International Financing Review February 29 2020 41STRUCTURED FINANCEFAT owns eight restaurant brands,
including Fatburger and Buffalo’s Cafe and
Express. Its brands have more than 380
locations in 20 states and 20 countries with
75% of them in the US. It plans to add
ANOTHERûûRESTAURANTSûOVERûTHEûNEXTûlVEû
years.
FAT Brands’ deal is rare in whole-business
securitisation because it is high-yield.
DUNKIN’ BRANDS and DOMINO’S PIZZA, which
have far more restaurants than FAT Brands,
have regularly tapped the ABS market with
debt that carries investment-grade ratings.
Last November, Domino’s raised
US$875m with an ABS deal whose BBB+
notes with a weighted average life of 9.4
years fetched a coupon rate of 3.668%.US STRUCTURED FINANCE MARKET
STUCK IN LIBOR MORASS
4HEû53ûSTRUCTUREDûlNANCEûMARKETûREMAINSû
reluctant to transition away from Libor,
even though the scandal-ridden
BENCHMARKûFORû53TRNûOFû53ûlNANCIALû
products is set to go away after 2021,
according to bankers, issuers and investors
at SFVegas2020, who blamed the market’s
crawl on a number of risks associated with
ditching Libor.
!TûSEVERALûJAM
PACKEDûPANELSûATûTHEû
annual securitisation industry conference
in Las Vegas they raised concerns about
POSSIBLEûLAWSUITS ûOPERATIONALûDIFlCULTIESû
and the inadequacy of the Secured
Overnight Funding Rate as the Libor
alternative.
Rather than switching to SOFR, some
participants in a recent survey conducted
by the Structured Finance Association said
they prefer the creation of a “synthetic”
Libor, while others said they favour Libor
to carry on beyond 2021.
These possible steps, while imperfect,
would minimise the risk of “something
catastrophic” from happening in the move
away from Libor, according to Jennifer
Earyes, head of CFO Strategic Initiatives at
Navient, who spoke at one of the panels on
Libor.
Moreover, some participants have
looked to federal and New York state
lawmakers to pass legislation to cover
existing securitisation deals that do not
have fallback terms and conditions for a
rate alternative when Libor ceases to exist.
It is impossible to expect all the
noteholders for every outstanding
securitisation to agree to ditch Libor, the
conference panellists said.
“There’s reason to be pessimistic” on the
practicalities of amending Libor language in
existing deals, said Dustin Seely, a Dodge &
Cox analyst and trader.While interest rate derivatives comprise
THEûMAJORITYûOFûTHEûPRODUCTSûTHATûAREûLINKEDû
to Libor, the amount of securitised assets is
NOTûINSIGNIlCANT
Currently, some US$1.8trn of structured
products reference Libor, dominated by
US$1trn of mortgage-backed securities,
followed by US$400bn in collateralised loan
obligations.
Several investors who spoke to IFR at the
conference said the size of the market
means the adoption of SOFR in structured
lNANCEûWILLûSIMPLYûTAKEûTIMEFALLING BEHIND
While other parts of the US debt market
have similar worries about abandoning
Libor, they have shown a faster adoption of
3/&2ûTHANûSTRUCTUREDûlNANCE
Companies have raised more than
US$7bn in SOFR-based corporate bonds in
2020, compared with nil during the same
period a year earlier, according to data
compiled by IFR.
Fannie Mae and Freddie Mac have been
the main SOFR issuers in the securitisation
space.
Between the two housing agencies, one
SOFR issue has landed so far this year: a
US$870.860m commercial mortgage-backed
offering secured by multifamily deals from
Freddie on Tuesday.
But this small handful of deals is a
contrast to the success UK issuers of RMBS
and ABS offerings have had in transitioning
away from Libor to price deals off the
Sterling Overnight Index Average.ASIA-PACIFIC MBS
COLUMBUS CONFIRMS FLATTER RMBS
CURVECOLUMBUS CAPITAL underlined the recent
mATTENINGûOFûTHEû2-"3ûCREDITûCURVEûWITHûLASTû
Friday’s upsized A$1bn (US$655m) TRITON
2020-1 prime sale.
NABûWASûARRANGER ûANDûJOINTûLEADûMANAGERû
with Standard Chartered Bank and Westpac for
the transaction, which was increased from
an indicative A$500m issue size.
The A$200m of Class A1-MM notes with a
0.4-year weighted-average life were priced
in line with one-month BBSW plus 75bp
guidance.
The A$500m of Class A1-AU and A$150m
of Class A1-5Y notes, with respective 2.8 and
5.0-year WALs, were priced 125bp and
141bp wide of one-month BBSW versus
120bp–125bp and 140bp area guidance.
The A$70m Class of A2 notes with a 4.3-
year WAL were priced at the tight end of
one-month BBSW plus 140bp–150bp
guidance.The A$28m of Class AB, A$21m of Class B
and A$15m of Class C notes, all with 4.3-year
WALs, were priced 160bp, 185bp and 245bp
over one-month BBSW.
Pricing was not disclosed for the Class D,
E or F notes.
The non-bank lender issued three RMBS
in 2019, the last being the similarly enlarged
A$1bn Triton 2019-3 on November 1.
The 2019-3 Class A1-AU, A1-5Y, A2, AB, B and
C notes were priced 120bp, 150bp, 160bp,
180bp, 205bp and 250bp over one-month BBSW.
While the 2019-3 Class A1-AU coupon is
5bp tighter than on the latest Columbus
RMBS, the A1-5Y to C notes were priced 9bp
wider, 20bp wider, 20bp wider, 20bp wider
and 5bp wider than the new equivalent
tranches, respectively.PEPPER HITS THE ROADPEPPER GROUP has mandated CBA, NAB and
Westpac for a potential non-conforming
Australian dollar RMBS offering following
investor meetings in Sydney on March 4 and
Melbourne over the following two days.
Last October, the non-bank lender issued
the A$750m-equivalent no-grow, non-
conforming RMBS Pepper Residential
Securities Trust No 25 (PRS 25), which
included US dollar and green euro tranches.ASIA-PACIFIC ABS
AUTO LOAN ABS SEEN AS SAFE HAVENBMW AUTOMOTIVE FINANCE (CHINA) printed
Rmb8bn (US$1.1bn) of auto loan-backed
securities in China’s interbank bond market
in February, drawing safe-haven demand for
THEûlRSTûAUTOûLOANû!"3ûISSUEûINûTHEûCOUNTRYû
since the coronavirus outbreak.
The transaction is expected to serve as a
PRICINGûBENCHMARKûFORû#HINESEûAUTOûlNANCEû
companies looking at issuing ABSs in the
near future, said Andy Lai, head of
securitisation at BNP Paribas.
“We know that there are quite a number
OFûAUTOûlNANCEûCOMPANIESûLOOKINGûTOûLAUNCHû
their ABS deals in the next few weeks, so the
success of BMW AFC’s deal should give them
GREATûCOMFORTûANDûDElNITIVELYûHELPûTOûPAVEû
the way for their issuance,” said Lai.
BNP Paribas (China)ûWASûONEûOFûTHEûFOURûJOINTû
lead underwriters on the transaction, along
with Citic Securities, ICBC and MUFG Bank (China).
BNP Paribas Hong KongûWASûTHEûlNANCIALûADVISER
The deal, priced on February 20, was
"-7û!&#SûlRSTû!"3ûOFFERINGûTHISûYEARûANDû
THEûTHûSINCEûITSûlRSTûSUCHûISSUEûINû
!û2MBBNûûSENIORûlXED
RATEû
portion was priced at par. The securities are
scheduled to mature on August 26 2022
with a weighted average life of 1.72 years.6 IFR Bonds 2322 p 25 - 43 .indd 41 28 / 02 / 2020 19 : 15 : 33