IFR International - 03.11.2018

(Axel Boer) #1

Top news


Fitch condemns Galton mortgage


bond’s take on Triple As


„ Structured Finance In a surprise departure from the norm, top tranche would take share of missed loan payments


BY JOY WILTERMUTH


3OMEûINVESTORSûAREûBALKINGûATûAû
NEWûMORTGAGEûBONDûDEALûTHATû
TAKESûTHEûCONTROVERSIALû
APPROACHûOFûALLOWINGûREDUCEDû
PAYMENTSûTOû4RIPLEû!ûINVESTORSû
WHENûLOANSûSOUR
GALTON CAPITALûHASûRAISEDû
EYEBROWSûWITHûAû53MûBONDû
SALEûTHATûWOULDûPUTû4RIPLEû!û
SECURITIESûONûMOREûEQUALûFOOTINGû
WITHûJUNIORûBONDSûFORûTHEûCOSTûOFû
LOANûDELINQUENCIES
4RIPLEû!SûTYPICALLYûHAVEûLAYERSû
OFûPROTECTIONSûTHATûENSUREûTHEYû
AREûPAIDûnûBEFOREûJUNIORûCLASSESûnû
WHENûBORROWERSûDEFAULTûONû
THEIRûMORTGAGES
"UTûTHEû'ALTONûBONDSûWOULDû
REDUCEûCOUPONûPAYMENTSûONûALLû
CLASSESûIFûLOANSûFALLûATûLEASTûû
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SALEûREPORTS
4HEûSTRUCTUREûCOULDûTURNû
DECADESûOFûPRECEDENTûONûITSûHEADû
AND ûINûDOINGûSO ûHASûRAISEDûTHEû
IREûOFûSOMEûBONDûINVESTORS
h4HATSûNOTûWHATû4RIPLEû!SûAREû
SUPPOSEDûTOûBE vûSAIDûAûMORTGAGEû
CO
HEADûATûAûLARGEûINVESTMENTû
MANAGER ûWHOûREQUESTEDûTOû
SPEAKûABOUTûTHEûMATTERûWITHOUTû
BEINGûIDENTIlED
h)FûYOUûHADûGOVERNMENTû
SECURITIESûTHATûWEREûAûLITTLEûLESSû
GUARANTEEDûTHANûTHEûLASTûONE û
THATSûHOWûYOUûWOULDûDESTROYû
LIQUIDITYûANDûAûMARKETv


WHAT’S TRIPLE A?
$EVIATIONSûTOûAûSTRICTLYûTOPûTOû
BOTTOMûPAYMENTûAPPROACHûFORû


MORTGAGEûBONDSûDOûEXISTû"UTûINû
THEûPAST ûMOSTûHAVEûCENTREDûONû
CHANGESûTOûCOUPONûPAYMENTSû
WHENûBENCHMARKûBORROWINGû
RATESûSHIFTûORûWHENûLOANSûAREû
MODIlED
"UTûTHEû'ALTONûSTRUCTUREûASKSû
INVESTORSûTOûTREATûITSûTOPûCLASSûOFû
BONDSûLIKEûOTHERû4RIPLEû!û
MORTGAGEûBONDS ûEVENûTHOUGHû
THEûSECURITIESûDOûNOTûCOUNTû
MISSEDûINTERESTûPAYMENTSûASûAû
NEGATIVE
&ITCHûGAVEûITSûTOPûGRADESûTOû
PRIORû'ALTONûBONDSûWITHOUTûTHEû
NEWûFEATURE ûBUTûSAIDûINûANû
UNSOLICITEDûCOMMENTûTHATûTHEû
NEWLY
PROPOSEDûSTRUCTUREû
MAKESûTHEûBONDSûUNWORTHYûOFû
4RIPLEû!ûRATINGS
h"YûREMOVINGûUNPAIDûLOANû
INTERESTûFROMûTHEûDElNITIONALû
AMOUNTûOFûBONDûINTERESTûDUEûTOû
ALLûINVESTORS ûTHEûTRANSACTIONû
TREATSûUNPAIDûLOANûINTERESTûASûAû
NON
CREDITûCOSTûTOûBEûSHAREDûBYû
ALLûBONDûCLASSES vû&ITCHûSAID
&ITCHûESTIMATEDûTHATûAûMOREû
TRADITIONALûBONDûCOUPONû
PAYMENTûSTRUCTUREûWOULDûGIVEû
SENIORûINVESTORSûnûMOREû
CREDITûPROTECTION
"UTûBEYONDûTHEûIMMEDIATEû
BONDûSALE ûAûBIGGERûPROBLEMûMAYû
BEûTHATûLINESûAREûBEINGûBLURREDû
ONûWHATû4RIPLEû!ûRATINGSûREALLYû
MEAN
h)FûRATINGûAGENCIESûARENTû
CONSISTENTûABOUTûWHATûRISKSûAREû
CONSIDEREDûINûTHEIRûRATINGS ûITû
LIMITSûTHEûABILITYûOFûINVESTORSûTOû
USEûTHEûRATINGûASûAûCONSISTENTû
REFERENCEûPOINTûACROSSû

TRANSACTIONSvûSAIDû'RANTû"AILEYû
&ITCHSû53û2-"3ûGROUPûHEAD ûINû
AûFOLLOWûUPûCONVERSATIONûWITHû
)&2
30ûWASûTHEûONLYûh"IGû4HREEvû
RATINGûAGENCYûTOûGRANTûTHEûDEALû
4RIPLEû!ûRATINGSû-OODYSûWASû
NOTûHIREDûTOûRATEûTHEûDEAL û
ALTHOUGHûSMALLERûAGENCIESû+2"!û
ANDû$"23ûALSOûVETTEDûTHEû
TRANSACTIONûANDûALSOûAWARDEDû
4RIPLEû!ûSTATUSûTOûTHEûTOPû
TRANCHE 
30ûTOLDû)&2ûTHATûITûREVIEWEDû
THEûSTRUCTUREûINûDEPTHûANDû
FOUNDûTHEûDEALûWORTHYûOFû4RIPLEû
!S
h.EWûANDûINNOVATIVEûDEALSû
AREûAûFEATUREûOFûTHEûSTRUCTUREDû
lNANCEûMARKET ûANDûOURûROLEûISû
TOûBRINGûCLARITYûANDûINFORMEDû
INSIGHTSûTOûINVESTORS vûSAIDû3UJOYû
3AHA ûAûLEADûANALYSTSûONûTHEûDEAL û
INûAûSTATEMENTûTOû)&2
h7EûCONDUCTEDûROBUSTû
ANALYSISûOFûALLûASPECTSûOFûTHEûxû
TRANSACTION ûINCLUDINGûTHEû
POTENTIALûDECLINEûINûINTERESTû
PAIDûTOûEACHûCLASSûOFûRATEDû
CERTIlCATES ûANDûTOOKûINTOû
ACCOUNTûTHEûHIGH
QUALITYû
COLLATERALûINûTHEûPOOLv

ONGOING SAGA
'ALTONSûBONDSûnûWHICHûCOMEû
VIAûANû306ûCALLEDû'ALTONû'&-4û

ûnûAPPEARûTOûHAVEûBEENû
SLOWERûTOûBUILDûTRACTIONûWITHû
BUYERSûTHANûRECENTûDEALSûINûTHEû
GROWINGûPRIVATEûMORTGAGEûBONDû
NICHE
4HEûDEALûWASûPRESENTEDûTOû
INVESTORSûONûAûROADSHOWûINûTHEû

lRSTûWEEKûOFû/CTOBERû-ANDATESû
FORûSTRUCTURINGûBANKûCredit Suisse
ANDûITSûBOOKRUNNERûDeutsche Bank
ROLLEDûOUTûONû/CTOBERû ûORû
ROUGHLYûTHEûSAMEûTIMEûTHATû
&ITCHûISSUEDûITSûUNSOLICITEDû
COMMENT
4HEûDEALûPACKAGESûUPûHIGHER
QUALITYûHOMEûLOANSûTOû
hEXPANDED
PRIMEvûBORROWERSû
WITHûSLIGHTLYûWEAKERûCREDIT ûBUTû
BEARSûLITTLEûRESEMBLANCEûTOûTHEû
hLIARûLOANvûDEALSûOFûTHEûPAST
"ORROWERSûHAVEûAûHIGHûû
WEIGHTEDûAVERAGEûCREDITûSCORE û
ACCORDINGûTOû30û!NDûWITHOUTû
ITSûERODEDû4RIPLEû!ûPROTECTIONS û
&ITCHSû"AILEYûSAIDûITSûSTRONGû
COLLATERALûMADEûITûUNLIKELYû
TOûSEEûDELINQUENCIESûHIGHû
ENOUGHûTOûSIGNIlCANTLYûAFFECTû
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h/THERûTHANûTHATûFEATURE ûTHISû
TRANSACTIONûHASûAûLOTûOFû
STRENGTHS vûHEûSAID
"UTûASûPRIVATEûMORTGAGEû
BONDSûMAKEûAûCOMEBACKûnûTHISû
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CRISISûRECORDûOFû
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h4HEREûISûDElNITELYûANû
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DETERSûOTHERûINVESTORSûFROMû
GETTINGûINVOLVEDv
"ANKERSûINVOLVEDûINûTHEûDEALû

DECLINEDûTOûCOMMENT (^) „
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