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SCI Start the Week - 26 April

Category: ABS Capital Relief Trades CLOs

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A review of securitisation activity over the past seven days

Last week's stories
Bottoming out
EU NPL ratios improve
Climate concerns
The nexus between insurance risk transfer and ESG
Investor interest
European CLOs attracting new investors to mezz and equity
Regional resilience
Structural enhancements for debut aircraft ABS
RWA boost
ECB reveals TRIM findings
Third 2021 STACR prints
With Fannie Mae still on the sidelines, Freddie corners CRT space
Uncertainty highlighted
UK banks unclear on project finance slotting
Texas template
TCB CRT establishes blueprint for US banks, say SCI speakers
The recent $275m 3-year CLN capital relief trade from Texas Capital Bank (TCB) has established a precedent that all US banks in the US should be scrutinising, agreed panellists involved in the roundtable discussion of the deal at SCI's fifth annual risk transfer and synthetics seminar.

The seminar was held April 21-22, and the speakers at the roundtable were Madison Simm, evp in the mortgage finance division at TCB, Mark Kruzel, director in strategic risk solutions at Citigroup and David Felsenthal, a partner in the capital markets group at Clifford Chance.

Citi and Clifford Chance advised TCB on the structuring and development of the deal. Citi is also responsible for bringing CRT technology to TCB in mid-2020.

"CRT should now be thought of as a capital tool alongside Tier II. Every bank should now be doing cost benefit analysis. This is coming not just from Citi with a $2trn balance sheet but from Texas Bank with $40bn. That's the whole gamut of the banking market," said one of the panellists.

The mechanism now has proven worth in boosting capital, thus opening up new avenues of business, and augmenting ROE. This is achievable at a cost lower than that of equity capital.

The fact the principal banking regulators, the Office of the Comptrollers of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), gave the deal their blessing bodes well for the future of the market, concurred the panellists. In the words of one, "The blueprint has been created."

Regulatory approval is the key piece of the jigsaw, and the US market is immature compared to its European counterpart. Regulatory guidance is consequently far less detailed and specific than is furnished by the European banking regulators.

The process continues to be thus much more ad hoc. Nonetheless, the TCB experience demonstrates that US regulators are becoming both more familiar and favourably disposed towards the structure.

However, regulators will need to see that the proper infrastructure is in place to ensure that issuance of this kind can be part of an ongoing programme rather than a one-off. This is not the sort of transaction that can be done opportunistically, they said.

The missing member of the party at the roundtable discussion was KPMG, who played a decisive role in advising TCB on the minutiae of regulatory policy regarding this area of the market in the summer of last year, according to panellists.

Texas Capital Bank's trade has also raised the profile of the CRT market so that more investors are now familiar with the structure. With a wider circle of potential investors, subsequent deals should be able to be brought to market faster.

CRT trades also of course offer investors a wider yield than most other asset classes. The TCB deal paid Libor plus 450bp, but this is considered meagre by European standards. A yield of Libor plus 10% or 12% would not be uncommon in the securitisation of European loans - a much more risky asset class than the mortgage warehouse loans that comprised the reference portfolio in the TCB trade.

Simon Boughey

Other deal-related news

  • Overall defeasance activity volume for US conduit and Freddie Mac CMBS decreased by 21% in 2020, according to Moody's (SCI 20 April).
  • Moody's has upgraded the ratings of two tranches issued by UK student loan ABS Honours Series 2 (SCI 20 April).
  • The Australian Office of Financial Management has released an update on its Structured Finance Support Fund activities (SCI 21 April).
  • S&P intends to introduce alpha-numerical ESG Credit Indicators to help explain the influence of ESG factors on its credit rating analysis (SCI 21 April).
  • The European Commission has adopted what it describes as an "ambitious and comprehensive" package of measures to help improve the flow of money towards sustainable activities across the EU (SCI 22 April).
  • The fallout from severe economic constraints - including rising inflation and the government-backed freeze of the Unidad de Valor Adquisitivo (UVA) value for UVA-denominated mortgage loans - is driving asset-liability mismatches that could reverse years of progress in Argentina's mortgage market, according to S&P (SCI 22 April).
  • The continued steady repayment of electricity tariff deficit (ETD) debt through 2021 by the Spanish and Portuguese electricity systems should, in turn, facilitate steady payments to related securitisations (SCI 22 April).
  • The ARRC has published three key principles that will guide it as it considers the conditions necessary to recommend a forward-looking SOFR term rate (SCI 23 April).
  • The US District Court for the Southern District of Florida has entered final judgment in Ocwen's favour and ordered the case to be closed, following the CFPB's decision to drop any remaining claims under its Counts 1-9 and the entirety of its Count 10 in connection with its lawsuit (SCI 23 April).

Company and people moves

  • Liquid Mortgage has raised capital from and entered into a strategic partnership with Redwood Trust, marking the culmination of a months-long engagement, in which Redwood Trust tested Liquid Mortgage's technology and developed an actionable strategy to build a future-ready mortgage ecosystem (SCI 20 April).
  • The EIF and Alantra have joined forces under the European Guarantee Fund (EGF) to support European SMEs hit by the Covid-19 economic crisis (SCI 20 April).
  • BlueBay Asset Management has hired Tom Mowl as a portfolio manager within its structured credit and CLO management team (SCI 20 April).
  • ICE Mortgage Technology has launched a solution that aims to transform the way mortgage loans are electronically closed in the US (SCI 21 April).
  • Aeolus Capital Management has recruited alternative investments research and portfolio advisory specialist Amit Patel (SCI 21 April).
  • WhiteStar Asset Management has opened a London office to drive its European expansion and demonstrate the firm's commitment to its European investors (SCI 22 April).
  • York Capital Management and Kennedy Lewis Investment Management have formed a strategic partnership and established a new entity called Generate Advisors (SCI 23 April).
  • Oak Hill Advisors (OHA) alumni Lei Lei and Christophe Rust are leading the build-out of Ninety One's European credit opportunities business (SCI 23 April).
  • NoviCap has appointed Lois Duhourcau cfo, reporting to founder and ceo Federico Travella (SCI 23 April).


Recent research to download
The Collins Amendment - March 2021
CRT 2021 Outlook - March 2021
Synthetic RMBS - March 2021
CLO Case Study - Spring 2021

Upcoming events
SCI's 3rd Annual NPL Securitisation Seminar
26 May 2021, Virtual Event
SCI's 1st Annual CLO Special Opportunities Seminar
29 June 2021, Virtual Event
SCI's 7th Capital Relief Trades Seminar
13 October 2021, In Person Event