Two and a half years ago, regulators opened the door for rating agencies to offer ratings or commentary on credits even when they haven't been hired to do so. Since then, all NRSROs can access detailed transaction data that issuers are required to post on designated issuer Web sites. The intended effect: a side market in unsolicited ratings and commentary. The actual effect: not a single unsolicited rating and roughly 15 commentaries.
That's about one commentary every two months, and they've been based by and large on publicly available data, and not on information culled from the issuer Web sites. Not to say there hasn't been any value here. In some cases, rating agencies have published unsolicited commentary after being dropped by an issuer because they didn't give the desired rating on the firm's securitization. Fitch's buzzed-about commentary on a Credit Suisse RMBS on March 29 is a prime example. In this month's cover story, Nora Colomer delves into why rating agencies have not been as proactive as the market had hoped. Apparently they're leery of legal liability surrounding access to the issuers' sites.
It's not only the rating agencies that are figuring out their place in our remapped world. Most bond insurers that were active before the financial crisis have exited the structured finance business completely, except for Assured and possibly MBIA. Yet there still seems to be a role for the monoline wrap in securitized deals. John Hintze in his article explores the future of the remaining insurers and some potential new entrants.
Increased monoline involvement would seem to make sense given that the rise in structured finance deals is going hand in hand with deteriorating collateral quality in different asset classes. In her story, Poonka Thangavelu looks at the recent flood of CMBS deals and how the competition for collateral has gotten more intense. The lesson she draws is that CMBS investors would be wise to approach collateral with extra caution.
The Fed also gave the CMBS market something more to talk about after announcing that it planned to sell $7.5 billion of super-senior CRE CDOs from its Maiden Lane III portfolio, including collateral from the MAX 2007-1 and MAX 2008-1 deals. The announcement has already caused some disruption in CMBS spreads and will likely keep real money investors on the sidelines until the full impact of the potential sales becomes clear. The auction for the bonds was on April 26. Despite its desire to dispose of the remaining Maiden Lane assets, the Fed has been scrupulous about executing sales only when they won't disrupt the market. According to Bill Berliner, the same case must be made for the residential mortgage market when it comes to GSE reform. In his column this month, Bill discusses the Treasury's preferred option for GSE reform. This alternative calls for a privatized system of housing finance with catastrophic reinsurance propping up private capital. Bill notes that this will not work because the mortgage insurers are currently incapable of taking over the government's credit enhancement role.
Elsewhere in the world, Felipe Ossa reports this month about the potential for covered bond activity in Turkey after the first deal from Sekerbank more than nine months ago. There are at least a couple of other originators that are planning their own transactions but some players are skeptical about how feasible developing this sector can be. After all, the domestic market in non-government bonds remains thin, and the current economics of doing a covered bond transaction are not that compelling. Felipe also examines some recent buzz over trade finance CDOs. The possibility for these deals is strong, thanks to regulatory pressure, but some press reports may have overhyped the sector's potential (and newness).