standardised items like start and end dates. "Clearing does not necessarilydemand homogeneous products, but this is almost essential for a trading venue," he adds.

Benjamin Schiessle, head of CDS risk management at LCH.Clearnet, points out that market discipline around illiquidoff-the-run names should improve, thanks to CCP users having to agree on valuations on which margin calls are based. Aseparate benefit is that CCPs protect against possible P&L impacts and ensure the continuity of users' risk profiles.

Another advantage that CCPs bring is that the gap between gross and net notional CDS outstandings will decrease, notesMichael Hampden-Turner, director in Citi's credit strategy group. This would create significant efficiencies in terms ofnetting.

Hampden-Turner adds that the effect of commoditisation and standardisation that CCPs have on CDS contracts is alreadybeing seen in terms of a shift in trading patterns and a greater number of participants entering the market. But he pointsout that a bifurcation between liquid and non-liquid contracts is likely as a result.

"A small number of contracts will become more liquid based on their simplicity and cheapness, which in turn will


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encourage a greater number of participants to enter the market. Market makers will in turn benefit from the increase intrades, albeit at a lower margin," Hampden-Turner explains.

He adds: "The less liquid names will be harder to trade, but most of them are a legacy of the synthetic CDO market so itmakes sense. By 2013 the sector is expected to shrink to half of its size at the peak of the market."

Nevertheless, BlueMountain Europe ceo Jeffrey Kushner says he'd like to see more off-the-run names being cleared byCCPs, as well as CDX tranches. "The CDX and iTraxx indices in the US and Europe account for approximately 500names, but restricting clearing to just these names will significantly decrease liquidity in a large universe of names thatwould not be cleared. This is largely due to the fact that we anticipate that non-cleared transactions will attract materiallyhigher capital charges."

A number of other issues also need to be resolved in respect of CCPs. Governance is one such issue, according toKushner.

"I'm concerned about what say buy-side participants will have in the running of CCPs," he explains. "The buy-side isrepresented in bilateral CDS contracts; for example, in the constitution of ISDA's Determinations Committees. It would bean unacceptable step backwards for investors to not have similar input to a CCP around credit events, includingrestructuring and succession."

Another issue is segregation of client accounts, Kushner adds. "It's unclear whether CCPs are offering true segregation oromnibus segregation, which could make client assets subject to the failing of others. It's important to define what rightsnon-contributors to a CCP's guarantee fund will have."

Josh Danziger, founding principal of Valere Capital Partners, concurs that many CCP-related issues still need to be ironedout by the industry. For example, during the crisis access to cash was critical, so any increase in initial margins duringtimes of stress is pro-cyclical. The need to fund initial margin could exacerbate other pressures in the market, such as theincreased concern over rehypothecation and the Basel 3 rules on liquidity.

In addition, Danziger suggests that CCPs carry their own counterparty risk. "CCPs aren't immune from failure and so Iwouldn't be surprised to see, for example, 'CCP A' ultimately listing CDS on 'CCP B'," he concludes.

CS & LB

11 April 2011 :54:04 AM

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News Analysis

Mortgage REITs gearing up for increased opportunities

Current economic conditions, together with changes in government policy and regulation appear to be creating perfectconditions for mortgage REIT IPOs. Indeed, the vehicles could become a dominant source of demand for MBS in thefuture.

Analysts estimate that as much as US$7bn has been raised so far this year by REITs looking to invest in agency MBS,eclipsing the amount raised over the entirety of 2010. Taking leverage into account, REITs could have anywhere fromUS$40bn-US$70bn to spend in the sector. Furthermore, funding spreads are expected to remain wide, so the equityraising may not be over for a while.

Donald Ramon, cfo at Invesco Mortgage Capital Inc, says that now is a good time for REITs to be active as they can lockin spreads. He explains: "Right now there is just great value in assets. We can buy agency and non-agency securities ona levered basis and get mid- to high-teens returns on those."

He continues: "Meanwhile, the financing and swap costs are very low, so we can hedge those out for, say, five years andreally the cost of hedging is pretty low. All in all, we can lock in a pretty nice spread on those assets, which is what makesit so attractive."

The latest entrants to the sector are Putnam Mortgage Opportunities Co and PIMCO. Putnam is planning an IPO of up toUS$300m and will focus on agency MBS, while PIMCO is seeking to raise double that amount as it looks to target bothCMBS and RMBS.

Ramon notes that while assets are available to buy, raising equity in the way REITs have done helps position them foractivity. He says: "There will be some advantages to having a larger equity and asset base. When the changes happenwith the GSEs and you have got the 5% limits coming into play, you are really going to need to have significant size inyour REIT to be able to actively participate in the market that is going to be out there."


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One factor shaping REITs' role in the mortgage market is the diminishing position of the US government. As the Treasurypulls back and sells off its MBS portfolio (see SCI 23 March), it will create even more opportunities for REITs.

Ramon says: "If the government decides to pull back and stop guaranteeing the majority of the mortgages in the US, thatwill create more non-agency supply in the marketplace. REITs would then be at a definite advantage because forsecuritisations they do not have the same capital restraints as banks."

Ramon is confident that REITs will increase their activity in the market, but he cautions that they are not set to be thedominant players just yet. He says: "There is space for REITs to become a greater source of demand for MBS. Theagency market is huge; it is around US$14trn."

He continues: "There are roughly a dozen mortgage REITs in the market now, so if you looked at their total assets it isprobably not US$100bn. So at the moment REITs are a very small percentage of the overall market, so there is probablystill a lot more room to grow."

The risk retention rule changes recently outlined (SCI passim) could also play in REITs' favour. The two main approachesare a vertical slice, where sponsors retain 5% of each tranche in the structure, or a horizontal slice where they own 5% ofthe first-loss risk.

"Under each approach, if a bank does the securitisation and has to retain that credit tranche in each of those pieces, thenit is possible they may not be able to get sale treatment," says Ramon. "If they cannot get sale treatment, then they wouldhave to gross those up on their balance sheet, because then it becomes more or less a financing transaction."

This would lead to capital constraints for the bank, which would not apply to a REIT. If a REIT securitises a package ofloans and does not get sale treatment, then it can hold them on their books.

Ramon confirms: "We do not have the same capital constraints as banks do, so mortgage REITs can play a wholedifferent role and step in to start taking over supply."

Finally, as REITs do start taking over supply, MBS analysts at Barclays Capital suggest that agency REITs in particularwill continue to target fixed rate collateral such as 15s, 30s and CMOs, which are currently more attractive than hybridARMs. Ramon says Invesco Mortgage Capital will be favouring agency RMBS, but it is far from its only target.

He concludes: "On our side, we were allocating about 60% of the equity from this last offering to agency RMBS and theother 40% to credit assets, such as non-agency and CMBS. We found good value in each of those particular buckets."

JL

13 April 2011 :42:03 PM

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Market Reports

European secondary ABS activity appears to have lagged the primary market this week. Nevertheless, RBS' ArranFunding RMBS failed to cause the stir that was perhaps anticipated, with little activity in the name since its pricing onWednesday.

"There hasn't been a huge amount of activity in ABS land. We've been busy on client-related business, but as far as thesecondary market goes, it's been fairly muted," observes one trader.

Although the overall tone remains positive and spreads are well supported, the secondary market appears to be taking itslead from the primary market. The trader continues: "Primary has come into focus for a lot of people. There are a fewbid-list opportunities to source big blocks of bonds, but by and large the run-of-the-mill activity in the street is relativelylow."

In particular, the more "lucrative block of deals" in prime RMBS and CMBS are finding instant investor support - areflection of the limited buying opportunities, the trader says. "There isn't a huge amount of paper on dealers' books, so it'sbeing absorbed very quickly."

Meanwhile, RBS' Arran Residential Mortgages Funding 2011-1 - which priced on Wednesday (6 April) - "came and wentwithout a huge amount of comment", the trader notes. The deal, which is denominated in both sterling and euro andcomprises a mixture of retained and placed tranches, is said to have not traded post-pricing.

The trader concludes: "I think generally we've seen a very good demand for the shorter end of the maturity curve.Between one and three years are proving the most attractive, but once you head to five years there's not much interest -particularly for the sterling tranches. I would imagine that RBS probably saw a similar pattern, as it would be consistent


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with what we're seeing."

LB

8 April 2011 32:56 PM

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Market Reports

Bid-list appetite finally appears to be returning to the European CLO market. However, activity remains significantly belowthe highs seen in February.

"The market is looking much better now: the bids went back quite far as a result of the macro news. We're now slowlygetting back to the levels that we reached in February - albeit at some way off the previous highs," one CLO trader says.

He continues: "Most markets suffered slightly from the recent wider economic problems, but the CLO market probablysuffered the most. Also, it looks like other markets have tightened in again. For example, the RMBS space has beenunchanged over the past two weeks, whereas CLOs have been lagging."

Indeed, the quick recovery of other sectors has played its part in the weakening CLO market, the trader believes. "Theunderlying loan market has quickly recovered from the recent shake-up and loans have been trading pretty muchunchanged - with perhaps the exception of a few weakening loans. However, there was never any reason for CLOs toweaken as they did. People have stepped off and we're now slowly getting back to a reasonable level that we shouldreally be at."

In terms of bid-lists, the trader confirms that recent activity has shown a marked improvement, with one list that launchedearlier today selling entirely. "Previous to the last few days, lists haven't been trading because of a reluctance to hit thebids. Although it's coming back, we're still not in the safe area yet," he adds.

Because of this uncertainty, bid-offers remain stagnant - an issue that "will take time to put right", the trader says. "Also, ifyou try and get things going by hitting a few bids, it's very hard to reload as you can't do this anywhere near the bids. Toreload, you have to search five points-plus higher," he states.

It is unsurprising, however, that the European CLO market has taken the brunt of the economic uncertainty "because,when you've only got a few players in the market, this is what happens", the trader concludes.

LB

7 April 2011 07:17 PM

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Market Reports

The quarter-end lull in secondary US CMBS has continued this week, with a handful of bid-lists trading. At the same time,market participants are focusing on the risk retention rules proposed last week.

"It's been a really slow week in terms of trading. A few bid-lists have launched, but it's been a pretty sluggish start overall,"one CMBS trader says.

However, he notes that investor interest in the sector remains strong. "BWICs are performing well and, although therehave been fewer of them, there's been some good action."

The pause in activity is partly due to last month's wider spreads tightening back in, the trader says, causing buyingvolumes to fall considerably. "Everyone was taking advantage of the widening spreads a few weeks ago. For example, thebenchmark A4 tranche of the GG10 deal is now back to 1.90, where it was previously 2.45 at the beginning of the year."

He adds: "Another contributing factor is the quarter-end lull. I think that people are gathering their thoughts and focusingon the vibrant new issue calendar."

Elsewhere in the sector, Bank of America's re-REMIC trust has generated some interest. "BofA is basically stripping thecoupons down to bring the bonds to par. We've seen a few interesting sales off the back of this," the trader explains.


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He confirms that the federal agencies' risk retention proposals are causing a stir among industry participants (see also'Call for CMBS retention rule changes', published earlier today). "The regulations, as they stand, have the potential tostymie CMBS new issuance - which is causing some concern. It's been the main area of focus for the week," the traderconcludes.

LB

6 April 2011 53:52 AM

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Market Reports

Last week's highly-anticipated Maiden Lane auction has instilled some confidence back into the US RMBS market, asinvestors prepare for further opportunities this week. Together with two more Maiden Lane lists, bids are due for theLongshore CDO Funding liquidation.

"Activity last week was dominated by the Maiden Lane list, which totalled approximately US$1.5bn in the end. With about90% of the list trading on Wednesday, we saw some selling off the back of that on Thursday and Friday as players sawhow good the levels were," one RMBS trader says.

The list traded at levels above expectations (see also SCI 7 April), with US$519m worth of prime and alt-A securitiespricing at an average US$60, US$118m of option ARM paper at around US$66 and US$689m of subprime RMBS tradingat circa US$55. Liquidity for the collateral appeared to dry up by the end of the week, however.

Two more Maiden Lane lists are scheduled to launch on Wednesday and Thursday of this week. "All we know is that thelists will probably be less than last week's total of US$1.5bn. Our understanding at this point is that there are no listsscheduled for the following week," the trader notes.

He continues: "Everyone was apprehensive about how well the first Maiden Lane sale would go and it dominatedattention throughout the week. But, given how it went, the market now feels more constructive."

As well as the Maiden Lane lists, the Longshore CDO Funding 2006-1 liquidation is dominating market focus, with its firstlist due to launch tomorrow (Tuesday). The liquidation is expected to consist of 124 cash items, with the first list made upof RMBS collateral and the second list - due on Wednesday - combining CMBS and CDO assets.

In view of last week's positive outcome, the trader notes that the US RMBS market has regained its confidence and - whilechallenges remain - investors are keen to embrace new opportunities. "There is very little supply, which makes it a greattime for investors to nab an opportunity. Especially for players who want more exposure to the sector, it's a chance toactually put some dollars to work."

Indeed, one current challenge for the RMBS market, the trader explains, is the ability to source paper. "Right now there isno supply and the amount that is actually trading is not great, relative to the amount that's outstanding."

"However, I think we're seeing people reacting to this in a positive way. So the way it stands, I feel like what's happeningnow is more about opportunity than market pressure," he concludes.

LB

11 April 2011 :43:45 PM

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News

Current valuations mean that opportunities can be found in both the US and Europe as CLOs continue to lag broadermarkets, according to CDO analysts at JPMorgan. They also note that the leveraged loan-CLO differential has returned toyear-end 2010 levels and far more deals are now passing their overcollateralisation tests.

The analysts identify strong market value OC (MVOC) coverage at current subordinations and portfolio prices, with 96%of US CLO triple-B OC ratios passing at an average cushion of 5.1%. The average triple-B MVOC is up to 106.5%,increasing by 4% since November last year. Meanwhile, 93% of the distribution is now above 100%, which is up from 82%


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in November.

The loan default rate is 1.1% and so US CLO mezzanine credit performance is anticipated to continue improving. Investordemand in single-A to double-B tranches is expected to be driven by the current spread pick-up and a potential raft ofratings upgrades by Moody's, which is recalibrating its CLO model (SCI passim).

Spreads in European triple-As and double-As for high subordinations are also wide. However, investors looking to takeadvantage of this should bear in mind regulatory changes and competing relative value in covered bonds and EuropeanRMBS - alternative areas of investment for many typical buyers of European CLOs - which may hold back growth in thesector.

The analysts note that senior-rated European CLO spreads are trading too wide versus the US. European triple-A anddouble-A tranches are currently offering 440bp spread with 9.9% OC cushion on average, compared to US CLO originaldouble-As at a considerably lower 275bp with 11.2% OC cushion. Finally, they also suggest that sub-triple-A risk may berendered unattractive by pending regulations, such as Solvency II.

JL

11 April 2011 1:47:21 AM

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News

TRACE is set to be expanded to include ABS trade reporting from 16 May. Spread differentiation between legacy and newissues is anticipated to become more pronounced for CMBS in particular under the new system because CMBS 2.0 tradeinformation is unlikely to be disseminated.

Both primary and secondary transactions are expected to be reported into TRACE on a T+1 basis. Although data on the144a private placement CUSIPs will be collected by FINRA, it is not initially anticipated to be distributed to marketparticipants. MBS analysts at Barclays Capital believe dissemination of such data may begin at a later stage of theTRACE implementation, possibly at the end of this year.

Nevertheless, the BarCap analysts reckon that TRACE will radically alter the CMBS landscape. Should disclosure levelsmatch those seen for corporate bonds - where TRACE has long been in use - then the market could see more liquidityand volume, but also a squeeze applied to dealers' revenues.

The analysts expect an increase in volume as greater transparency draws more people into the market and note thatincreased liquidity could trigger a wave of general spread compression. The bid/ask spread could compress across thecurve for all non-144a tranches, which has the potential to hurt dealers' revenues. However, the analysts point out that theincreased volume could serve to soften the blow.

They also believe that increased transparency will mean trading techniques, such as 'crossing the dealers', may wellbecome more difficult to implement. In addition, an increase in volume in the synthetic space may occur as a result ofincreased transparency in cash trades.

Finally, spread differentiation between old issuance and new is likely to become more pronounced because CMBS 2.0trade information is not expected to be subject to dissemination.

JL

12 April 2011 1:04:08 AM

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News

Macquarie and National Australia Bank are in the market with the A$160m ALE Finance Company Series 1, a single-borrower CMBS secured by a portfolio of 85 pubs in Australia. Given the concentration to a single unrated tenant(Australian Leisure and Hospitality Group (ALH)), the transaction benefits from structural enhancements, which - in theevent of ALH's default - provides additional security to noteholders in the form of the enterprise value of the pub portfolio.

Another key feature of the structure is that a default by ALH on one lease cross-defaults all of the property leases. This


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means that ALH cannot 'cherry pick' the leases on which it will continue to pay rent.

Other structural features include various controls on the composition of the pub portfolio, including restrictions on:disposals and use of sale proceeds; ALH's retained development rights; and the transfer of gaming licences within andoutside of the portfolio. In addition, borrower equity lock-up triggers provide further protection to noteholders.

Provisionally rated by Moody's, the transaction comprises A$146m triple-A rated class AB and A$14m Aa1 class B notes. Itcurrently has A$130m of existing triple-A rated class AA debt, issued in May 2006, which ranks senior to the 2011 classAB and B notes.

The highest concentration of the portfolio is in Victoria, representing 50.6% of the value. The remainder is distributedbetween Queensland (29.2%), New South Wales (12.1%), South Australia (4.4%) and Western Australia (3.7%).

The borrower has entered into long-term lease arrangements in relation to each of the 85 pubs, with its obligations tomeet debt service matched to the issuer's obligations under the class AA and AB notes. The 25-year leases have 17 yearsto run, although two properties - the Brass Monkey and the Balmoral - are currently under five-year leases with options torenew.

LB

11 April 2011 1:20:47 AM

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News

The first highly-anticipated BWIC from the Maiden Lane II (MLII) portfolio (see SCI 4 April) was auctioned yesterday, 6April, by the New York Fed and BlackRock Solutions. The inaugural list - totalling US$1.5bn in current face value -comprised a mixed bag of securities across sectors, vintages and seniority.

MBS analysts at Bank of America Merrill Lynch believe the make-up of the list was likely set up so that demand could begauged across various segments of the portfolio. They note it was more heavily weighted towards Alt-A securities,accounting for 46% of the list versus 33% of the portfolio based on current face. Subprime accounted for 39%, despite aportfolio weighting of 54%.

The BAML analysts say that the list was "very well bid, with broad participation" from dealers and retail accounts. Theysuggest that the strong bid may be partially explained by increased dealer competition as a result of the high profile of thelist, as well as the ability to bid on some CUSIPs which had previously not been available.

While the majority of the list traded, ten line items totalling US$170m did not. The largest piece to not trade was aUS$74.7m option ARM tranche, which was removed from the list prior to the bid. The average indicative price for the otherbonds that did not trade was in the low-40s and four of them had a monoline wrap.

How much of the list went to retail accounts and how many bonds are reoffered into the market will be interesting to watchover the next few days, according to the analysts. The sale could also set new benchmarks and further sellers areexpected to come in to test market levels in MLII's wake. Whether the same high level of participation will continue to beseen in later iterations and whether it replaces volume that would have otherwise come into the market remain the mostpressing concerns, however.

JL

7 April 2011 25:41 PM

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Job Swaps

Law firm Fasken Martineau has recruited Arnauld Achard as partner in its Paris office. He specialises in debt capitalmarket transactions, including structured finance and derivative products.

Achard was previously partner and head of the capital markets practice in Paris at Simmons & Simmons. His expertise willpermit Fasken Martineau's Paris office to diversify its platform by offering high quality and specialised capital markets


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services, the firm says.

7 April 2011 :28:02 AM

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Job Swaps

Morgan Stanley's US structured products credit trading head Nirjhar Jain is leaving the bank to pursue opportunities onthe buy-side. Consequently, head of RMBS trading Mike DePietro, head of consumer ABS and CLO trading Becca Hoganand head of CMBS trading Kevin Ng will now report to Jay Hallik, the bank's global head of securitised products trading.

12 April 2011 2:01:30 PM

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Job Swaps

Kamakura Corporation has appointed Marc Joffe as senior advisor in its client services team. Based in San Francisco, hewill support existing and prospective customers, while working closely with Kamakura md and head of risk informationservices Mark Mesler on product development efforts. A specialist in public finance, credit risk and applicationdevelopment, Joffe was previously senior director with Moody's Analytics and a product manager for Moody's KMV.

12 April 2011 :22:33 PM

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Job Swaps

Xenomorph continues its expansion in the Asia-Pacific region with the opening of a Singapore subsidiary. The firm saysthat its TimeScape analytics and data management platform will help clients in the region achieve higher quality riskmanagement, easier regulatory compliance, more transparent derivatives valuations and faster trading decision support.

David Winson will head up the firm's Singapore office as director. With over 17 years of experience in financial markets,he previously worked for World Asset Management, Rothschild and Insight before joining Xenomorph in 2005 to assistwith the implementation of the TimeScape solution.

12 April 2011 1:31:30 AM

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Job Swaps

List has promoted Alessandro Galleni to md, replacing Stefano Falciani. Based in London as one of the firm's four regionaldirectors, Galleni will now be responsible for the UK and Ireland markets, while assuming the day-to-day management ofthe company. He will report to the group's ceo, Enrico Dameri.

Galleni has been actively involved in List's major software development projects for internal matching engines in theEuropean and Asian electronic markets. Prior to joining the firm, he was a software engineer at IBM Milan.

After six years as List UK md, Falciani has taken on a position as business development manager at List Group, with a


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particular focus on List's international business expansion.

12 April 2011 1:36:37 AM

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Job Swaps

FINRA has fined UBS Financial Services US$2.5m and required it to pay US$8.25m in restitution for misleading investorsabout the principal protection feature of the 100% Principal-Protection Notes (PPNs) that Lehman Brothers issued prior toits September 2008 bankruptcy filing.

From March to June 2008 some UBS financial advisors described the structured notes as principal-protected investmentsand failed to emphasise that they were unsecured obligations of Lehman Brothers. FINRA found that UBS failed toemphasise that the principal protection feature of the Lehman-issued PPNs was subject to issuer credit risk and did notproperly advise UBS financial advisors of the potential effect of the widening of CDS spreads on Lehman's financialstrength.

FINRA evp and chief of enforcement Brad Bennett says: "This matter underscores a firm's need to be clear andcomprehensive in disclosing risks of the structured products it sells to retail investors. In cases, UBS' financial advisors didnot even understand the complex products they were selling and, as a result, they neglected to disclose necessaryinformation to customers about the issuer's credit risk so investors would understand the magnitude of the potentiallosses."

Also, FINRA found that certain advertising materials had the effect of misleading customers regarding the characteristicsand risks of the PPNs, including the nature, scope and limitations of the 100% Principal-Protection Notes. The materialssuggested that a return of principal was guaranteed if customers held the product to maturity; however, UBS did notadequately address the importance that credit risk could result in loss of principal.

In settling this matter, UBS neither admitted nor denied the charges, but consented to the entry of FINRA's findings.

12 April 2011 1:42:05 AM

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Job Swaps

ISDA's Board of Directors has elected Morgan Stanley md Stephen O'Connor as its new chairman. O'Connor succeedsEraj Shirvani, Credit Suisse head of fixed income for EMEA, who will continue to serve on the Association's Board ofDirectors.

O'Connor has been a member of the ISDA Board since 2008. He joined Morgan Stanley in 1988 and is global head ofOTC client clearing.

13 April 2011 2:12:52 PM

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Job Swaps

Avoca Capital Holdings is broadening its capabilities beyond long-only funds to provide clients with a hedge fund offeringin European credit. The firm is hiring a five-person credit team from Liontrust, led by fund manager Simon Thorp, as wellas purchasing Liontrust management contracts behind the team's two existing credit hedge funds. The two funds hadAUM of approximately US$100m at 31 March 2011.

Thorp was previously the founder of Ilex Asset Management, where he launched his first credit hedge fund in 2000.


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Substantially all of the Ilex business, including the management of the hedge fund, was acquired by Liontrust in 2009.Prior to Ilex, he was a chief executive at Exco, co-head of global fixed income at NatWest Markets and head of sterlingbond trading at Salomon Brothers.

In addition, James Sclater will be joining the team as senior portfolio manager. Prior to Ilex, he worked for two years as anassistant portfolio manager of a long/short equity fund at CairnSea Investments.

Also joining Avoca from Liontrust are senior analysts Paul Owens and Quentin Peacock, as well as operations managerGareth Roblin. All five will be based in Avoca's London office and supported by the firm's infrastructure in Dublin andLondon.

13 April 2011 2:20:04 PM

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Job Swaps

BMO Capital Markets has promoted Dan Atack to md and Piper Kerr to director in its leveraged finance distribution andtrading team. The pair will report to David Weiss, BMO's head of leveraged finance distribution and trading.

Based in Toronto, Atack and Kerr will be responsible for trading Canadian-issued high yield bonds while working closelywith the firm's syndicate and debt capital markets and sales teams. The pair will also work with Ted Lunney, head of UShigh yield trading, responsible for all US dollar trading.

Atack most recently oversaw the North American and European corporate credit derivative books at BMO. He has alsobeen a high yield trader and senior portfolio manager at the firm's high yield asset manager, HIM Monegy.

Kerr was most recently a CDS trader for BMO's North American and European corporate credit derivative books. Prior tothis, she was also with HIM Monegy as a high yield trader and an assistant portfolio manager.

7 April 2011 :10:24 AM

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Job Swaps

The DTCC has appointed Robert Druskin as chairman of its board of directors. Donald Donahue will continue to overseethe firm's domestic and international businesses, operations, technology and other functions as ceo.

The DTCC announced in December that it would separate the roles of chairman and ceo to ensure a best-in-classapproach in governance and risk management oversight. "This approach follows the global standard for corporategovernance and aims to ensure optimal checks and balances between the businesses and risk control functions," says ArtCertosimo, presiding director of DTCC's board of directors.

Druskin brings decades of financial industry leadership experience to the role, working in some of the most critical andsenior-level positions in banking and the global capital markets. He was most recently chairman of ETrade FinancialCorporation.

7 April 2011 :19:46 AM

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Job Swaps

Kamakura Corporation has appointed Mark Slattery as svp of its client services group. Based in Chicago, Slattery willwork closely with the firm's US and international client base in the financial, insurance and money management markets.He will help clients to meet a 'best practice' standard in risk management, including asset liability management, enhancing


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liquidity and capital management, and model effectiveness.

Slattery was previously an asset liability manager for major regional banks, including Flagstar and LaSalle. He also servedas an independent risk consultant and vp for QRM.

7 April 2011 51:17 PM

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Job Swaps

Wolters Kluwer Financial Services has acquired Spring Programs, an independent provider of financial regulatoryreporting solutions in the UK banking market. Spring provides full reporting templates and high-level input and deliverymechanisms to UK regulators. The acquisition - made through Wolters' FRSGlobal business division - will help financialorganisations better meet intensifying liquidity and stress-testing requirements, the firms say.

11 April 2011 2:29:50 PM

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Job Swaps

Joe Naggar, head of structured products at GoldenTree Asset Management, has joined the firm's partner executivecommittee. Since joining GoldenTree in 2007, Naggar has successfully built out the firm's structured products capabilitiesand an investment team that continues to source and manage attractive investments.

GoldenTree's partner executive committee was originally formed in October 2009 to focus on key areas of its businessfrom a management company and fund perspective. As the business continues to grow and evolve, this committee willremain focused on leading firm strategy, key talent acquisition and other new initiatives and policies.

13 April 2011 :16:26 AM

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Job Swaps

The CRE Finance Council's European board of governors has established a newly formed European CMBS 2.0Committee and a working group on class X principles. Nassar Hussain, managing partner of Brookland Partners, hasbeen appointed chair of the committee.

The European CMBS 2.0 Committee seeks to promote a new operating framework for CMBS transactions. Comprising anumber of senior representatives, the committee will examine industry guidelines for the new issuance of European CMBStransactions. The committee's role will be to examine a number of key areas, encompassing the role of third parties -including servicers and trustees - the structural features of CMBS deals, disclosure requirements and loanrepresentations and warranties.

Hussain comments: "The move by the CREFC to launch the CMBS 2.0 Committee is a positive step in ensuring that wellthought-through industry-level recommendations are in place to guide new issuers and investors in relation to new CMBStransactions. This will facilitate the re-launch of this market, which will ensure that a key piece of the funding jigsaw is inplace to manage the rising funding gap."

The class X principles working group has been established to focus on best practices in relation to existing class X notesand other similar excess spread instruments. The group is open to investors, issuers and advisory firms to discuss thebest parameters for dealing with such instruments in the negotiation of loan and transaction restructurings, as well as inrelation to their position in underperforming CMBS transactions.


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Since origination, some X notes have been sold to third parties; however, the majority of the notes have been retained bythe original banks. With an increasing number of loans now in default or being restructured, the result has been adetrimental shortfall of payments to noteholders, while the originating bank continues to receive substantial income.

Hussain adds: "The class X working group will provide much needed clarity to the industry on how best to approach therestructuring and negotiation of transactions which contain excess spread instruments. The presence of these instrumentsmakes certain restructuring terms unviable and industry level guidelines on the best practices in relation to theseinstruments will be welcomed by servicers and investors."

12 April 2011 0:28:07 AM

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Job Swaps

Franklin Templeton Investments has appointed Luke Anderson, Simon Seen Fun Mok and Toby Hayes to boost its privatereal estate capabilities in the Americas, Asia and Europe respectively. The trio is responsible for sourcing, underwritingand monitoring private equity real estate investments in the geographic regions that they cover

As vp, Anderson will report to the firm's md Marc Weidner. He was previously a portfolio manager with GM AssetManagement, serving on the investment approval committee, underwriting investment opportunities and managing existinginvestments. Prior to this, he headed the development asset management department at The Mills Corporation.

Seen Fun Mok assumes the role of investment manager, reporting to md Glenn Uren. He was previously with AIG Globalreal estate investment, where he was responsible for global real estate funds, real estate investments valuation, portfoliomanagement and investor relations. Prior to this, he worked for Thor Equities in its urban property fund.

As investment manager, Hayes will report to md Raymond Jacobs. Prior to joining Franklin, he worked for Allen & Overyand on a client assignment at Credit Suisse. As a lawyer, his experience was focused on advising on private equity dealsand multi-jurisdictional debt restructurings.

12 April 2011 0:35:00 AM

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Job Swaps

RBS has appointed Krishna Prasad as head of mortgage-backed strategy for Europe in its global banking & marketsdivision. Based in London, he will report to Ganesh Rajendra, the bank's head of international asset & mortgage-backedstrategy.

Prasad was most recently a senior portfolio manager in BlackRock's financial markets advisory group. Prior to this, he wasa senior portfolio manager at PIMCO Europe, where he initially focused on ABS portfolio management before moving toadvisory.

7 April 2011 :34:36 PM

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Job Swaps

WyeTree Asset Management has appointed Yana Kramer as executive director. Responsible for investor relations, shewill report to the firm's ceo Mike Chacos.

Kramer joins WyeTree from hedge fund manager QRT Capital. Prior to this, she worked within fixed income at both CreditSuisse and Barclays Capital.


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6 April 2011 00:34 PM

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News Round-up

US credit card ABS charge-offs rose for the first time in six months while most other metrics posted further gains,according to the latest credit card ABS index results from Fitch.

"The charge-off increase is more reflective of seasonal factors like a rise in tax season bankruptcy filings and less aprecursor to worsening credit trends. Ongoing delinquency improvements are likely to lead to stabilising, albeit elevated,charge-off levels," says Fitch md Michael Dean.

The agency's prime credit card charge-off index indicates that charge-offs rose by 26bp to 8.31%, halting a string of fivestraight month-over-month improvements. For the month, some of the largest trusts that make up a majority of the index -including Chase, Citibank and Discover - reported an increase in default rates. Also, despite credit card defaults being ata two-year low and down 26% year over year, they still remain 39% above the historical average.

Late stage delinquencies are still trending lower and may soon hit a three-year low. For the 14th straight month, Fitch's60+ day delinquency index decreased by 9bp to 3.11% in March - representing a 30% year-over-year improvement. Earlystage delinquencies followed suit and decreased by another 10bp to 4%. All trusts that make up the index have onceagain reported lower delinquency rates for the month.

Gross yield rebounded and improved for the month of March, increasing by 47bp to 20.97%. With the positive gain, yieldperformance remains 12% higher than the historical average at inception of 18.69%. Despite the slight increase incharge-offs, excess spread posted healthier levels compared to the prior month.

Monthly excess spread improved by 69bp to 10.57%, while the three-month average trended higher with a 20bp gain to10.44%. "With March marking the highest ever three-month average excess spread and already 39% aboveyear-over-year levels, excess spread is likely to remain robust throughout 2011," says Fitch director Herman Poon.

While monthly payment rates fell again for the second straight month, declining 1.16% to 19.21%, the current levels arestill approximately 19% higher than the historical average of 16.21%.

Finally, performance in retail credit card ABS was mixed in March after painting a perfect picture during the previousmonthly period. Delinquencies, yield and excess spread posted positive movements, while charge-offs increased andmonthly payment rate slowed.

The 30+ day delinquency index maintained course and was held stable at 6.02%, while late stage delinquencies improved7bp to 4.13%. Retail card delinquencies currently stand at a 30-month low, Fitch reports.

7 April 2011 :15:47 AM

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News Round-up

Net securitisation worldwide rose by 49% to US$739bn in 2010 but remains only just over a third of the 2007 high,according to TheCityUK's latest annual report on the market. Recovery in investor sentiment contributed to a more thanthreefold rise in net issuance in Europe to US$96bn in 2010 from the low point of US$26bn in 2009. The US remains thedominant market, with 81% of issuance last year.

Ratings of US securitisations have taken a much bigger hit than in Europe, the report notes, with the share of triple-Arated transactions slumping from 81% to 34% in the three years to end-2010. In Europe triple-A ratings have fallen from85% to 73% over the same period. The overall US default rate of 7% over the three years to 3Q10 is also eight times thatof Europe, where the rate is 0.9%.

Common factors around the higher volume of issues sold into the market in the US and Europe in 2010 include collateralwith a low risk profile, as well as transparent and simple structures. Duncan McKenzie, head of research at TheCityUK,comments: "Even with basic structures attracting more interest from investors, competing sources of funding, such as


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covered bonds, and the large overhang of retained issuance are likely to significantly check growth in net globalsecuritisation issuance in 2011."

In addition, the curtailment of government/central bank support of the securitisation market could precipitate a fall in grossissuance volumes, the report concludes.

7 April 2011 :31:36 PM

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News Round-up

S&P has taken rating actions on 28 tranches in 15 Greek ABS and RMBS transactions. The actions are a result of itsrevised assessment of Greek country risk in securitisations backed by Greek assets, as well as its recent downgrade ofthe Hellenic Republic to double-B minus on watch negative. The agency's sovereign ceiling for Greek securitisations isnow triple-B plus.

The agency has lowered its ratings on 15 tranches in nine RMBS, three tranches in three ABS and three tranches in threeSME CLOs single-A to triple-B plus and kept them on credit watch negative. One triple-B plus tranche in one RMBStransaction, five triple-B tranches in four RMBS transactions and one triple-B tranche in one SME CLO have also beenplaced on CWN.

The prospects for enhanced tax collections remain uncertain, due both to the impact of weaker domestic demand andpersisting inefficiencies in tax administration, the agency says. Additionally, the current assessment of country risk for theHellenic Republic is that weak economic growth prospects, together with potential additional fiscal measures, mayadversely affect the performance of Greek SF transactions.

8 April 2011 :37:57 AM

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News Round-up

As a way of assessing the performance of private student loan ABS, Moody's has launched a series of credit indices forthe sector, which will be updated quarterly. For 1Q11, the Private Student Loan Indices indicate a continuing decline indefaults and delinquencies on securitised private student loans.

The annualised default rate now stands at 4.8%, down from 5% a year ago, according to Moody's index. Marking the fifthconsecutive quarter of year-over-year declines, the annualised default rate index is expected to reach 4%-4.25% byyear-end and then to drop slightly in 2012 before stabilising at roughly 3.5%-4% - providing loan forbearance remains atroughly current rates.

Although its current 4.8% measure is the lowest since 1Q08, the default rate index remains well above its levels during the2004-2006 period. "Default rates will remain well above the rates of 2004-2006 until unemployment improves markedly,albeit on a lagged basis. The pace of improvement in unemployment combined with the natural aging or 'seasoning' of theloan pools backing the transactions will drive the magnitude of the decline," says Moody's avp Tracy Rice.

A strong indication of future defaults declining is the improvement in the rate of delinquent loans. Moody's 90-PlusDelinquency Rate Index dropped to 2.9% in the 1Q11, down from 3.6% a year ago. It was the fourth consecutive quarterof year-over-year improvement.

Meanwhile, the forbearance rate reached an all-time low of 4.1% in the first quarter, a manifestation of tighter forbearancepolicies that some issuers have introduced over the past three years. Forbearance rates will remain at current historicallylow levels as long as issuers' forbearance policies remain constant, Moody's reports.

The Private Student Loan Indices track nine years of credit performance data on over 60 private student loansecuritisations that Moody's rates, representing US$39bn in outstanding pool balance. Because private loan pools varyconsiderably in credit performance, the indices provide a benchmark for relative comparisons among issuers andindividual transactions. The indices weight each securitisation equally.

12 April 2011 1:28:59 AM


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News Round-up

Moody's has downgraded the ratings of five tranches of Portuguese ABS and 18 tranches of RMBS to Aa2, as well as fourtranches of ABS and 20 tranches of RMBS to A1. In addition, the mezzanine and junior tranches on two ABS and the Aaaratings of two electricity tariff deficit transactions have been placed on review for possible downgrade.

The affected ratings remain on review pending the conclusion of the agency's Portuguese government and bank ratingsreviews. The actions do not, however, affect Portuguese ABS tranches guaranteed by the European Investment Fund,which is rated Aaa. Most Portuguese structured finance transactions cannot retain or achieve ratings above Aa2 unlessthey benefit from external guarantees from highly rated counterparties or have both a robust structure and assets that arerelatively less sensitive to country risk, Moody's explains.

12 April 2011 :22:49 PM

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News Round-up

An unusual exchange-linked transaction has hit the market. The U$1bn Ford Upgrade Exchange Linked (FUEL) notesseries 2011-1 are backed by Ford Credit Auto Owner Trust 2011-SRR1, a prime auto loan ABS originated by Ford MotorCredit Co. The FUEL notes will be mandatorily exchanged for unsecured corporate bonds to be issued by Ford Creditupon its achieving an investment grade rating during the transaction's five-year revolving period.

Moody's and S&P have assigned provisional Baa2/BBB- ratings to the deal. The underlying Ford Credit 2011-SRR1transaction is rated A2.

The purpose of the FUEL notes is to free up assets previously pledged to secure the ABS notes upon the conditionalmandatory exchange. The rating of the FUEL notes is primarily based on the weighted probability that the investor ownseither an A2-rated promise of the ABS notes if no exchange occurs, or at least a Baa3 unsecured promise of payment inthe event of an exchange.

Moody's median cumulative net loss expectation and the Aaa Volatility Proxy Level for the Ford 2011-SRR1 collateral poolare 3.5% and 17.5% respectively. The rating on the FUEL notes could migrate to Ba2 and B2 should expected loss for thepool backing the ABS notes increase to 6.5% and 8.5% respectively from 3.5%.

13 April 2011 2:41:48 PM

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News Round-up

S&P expects European structured finance downgrades in relation to its updated counterparty criteria to begin in April asanticipated, due to the low volume of mitigating action plans received since the criteria became effective. Since thecounterparty criteria became effective on 18 January 2011, the agency placed some ratings on credit watch negative inabout 30% of the outstanding EMEA securitisations.

This amounts to 2,005 SF securities in 975 transactions. The agency aims to resolve these credit watch placements bythe transition date of 18 July 2011.

Action plans were expected to be received within approximately three months of the effective date of 18 April 2011.However, S&P has not received relevant action plans on nearly all of the 975 transactions that had tranches placed oncredit watch and, of the 225 transactions for which we received an action plan before 18 January, we have seen this plan


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successfully implemented for only a small number.

From mid-April onwards, downgrades are therefore expected on the affected tranches of transactions where a viable planhas not been received, S&P warns.

13 April 2011 2:49:07 PM

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News Round-up

US subprime CDS prices have risen for a fifth straight month - an increase in line with the faster pace observed early inthe rally, according Fitch Solutions' latest index results. The overall index level reached 12.14 for the first time sinceOctober 2008, with the price rising 5.8% this past month. This follows on from the modest 90bp increase of February, theagency says.

The 2004 vintage led the charge with a 9.4% increase - the largest increase for the vintage since August 2009. Anothernotable increase is the 6.7% rise in the 2007 vintage, yet the 2006 vintage was only able to muster a 79bp increase.

According Fitch director David Austerweil, a number of positive factors are supporting the rally. "Recent improvements inthe job market are translating into falling subprime delinquency rates. Additionally, fewer subprime borrowers are rollingfrom the early stages of delinquency to the later."

The percentage of borrowers who were 30-days delinquent decreased by 5.3%, while borrowers who were 60-daysdelinquent decreased by 4.4%. There has also been an increase in cured loans from previously delinquent borrowers.The 2004 vintage saw a sharp increase in cured loans, with the percentage of 60-day delinquent borrowers who rolled tocurrent increasing by 50% and the percentage of 30-day delinquent borrowers who rolled to current increasing by 30%.

The area that is most likely to weigh on subprime prices going forward, however, is the increasing amount of time neededto sell foreclosed or real estate owned (REO) homes. "Homes in foreclosure remain near record highs, while foreclosedhomes sold each month continue to decline. Loan loss severities have increased proportionally to the time required for theloan to be liquidated over the last year. The resulting increase in loss severities can lead to lower CDS prices as losses tothe reference bond also accrue to the CDS," says Fitch director Alexander Reyngold.

For the 2007 vintage, the percentage of foreclosed homes was 19.8% - almost unchanged from the previous year - whilethe percentage of loans rolling from foreclosure or REO to liquidation was 2.5%, half the rate of just over a year ago. Overthe same period, loss severities on foreclosed or REO homes rose from 70% to 77%, Fitch reports.

11 April 2011 :34:58 PM

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News Round-up

Citi's global transaction services business has launched an OTC derivatives service that is designed to consolidate andsimplify the post-trade execution process. The offering provides clients with access to a full range of middle- andback-office services on a single platform, including confirmation, settlement, valuation services, collateral management,margin management and access to the bank's global clearing network.

The new offering addresses the need for a comprehensive OTC derivatives solution that can navigate a rapidly changingregulatory and operational environment, Citi says. A flexible, web-based interface also enables full intra-day visibility intokey contract lifecycle events.

12 April 2011 :11:54 PM

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News Round-up


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Five US federal agencies are seeking comment on a proposed rule to establish margin and capital requirements for swapdealers, major swap participants, security-based swap dealers and major security-based swap participants as required bythe Dodd-Frank Act.

The rule is proposed by the Federal Reserve, the Farm Credit Administration, the FDIC, the FHFA and the OCC. The rulewould require swap entities regulated by the five agencies to collect minimum amounts of initial margin and variationmargin from counterparties to non-cleared swaps and non-cleared security-based swaps.

The amount of margin that would be required under the proposed rule would vary based on the relative risk of thecounterparty and of the swap or security-based swap. A swap entity would not be required to collect margin from acommercial end-user as long as its margin exposure is below an appropriate credit exposure limit established by the swapentity.

Further, a swap entity would not be required to collect margin from low-risk financial end-users as long as its marginexposure does not exceed a specific threshold. The proposed margin requirements would apply to new, non-clearedswaps or security-based swaps entered into after the proposed rule's effective date.

The proposal seeks comment on several alternative approaches to establishing margin requirements by 24 June 2011.

SIFMA says it appreciates the proposal's reliance on existing capital rules, which it believes are appropriate for swapentities. However, it warns that some "troubling" differences in approaches are apparent.

SIFMA evp Randy Snook comments: "Specifically, while the CFTC proposal does not require commercial end-users topost margin for uncleared swap transactions, the prudential regulators' proposal requires swap entities to collect marginfrom these end-users if credit limit exposures are exceeded. These and other differences must be addressed before fullyimplementing new rules, otherwise regulators risk providing little certainty to market participants and threatening theorderly operations of these markets."

13 April 2011 2:28:08 PM

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News Round-up

SunGard has released a new version of its risk analytics engine, Adaptiv Analytics. The portal provides improvedperformance to help customers manage developments in credit value adjustment (CVA) and around regulations, such asBasel 3 capital requirements.

Tests demonstrate that Adaptiv Analytics now performs over six times faster than previous releases for a benchmarkportfolio. This increase in performance means that a calculation will run in the same time with only 16% of the hardwarerequired previously, helping reduce hardware costs associated with expensive simulation calculations, SunGard says.

The tool helps customers accurately calculate the cost of credit, while efficiently handling computationally-intensivecalculations for active CVA management and new regulatory stress-test requirements.

12 April 2011 :05:16 PM

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News Round-up

Japan Securities Clearing Corporation (JSCC) has approved an outline for CDS clearing in the country. This follows aseries of detailed discussions about operational procedures and other related matters with market participants,undertaken by the JSCC's operations, risk management and legal sub-committees.


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The Corporation is targeting a launch date of 19 July 2011 for its CDS clearing service, subject to the approval of Japan'sFinancial Services Agency Commissioner. Standardised five-year iTraxx Japan index contracts will be eligible for clearingvia the service.

The use of a domestic central clearing institution is expected to be mandated by November 2012 for OTC derivativestrades in Japan.

11 April 2011 0:51:52 AM

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News Round-up

AcadiaSoft has launched a web-based portal for collateral management and workflow in the OTC derivatives market. Thenew portal provides a unified, automated venue from which market participants can receive, send and confirm margincalls.

The service allows dealers and investors to manage all aspects of collateral communications online, giving partiesinvolved in a trade access to the same information instantaneously. Users may view their collateral exposures andcommitments and make adjustments as needed, while being able to interface through the internet and in-house collateralmanagement systems. Additionally, activity is time stamped and a fully auditable audit trail of activity is created.

The new service significantly improves the process by reducing operational risk and by dramatically increasingtransparency. Having a centralised location from which to track and manage margin calls helps avoid costly andtime-consuming errors while also helping to achieve STP, AcadiaSoft says.

Additionally, in partnership with AcadiaSoft, MarkitSERV has begun offering clients collateral management services,expanding the scope of its platform for managing post-trade requirements of OTC derivative transactions.

11 April 2011 2:11:38 PM

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News Round-up

QuIC Financial Technologies has licensed calculation methodologies developed by Solum Financial Partners to enhancethe calculation speed of its credit value adjustment (CVA) solution for counterparty risk managers. The solution helpsbanks to improve trade pricing and hedge volatility affecting their CVA, without additional or specialised hardware, the firmsays.

Solum's proprietary calculation methodology extends QuIC's advantage in performing the billions of calculations persecond required to gauge counterparty risk at the portfolio level. The solution delivers flexible, near real-time pricing andincremental exposure, sensitivity analysis, stress testing and P&L attribution of large, complex portfolios. It covers equity,credit and interest rate derivatives, as well as foreign exchange and commodities.

6 April 2011 36:12 PM

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Quantifi has enhanced its credit index options models in response to client demand. Increased market depth and liquidityhas driven a need for models to capture the dynamic of the full volatility surface and observed skew, the firm says.


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"Credit desks and counterparty risk management desks, in particular, have expanded their use of CDS index options. Thiscurrent increase in activity has helped enhance liquidity, making it possible to trade tighter ranges and higher volumes,"says Quantifi ceo Rohan Douglas.

Quantifi's director of credit products David Kelly adds: "The increased use of credit options is not surprising, given theimportance of credit volatility as an input to CVA pricing and as a significant risk factor in directional credit strategies. Wehave also implemented tools to calibrate credit volatilities used in CVA pricing and hedging from CDS index option quotes.We are committed to being a leader in this space."

6 April 2011 57:54 PM

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Moody's has extended the comment period on proposed changes to its modelling framework for cashflow CLOs (see SCI23 March), as requested by some market participants. The rating agency will now be accepting comments until 22 April2011, an extension from the original deadline of 8 April.

11 April 2011 1:34:20 AM

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Mission Capital Advisors and Rockwood Real Estate Advisors are conducting a CMBS special servicer loan sale onbehalf of an unidentified seller. The sale comprises 11 non-performing and bankruptcy assets, with an unpaid principalbalance of US$99.7m.

Office collateral accounts for US$56.6m of the portfolio, retail for US$25.5m, hospitality for US$7.2m, manufacturedhousing for US$5.6m, medical office for US$2.5m and multifamily for US$2.3m. The portfolio has exposure to six USstates - AZ, CA, FL, MI, NJ and NY.

The assets are being offered on a sealed-bid basis. The loan sale advisors are initially soliciting indicative bids for thepurchase of individual loans, any combination of loans or the entire portfolio.

The loans are being sold out of separate CMBS trusts. As such, prospective bidders will be required to provide individual,loan-level pricing for each asset.

Indicative bids are due on 2 May, with final bids expected on 10 May. Winning bidders will be selected on 12 May.

The seller is believed to transact regularly in the secondary market as part of its overall asset-management strategy.

11 April 2011 :24:39 PM

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News Round-up

In monitoring Japanese CMBS defaulted loans affected by the recent earthquake, Moody's says it will focus on theprogress of property sales after the restart of special servicing, rather than on a temporary decline in the profitability andrepair of properties. Of the 78 deals in the agency's Japanese rated CMBS portfolio, 23 are backed by 89 propertiesamounting to ¥261.2bn in eight prefectures affected by the earthquake.

Of the 197 loans outstanding, 32 have been affected, with 14 in special servicing. They have a remaining tail period untillegal final maturity of approximately 2.2 years.


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Last month: six loans, amounting to ¥73.1bn, matured; three, amounting to ¥33.4bn, were paid down; one, amounting to¥1.9bn, defaulted; two, amounting to ¥37.8bn, were extended; two amounting to ¥19bn, were prepaid; and two, amountingto ¥5.3bn, were recovered. Defaulted loans amounting to ¥456.8bn at end-March were down by 1.1% from the previousmonth, Moody's concludes.

7 April 2011 :10:06 AM

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The dollar amount of US CMBS fixed rate loans that were liquidated in March increased by 49% from February's level,according to Trepp's latest loss analysis report. However, the firm notes that the majority of loans with losses have lossesof less than 2%.

In total, 105 loans with a total balance of US$1.2bn were liquidated in March. The losses on those loans were aboutUS$216m, representing an average loss severity of 17.8%. This is the lowest loss severity tally registered since the Trepploss analysis report began in January 2010.

The March value is well below the average loss severity of 41.4% over the last 15 months. Special servicers have beenliquidating at a rate of about US$901m per month over that time, so the US$1.2bn in liquidations this month represents anabove average reading, Trepp notes.

"The low loss reading for March was largely a function of the fact that a large number of loans were closed out very closeto par," the firm says. "In most cases, these loans were effectively paid off at par, but the payment of the 1% specialservicing fee created a small loss on the loan. In fact, of the 16 largest loans that had losses in March, 14 had losses of1.1% or less."

8 April 2011 00:22 PM

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The climb towards an expected 10% delinquency rate for US CMBS has slowed, according to Fitch. Late-pays retreatedby 2bp to end March at 8.74%, representing the first decrease since October 2010, the agency says.

"Preliminary indications on year-end 2010 financials that have come in thus far are somewhat encouraging. Net operatingincome declines have slowed or reversed, which - coupled with stronger market liquidity and new CMBS issuance -should continue to help slow the rise in CMBS delinquencies going forward," says Fitch md Mary MacNeill.

Despite the slower pace, delinquencies that declined across four of the five major property types last month are likely tocontinue to rise in 2011, albeit at a slower rate. Current delinquency rates by property type are: multifamily at 17.42%,from 17.58%; hotels at 14.12%, from 14.33%; industrial at 9.38%, from 9.40%; retail at 6.89%, from 7.04%; and office at5.95%, from 5.85%.

8 April 2011 22:56 PM

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MEPC will prepay £74.5m of the £470m loan securitised via Opera Finance (MEPC) on the next interest payment date, 20April, in advance of maturity in July 2012. This follows the first stage prepayment of £102.5m in January 2011 (see SCI 15


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December 2010).

The CMBS - completed in November 2005 and arranged by Eurohypo - was secured against four of MEPC's businessestates: Milton Park in Oxfordshire, Birchwood Park in Warrington, Chineham Park in Basingstoke and Hillington Park inGlasgow.

This prepayment, which follows the Birchwood refinancing in January, is the second stage of a wider financing strategy toaddress the early repayment of the securitised loan before its maturity in July 2012, MEPC says. Hillington Park will bereleased from the securitisation and MEPC will use a combination of cash from recent disposals and equity, alongside anew five-year facility of £53.6m from Eurohypo.

As a result of the prepayment, the CMBS loan outstanding is reduced to £293m - secured against Milton Park andChineham Park - and the interest cover on the remaining debt will increase to 230%.

MEPC chief executive Rick de Blaby says: "This early repayment of part of MEPC's CMBS notes marks a second stage inour programme to address the refinancing of our portfolio ahead of maturity, after the successful repayment of £102.5m inJanuary."

He adds: "The new loan, again with Eurohypo, whose long-term relationship we hugely value, reduces gearing and bringsin further diversity to our overall debt position. It also underlines MEPC's prudent debt strategy, the robustness of itsincome from quality assets and our overall desire to be positioned well for a new phase of activity and performance."

7 April 2011 46:46 PM

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The Australian Office of Financial Management (AOFM) is to invest up to an additional A$4bn in Australian RMBS,together with remaining capacity from the current programme of about A$3.5bn. Investments will continue with the aim ofsupporting competition in residential mortgage lending and lending to small businesses, with an additional objective oftransitioning towards a sustainable securitisation market that is not reliant on government financial support.

The AOFM will continue to utilise a reverse enquiry approach for considering investment proposals, thus providingflexibility to arrangers and issuers in the development of proposals and the timing of issues. It says it will review itsapproach from time to time in light of experience garnered with the programme and changing market conditions.

To date, the AOFM has invested A$12.7bn in 45 RMBS issues. These investments have assisted 19 lenders in raisingover A$29bn in funding. The RMBS issuance supported by the programme has financed mortgages over more than150,000 residential properties across Australia.

8 April 2011 :07:37 AM

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Markit is adding five new series to its MBX, IOS and PO agency mortgage indices on 12 April. The sub-indices willreference Fannie Mae collateral issued with 5% and 5.5% coupons for the 2003, 2005 and 2008 vintages.

The new MBX sub-indices are: MBX.FN30.500.03, MBX.FN30.500.05, MBX.FN30.500.08, MBX.FN30.550.03 andMBX.FN30.550.05. The IOS sub-indices are: IOS.FN30.500.03, IOS.FN30.500.05, IOS.FN30.500.08 andIOS.FN30.550.05. And the PO sub-indices are: PO.FN30.500.03, PO.FN30.500.05, PO.FN30.500.08, PO.FN30.550.03and PO.FN30.550.05.

All new and existing MBX, IOS and PO indices will continue to be priced on a daily basis.

Separately, Markit is understood to be prepping an enhanced version of its TRX.NA index - a total return swap indexreferencing all CMBX.NA.AAA constituents. The new version is expected to be dubbed TRX2.0 and will reference USCMBS issued post-crisis. The need for a more focused TRX index for hedging CMBS bond spreads emerged last year, asincreasing numbers of commercial real estate loan conduits began gearing up for new originations (see SCI 22 September2010).


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7 April 2011 :12:32 PM

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