Puerto Rico RMBS held at times by DoubleLine, Wamco, unloved on BWIC

13 October 2017

Investors in legacy non-agency RMBS backed by Puerto Rico mortgages may soon be commiserating with their municipal bond counterparts in the aftermath of Hurricane Maria, according to two investors.

 

At least one investor in non-agency bonds isolated to the island’s loans showed its hand on Thursday with a USD 30m BWIC of three junk-rated bonds, none of which drew much, if any interest, the two investors said. The identity of the seller or sellers wasn’t known, but holders of two items — PRIME 2006-DR1 2A1s and PRIME 2006-DR1 2A2s — have included well-known mortgage credit managers DoubleLine Funds and Western Asset Management Co., according to regulatory filings on 30 June and 31 March, respectively.

 

“General obligation bonds are all over the news but the RMBS will also be a problem,” said one non-agency investor.

 

A DoubleLine spokesperson did not return a call or email. A Western Asset Management spokesperson declined to comment.

 

DoubleLine in quarterly commentary published on Wednesday reiterated that strong technical and fundamentals were supporting the sector broadly. But it also acknowledged that natural disasters, including Hurricane Harvey, Hurricane Irma and Hurricane Maria “have created some headwinds for the space.”

 

The mortgage bond BWIC followed devastation in Puerto Rico’s public finance market. Municipal bonds cratered after President Donald Trump on 3 October told Fox News that Puerto Rico and Wall Street “can say goodbye” to the USD 74bn in public debt saddling the island, as reported.

 

At a time when many legacy RMBS are getting upgrades, Moody’s Investors Service in June downgraded the two PRIME 2006-DR1 seniors to Caa2 from B2, based on thin credit enhancement, adverse pressures on Puerto Rico’s economy and expectations that delinquencies will continue to haunt the debt. The third item on the BWIC, a DMSI 2006-PR1 5AF3, was also downgraded.

 

The Thursday BWIC’s largest item, a USD 17m PRIME 2006-DR1 2A1, was talked in the mid 90s in May 2016, according to Debtwire ABS data.

 

One hedge fund investor steered clear of the BWIC given the rising economic uncertainty in Puerto Rico where services continue to be scarce and, according to some reports, a humanitarian crisis is brewing. The other investor heard that there were no bids at all.

 

“It is way too premature to bid on this stuff,” the hedge fund manager said.
 

by Al Yoon