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European ABS – Two Weeks In Review By Markit (Mobile Version)

20 Aug 2010

European ABS Pricing and Sectors

The volatility seen in broader credit markets has not been reflected in European ABS. This comes despite iTraxx Senior Financials Index seeing a bumpy ride from the end of July, tightening on the back of stress test results, only to widen to pre-stress test levels two weeks later. This week’s successful Irish bond auction has brought some relief, leading to a 7 bps tightening. In ABS, however, pricing across most asset classes and jurisdictions has remained range-bound, with the exception of some of the junior securities of Spanish and Portuguese deals where we have seen prepayment expectations lowered, leading to higher WALs and lower prices.

The hiatus typical in the European ABS market at this time of year continued. The end of July and beginning of August have seen subdued activity levels. Senior non-conforming RMBS & BTL (such as ESAIL & PARGN) and some CMBS (notably TITN 06-2 A and OPERA GER1 A) have attracted the most attention.

Cash pricing on Granite has seen further improvements in the observed bids quoted now at 93.1 for the AAA (up 0.8 pts from 4 weeks ago), at 75 for the AA (up 0.75 pts), at 64 for the A (up 1 point) and BBB up 1.5 to 2 points at 44.5 to 45. (The EUR tranches bid 0.5 points higher than the USD and GBP tranches.)

The aforementioned successful sale of Irish sovereign debt is unlikely to have the same sort of positive impact on Irish RMBS deals as was seen on the senior financials. Solvency concerns still abound in the Irish banking sector and the outlook on underlying deal performance is negative. Performance is expected to deteriorate further, with no end in sight, as tight credit conditions and fiscal austerity continue to put a strain on households, as further detailed in the performance update below.

Top 5 Price Movers

Improvement was generally seen in junior and mezzanine tranches of UK Prime RMBS, while Spanish securities dominate the largest deterioration.

 Top 5
ABS Improvers (Source: Markit European ABS Pricing Service)
Deal NameSeriesClassCcySpreadChangeRatingSectorCountry
Fosse Master Issuer 2006-1C4GBP458-156.79BBBPRMBSGBR
Fosse Master Issuer 2006-1C3EUR458-156.79BBBPRMBSGBR
Granite Master Issuer2007-21M1USD441-155.75APRMBSGBR
ARENA 2004 II BV2004-2DEUR545-149.41BBBRMBSNLD
Arkle Master Issuer2006-23C3GBP466-147.37BBBPRMBSGBR
ABS Deteriorators (Source: Markit European ABS Pricing Service)
Deal NameSeriesClassCcySpreadChangeRatingSectorCountry
CM Bancaja 1 Fondo1AEUR1,310197.1AAACDOESP
Themeleion III3AEUR608116.19AARMBSGRC
Fondo de Titul UCI 818AEUR39847.76AAARMBSESP
BBVA 4 PYME Fondo4A2EUR53434.25AAASmallBusESP
Bankinter 11AEUR30832.25AAARMBSESP

European Total Return

None of our total return curves have been affected by a major drop or improvement, except the Spanish ones.

European CDS of ABS

With the synthetic market remaining stable and the cash market getting tighter, the negative basis is slightly decreasing. Nothing major has been reported in this market.

European CDS of ABS AAA (Source: Markit European CDS of ABS Service)
Deal NameSeriesClassCcy(15July)(18Aug)LevelsBasis
Arkle Master Issuer2006-23A2EUR9590135-45
Delphinus 2006-1AEUR9580140-60
Perm Master Issuer2007-13AEUR130100155-55
Gracechurch Mtg Fin2007-13A2EUR11095140-45
Holmes Master Issuer2007-13A2EUR13090125-35
Granite Master Issuer2007-23A2EUR3.5%+50dm1.8%+50dm93.5-3.60%
Bankinter 1414A2EUR220200280-80

Primary Market and Rating Actions

Second half of July saw a number of publicly placed deals, including two deals from Santander - the Fosse Master Issue of UK PRMBS and a non-captive Auto Loans issue. Retained primary issuance has continued unabated throughout August, but no public placements made it to the market since the beginning of the month.

Primary Market(Source: Markit European ABS Performance)
Maestrale 3Italian Lease ABSAAAA1601,208.10
Pontormo Mortgages SrlItalian RMBSA1AAA20187.9
Douro Mortgages No. 5Portuguese RMBSA201,099.00
Citadel 2010-IIDutch RMBSAAAA120990.7
Belgian Lion SME IBelgian SME CLOA1AAA1753,000.00
Atlantes Finace No. 3Portuguese ABSAAAA110208.5
Foncaixa Hipotecario 11Spanish RMBSAAAA806,110.00
MBS Bancaja 7Spanish RMBSAAAA30472.5
Pearl MBS 4Dutch Prime RMBSAAAA90931
BBVA Empresas 4Spanish SME CLOAAAA301,700.00
Fosse Master Issuer 2010-3UK Prime RMBSA1AAA1521,481.60
Fastnet Securities 8Irish RMBSA1AAA1.25%483
SC Germany Auto 2010-1German Auto LoanAAAA105567
The Great Rolling Stock Co.UK Whole BusinessBBB295358
Sandown GoldUK SME CLOA1AAAA175417.7
Thames Water Utilties Cayman UK Whole BusinessBBBB285656.4

Rating action has been mixed with some credit improvement in older vintage UK NC RMBS resulting in a number of upgrades. Downgrades still dominated though, especially in the Greek and Spanish deals.

Deals Affected by Rating Actions (Source: Markit European ABS Performance)
Bancaja 3 BSpanish RMBSUpgraded
Bankinter 7 C; 9 BPSpanish RMBSUpgraded
Cajamar Caja Rural B, CSpanish RMBSUpgraded
Driver Three B; Four B; Five B; Six BGerman Auto LoansUpgraded
Granite Mortgages 04-2 2B, 3B; 04-3 2M, 3MUK Prime RMBSUpgraded
Hipotebansa VIII B; IX BSpanish RMBSUpgraded
Paris Prime Comm Real Estate CFrench CMBSUpgraded
Residential Mortgage Securities 17 B1a, B1cUK NC RMBSUpgraded
Southern Pacific Securities 04-1 M; BUK NC RMBSUpgraded
Southern Pacific Securities 04-2 C1a, D1a; D1c, EUK NC RMBSUpgraded
White Tower 2006-3 B, CUK CMBSUpgraded
Aire Valley Mortgages 04-1 3Ca, 3C2, 3D1, 3D2UK BTLDowngraded
Aire Valley Mortgages 05-1 2C2; 06-1 1C2, 2C2UK BTLDowngraded
Anaptyxi 2006-1 A, B, C, DGreek SME CLODowngraded
Andromeda Leasing IGreek Lease ABSDowngraded
Axia Finance A; II A; III AGreek SME CLODowngraded
AYT Caja Granada Hipotecario I B, C, DSpanish RMBSDowngraded
Bancaja 9 B, C, DSpanish RMBSDowngraded
BBVA Consumo 3 A, BSpain Consumer LoansDowngraded
Celtic Res. Irish Mortgage Sec No. 12 A3, B, CIrish RMBSDowngraded
Compagnia Finanziaria 1 A, B, C, E1, E2, E3Italian Consumer LoanDowngraded
Daneion 2007-1 AGreek Consumer LoanDowngraded
DECO 11 A1B, A2, B, C; 12 A2, B, C, D, E, FCMBSDowngraded
ELOC 19 (Morpheus) EUK CMBSDowngraded
Epic (Brodie) AUK CMBSDowngraded
Epihiro AGreek SME CLODowngraded
Estia Mortgage Finance II AGreek RMBSDowngraded
Estia Mortgage Finance II B, C; III BGreek RMBSDowngraded
European Loan Conduit 28 (Vulcan) EUK CMBSDowngraded
EuroProp (EMC VI) D, E, FUK CMBSDowngraded
Gaia Lease AGreek Lease ABSDowngraded
Gemini (Eclipse 2006-3) A, BUK CMBSDowngraded
Granite Mortgages 03-2 1C, 2C, 3C UK Prime RMBSDowngraded
Granite Mortgages 03-3 1C, 1M, 2C, 2M, 3C, 3MUK Prime RMBSDowngraded
Granite Mortgages 04-1 2C, 2M, 3CUK Prime RMBSDowngraded
Grifonas Finance No 1 A, B, CGreek RMBSDowngraded
Harvest CLO VLeveraged Loan CLODowngraded
Hipocat 11 A2, A3, BSpanish RMBSDowngraded
IM Ceres 2 Cajamar ESpanish SME CLODowngraded
IM Grupo Banco Popular Empresas 2Spanish SME CLODowngraded
Irida 2009-1Greek LeaseDowngraded
Katanalotika AGreek Auto LoanDowngraded
Kion Mortgage Finance AGreek RMBSDowngraded
MBS Bancaja 3 D; 4 B, C, D, ESpanish RMBSDowngraded
Portfolio GREEN German CMBS C, D, EGerman CMBSDowngraded
PremiertelUK CMBSDowngraded
Provide-VR 2003-1 C, D, EGerman RMBSDowngraded
Provide-VR 2004-1 DGerman RMBSDowngraded
Rural Hipotecario IX B, C, D, ESpanish RMBSDowngraded
S-CORE 2007-1 A2, B, C, D, EGerman SME CLODowngraded
TDA 24 A1, A2, B, C, DSpanish RMBSDowngraded
TDA Unicaja 1 DSpanish RMBSDowngraded
Themelion Mtg A, B, C; II A, B, CGreek RMBSDowngraded
Themelion Mtg III A, M, B, C; IV A, B, CGreek RMBSDowngraded
Titan Europe 2007-3 A1, A2UK CMBSDowngraded
TS Co mit OneGerman SME CLODowngraded
Uropa Securities 2007-01B A3A, A3B, A4A, A4BUK NC RMBSDowngraded
Whinestone Capital Mgmt B1, B2, B3, C1, C2, C3UK Prime RMBSDowngraded
White Tower 2006-3 EUK CMBSDowngraded

Economic Data

Both house price indices continue to paint a picture of a stable housing market. Halifax came out with a 0.6% rise month-on-month, offsetting the previous month’s decline of the same magnitude. The year-on-year 3 months running average showed a 4.9% increase, which was down from June’s 6.3% figure. Nationwide is painting a broadly similar picture, with their index showing a monthly 0.5% decline, with the yearly growth rate also falling from 8.7% in June to 6.6% in July.

The Markit/CIPS Construction PMI continued to show month-on-month improvement, albeit at a slower rate, dropping over 4 points from 58.4 to 54.1. Most notably the Housing Activity sub-index slowed significantly, dropping almost 6 points, from 62.8 to 57, and reversing a growth trend observed since March of this year. The Commercial Activity sub-index also slowed half a point to 53.7, marking a third straight month on a downward trajectory.

Finally, the BoE Monetary and Financial Statistics report is showing a slight decline in the seasonally adjusted total net monthly lending secured on dwelling for June 2010, down to £10.99 billion from £11.4 billion in May. The non-seasonally adjusted figure continued rising, reaching £13.3 billion.

ABS Performance Highlight: Irish RMBS

Housing prices in Ireland continue to fall, dropping by 16% in June compared to one year ago and by 36% compared to the 2007 peak. The negative outlook on the Irish economy for the last quarter of 2010 and the expected rise of the unemployment rate to 13.8%, have led the consumer sentiment to decrease over the last few months. The KBC Ireland/ESRI index reached 66.2 last month, falling from 67.9 in June, pointing out people’s uncertainty about their finances and the labour market.

As a result, mortgages arrears are increasing and repayment rates are following a negative trend. 90+ day delinquencies have increased considerably from the first quarter of 2008, rising from 1.3% to 6.5%.

The worsening of the credit performance has been reflected also on the 360+ day delinquencies, which have risen by 2% compared to one year ago.

Prepayment rates are decreasing as well, dropping from 10% in the first quarter of 2008 to 4.8% in the second quarter of 2010. Last week, three classes of the deal Celtic Residential Mortgages Series 12 were downgraded by Moody’s because of the deterioration of the collateral performance.

In terms of performance indicators, it should be mentioned that Irish prime RMBS transactions contain only a small number of properties which have been repossessed by the servicers, due to the length of the legal process. The repossession process could be further delayed by the increase of the moratorium for commencing legal proceedings on owner-occupied mortgages from 6 to 12 months.

Overall, the outlook for the last quarter of 2010 remains negative. Most of the transactions are approaching the expected maturity date in 2012 and the investor.

This market commentary was written by Philippe Pagnotta, Roman Kalyuzhny and Alessandra Perosa, ABS analysts at Markit.

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For an enhanced version of this commentary featuring more charts and tables, click here.

20 Aug 2010