IFR International - 03.11.2018

STRUCTURED FINANCE

US MBS

FANNIE MAKES KEY CHANGE TO CRT
BOND PROGRAMME

FANNIE MAE took steps last week to up the
APPEALûOFûITSûlVE
YEAR
OLDûMORTGAGEûBONDû
programme for securities it sells without
government guarantees.
4HEûAGENCYûSOLDûITSûlRSTûSETûOFûBONDSûONû
7EDNESDAYûFROMûITSû#ONNECTICUTû!VENUEû
3ECURITIESûCREDIT
RISKûTRANSFERû#24 û
programme that make use of a REMIC
structure.
REMICs have been a securitisation market
STAPLEûSINCEûTHEûSûANDûALLOWûFORûLOANSûTOû
BEûPOOLEDûINTOûAûTAX
EXEMPTûTRUSTûTHATûISSUESû
securities for sale.
The feature also gives investors recourse
TOûUNDERLYINGûREALûESTATE ûWHEREASûPRIORû
&ANNIEû#24ûBONDSûALLOWEDûRECOURSEûONLYû
BACKûTOûTHEûHOUSINGûAGENCY
“It’s been something we’ve been working
ONûFORûQUITEûAûWHILE vû,AURELû$AVIS ûVICEû
PRESIDENTûFORûCREDIT
RISKûTRANSFERûATû&ANNIEû
told IFR.
h)FûYOUûGOûBACKûTOûTHEûBEGINNINGûOFûTHEû
PROGRAM ûONEûGOALûWASûALWAYSûTOûISSUEûASûAû
2%-)# vûSHEûSAIDûh"UTûUNLESSû;THEREûWERE=û
LEGISLATIVEûCHANGES ûWEûHADûTOûDOûITûTHROUGHû
DEALûSTRUCTUREv
3TARTINGûINû-AY û&ANNIEûBEGANûTAKINGûAû
2%-)#ûELECTIONûONûALLûUNDERLYINGûLOANSû
EARMARKEDûFORû#!3 ûAûPROCESSûTHATûWILLûBEû
standard for the program and make it more
FRIENDLYûTOû2%)4S ûINTERNATIONALûBUYERSûANDû
others.
“It checks all of those REIT boxes and we
THINKûITSûIMPORTANTûOVERûTHEûLONG
RUNûTOû
have a structure that works for them from a
TAXûANDûREGULATORYûSTANDPOINT vû$AVISûSAID
Freddie said it expects to start issuing
2%-)#û#24ûDEALSûNEXTûYEAR
7HILEû2%)4SûHAVEûBEENûLESSûTHANûûOFû
THEûINVESTORûBASEûFORû#!3û-ûANDû""û
CLASSESûINûTHEûPAST ûANALYSTSûATû"ANKûOFû
!MERICAû-ERRILLû,YNCHûEXPECTûTHATû
participation to increase.
4HEûTAXûSTATUSûCHANGEûALSOûLIKELYûMAKESû
THEûBONDSûMOREûATTRACTIVEûTOûBUYERSûOUTSIDEû
of the US.
h!SûAûREMINDER ûNON
53ûINVESTORSûFACEûAû
ûWITHHOLDINGûTAXûWHENûINVESTINGûINûNON
DEBTûFORûTAXûSECURITIES vûTHEûANALYSTûWROTE

WORTH THE WAIT
Fannie and Freddie Mac have been selling
CREDIT
RISKûTRANSFERûBONDSûSINCEûûTOû
REDUCEûTAXPAYERûEXPOSUREûTOûTHEûLARGEû
mortgage footprints.
The two housing agencies have
transferred a portion of credit risk on a
whopping US$2.5trn of home loans to
private investors through their CRT

PROGRAMSûTHROUGHûTHEûENDûOFû*UNEû

ACCORDINGûTOûAûREPORTûISSUEDûONû4HURSDAYûBYû

THEû&EDERALû(OUSINGû&INANCEû!GENCY

4AKINGûTHEû2%-)#ûROUTEûFORû&ANNIEû

appears worth it.

Most of its new US$922m bond deal was

ABLEûTOûPRICEûWITHINûEXPECTATIONSûDESPITEûAû

CHOPPYûMARKET

“It’s been a roller coaster and a lot of lot of

CREDITûSPREADûWIDENINGûWITHûHIGH

YIELDûOUTû

BPûFROMûOURûLASTûTRANSACTIONvû$AVISûSAID

“But we saw strong subscriptions and we

priced close to the tight end of the expected

RANGEv

Even the bonds most susceptible to

VOLATILITYûHELDûINûPRETTYûWELL

)TSû53MûBLOCKûOFû

YEARûUNRATEDû

"ûNOTESûPRICEDûATû,IBORûPLUSûBPû3IMILARû

"û#!3ûBONDSûPRICEDûATûAûRECORDûHIGHûOFû

,BPûINû!PRILûûACCORDINGûTOû

Finsight data.

US CLO

CLO FUNDS PUSH FOR FALL-BACK

BENCHMARKS

Some US credit investors are pushing to use

alternative benchmarks in the documents of

NEWû#,/ûFUNDSûBEFOREûOFlCIALûREPLACEMENTSû

TOû,IBORûAREûIDENTIlEDûAHEADûOFûITSûLIKELYû

demise in 2021.

The US market is set to adopt the Secured

Overnight Financing Rate (SOFR) as an

ALTERNATIVEûTOû,IBORûTHEûBENCHMARKûTHATûISû

USEDûGLOBALLYûTOûSETûTHEûINTERESTûPAYMENTûONû

more than US$350trn of assets.

!NDREWû"AILEYûCHIEFûEXECUTIVEûOFlCERûOFû

THEû5+Sû&INANCIALû#ONDUCTû!UTHORITYû&#!   û

SAIDûINûûTHEREûWEREûINSUFlCIENTû

TRANSACTIONSûUNDERPINNINGû,IBORûWHICHûSETSû

the rate on loans from corporate borrowings

TOûMORTGAGEûPAYMENTS

3OMEû#,/ûFUNDSûAREûHOWEVERûALREADYû

considering alternatives. Wells Fargo and

0RUDENTIALûAREûAMONGûlRMSûTHATûAREû

SUGGESTINGûANûEVENTUALûFALL

BACKûTOûTHEû

0RIMEû2ATEûWHICHûISûTYPICALLYûMOREû

EXPENSIVEûTHANû,IBOR

#,/SûAREûPROPOSINGûADDITIONALû

benchmarks as SOFR is an overnight rate

ANDûCURRENTLYûLACKSûAûTERMûRATEûFORûDIFFERENTû

MATURITIESûMOSTû#,/ûPAYMENTSûAREûPEGGEDû

TOûTHREE

MONTHû,IBOR

4HEû53BNû53û#,/ûMARKETûTHEûLARGESTû

BUYERûOFû53ûLEVERAGEDûLOANSûINITIALLYû

REWORKEDûDOCUMENTSûAFTERûTHEû&#!Sû

statement to include language that would

REQUIREûDEBTûINVESTORSûTOûAPPROVEûAû

benchmark change.

4HEûDOCUMENTSûNOWûSAYûTHATûTHEûNEWû

benchmark will be recognised as the

INDUSTRYûSTANDARDûBYûTHEû,OANû3YNDICATIONSû

ANDû4RADINGû!SSOCIATIONûORûTHEû!LTERNATIVEû

2EFERENCEû2ATESû#OMMITTEEû!22# ûAûGROUPû

SETûUPûINûûBYûTHEû&EDERALû2ESERVEû&ED  û

and the Federal Reserve Bank of New York

TOûIDENTIFYûBESTûPRACTICESûFORûALTERNATIVEû

rates.

4HEû!22#ûHASûRECOMMENDEDûSHIFTINGûTOû

3/&2ûWHICHûBEGANûTRADINGûEARLIERûTHISûYEARû

ANDûNOWûHASûABOUTû53BNûOFûTRADESûAû

DAY

!22#ûISûASKINGûFORûFEEDBACKûBYû.OVEMBERû

ûONûFALL

BACKûCONTRACTûALTERNATIVESûFORû

SYNDICATEDûLOANSûANDûmOATING

RATINGûNOTESûTOû

lNDûTHEûBESTûWAYûTOûMOVEûEXISTINGûCONTRACTSû

TOûTHEûNEWûBENCHMARKûIFû,IBORûISûNOûLONGERû

viable.

LIBOR MODIFIERS

Investors that purchase the most senior and

LARGESTûPORTIONSûOFûTHEûFUNDûTHEû4RIPLEû!û

TRANCHESûNOWûWANTûAûBIGGERûSAYûINûSELECTINGû

future benchmarks.

#,/ûINVESTORSûAREûCONCERNEDûTHATû

PROPOSALSû

ûSUCHûASûPICKINGûTHEûLASTû,IBORûRATEû

ORûANûAVERAGEûTHATûWOULDûNOTûBEûRESETû

û

WOULDûEFFECTIVELYûTURNûAûmOATING

RATEûASSETû

INTOûAûlXEDûINSTRUMENTûANDûINVESTORSûWOULDû

NOTûBEûADEQUATELYûCOMPENSATED

#,/SûPAYûMOSTûDEBT

HOLDERSûAûSETûRATEûOVERû

,IBORûWHICHûRISESûASûINTERESTûRATESûINCREASEû

ALL INTL CANADIAN DOLLAR BONDS

BOOKRUNNERS: 1/1/2018 TO DATE

Managing No of Total Share

bank or group issues C$(m) (%)

1 TD Securities 27 7,099.33 24.1

2 RBC 26 5,411.11 18.3

3 BMO 18 5,221.51 17.7

4 CIBC 22 3,620.17 12.3

5 Scotiabank 20 3,182.90 10.8

6 Natl Bank of Canada Fin’l 10 1,730.84 5.9

7 HSBC 9 1,672.79 5.7

8 BAML 6 1,402.68 4.8

9 Goldman Sachs 1 150.00 0.5

Total 41 29,491.33

Including preferreds. Excluding equity-related debt.

Source: Refinitiv SDC code: K2

GLOBAL DIM SUM BONDS

BOOKRUNNERS: 1/1/2018 TO DATE

Managing No of Total Share

bank or group issues Rmb(m) (%)

1 HSBC 68 21,476.45 31.9

2 Standard Chartered  44 17,984.57 26.7

3 Credit Agricole 32 8,664.89 12.9

4 BNP Paribas 10 2,736.00 4.1

5 Bank of China  5 2,114.86 3.1

6 Citic 4 1,903.34 2.8

7 DBS Group 4 1,865.83 2.8

8 Goldman Sachs 2 1,075.00 1.6

9 KGI Finl Services Group 1 1,000.00 1.5

10 China Merchants Bank 1 750.00 1.1

Total 163 67,326.16

Including preferreds. Excluding equity-related debt.

Source: Refinitiv SDC code: AS24a