Sector developments and company hires

Euro CLO BWICs down, but staying strong
European CLO 2.0 BWIC activity contracted sharply in the first half of 2021 versus 1H20. However, secondary liquidity remains more sustained compared to pre-pandemic levels, reflecting the market's maturity and expansion in recent years, according to Bank of America European CLO research analysts.

BofA estimates overall BWIC volumes of €5.3bn for 1H21, almost 50% down on the €7.5bn for the same period last year, but nearly 1.5 times higher than that of 1H19 and even higher than that of the preceding years. “We think such decline in secondary activity can be explained mainly by the record surge in primary supply in 1H21,” the analysts suggest.

BWIC rating composition in 2021 has been broadly stable with that of 2020, with triple-A bonds continuing to account for most volume (around 33%) - slightly higher than their relative weight in 2019, but not so compared with their share in 2018-2019. However, there were some differences lower down the stack.

The BofA analysts observe: “The share of the belly of the curve (double-A to double-B) slightly declined in 2021 in proportion of all BWIC volume compared with 2020, reflecting - in our view - the stabilised prices on these tranches. Equity and single-B share of the BWIC volume increased year-on-year (more than doubled for equity). Better liquidity at the bottom of the stack is in line with continued recovery in asset prices and a reduction in CLO portfolio's tail-risk.”

In other news…

Adverse market fee revoked
In order to help families reduce their housing costs, Fannie Mae and Freddie Mac will eliminate the adverse market refinance fee (SCI 13 August 2020) for loan deliveries effective from 1 August. As such, lenders will no longer be required to pay the GSEs a 50bp fee when they deliver refinanced mortgages.

The fee was designed to cover losses projected as a result of the Covid-19 pandemic, but the success of the FHFA and enterprises' Covid-19 policies reduced the impact of the pandemic and were effective enough to warrant an early conclusion of the adverse market refinance fee. The FHFA's expectation is that lenders that were charging borrowers the fee will pass cost savings back to borrowers.

The vast majority of GSE borrowers have successfully exited Covid-19 forbearance. In April, approximately 2% of single-family mortgages guaranteed by the enterprises remained in forbearance, down from a high of approximately 5% in May 2020.