Transaction of the week
BBVA has completed an innovative transaction that synchronises credit events with IFRS 9 lifetime expected loss provisions, while also being the first synthetic securitisation to incorporate blockchain technology (SCI 21 December 2018). Dubbed Vela Corporate 2018-1, the €60m financial guarantee references a €1bn Spanish corporate portfolio (SCI 11 January).
The EIF acted as counterparty to BBVA by providing a guarantee on the tranche, which will be used to provide €360m of Spanish SME financing. The agreement has been made possible thanks to the European Fund for Strategic Investments (EFSI).
The forward-looking quality of IFRS 9 is challenging for synthetic securitisations in terms of how a credit event is defined. If deals are to be executed in order to hedge IFRS 9 LEL provisions, credit event pay-outs may have to be synchronised with IFRS 9 LEL provisions rather than incurred losses (SCI 20 December 2017). Yet, in practice, such synchronisation has never occurred, since credit events are still traditionally defined as bankruptcy, restructuring or failure to pay (SCI 15 June 2018).
The innovation of BBVA's SRT is that it mimics the P&L of the portfolio by linking credit events with IFRS 9 provisions. Pablo Sanchez Gonzalez, structured finance manager at the EIF, explains: "This was already a novelty in an SME transaction that BBVA completed with the EIF in 2017. The difference with the corporate securitisation is that you don't just have a fourth option in addition to the classical three credit event definitions - the fourth option being an increase in generic provisions - but also a tighter synchronisation of all credit events."
This raises a major similarity and difference compared to traditional synthetic deals. The similarity is that investors look at realised losses: credit events are followed by settlements - typically based on estimated losses - until realised losses are crystallised towards the end of the work-out period. The difference, however, is that settlements also take into account the impact of IFRS 9 provisions before losses are again crystallised towards the end of the work-out period.
Other deal-related news
- BCC Grupo Cajamar has completed a €972.1m Spanish true sale significant risk transfer transaction with the EIF, ICO and hedge fund investors (SCI 9 January). Dubbed IM BCC Capital 1, the transaction is the first cash SRT issued by a standardised bank and the first risk-sharing transaction by a standardised bank that involves both the EIF and private investors, paving the way for further private sector involvement in EIF transactions.
- Canadian Solar has completed the first equity securitisation to be backed by long-term contracted solar assets (SCI 11 January). The firm successfully raised ¥6.3bn from a diversified mix of Japanese and Korean institutional investors in its inaugural transaction, dubbed Canadian Solar Securitized Green Equity Trust 1.
- Freddie Mac has expanded its multifamily credit risk transfer platform with the closing of its first transaction - dubbed MCIP 2018-1 - under its new Multifamily Credit Insurance Pool (MCIP) offering (SCI 7 January). In MCIP transactions, Freddie Mac enters into long-term credit insurance contracts covering credit losses from existing multifamily loans in its portfolio or bonds that Freddie Mac fully guarantees.
- The French servicer of the Rive Defense loan, securitised in RIVOL 2006-1, received a further €4.9m in principal and €33,700 in interest. A total of €5m in cash assets will be paid to the issuer on the January payment date, marking the final payment in respect of the loan. For more on CMBS restructurings, see SCI's CMBS loan events database.
- Separate meetings of Marketplace Originated Consumer Assets 2017-1 noteholders have been convened for 14 January to consider and, if thought fit, pass an ordinary resolution in accordance with the provisions of the transaction's trust deed to dispose of 550 delinquent loans from the portfolio (SCI 11 January). Based on the cut-off date of 16 October 2018, the loans have a total principal amount outstanding of £3.86m, of which £75,102 subsequently defaulted (as of 31 December 2018). The proceeds from the sale of the assets is expected to be £957,015.
- The facility recently inked by Texel Finance and Liberty Specialty Markets (SCI 9 November 2018) signals an increasing interest among insurers in providing meaningful risk transfer solutions for structured finance opportunities. One key area being targeted by the facility is mezzanine risk transfer for SRT transactions, following the coming into force of the new securitisation framework (SCI 10 January).
As is typical of this time of year, last week was quiet in terms of new issuance. A pair each of ABS and CMBS priced.
The ABS were US$1.23bn GM Financial Consumer Automobile Receivables Trust 2019-1 and US$550m Golden Credit Card Trust Series 2019-1, while the CMBS were US$644.1m CGCMT 2019-SMRT and US$515m NYT 2019-NYT.