The European ABS Market 2April 17 May 212 Markit Structured Finance Research 17/5/212 European ABS Pricing and Sectors The elections in Greece and France, which both saw anti-austerity parties come into power, took their toll on an already struggling credit market which saw sovereign CDS widen significantly. French CDS widened from 18bps to 22bps in the space of a week, playing catch up with their historical high of 245bps in November 211. Meanwhile, German CDS spreads remained unchanged. The impact of these elections on the ABS market was initially subdued with most bonds trading at levels similar to those in the pre-election period. It took a week for the ABS market to feel the impact. As usual, Granite, a benchmark of the European ABS market, can serve to illustrate market trends. All Granite tranches went down during the past month. The A, B, M and C tranches are now traded at 95.4, 84.3, 75.3 and 58.5 from 95.8, 86, 76 and 64. The most affected tranche, the C tranche, lost 6 points in a month. Before that the activity in the European ABS market was mainly dominated by BWICs. The last month also saw Aire Valley Master Trust (UK buy to let RMBS) breach a non asset trigger event since its size is now lower than the minimum required one. As per Granite in 28, the waterfall has now changed from pro rata to sequential. This will have a direct impact on the WAL of these bonds. Senior bonds should have lower WALs and junior ones much higher ones (extension risk). Interestingly, contrary to what was expected, prices did not move as much as expected and the price of senior bonds went up on that day by only a point. Greece s new elections will decide whether or not the country will accept the austerity plan and remain in the eurozone. A Grexit and the ensuring devaluation of the drachma would severely impact the bond market and remaining Greek ABS securities in particular. Deal Name Serie Class Currency Isin Price Bid Spread Bid WAL Sector Rating COUNTRY Anaptyxi 26 1 PLC 2278 A EUR XS27313894 77.783 2157.646.932 Small Business Loan BB GRC Anaptyxi 26 1 PLC 2278 B EUR XS27314785 39.518 Small Business Loan BB GRC Anaptyxi 26 1 PLC 2278 C EUR XS27315246 24.68 Small Business Loan BB GRC BYZANTIUM Fin PLC 1 A EUR XS18318841 84.735 1732.797 1.23 RMBS BB GRC BYZANTIUM Fin PLC 1 B EUR XS18318924 57.188 175.611 3.891 RMBS BB GRC BYZANTIUM Fin PLC 1 C EUR XS18319146 1 RMBS BB GRC ESTIA MORTGAGE FINANCE II PLC II A EUR XS31145852 52.95 172.358 5.235 RMBS BB GRC ESTIA MORTGAGE FINANCE II PLC II B EUR XS311459969 2.64 1951.297 12.3 RMBS BB GRC ESTIA MORTGAGE FINANCE II PLC II C EUR XS31146892 16.393 2453.59 13.74 RMBS B GRC Estia Mtg Fin plc 1 A EUR XS22978737 59.245 1854.987 3.88 RMBS BB GRC Estia Mtg Fin plc 1 B EUR XS2297891 45.187 1956.197 5.51 RMBS BB GRC Estia Mtg Fin plc 1 C EUR XS22979115 38.768 2468.41 5.51 RMBS B GRC Grifonas Fin No 1 Plc 1 A EUR XS26271932 46.67 8125.715 5.5 RMBS B GRC Grifonas Fin No 1 Plc 1 B EUR XS262719759 14.44 1855.275 1.21 RMBS B GRC Grifonas Fin No 1 Plc 1 C EUR XS26272252 11.999 2249.453 1.75 RMBS B GRC Kion Mtg Fin plc 1 A EUR XS275896933 49.464 1575.377 6.48 RMBS BB GRC Kion Mtg Fin plc 1 B EUR XS275897311 36.657 1595.427 6.78 RMBS BB GRC Kion Mtg Fin plc 1 C EUR XS275897741 2.275 9581.267 5.75 RMBS BB GRC Lithos Mtg Fing Plc 1 A EUR XS2539159 56.53 1662.34 4.28 RMBS BB GRC Lithos Mtg Fing Plc 1 B EUR XS2531322 46.176 292.421 5.515 RMBS BB GRC Lithos Mtg Fing Plc 1 C EUR XS2531678 39.523 2455.88 5.87 RMBS BB GRC THEMELEION Mtg Fin PLC 1 A EUR XS19439364 66.144 1565.86 3.395 RMBS BB GRC THEMELEION Mtg Fin PLC 1 B EUR XS194394457 49.73 224.9 5.1 RMBS B GRC THEMELEION Mtg Fin PLC 1 C EUR XS19439672 48.519 2497.4 4.62 RMBS B GRC Themeleion II Mtg Fin Plc 2 A EUR XS221713216 59.83 19.357 2.783 RMBS BB GRC Themeleion II Mtg Fin Plc 2 B EUR XS221713562 26.313 186.489 5.65 RMBS BB GRC Themeleion II Mtg Fin Plc 2 C EUR XS221713729 13.199 251.328 15.14 RMBS B GRC Themeleion III Mtg Fin PLC 3 A EUR XS25799354 54.33 1963 3.421 RMBS BB GRC Themeleion III Mtg Fin PLC 3 M EUR XS257993484 22.213 171.482 11.33 RMBS BB GRC Themeleion III Mtg Fin PLC 3 B EUR XS257993724 16.756 195.976 12.97 RMBS BB GRC Themeleion III Mtg Fin PLC 3 C EUR XS257994458 12.254 2452.117 14.84 RMBS B GRC Themeleion IV Mtg Fin plc 4 A EUR XS35113523 55.139 6347.58 3.75 RMBS BB GRC Themeleion IV Mtg Fin plc 4 B EUR XS35117516 31.255 1952.675 8.83 RMBS B GRC Themeleion IV Mtg Fin plc 4 C EUR XS3512817 25.987 2462.445 8.95 RMBS B GRC
European AAA RMBS (3-5yr WAL) 1,6 1,4 1,2 1, 8 6 4 2 UK PRM BS Spanish RMBS Dut ch RM BS I t alian R M B S I rish RMBS (Single A) Port uguese RMBS (Single A) Fr en ch RM B S Aust ralian RMBS Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 European AA RMBS (3-5yr WAL) 3,2 2,8 UK PRM BS 2,4 2, Span ish RM BS Dut ch RM BS 1,6 1,2 8 4 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Source: Markit European ABS Pricing Service European A RMBS (3-5yr WAL) 5, 4,5 4, 3,5 3, 2,5 2, 1,5 1, 5 UK PRMBS Spani s h RM B S Dutch RMBS Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 European BBB RMBS (3-5yr WAL) 9, 8, 7, 6, 5, 4, 3, 2, 1, UK PRMBS Span ish RM BS Dut ch RM BS J an-9 J ul-9 J an-1 J ul-1 J an-11 J ul-11 J an-12 Source: Markit European ABS Pricing Service 7, CMBS (3-5 yr WAL) CMBS AAA CMBS AA 6, CMBS A CMBS BBB 5, Markit CMBX. NA. AAA I ndices-s3 Markit CMBX. NA. BBB I ndices-s3 4, 3, 2, 1, Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 UK RMBS AAA Cash Price (%) 1, 1 9 9 8 7 6 5 4 3 2 Hol mes Master Issuer PLC 26 1 3 A2 EUR Spr ead Per manent M aster Issuer Pl c 21-1 2A2 EUR Spr ead Gr ani te Master Issuer pl c 27-2 3A2 EUR Cash Pr i ce Ai r e Vy Mtgs 25 1 pl c 2 A2 EUR Cash Pr i ce 1 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 8 7 6 5 4 3 2 1 European Auto Loan/Equipment Lease ABS Aut o Loan AAA (1-4 yrs) Aut o Lease AAA (1-4 yrs) 3,2 Equip Lease AAA (1-4 yrs) Aut o Lease A ( 1-4 yr s) 2,8 Aut o Loan BBB (1-4 yrs) Equip Lease BBB (1-4 yrs) 2,4 2, 1,6 1,2 8 4 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 European Credit Card ABS 3,6 3,2 2,8 2,4 Credit Card BBB (1-4 yrs) 2, 1,6 1,2 8 4 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Credit Card AAA (1-4 yrs) Cr edit Car d A ( 1-4 yr s) 17/5/212 2
European Total Return AAA Total Return Oct 27 115 11 15 1 95 UK PRMBS AAA 9 Dutch RMBS AAA 85 8 Spani sh RMBS AAA 75 Global Eur opean ABS AAA 7 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 AAA Total Return Oct 27 15 UK CMBS AAA 14 UK PRMBS Gr ani te Onl y AAA 13 AAA 12 11 Global Eur opean CMBS AAA 1 9 8 7 6 5 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 BBB Total Return Oct 27 14 13 12 11 1 9 8 7 UK PRMBS BBB 6 Dutch RMBS BBB 5 4 Spani sh RMBS BBB 3 2 Global Eur opean ABS BBB 1 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 BBB Total Return Oct 27 11 95 8 65 5 UK PRMBS Gr ani te Onl y BBB 35 BBB 2 Global Eur opean CMBS BBB 5 Jan-7 Jul-7 Jan-8 Jul-8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Source: M arkit European Total Return Analysis Service 135 13 125 12 115 11 15 1 95 9 UK PRMBS AAA Dutch RMBS AAA Spani sh RMBS AAA Global Eur opean ABS AAA Ir ish RMBS AAA AAA Total Return Jan 29 85 8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 AAA Total Return Jan 29 21 UK CMBS AAA 2 19 GRANITE ONLY AAA 18 AAA 17 Global Eur opean CMBS AAA 16 15 14 13 12 11 1 9 8 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 BBB Total Return Jan 29 21 UK PRMBS BBB Dutch RMBS BBB Spani sh RMBS BBB 19 17 Gl obal Eur opean ABS BBB Ir ish RMBS BBB 15 13 11 9 7 5 3 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 BBB Total Return Jan 29 6 GRANITE ONLY BBB 5 BBB Global Eur opean CMBS BBB 4 3 2 1 Jan-9 Jul-9 Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 17/5/212 3
Economics Data House prices fell by 2.4 per cent in April according to the Halifax House Price Index. Nationwide s index, meanwhile, indicated a mere.2 per cent drop during the same period. Both indices also point to a year-on-year drop (.5 per cent drop for Halifax and.9 per cent for Nationwide.) The Markit/CIPS UK Construction PMI posted 55.8 in April showing a continuous growth rate in UK construction activity. The growth can be attributed to strong commercial activity which came in at 57.7 and a positive housing activity at 51.3 up from 5.3 last month. PMI housing 8 House Prices Halifax HPI (annual %) chg) 35 PMI housing index 8 House Prices Nationwide HPI (annual %) chg) 35 7 25 7 25 6 15 6 15 5 5 5 5 4-5 4-5 3 UK Constr ucti on PMI Housi ng Acti vi ty Index -15 3 UK Constr ucti on PMI Housi ng Acti vi ty Index -15 2 Hal i f ax house pr i ce i ndex, al l houses -25 2 Nati onwi de house pr i ce i ndex, al l houses -25 1-35 1998 2 22 24 26 28 21 2121 Source: M arkit Economics, Halifax 1 1998 2 22 24 26 28 21 Source: Markit Economics, Nationwide -35 Primary Market and Rating Actions Primary Market It has been a relatively active month in terms of new issuance, with 8 new deals, four of which were upsized: Darrowby No2, Highway 212-1, Trafigura and Saecure 11. However, in terms of volume we are still behind where we were at this time last year. The lack of new issuance continues to support a strong secondary market. Looking ahead the buzz is on the new Fosse deal which will include an Aussie tranche and new credit card paper from Gracechurch Card. Primary Market (Source: Markit European ABS Performance) Deal Country/Sector Class Av Rating Spread (bp) Amount ( mn) Kenrick 1 UK/RMBS A1 AAA 18 21.6 A2 AAA 215 149.5 Leofric 1 UK/RMBS A AAA 17 1127.5 Tenderden UK/RMBS A AAA 15 394.7 B 152 Asti Finance Italy/SME CLO A AA 384.3 Saecure 11 Netherlands/RMBS A1a AAA 155 456.5 A1b AAA 135 212 Performer Financing 212-2 UK/Consumer A1 923.6 Darrowby No 2 UK/RMBS A AAA 17 585 B 87.4 Highway 212-1 Netherlands/Auto A AAA 11 45 B 242.4 17/5/212 4
Rating Actions We mentioned in the previous review that Fitch Ratings placed a significant number of Spanish ABS on Rating Watch Negative. This month S&P downgraded Spain s sovereign rating BBB+ which had a knock on effect on Spanish ABS securities. We also saw the downgrade of over 3 tranches across 76 deals by S&P. Despite a shrinking asset base, and now with a non-asset trigger breached, junior tranches of Aire Valley traches were upgraded by S&P following revised rating criteria. In the CMBS space, Moody s downgraded the senior tranches across several Tesco Property Finance deals and Fitch downgraded both senior and junior tranches across several Business Mortgage Finance deals. Both rating actions are related to poor performance and concerns over future performance. Deals Affected by Rating Actions (Source: Markit European ABS) Deal Country/Sector Action Aeolos S.A. Greece/Other Upgrade Aerco Ltd 1998 & 2 Aircraft Finance Downgrade Aire Vy Mtgs 24-1, 25-1, 26-1, 27-1, 27-2 & 28-1 UK/BTLRMBS Upgrade ALESCO Preferred Funding VIII & XIII CDO Upgrade Ares Enhanced Ln Invt Strategy II Ltd CDO Upgrade ARIADNE S A Greece/Other Upgrade Asti Finance S.r.l. - Series 3 Italy/RMBS Downgrade AyT Bonos Tesoreria II Fondo Titul Activos Spain/CDO Downgrade AyT Bonos Tesoreria II Fondo Titul Activos Spain/CDO Upgrade AYT CAJAGRANADA HIPOTECARIO I FTA Spain/RMBS Downgrade AyT Cedulas Cajas Glob Fondo Titul Activos Spain/CDO Downgrade Ayt Cedulas Cajas V, VI & X Fondo Titul Activos Spain/CDO Downgrade AyT Deuda Subordinada I Fondo Titul Activos Spain/CDO Downgrade Ayt Genova Hipo II, III, IV, VI, VII, VIII, IX, X & XI Fondo de Titul Hipo Spain/RMBS Downgrade AYT ICO-FTVPO Caixa Galicia, FTA Spain/RMBS Downgrade AyT ICO-FTVPO III, Fondo De Titulizacion Activos Spain/RMBS Downgrade AyT Kutxa Hipo I Fondo de Titul de Activos Spain/RMBS Downgrade Bacchus 26 2 Plc CDO Upgrade Bancaja 5, 6 & 7 Spain/RMBS Downgrade Bankinter 2, 3, 4, 6, 8, 1 & 11 Spain/RMBS Downgrade BBVA 3, 4 & 6 FTPYME FONDO Titul ACTIVOS Spain/Small Business Loan Downgrade BBVA AUTOS 1 & 2 FONDO Titul ACTIVOS Spain/Auto Loan Downgrade BBVA Hipo 3 FONDO Titul ACTIVOS Spain/CMBS Downgrade BBVA RMBS 6, 7, 8 & 9 Fondo de Titulizacion de Activos Spain/RMBS Downgrade Beluga Master Issuer BV Netherlands/RMBS Downgrade Caixa Penedes 1 TDA Fondo de Titul de Activos Spain/RMBS Downgrade Caixa Penedes FTGENCAT 1 TDA, Fondo de Titulizacion de Activos Spain/Other Upgrade CAIXA PENEDES PYMES 1 TDAFTA Spain/SME Upgrade Cavendish Square Fdg 1 & 2 CDO Downgrade Cedulas TDA 2, 3, 5, 6 & 7 Fondo de Titulizacion de Activos Spain/CDO Downgrade Celtic Residential Irish Mtg Secn No 12 Ltd Ireland/RMBS Downgrade DECO 14 Pan Europe 5 BV Europe/CMBS Downgrade Delamare Fin Plc UK/CMBS Downgrade Deutsche Hypbk AG Germany/CMBS Downgrade Driver Espana One Fondo de Titulizacion de Activos Spain/Auto Loan Downgrade EdT Ftpyme Pastor 3 Fondo Titul Activos Spain/Small Business Loan Downgrade Empresas Banesto 2, Fondo de Titulización de Activos Spain/Small Business Loan Downgrade Eurohome UK Mtgs 27-1 & 27-2 UK/BTLRMBS Upgrade EUROMAX V ABS PLC Europe/CDO Downgrade EuroProp EMC SA CMBS Downgrade Farringdon Mtgs No 1 & 2 UK/SPRMBS Upgrade Fastnet Secs 2 plc Ireland/RMBS Downgrade Faxtor ABS 25 1 BV Germany/CDO Downgrade Fleet Str Fin Two PLC Germany/CMBS Upgrade FonCaixa Hipo 6, 7, 8, 9, 1 & 11 Fondo Titul Hipo Spain/RMBS Downgrade Fondo de Titul de Activos FTPYME Santander 2 Spain/Small Business Loan Downgrade Fondo de Titul de Activos PYMES Banesto 2 Spain/Small Business Loan Downgrade Fondo de Titul de Activos Santander Empresas 1 Spain/Small Business Loan Downgrade Fondo de Titul de Activos Santander Hipo 1 Spain/RMBS Upgrade Fondo de Titul de Activos Santander Hipo 1 Spain/RMBS Downgrade Fondo de Titul Hipo Banesto 4 Spain/RMBS Downgrade Fondo de Titulizacion de Activos Santander Hipotecario 6 Spain/RMBS Downgrade Fondo de Titulizacion de Activos UCI 8 Spain/RMBS Downgrade Fondo Titul Activos Hipotebansa X Spain/RMBS Downgrade Fondo Titul Activos Santander Consumer Spain Auto 6 Spain/Auto Loan Downgrade Fondo Titul Activos Santander Empresas 2 & 3 Spain/Small Business Loan Downgrade Fondo Titul Activos Santander Financiacion 1 Spain/Other Consumer Loan Downgrade Fondo Titul Activos SANTANDER Hipo 2 & 3 Spain/RMBS Downgrade Fondo Titul Activos UCI 7 Spain/RMBS Downgrade Force 25 1 Germany/CLO Downgrade FORCE TWO Ltd Partnership Germany/CDO Downgrade Fornax Eclipse 26 2 BV Europe/CMBS Upgrade Fortress Cr Fdg II LP CLO Upgrade FTPYME BANCAJA 3 & 6 FONDO Titul ACTIVOS Spain/Small Business Loan Downgrade FTPYME TDA CAM 4 Fondo Titul Activos Spain/Small Business Loan Downgrade German Residential Asset Nt Distributor plc Germany/CMBS Downgrade German Residential Fdg plc Germany/CMBS Downgrade Heartland Fdg plc 27 1 CDO Downgrade Hipocat 7, 8 & 9 Spain/RMBS Downgrade House of Europe Fdg IV PLC Ireland/CDO Upgrade IM Bankoa MBS 1, Fondo de Titulizacion de Activos Spain/RMBS Downgrade Im Bco Popular Ftpyme 1 Fondo de Titul de Activos Spain/CDO Downgrade IM Cedulas 2, 4, 9 & 1 FTA Spain/CDO Downgrade 17/5/212 5
Philippe Pagnotta Director, Structured Finance Markit Tel: +44 2 726 2214 Email: philippe.pagnotta@markit.com Sofia Hoac Assistant Vice President, Structured Finance Markit Tel: +44 2 726 2357 Email: sofia.hoac@markit.com For more information on Markit's ABS products, please contact: sfsales@markit.com 17/5/212 6