Weekly Wrap: CMBS delinquencies ticked up in October

Avis Budget Rental Car Funding (AESOP) had its outstanding ratings on $4.65 billion in asset-backed securities affirmed by Fitch Ratings this week, which also took the rental car firm off downgrade watch.

But the company is not out of the woods, based on the continuing potential impact of the COVID-19 outbreak.

In a release Friday, Fitch Ratings affirmed the various ratings on the eight outstanding pari passu note series from the AESOP master trust issued between 2017 and 2020. The special purpose, bankruptcy remote raises cash through bond sales to purchase Avis' rental vehicle and truck fleets, which in turn are leased back to the sponsor, Avis Budget Car Rental. Investors are paid the proceeds from the leases as well as subsequent vehicle sales.

Avis has been "experiencing solid disposition vehicle proceeds in excess of the net book values (NBV) to date," allowing it to maintain a smaller fleet for the sharply falling demand for rental cars since the onset of the coronavirus pandemic.

While removing the negative credit watch, Fitch still assigned a negative outlook due to the ongoing challenges of the pandemic impact on the travel sector. "Fitch believes the company still faces execution risksdue to the challenging pandemic environment pandemic as the company continues to operate through. Further, volatilityin used vehicle values and ongoing functioning of wholesale vehicle markets have improved since the lows of March-June, but risks remain across these ABS."

Similar ABS notes issued by a special-purpose vehicle of Avis' rival, The Hertz Corp., are still on negative credit watch as Hertz winds its way through a Chapter 11 bankruptcy, which includes an interim settlement and agreement with investors and creditors on vehicle fleet management and sales.

The performance of U.S. CLO equity made a “stunning rebuke” of doubters with a strong October that carried annualized returns into double digits for a 10^thconsecutive year.

According to a newly published securitized research report from JPMorgan, the ownership stakes of collateralized loan obligations delivered an annualized cashflow return of 11.3% as of Oct. 28, and 95% of CLOs currently in a reinvestment period (in a JPMorgan sampling) made a payment to equity holders with no cashflow diversion to higher-priority debt securities in the capital stack.

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In this precedent-busting year, mortgage volumes are predicted to hit new quarterly and annual highs, according to Black Knight.

The latest 45-day rate lock data from the Mortgage Monitor Report put third-quarter originations — both purchase and refinance — on track to break the previous record and stay high through the end of the year and possibly longer. The low interest rate environment is expected to keep consumer demand charged.

"Estimated origination volumes based on underlying locks suggest both Q3 refinance and total originations could be up 25% or more from Q2 while purchase lending could be up by 35% or more," Ben Graboske, president of data and analytics for Black Knight, said in a press release. "This would push 2020 purchase lending to the highest level since 2005 and both refinance lending and total origination volumes to their highest levels ever. Indeed, total lending in 2020 is well on its way to easily eclipse the $4 trillion mark for the first time in history."

The delinquency rate went to about 6.7% in September, falling 3.1% from August and shooting up 89% year-over-year. Meanwhile, foreclosures made up 0.34% of mortgages, down 2.86% monthly and 29.14% annually. As of the end of September, 23% of mortgages in active forbearance are current on their payments. About 8% are either 30, 60 or 90 days late, and a 52% share is 120 days past due.

Among borrowers who exited forbearance, approximately 8% paid off their loans and 36% are reperforming. Government-sponsored enterprise loans — which boast lower rates of forborne loans — posted a 10% paid-off share and 42% reperforming. Mortgages insured by the Federal Housing Administration or guaranteed by the Department of Veterans Affairs haven’t met those levels yet. Pay offs account for 6% and reperforming account for 27% of FHA exits from coronavirus-related forbearance. VA loans posted 11% and 21% shares.