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SCI Start the Week - 7 June

Category: ABS Capital Relief Trades CLOs

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A review of securitisation activity over the past seven days

Last week's stories
Canuck rumours
Canadian banks said to be circling CRT
Capital cushions
Buoyant CET1 levels explain CRT reluctance
Domi debut
Domivest transaction attracts strong investor appetite
FHFA under fire
Arch takes aim at FHFA report on GSE CRT
New moves
Angel Oak Capital discusses its issuance of the first US non-agency social bond securitisation
Pandemic hedges
CRT solutions for pandemic events mulled
Positive prospects
Italian NPL ABS growth pending
Private debt investors doubt ability to handle defaults in post-pandemic downturn
Contributed thought leadership by Ocorian
Revised expectations
Italian NPL business plans underperform
Italian NPL transaction collections are largely underperforming expectations, partly due to the impact of the pandemic, according to the latest data. Some 21 Italian NPL securitisation servicers have updated their business plan at least once and only two servicers have revised their latest gross collection expectations upwards, while ten trades have been downgraded due to a combination of Covid-related factors, say reports.

According to DBRS Morningstar, coronavirus-related drivers include the slowdown in judicial activity resulting from the implementation of extraordinary measures imposed by local governments to contain the effects the pandemic, such as court closures and temporary suspension of the foreclosure actions against residential assets. These have caused delays in legal procedures and disruption to servicers' judicial strategies resulting in longer time-to-recovery compared to initial expectations.

Alternatives such as amicable settlements and sales of exposures to third parties exist and they were initially envisaged in the business plan. However, DBRS Morningstar states that these collection strategies are sometimes executed with lower than initially expected proceeds, offsetting the faster realisation of recoveries. Ultimately, the current uncertainty concerning the duration of the crisis and the expectations that it might continue throughout 2021 explains more conservative views on real estate liquidity and recovery timing.

"The expectation is that the actual impacts of the pandemic in terms of expected recoveries will more likely be reflected by the servicers in their updated business plans that are due to be issued later in 2021 and 2022, once it is possible to better assess the actual effect of the crisis on the local economy'' says the rating agency.

The DBRS Morningstar analysis considered a number of transaction features such as borrower type, portfolio granularity, the secured composition of the pool, the nature of the real estate collateral, weighted-average portfolio vintage, geographical concentration, performance data, and servicing framework.

The analysis and the considerations it takes into account point to the fact that a certain degree of correlation can be identified between reductions in recovery expectations and factors such as transaction performance, the type of real estate collateral, and actual workout strategy implemented to date.

Stelios Papadopoulos


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