Markit Structured Finance Research 23/01/2009
The European ABS Market A Week in Review: 15 – 22 January 2009 Barack Obama’s inauguration and, more important for Europe, the UK government’s second bail out of British banks, dominated the headlines this week. Structured finance investors around the world are watching Obama’s economic decisions closely. The Markit ABX and Markit CMBX indices rallied this week. Spread (bp) 1,600 1,400 1,200 1,000
Spread (bp) 800
M arkit iTraxx Europe Senior Financials Series 7 Version 1 5Y M arkit ABX.HE.AAA Indices S6 V1 M arkit CM BX.NA.AAA Indices-S3
M organ Stanley
HBOS
700
Bradf ord & Bingley PLC
JPM organ Chase & Co
600
Citigroup Inc
Royal Bk Scotland Gp PLC
500
800
400
600
300
400
200
200
100
0 Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
0 01-Dec
16-Dec
31-Dec
15-Jan
Additionally, the Royal Bank of Scotland, which announced a 2008 loss of £28 billion, saw its five-year CDS jump from 100 basis points to 150 basis points. CDS spreads throughout the financial sector widened on both sides of the Atlantic.
The biggest movers in the European ABS market included both improvers and deteriorators for the second week in a row. Improvers included the market’s most liquid sectors, such as UK Prime and Dutch RMBS.
Top 5 ABS Deteriorators Deal Name Opera Fin Lakeside plc Gracechurc h Card Fdg No 10 PLC FCC LOGGIAS 2001 1 E MAC NL 2003 II BV Magellan Mtgs N o 1 Plc
Series 1 05-1 2001-1 1 1
Cl ass A A1 A A A
Ccy GBP EU R EU R EU R EU R
Isin XS0198555202 XS0232360445 FR0000488462 XS0179206858 XS0140415836
Spread (bp) 888 582 317 676 500
Change (bp) 214.95 12.75 1.12 1.05 0.73
Rating AAA AAA AAA AAA AAA
Sector CMBS Credit Card RMBS RMBS RMBS
Avg Life(yr) 2.6 1.7 2.6 8.0 3.7
Series 2006-1 2006-2 2006-1 3 1
Cl ass A 3A2 A5 A1 A
Ccy EU R EU R EU R EU R EU R
Isin XS0246672355 XS0277508692 XS0273840305 XS0200691805 XS0213557555
Spread (bp) 334 409 417 428 356
Change (bp) -34.62 -26.67 -7.04 -6.48 -2.18
Rating AAA AAA AAA AAA AAA
Sector RMBS PRMBS PRMBS PRMBS RMBS
Avg Life(yr) 5.5 2.1 2.4 1.1 2.1
ABS Improvers Deal Name Arena 2006 I BV Arkle Master Issuer Plc 2006 2 Gracechurc h Mtg F ing PLC Holmes Fing No 9 PLC Arena 2005 I BV
Markit Structured Finance Research
In the synthetic market, the tightening was even more apparent during the first two weeks of January. After reaching all-time wides at year end, AAA spreads have returned to early December levels with Dutch RMBS narrowing to 350 basis points from 380 basis points. UK Prime RMBS tightened to 400 basis points from 430 basis points. Granite narrowed 50 basis points to 610 basis points. This positive tone was not reflected in either Australian or Spanish RMBS, which both widened slightly. The last time European CDS of ABS spreads tightened was during the April May 2008 period, immediately before the significant widening. AAA EABCDS Sector Analysis
Spread (bp) 850 800
Dutch AAA RMBS
750
Italian AAA RMBS
700
UK AAA PRMBS Ireland AAA RMBS
650 600
Granite AAA UK AAA CMBS
550
UK AAA SPRMBS
500
Spanish AAA RMBS
450 400 350 300 250 200 150 100 50 0 Mar 31st
Apr 30th
May 30th
Jun 30th
Jul 31st
Sep 1st
Deal Name
Series
Granite Master Issuer plc Holmes Master Issuer PLC 2007 1 Perm Master Issuer plc 2007 1
Oct 1st
Class
Oct 31st
Dec 1st
Dec 31st
Currency
Isin
Synthetic Mid Spread (bps)
Markit Cash ABS Mid Spread (bps)
Basis (Synthetic Cash)
Average Life (yr)
Duration
2007-2 3A2
EUR
XS0298974840
609
1951
-1342
2.25
2007-1 3A2
EUR
XS0292750253
343
414
-70
2.25
2.09
2007-1 3A
EUR
XS0288090342
463
604
-141
2.88
2.54
2.19
Arkle Master Issuer Plc 2006 2
2006-2 3A2
EUR
XS0277508692
338
418
-80
2.09
1.97
GRACECHURCH MORTGAGE FINANCING PLC 20071
2007-1 3A2
EUR
XS0302999064
345
426
-81
2.98
2.75
Shield 1 BV
1
A
EUR
XS0238072895
350
388
-38
3.01
2.71
Bankinter 14 Fondo Titul Hipo
14
A2
EUR
ES0313271019
473
481
-9
4.74
3.82
German Residential Asset Nt Distributor plc
1
A
EUR
XS0260141584
537
675
-138
4.30
3.38
At the other end of the capital structure, BBB levels remained stable relative to year-end levels. Priced upfront with a fixed cap, the cheapest ABCDS sector is UK Prime RMBS at 40 cents with a running fee of 100 basis points. Granite and UK subprime are both in the 90 cents area.
Deal Name
Series
Class
Currency
Isin
Mid Upfront (cents)
Running Fee (bps)
Markit Cash 100 - Markit Price Cash Price
Difference (Synthetic - Cash)
Average Life (yr)
Duration
Perm Master Issuer plc 2006 1
2006-1 4C
EUR
XS0270511115
54
100
51
49
5
2.73
1.88
Granite Master Issuer plc
2007-2 3C2
EUR
XS0298978320
90
100
8
92
-2
6.95
2.49
Arkle Master Issuer Plc 2006 2
2006-2 3C2
EUR
XS0277529698
37
100
66
34
3
2.07
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Markit Structured Finance Research
BBB EABCDS Sector Analysis (P UF + Running fee of 100 bps) PUF (%) 100 95 90 85 80 75 70 65 60 55 50 45
Jan 15th
40 35 30 25 20 15 10 5 0 UK BBB PRMBS
Spanish BBB RMBS
Granite BBB
UK BBB SPRMBS
The primary market remained calm again this past week:
Primary Market Deal
C ountry/Sector
Class
Av Rating
Spread (bp)
Amount (€ mn)
Isin
Finis Mortgages 2008
R ussian/RMBS
A
A
750
108 XS0406566934
Fundus Mortgages 2008
R ussian/RMBS
A
A
750
108 XS0406575174
Belgian Lion RMBS 1
Belgian/R MBS
A
AAA
140
4,816 BE0002383553
B
n.r
300
515 BE0002384569
A
AAA
40
608 ES0358968008
Loan B
n.r
55
197 n.a
Madrid Residencial 1
Spanish/RMBS
Cash ABS spreads in most European sectors tightened, likely driven by long investors. The Dutch cash RMBS market tightened to 350 basis points from 375 basis points.
The UK government continued its attempt to increase confidence among ABS investors. After coming close to nationalising some of the largest British banks, the government is in the process of implementing guarantees for particular AAA RMBS. The government is effectively playing the role of a monoline insurer. Tranches that benefit from these guarantees should begin pricing more closely in line with UK government yields.
The Bank of England will also launch a £50 billion fund to purchase ABS and other debt instruments. The terms of the current liquidity scheme will be revised by the end of the month to include better medium-term financing. By injecting liquidity directly into the mortgage market, the government hopes to again buoy the ABS market should house prices recover.
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3
Markit Structured Finance Research
European AAA RM BS (3-5yr WAL)
European AA RM BS (3-5yr WAL) Spread (bp) 2,400 2,200 UK SPRM BS UK PRM BS 2,000 Spanish RM BS Dutch RM BS 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08
Spread (bp) 1,400 1,200 1,000 800
UK SPRM BS
UK PRM BS
Spanish RM BS
Dutch RM BS
Italian RM BS
Irish RM BS
Portuguese RM BS
French RM BS
Australian RM BS
600 400 200 0 Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
Dec-08
European A RM BS (3-5yr WAL)
Aug-08
Oct-08
Dec-08
Aug-08
Oct-08
Dec-08
Oct-08
Dec-08
European BBB RM BS (3-5yr WAL)
UK SPRM BS
UK PRM BS
7,000
UK SPRM BS
UK PRM BS
Spanish RM BS
Dutch RM BS
6,000
Spanish RM BS
Dutch RM BS
3,200 2,800
Dec-08
Spread (bp) 8,000
Spread (bp) 3,600
Oct-08
2,400
5,000
2,000
4,000
1,600
3,000
1,200
2,000
800
1,000
400 0 Oct-07
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
0 Oct-07
Dec-08
Dec-07
Feb-08
Jun-08
UK P RM BS AAA
European CM BS (3-5 yr WAL) Spread (bp) 3,200
Spread (bp) 3,200 2,800
Apr-08
CM BS AAA
CM BS AA
Holmes M aster Issuer PLC 2006 1 3 A2 EUR
2,800
Perm M aster Issuer plc 2007 1 2007-1 3A EUR
2,400
2,400
Granite M aster Issuer plc 2007-2 3A2 EUR
2,000
2,000
Aire Vy M tgs 2005 1 plc 2 A2 EUR
1,600
1,600
1,200
1,200
800
800
400
400
CM BS A
0 Oct-07
Dec-07
CM BS BBB
Feb-08
Apr-08
Jun-08
Aug-08
Oct-08
European Auto Loan/ Equipment Lease ABS Spread (bp) 2,400 Auto Loan AAA (1-4 yrs) Auto Lease AAA (1-4 yrs) 2,200 Equip Lease AAA (1-4 yrs) Auto Lease A (1-4 yrs) 2,000 1,800 Auto Loan BBB (1-4 yrs) Equip Lease BBB (1-4 yrs) 1,600 1,400 1,200 1,000 800 600 400 200 0 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08
23/01/2009
0 Oct-07
Dec-08
Dec-07
Feb-08
Apr-08
Jun-08
European Credit Card ABS Spread (bp) 3,200 Credit Card AAA (1-4 yrs)
2,800
Credit Card A (1-4 yrs)
2,400
Credit Card BBB (1-4 yrs)
2,000 1,600 1,200 800 400 0 Oct-07
Dec-08
4
Dec-07
Feb-08
Apr-08
Jun-08
Aug-08
Markit Structured Finance Research
The European Central Bank’s new risk control measures will come into force on February 1, 2009 with the following haircuts applied
Levels of valuation haircuts applied to eligible marketable assets in relation to fixed coupon and zero coupon instruments (percentages) Liquidity categories Category I
Category II
Category III
Category V (ABS)
Category IV
Residual maturity (years)
Fixed coupon
Zero coupon
Fixed coupon
Zero coupon
Fixed coupon
Zero coupon
Fixed coupon
Fixed or zero coupon
Zero coupon
0-1
0.5
0.5
1
1
1.5
1.5
6.5
1-3
1.5
1.5
2.5
2.5
3
3
8
8
3-5
2.5
3
3.5
4
4.5
5
9.5
10
5-7
3
3.5
4.5
5
5.5
6
10.5
11
4
4.5
5.5
6.5
6.5
8
11.5
13
5.5
8.5
7.5
12
9
15
14
20
7-10 >10 Source: ECB
23/01/2009
5
6.5
12-16.4
Markit Structured Finance Research
Appendix 1: ABS Performance Highlight: Portuguese RMBS
With the majority of attention turned towards to UK RMBS, in particular some of the large Master Trust structures, do investors in other jurisdictions have any worries around the corner? We highlight the performance of two distinct Portuguese deals from the same issuer with varying vintage: Magellan Mortgages No. 2 Plc, issued in October 2003, had an initial 22,979 mortgage loans for a value of €1.05 billion and an LTV ratio of 65.67 percent Magellan Mortgages No. 4 Plc, issued in July 2006, had an initial 23,006 mortgage loans for a value of €1.59 billion and an LTV ratio of 76.48 percent
Delinquencies - 90 Days + %
90 Days+%
5 Magellan Mortgages No.2 plc 4
Magellan Mortgages No.4 plc
3
2
1
0 Aug-03
Feb-04
Aug-04
Feb-05
Aug-05
Feb-06
Aug-06
Feb-07
Aug-07
Feb-08
Aug-08
Delinquency levels over time for these deals have increased steadily. However, neither deal is nearing percentage levels of great concern. Both deals have portfolio trigger events of 90 to 365 days and trigger percent delinquencies at 4.50 percent. Both are currently at around the 1.00 percent level. Of these delinquent loans, Magellan 2 has 111 in legal proceedings while Magellan 4 has 72 at this stage.
Fundamental performance data shows the strong performance of these deals. Reserve funds are untouched, and the relative cover of the funds over the outstanding collateral balances has increased as the deals continue to pay down with no problems.
Losses for the funds are also no cause for concern. The earlier vintage has suffered no losses at this stage. Magellan Mortgages 4 Plc had suffered a small amount of deemed principal losses, which were subsequently covered by the excess spread, accounting for realised loss of €0.
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Markit Structured Finance Research
Magellan Mortgages No.2 plc Report Date
Reserve Fund
Magellan Mortgages No.4 plc
Reserve Fund % of Pool
Losses
Reserve Fund
31 August 2003
9000000
0.855
0
31 December 2003
9000000
0.918
0
31 March 2004
9000000
0.940
0
30 June 2004
9000000
0.962
0
30 September 2004
9000000
0.986
0
31 December 2004
9000000
1.011
0
31 March 2005
9000000
1.037
0
30 June 2005
9000000
1.037
0
30 September 2005
9000000
0.903
0
30 December 2005
9000000
0.903
0
31 March 2006
9000000
1.170
0
30 June 2006
9000000
1.204
0
Reserve Fund % of Pool Losses
30 September 2006
9000000
1.241
0
13500000
0.921
0
31 December 2006
9000000
1.284
0
13500000
0.905
0
31 March 2007
9000000
1.355
0
13500000
0.966
0
30 June 2007
9000000
1.457
0
13500000
1.012
0
30 September 2007
9000000
1.612
0
13500000
1.142
0
31 December 2007
9000000
1.709
0
13500000
1.223
0
31 March 2008
9000000
1.783
0
13500000
1.278
0
30 June 2008
9000000
1.937
0
13500000
1.335
84,229
30 September 2008
9000000
2.010
0
13500000
1.380
84,229
31 December 2008
9000000
2.095
0
13500000
1.424
213,405
Portuguese RMBS shows robust performance in a time where other areas are requiring increasingly close scrutiny.
Despite this normal performance, the most senior securities from these two deals have traded in the 500-550 basis points area, greatly affected by the widening in September-December 2008 across European ABS.
M agellan M tgs No 2 plc 1 A EUR Spread (bp) 550 500 450 400 Spread Bid 350 300 Price Bid 250 200 150 100 50 0 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08
M agellan M tgs No 4 plc 1 A EUR Spread (bp) 550 500 450 400 Spread Bid 350 300 Price Bid 250 200 150 100 50 0 Oct-07 Dec-07 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08
% 100 98 96 94 92 90 88 86 84 82 80
Dec-08
Philippe Pagnotta
David Bruce
ABS Analyst, Structured Finance
ABS Analyst, Structured Finance
Markit
Markit
Tel: +44 20 7260 2214
Tel: +44 20 7260 2112
Email:
[email protected]
Email:
[email protected]
For more information on Markit's ABS products, please contact:
[email protected]
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7
% 100 98 96 94 92 90 88 86 84 82 80 78 76
Dec-08