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SCI Start the Week - 15 February

Category: ABS Capital Relief Trades CLOs


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A review of securitisation activity over the past seven days

Last week's stories
Constructive outlook
AXA Investment Managers answers SCI's questions
Fly or goodbye - can airlines survive without taking to the skies?
Contributed thought leadership by Ocorian
ILS innovation
UK platform to support additional capacity, emerging risks
Lockdown exposure gauged
Geographic footprint to shape pub performance
Muskoka called
BMO exercises call option
True to form
Top tier CLO managers lead the way, but some distinguish themselves further
Structural change
Restructuring eyed for Covid-impaired mortgages
The UK non-conforming and buy-to-let RMBS market is expected to continue to benefit from the positive supply technical of TFSME. Nevertheless, the Covid-19 fallout appears to have precipitated structural change across the sector.

With respect to the BTL segment, 'generation rent' drives performance, according to Galen Moloney, head of securitised product strategy at NatWest Markets. An uptick in unemployment was seen within the cohort post-financial crisis (between 2009-2011), but arrears trended more in line with prime rather than non-conforming performance.

"It's different this time around: rents have dropped in London and increased elsewhere. However, a push to get workers back to the office post-coronavirus could reverse this trend. Nevertheless, the BTL market is supported by rental streams and landlords dipping into their own pockets," Moloney says.

High UK rental yields versus other investments, notably commercial real estate, suggests that the BTL market should remain solid for some time. In fact, Moloney estimates that the market could endure a 15% dent in LTVs before performance is impacted.

"It depends on what happens once lockdown restrictions ease and whether life returns to normal. If it does, there will be a boost in Covid-impacted industries, in which generation rent is typically employed," he observes.

Meanwhile, given widespread mortgage payment holidays, foreclosure is arguably being replaced by forbearance. Moloney agrees that the social considerations around eviction are increasing in importance.

"Viewed through a regulatory lens, banks have been told to release their capital buffers due to the Covid fallout, so they should be resisting evictions," he adds.

He suggests instead that to address Covid-impaired mortgages, UK lenders may follow the example of Irish lenders post-financial crisis, where loans were restructured - typically via arrears capitalisations and maturity extensions - rather than foreclosed on. "Portfolios can be recycled from non-performing to reperforming to performing, with a securitisation exit, like Lone Star's European Residential Loan Securitisation deals. This is the year when issuers can bring diverse deals, due to the pressure investors are under for yield."

In terms of extension risk, there appears to be a degree of confidence among investors about issuers calling deals, since there was only one minor extension in 2020 (Oat Hill No. 1). "QE liquidity in the system translates into less volatility and greater assurance around redemptions. Additionally, the major political events - Brexit, US elections, German, Italian elections - have either passed or do not seem to provide cause for concern and there is a more stable environment, which is supportive, as long as monetary easing continues," Moloney comments.

Overall, he expects UK non-conforming/BTL RMBS will continue to benefit from the positive supply technical of TFSME. "This comes at an opportune time, as we predict some £7bn of refinancing due to NCF/BTL calls this year, coupled with circa £9bn of front book issuance - including the next UKAR trade - given we believe specialist mortgage lending is only marginally down year-on-year."

Corinne Smith

Other deal-related news

  • BCP Securities, Credit Suisse and Jefferies have purchased US$500m of diversified payment rights securitisation notes, in what is believed to be the largest-ever Latin American cross-border remittance transaction (SCI 8 February).
  • The Bank of Spain has published draft regulation - that is open to consultation until 23 February - to prevent and mitigate risks to financial stability, which Moody's suggests would be credit positive for RMBS, as the limits would tighten loan underwriting (SCI 8 February).
  • Bardin Hill Investment Partners has announced the final close of the Bardin Hill Opportunistic Credit Fund and a parallel side-car vehicle, with total commitments of approximately US$600m (SCI 9 February).
  • Bank of America is in the market with a £340.1m CMBS sponsored by Blackstone (SCI 10 February).
  • Tikehau Capital has completed the first closing for its private debt impact lending investment platform, raising circa €100m from the EIF - backed by the European Commission's Investment Plan for Europe - as anchor investor, alongside other key institutional investors (SCI 11 February).
  • Coventry Building Society subsidiary Godiva Mortgages is set to purchase from UK Mortgages Corporate Funding two buy-to-let mortgage portfolios originated by Godiva and currently financed within the Cornhill No. 6 and Malt Hill No. 2 RMBS vehicles (SCI 12 February).

Company and people moves

  • Hoist Finance has signed a co-operation agreement with Magnetar Capital that provides for new portfolio investments on a pan-European level and will create a framework for future purchases in the current regulatory environment (SCI 8 February).
  • Strategic Risk Solutions is establishing operations in Guernsey (SCI 8 February).
  • Jason Merrill has joined Kuvare Insurance Services as vp, structured securities (SCI 8 February).
  • The AOFM has invited market participants to submit proposals to be considered for investment by the Australian Business Securitisation Fund by 31 March
  • Reed Smith has hired Jason Richardson as partner in its financial industry group, based in the London office (SCI 9 February).
  • John McElravey has joined the Boston Fed as a markets specialist within the credit risk management unit of the bank's supervision, regulation and credit department (SCI 9 February).
  • The New York Fed has launched a prequalification process for cash investment management services for its TALF programme, as part of a multiphase competitive procurement process commenced in October 2020 (SCI 9 February).
  • Channel Capital Advisors has named its senior advisor Daouii Abouchere head of ESG and sustainable finance (SCI 10 February).
  • Blackstone has hired Shary Moalemzadeh as a senior md and senior partner, based in New York, for the firm's opportunistic investing platform Blackstone Tactical Opportunities (SCI 10 February).
  • Kuvare Holdings has recruited Jason Powers as head of credit investments, responsible for investments in the private credit, CLO, ABS and corporate debt sectors (SCI 10 February).
  • Bain Capital Specialty Finance (BCSF) has formed a joint venture with the private credit business of Pantheon, to provide private direct lending solutions to middle market borrowers primarily across Europe and Australia (SCI 12 February).
  • Pagaya has hired Peter Silberstein as head of capital development (SCI 12 February).
  • Italy's Unione Nazionale Imprese a Tutela del Credito (UNIREC), the national union of credit protection enterprises, and Debitos have signed an agreement aimed at providing a marketplace for non-performing loans to companies in the sector (SCI 12 February).

Data

Recent research to download
Greek CRTs - January 2021
Insurer Involvement in SRT - December 2020
CLO Case Study - Autumn 2020

Upcoming events
SCI's 2nd Annual Middle Market CLO Seminar
25 February 2021, Virtual Event
SCI's 5th Annual Risk Transfer & Synthetics Seminar
March 2021, Virtual Event
SCI's 3rd Annual NPL Securitisation Seminar
May 2021, Virtual Event

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