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Structured Finance

Gearing up for green

Two pilots funded by Horizon 2020 - the EU programme for research and innovation - are set to launch next month that should boost the development of green securitisation in Europe. One is a project to develop PACE ABS across the region and the other aims to create a standardised energy efficient mortgage.

The project to develop PACE securitisations - dubbed EuroPACE - is led by GNE Finance, with an international consortium of seven other partners. The consortium has been awarded a grant under Horizon 2020 to focus on the research and development of a European PACE product.

The research side of the project involves analysing the PACE-readiness of each country in Europe, as well as assessing potential demand and the legal and fiscal regimes that could fit with the PACE mechanism. GNE Finance managing partner Davide Cannarozzi says the aim is to create a map where countries highlighted in green represent "low-hanging fruit", countries in yellow are "feasible but require some work", and those in red are "challenging".

The development side of the project entails establishing a PACE fiscal instrument - based on 'on-tax financing' - in the pilot city of Olot. Based on best practices developed during the pilot, the consortium will then build a EuroPACE toolbox and advise another four European cities on launching PACE programmes on a larger scale.

Olot was chosen as the pilot city because the consortium needed laboratory conditions rather than a large-scale implementation, according to Cannarozzi. "There are 25,000 households in Olot and the municipality has a deep knowledge of the tax system. There is enough capacity to make the pilot meaningful, but it is small enough that we can be agile in terms of implementation and communication."

He adds that the aim is to address larger cities once the concept has been developed and GNE Finance has a track-record and is able to be assertive about what is required. "We're already talking with another region in Spain to develop a larger project - involving 2.5 million people - in the future."

The pilot will encompass both commercial and residential PACE and is specifically targeting securitisation as the financing method. "The idea is to attract private capital for the initial funding and create a warehouse facility, where we can pool all the transactions until critical mass is reached. Once we hit €50m-€100m, we can proceed with the securitisation issuance," Cannarozzi explains.

As part of the project, the consortium is seeking to explore the impact of PACE on addressing unemployment of the most vulnerable categories, as well as tackling energy poverty. "For example, if we can create facilities to credit-enhance portfolios via the Juncker plan, we may be able to offer lower-income households access to PACE financing," he continues.

One of the important differences between PACE in the US and Europe is that in the US most homes (around 70%) are single-unit properties, whereas in Europe most homes are condominiums (in other words, communities of owners). Creating an appropriate instrument for condominiums is therefore expected to require a hybrid version of C-PACE and R-PACE tools.

"Apartment blocks in Europe are typically over 50 years old and face high pressure at the European level to be refurbished in order to reduce emissions. But this entails refurbishing the entire building, which means overcoming the difficulty of agreeing financial transactions with each apartment owner," Cannarozzi observes.

Another important step is to assess homeowner demand and their decision-making processes. "In the US, the majority of R-PACE financing is picked up by leveraging the role of contractors - most deals are made off the back of repairing a broken heating system, for example. But the upside is that in Europe there is plentiful public funding with the mandate to support green initiatives, which may help reduce the initial costs of financing," he adds.

The EuroPACE initiative with the European Commission is a three-year project: the first year lays the foundation for the pilot, which will be launched in the second year, and the third year will entail observing how the programme is evolving and preparing to expand it. By the end of 2019, GNE Finance hopes to have another four cities involved in the initiative and then to launch it internationally by 2020.

The EuroPACE consortium comprises: CASE, a Warsaw-based social and economic thinktank; the Spanish city of Olot; Joule Assets, a provider of energy reduction market analysis, tools and financing; two Spanish energy agencies (Agenex in Extremadura and EVE in the Basque Country); UpSocial, a consulting company that promotes social development and justice; and the Climate Bond Initiative, whose guidance is necessary to ensure that the final instrument can clearly be classified as a green securitisation.

Meanwhile, the European Mortgage Federation and the European Covered Bond Council's Energy Efficient Mortgages Action Plan (EeMAP) is due to roll out in March or April a pilot scheme that aims to develop a standardised data collection infrastructure for standardised energy efficient mortgages. The idea is to incentivise building owners to improve the energy efficiency of their buildings or acquire an already energy efficient property by way of preferential financing conditions linked to the mortgage.

At the heart of the initiative is the assumption that energy efficiency has a risk mitigation effect for banks, as a result of its impact on a borrower's ability to service their loan and on the value of the property. This means that energy efficient mortgages will represent a lower risk on the balance sheet of banks and could therefore qualify for better capital treatment. The financial incentives linked to the energy efficient mortgage will be determined on the basis of a progressive scale.

To this end, EeMAP seeks a clear understanding of how to differentiate between 'green' and 'conventional' funding and how to capture energy efficiency within financial institutions' lending practices using energy efficiency indicators. Testing the framework for energy efficient mortgages produced by the EeMAP technical committees is expected to begin in June, with a view to delivering a final framework for an energy efficient mortgage product in 2019.

Calvin Davies, head of ABS and covered bonds at NN Investment Partners, welcomes the initiative's potential to help in developing the green securitisation and covered bonds markets. "Data collection is an important step in this process, as it will allow investors to more accurately analyse the underlying exposures and ensure that they meet their ESG responsibilities," he observes.

Details of the pilot are yet to be released, but Davies suggests that the European DataWarehouse - which is one of the stakeholders in the EeMAP initiative - would serve as a good template for the new data collection infrastructure. "We're used to the European DataWarehouse and find the loan-level data it provides very useful. However, the market still needs to define what is meant by 'green' assets."

He adds that a further barrier is the ability to pool sufficient volumes of loans that meet environmental standards in any one European jurisdiction. "This fragmentation between countries means that developing a green securitisation market is more challenging than it is in the US, for example."

If the green securitisation market is to scale up with appropriate speed and become viable, there needs to be regulatory incentives and policymaker support for both issuers and investors, according to Davies. "Given the scale of additional expenditure that is needed - €180bn per annum over the next 20 years, according to the EU High-Level Expert Group on Sustainable Finance [HLEG] - to meet the Paris Agreement commitments, it is necessary to galvanise the market. Banks, municipalities and utility companies all have stretched balance sheets, while pension funds and insurers have deep pockets - albeit they still have to generate attractive returns. Consequently, the key is to make granular exposures attractive to institutional investors."

The low-hanging fruit in the move to address climate change - for instance, coal-fired power stations - has already been picked. "To move forward with the Paris Agreement, it isn't as simple as shutting down power stations - it requires creating low-carbon economies and individual consumers/projects are critical to its success," Davies continues. "However, providing families with relatively cheap funding to purchase hybrid cars and new heating systems and so on will require subsidies. Securitisation is an established tool and an efficient way of aggregating small, illiquid exposures and bringing them to market, but it requires critical mass to attract institutional investors."

The OECD projects that green securitisations could potentially reach an annual issuance level of US$20bn in the EU alone by 2020, with global issuance as high as US$380bn per annum by 2035. Davies suggests that the US$20bn figure is achievable, depending on how incentivised market participants are. Citing the Netherlands as an example, he indicates that redirecting - via the correct regulatory incentives - investor appetite for whole loans towards green securitisations would certainly be a helpful contribution.

So far, Rabobank has issued Europe's only two green RMBS (see SCI's primary issuance database) - although a major German auto manufacturer is now rumoured to be exploring green securitisation issuance too. Similarly, only three green covered bonds have been launched, but the Luxembourg government last month announced its intention to create a covered bond legal framework that will enable banks to collateralise their covered bonds with assets that fund renewable energy infrastructure projects.

HLEG's recently released final report sets out strategic recommendations for a financial system that supports sustainable investments. Among the report's proposals are: a classification system to provide market clarity on what is 'sustainable'; clarifying the duties of investors in connection with a more sustainable financial system; improving disclosure by financial institutions and companies on how sustainability is factored into their decision-making; an EU-wide label for green investment funds; and a European standard for green bonds.

CS

CMBS

Key CMBS pillars hold steady

New US CMBS transactions are generally seeing signs of improving credit quality. This challenges recent rating agency criticisms that there has been a fall in the quality of the underlying loans.

Moody's recently stated that there has been an erosion of key pillars of loan structural quality, particularly in single-borrower CMBS deals. Tracy Chen, portfolio manager and head of structured credit at Brandywine Global, doesn't agree with the overall message from the rating agency, but agrees that risk retention hasn't led to the widespread improvement that was anticipated.

Chen comments that, more notably, there has been a rise in interest-only and pari passu loans appearing in both SASB and conduit CMBS transactions. A particular issue with an increase in pari passu loans, she says, is that they typically reduce portfolio diversity.

She comments on a further issue: "Another slight concern is that issue size has been smaller in general and this has led to transactions being oversubscribed. This has contributed to spreads grinding tighter, but this isn't necessarily an accurate reflection of the risk involved in the transactions."

Chen also stresses that new CMBS transactions continue to improve in credit quality, such as by drastically reducing retail exposure in new deals, pivoting instead into the office sector. The impact of retail exposure in older vintages is further underscored by trading activity in the secondary market.

Chen says: "We have witnessed a strange phenomenon, as a result of the retail decline, whereby vintage CMBS have been trading at wider spreads to new issues - whereas typically the opposite is the case. In this case, new issues with less retail exposure are trading tighter than the older vintages."

DBRS also comments that conduit CMBS have seen a rise in shadow-rated loans backing the transactions. Chen believes that this hasn't been the case and that actually there has been a general improvement across SASB and conduit transactions in terms of loan quality.

She adds: "In fact, in recent issues you tend to get less exposure to B and C rated loans, compared to older vintages." She says that while she does see more barbelled deals, loans in new transactions continue to improve in terms of lower LTVs and higher DSCRs.

In general, Chen is optimistic about the CMBS sector and says that it continues to offer value, especially in more seasoned deals, as risks like retail are priced in. She says too that CMBS continues to be structurally sound with low delinquency rates post-crisis.

She comments that agency CMBS is of particular interest and a growing area, in part due to its increasing role in the expansion of multifamily property development, itself driven by a shortage of single-family rental homes. Chen goes as far to say that some investors are looking at it as a potential replacement for agency RMBS as the Fed sells off its balance sheet, while it still offers good spreads and lower prepayment rates than agency RMBS.

Investors in the product do, however, differ to those in agency RMBS - which are typically banks, pension funds and a sizeable number of overseas investors, such as Japanese or Chinese firms. She concludes that agency CMBS investors tend to be "money managers or property firms, particularly after [the bonds] became included in the Barclay Aggregate index, and also because there is smaller total market size and slightly less liquidity in agency CMBS than in agency RMBS."

RB

ABS

Navient preps 'debut' refi SLABS

Navient is tapping the ABS market for the first time after acquiring online lender Earnest. Its latest US$507.47m transaction, dubbed Navient Private Education Refi Loan Trust 2018-A, is backed by fixed-rate refinanced student loans first originated by Earnest and subsequently acquired by Navient to circumvent competition clauses since its split from Sallie Mae last year (SCI 30 October 2017).

DBRS and S&P have assigned provisional ratings of triple-A to the US$301.730m class A1 notes and triple-A to the US$163.210m class A2 notes while just DBRS has assigned a provisional rating of double-A to the US$42.890m class B notes. Credit enhancement in the deal consists of overcollateralisation, note subordination, a reserve account for the class A1 and class A2 notes, along with excess spread and a reserve account for the class B notes.

The deal benefits from the quality of borrowers, which have a weighted average credit score of 765. Additionally, the student loans have weighted average borrower income of US$137,946 and average free cashflow of US$4,387.

Loans originated through the Earnest platform have also exhibited strong credit characteristics, with only a total of 14 loans charged off. Also, only 0.08% of the total origination amount has been granted as hardship forbearances.

DBRS adds that approximately 71.9% of the pool comprises loans made to borrowers that obtained a graduate degree, which typically have lower default rates than loans to undergraduate students. Additionally, 29.6% of the pool have a medical degree and 15.8% a law degree (with weighted average incomes of US$255,394 and US$144,990 respectively), along with 14% with an MBA degree (average income of US$125,548).

Typically, these advanced degree types typically have higher average income and monthly free cashflow, resulting in lower default rates than undergraduate loans. Additionally, medical and dental degrees demonstrate lower unemployment rates than other occupations.

A potential concern is Earnest's limited experience and operational history in the student loan lending and servicing space, having only begun originations in 2014. However, the transaction will benefit from Navient acting as servicer.

Earnest will act as subservicer, performing various loan functions with respect to the trust student loans on behalf of Navient. DBRS comments that it finds both Navient and Earnest acceptable servicing entities.

Other issues relate to a number of ongoing lawsuits, including one launched by the CFPB filed against Navient in January 2017, alleging violations of federal and state consumer statutes. Another notable ongoing lawsuit was filed by the Attorney General of the Commonwealth of Pennsylvania in October 2017 (SCI 30 October 2017).

RB

Structured Finance

SCI Start the Week - 5 February

A look at the major activity in structured finance over the past seven days

Auto ABS from the US, France and Turkey – the US$750m Ally Master Owner Trust Series 2018-1, €524m Bumper 10 and TRY1.94bn Driver Turkey Master respectively – hit the market last week, together with three equipment ABS (US$305.694m CCG Receivables Trust 2018-1, US$542.97m GreatAmerica Leasing Receivables Funding Series 2018-1 and US$750m Volvo Financial Equipment Series 2018-1). The structured settlement ABS were US$150m PFS Financing Corp Series 2018-A and US$250m PFS Financing Corp Series 2018-B.

The RMBS comprised US$296.03m Citigroup Mortgage Loan Trust 2018-RP1, Silverstone 2018-1, Tolkien Funding Sukuk No.1 and US$707m Towd Point Mortgage Trust 2018-1. The CMBS consisted of US$195m CFCRE Trust 2018-TAN, €403.81m Pietra Nera Uno and US$1bn UBS 2018-C8. The US$932.4m TRTX 2018-FL1 CRE CLO rounded out the pipeline entrants.

Priced
Auto ABS accounted for the majority of last week's prints. Additionally, a French RMBS was retained.

The auto ABS pricings were: €965m Driver Espana Five, US$266.45m GLS Auto Receivables Trust 2018-1, US$546.05m Tesla Auto Lease Trust 2018-A, US$171.73m United Auto Credit Securitization Trust 2018-1 and US$1bn World Omni Auto Receivables Trust 2018-A. The €316.7m Marzio Finance Series 2-2018 and US$734.83m SoFi Consumer Loan Program 2018-1 rounded out the ABS issuance. The RMBS was €5bn BPCE Master Home Loans 2018-01.

Editor's picks
Innovative portfolio guarantee inked: The EIF has completed five synthetic securitisations with five Italian banks, in the context of the SME Initiative Italy. The transaction features an innovative structure and is the first to guarantee standardised banks...
Distressed exchange queried: China Huarong Asset Management, one of China's largest state-owned distressed debt managers, yesterday launched a Beijing-based bad debt exchange. The exchange is expected to provide an inventory of what's available in the Chinese non-performing loan market...
Bright start for UK ILS: The first UK ILS launched last month, coinciding with the introduction of the nation's new ILS regulatory and tax regime, designed to put the UK on an even footing with other jurisdictions (SCI passim). NCM Re is a US$72m collateralised quota share reinsurance transaction that underwrites a portion of Neon Syndicate 2468's property treaty reinsurance and direct facultative portfolios...
US CLOs on the up: Pricing levels across the US CLO secondary market have kept increasing through January. "Everything is getting tighter in secondary," says one trader. "Meanwhile, new issue spreads are tightening and then those bonds are trading up in the secondary market too..."
Interest shortfall risk spied for VOLT deals: Many 2017 VOLT deals did not receive principal payments in the January 2018 remittance cycle, as the pace of liquidations has slowed dramatically. This appears to be connected to an increase in REO-to-rental activity, which is increasing upward pressure on the expected average lives of senior notes...
Call for transparency underlined: A push for transparency is a common thread among European initiatives to reinvigorate the securitisation markets. Communication and standardisation are expected to play significant roles in facilitating this effort...

Deal news
• Al Rayan Bank is marketing its first £250m sharia-compliant UK securitisation. Dubbed Tolkien Funding Sukuk No.1, the deal is a static securitisation backed by first lien Home Purchase Plans (HPPs) extended to 1,672 customers and secured by residential properties in the UK.
• The first two US CLO reissues closed last week, adding another US$1.12bn to Anchorage Capital Group's AUM. A reissue differs to a refinancing or reset as it involves calling a pre-existing CLO and rolling the assets into a new SPE.
• The first public Turkish ABS transaction, Driver Turkey Master, has been provisionally rated by both Fitch and Moody's. The TRY1.94bn transaction securitises Turkish auto loan receivables originated by Volkswagen Dogus Finansman (VDF) and features a one-year revolving period.
• The Australian Prudential Regulatory Authority has set out its priorities for 2018, most notably with regards to bank capital. The Australian regulator is considering changes to its overall approach to capital requirements in a number of areas where its methodology is more conservative than minimum international requirements.
• Last year was unprecedented for the global ILS market, with record issuance of around US$10bn and non-life ILS capital reaching a record US$88bn by year-end, up 17% from 2016. While some analysts note that the record issuance was largely driven by the first half of 2017, a continuation of unabated growth in terms of new issuance and secondary market activity in 2018 is expected.
• Tesla has priced an inaugural securitisation backed by 8,879 retail auto lease contracts originated by the firm's finance arm, Tesla Finance. The transaction, dubbed Tesla Auto Lease Trust 2018-A, is backed by the discounted value of remaining monthly lease payments and base residual values from the pool.
• LeasePlan is marketing its first French public auto lease ABS. The €653m transaction, dubbed Bumper 10, is a one-year revolving cash securitisation backed by 40,817 auto lease receivables contracts originated by LeasePlan France to businesses, retail clients and public firms.
• TPG RE Finance Trust (TRTX) is marketing an inaugural US$932.4m CRE CLO. The transaction, entitled TRTX 2018-FL1, is the second-largest CRE CLO to be issued post-crisis and will initially be collateralised by 26 mortgage assets, secured by 63 properties.

Structured Finance

Intesa leads asset management shift

Intesa Sanpaolo announced this week a four-year plan to halve its non-performing loan exposures by 2021 by boosting fee income and selling its servicing platform. The lender has led the shift in fee-earning businesses among Italian banks, which coincides with low interest rate pressure on interest margins and ECB demands for a reduction in bank NPL volumes (SCI 4 October 2017).

Following ECB pressure for speedier disposals of NPLs, Intesa started discussing in January the sale of a portfolio, together with a stake in its debt collection unit to Swedish debt collector Intrum Justitia. The Italian lender confirmed it would move its debt recovery and real estate businesses into a new company and consider a partnership. This signals a move away from internal recovery in an attempt to avoid steep losses associated with many NPL disposals.

Intesa states that it will reduce its gross non-performing exposures from €52.1bn to €26.4bn in 2021 (i.e. from 11.9% to 6% of gross loans). This will be accompanied by a fall in loan loss provisions to €1.8bn by 2021 (compared with €3.3bn in 2017), with the cost of risk halving from the current 81bp to 41bp.

The bank is targeting a 4% average annual growth in revenues, assuming moderate growth in Italian GDP and market rates still at zero in 2021. Revenue growth would mostly be fuelled by loan volume dynamics (in mortgages, personal loans, SMEs and the international division) and by fees, expected to expand at a 5.5% CAGR.

Intesa - which has led a shift among Italian banks towards fee-earning businesses and last year considered a bid for insurer Assicurazioni Generali - said it wanted to strongly grow its non-life insurance business and would consider partnering with a global player in asset management. The lender intends to boost its asset management arm Eurizon from €314m in 2017 to €400m in 2021.

Another pillar of the plan is wealth management, where China remains a key strategic growth option for the bank. Its subsidiary Yi Tsai (100% owned) and joint venture Penghua (49% owned) are active in wealth management, with the latter managing the equivalent of €75bn in assets.

Rating agency Scope believes that most elements of the plan are in continuity with the group's recent history, including a low capital intensity business model, a focus on operating efficiency, the centrality of wealth management and a generous dividend policy. Future success can be gauged from what Scope considers as the successful execution of the 2014-2017 business plan.

Excluding the cash contribution to the profit and loss statement from the Veneto banks acquisition, adjusted net profit for 2017 stood at €3.8bn - a 23% increase compared to 2016, largely driven by higher revenues and declining loan loss provisions. The fully loaded CET1 ratio at end-2017 stood at 13%, including approximately 100bp impact from IFRS 9. This level is considerably above the fully loaded SREP requirement of 9.3%.

Asset quality trends have reversed over the years, with gross NPEs reaching a peak of 16.9% of loans in 2014 before starting to decline. As of December 2017- including IFRS 9 provisions - the group's gross NPE ratio stood at 11.9%, with coverage of 56.8%. The net NPE ratio stood at 5.5%.

Scope underlines the contribution from fee-generating businesses - in particular, asset management and asset gathering performance (which helped keep profits robust, despite low interest rates) has been key to profit and loss improvements over the past few years. Management's focus on cost control and the simplification of group structure were also important drivers and are set to continue under the latest plan.

SP

Capital Relief Trades

Risk transfer round-up - 9 February

Elsewhere, market sources observe that Greek lenders are examining the possibility of using the synthetic securitisation format for non-performing loan exposures. Eurobank has already issued a relatively unknown synthetic NPL transaction, in July 2016.

According to a recent Ashurst survey, nearly a third of investors and issuers allude to synthetic securitisations of non-performing portfolios as one strategy for risk transfer in Greece. Indeed, NPL investors rank Greece in their top-two southern European target investment countries for this year (SCI 8 December 2017).

CMBS

Blackstone preps Italian CMBS

The borrowers are Moma Fund (a regulated Italian real estate fund and the borrower under the Fashion District loan), Multi Veste Italy (the borrower under the Palermo loan) and Valdichiana Propco (the borrower under the Valdichiana loan). The three borrowers are ultimately owned by the Blackstone Group, acting as sponsor.

DBRS and Fitch have assigned provisional ratings of AA(low)/A+ to the €210m class A notes, A(low)/A- to the €60m class B notes, BBB(low)/BBB- to the €31.5m class C notes, BB/BB-to the €41m class D notes and B(high)/B to the €41.1m class E notes and there is an unrated €20.2m Z note. The notes have a final legal maturity of May 2030.

The aggregate initial balance of €403.81m includes €9m and €6.5m pari passu-ranking capex facilities related to the Palermo loan and the Fashion District loan respectively. The Fashion District loan and the Valdichiana loan will refinance loans currently securitised in Taurus 2015-1 IT and Moda 2014 respectively. Each loan has a two-year term, with three one-year extension options, subject to certain conditions.

The collateral backing the loans comprises four Italian retail assets, including three regional outlets and one dominant shopping centre in respectively Mantua (northern Italy), Valdichiana (central Italy) and Molfetta and Palermo (southern Italy). The portfolio benefits from a weighted average occupancy of 95%, aside from the asset located in Molfetta, which has a vacancy rate of 25%.

The rental income of the properties comes from 360 tenants, which are largely well-known international retailers. The top 10 tenants generate 18% of the total rent, with the largest - UCI Cinemas - providing 4% of total rental income.

In the case of increases in interest payable under the loans, due to fluctuations of three-month Libor, each borrower enters into hedging arrangements satisfying different conditions. These include an aggregate notional amount covering not less than 95% of the outstanding loan.

The CMBS is supported by a €15m liquidity reserve facility provided by Deutsche Bank. It can be used by the issuer to fund expense shortfalls, property protection shortfalls and interest shortfalls.

Blackstone is required, through the subsidiary BRE Europe 7 NQ, to retain an ongoing interest of not less than 5% by subscribing to an unrated and junior-ranking €20.2m class Z note.

RB

Insurance-linked securities

Landmark sovereign ILS priced

The IBRD has printed the largest sovereign risk transfer transaction ever and the second-largest catastrophe bond issuance. The landmark deal provides US$1.36bn in earthquake protection to Mexico, Chile, Colombia and Peru, marking the first time the latter three countries have accessed the capital markets to obtain insurance for natural disasters.

The issuance consists of five classes of World Bank bonds: one each for Chile (dubbed CAR 116), Colombia (CAR 117) and Peru (CAR 120), and two classes for Mexico (CAR 118 A and CAR 119 B). Under the respective classes, Chile will receive US$500m, Colombia US$400m, Mexico US$260m (the A note is sized at US$160m and the B note is US$100m) and Peru US$200m in risk insurance.

The CAR 116 bonds priced at three-month Libor plus 250bp, the CAR 117 bonds priced at plus 300bp, the CAR 118 A at plus 250bp, the CAR 119 B at plus 825bp and the CAR 120 at plus 600bp. The triggers are parametric and depend on data provided by the US Geological Survey.

The classes for Chile, Colombia and Peru will provide coverage for three years. The classes for Mexico will provide coverage for two years.

The transaction attracted strong demand, given it offered access to new geographies, attracting almost US$2.5bn of investor orders. More than 45 investors from around the world participated in the deal.

By structuring the transaction as a joint issuance, the countries - all members of the Pacific Alliance - benefited from cost savings in terms of legal and other fees. Swiss Re and Aon Securities were joint structuring agents on the deal, while Swiss Re, Aon Securities and Citi were joint bookrunners. AIR Worldwide is the modelling agent and calculation agent.

Paul Schultz, ceo of Aon Securities, comments: "This record-breaking issuance highlights the strategic partnership between nations seeking efficient sources of capital to fund emergency costs and investors seeking to invest in diversifying risks and support sustainable development initiatives. We are optimistic that this transaction will pave the way for other governments to develop more resilient risk management programmes for their uninsured exposures."

The transaction represents the World Bank's largest catastrophe bond to date and is also the largest earthquake ILS ever. The total amount of risk transfer facilitated by the World Bank now stands at US$3.6bn.

CS

RMBS

GNMA aims to stop churn

In a move which should be a net benefit to RMBS, Ginnie Mae has taken steps to address churning in its RMBS programme, both to keep mortgage rates affordable and to preserve liquidity in the security. To that end it has notified a "small number" of issuers who are outliers among market participants in the Ginnie Mae multi-issuer MBS on the metric of prepayment speeds that such deviations from market norms are not acceptable.

Ginnie Mae's actions follow a comprehensive review of issuer performance, which included an in-depth evaluation of prepayment speeds on the RMBS pools of individual issuers. Issuers which have received such a notification are expected to deliver a corrective action plan which identifies immediate strategies to bring prepayment speeds in line with market peers. If they cannot do this, they may be restricted from access to Ginnie Mae multi-issuer pools.

"We have an obligation to take necessary measures to prevent the lending practices of a few from impairing the performance of our multi-issuer securities, and thus raising the cost of homeownership for millions of Americans," says Michael Bright, Ginnie Mae evp and coo. "We expect issuers receiving these notices to respond quickly, produce a corrective action plan and come into compliance with our program."

While Ginnie Mae has not released the exact number of letters sent or their recipients, Wells Fargo analysts believe there were nine letters to five recipients. These recipients are understood to be Flagstar Bank, Freedom Mortgage Corp, LoanDepot.com, Nations Lending Corp and New Day Financial.

Ginnie Mae's announcement follows action taken by the Veterans Administration (VA) at the start of this month, where the VA enhanced disclosure requirements for interest rate reductions refinance loans (IRRRLs). The change outlined by the VA closes a prior reporting loophole and requires lenders to provide the Veteran's Statement and Lender Certification no later than three business days after receiving a loan application.

"Per the VA, early disclosure in the application process affords Veterans the opportunity to make informed decisions and determine if the proposed IRRRL is in their best interest. This new policy goes into place for loans closed on/after April 1, 2018," say the analysts.

The analysts expect more headlines to come from Ginnie Mae as it works its way through the process of policing prepayment speeds. They think the news should be a net benefit for RMBS, especially higher coupons where outlier speeds are most prevalent. "Given the selloff in rates and these additional actions, we are moving our G2/FN box swap recommendation up-in-coupon from 3.5/3 to 4/3.5," they add.

JL

Structured Finance

Market moves - 9 February

North America

Greystone has hired Anthony Alicea as head of production of the portfolio lending group. He will report to Mark Jarrell, who leads the group, and he will oversee production for the firm's bridge and mezzanine lending products that complement Greystone's lending products. In his 20-year career, he has led CMBS and securitisation projects for Arthur Andersen's real estate consultancy, managed CMBS production at Nomura Credit & Capital and originated agency loans as well as CDO activity at Centerline Capital Group (now Hunt Mortgage). Alicea also previously held multifamily finance roles at Pensam Capital and World Class Capital Group.

AIR Worldwide has appointed Roger Grenier as svp of global resilience to lead the firm's resilience initiatives, which aim to develop solutions that aid society's efforts to better prepare for and recover from extreme events, across the globe. The role will include working with AIR's ILS team to explore new opportunities for utilising catastrophe models to improve resilience to catastrophic events and expand its existing partnerships with development banks, as well as private banks that help securitise public risk. Grenier has 20 years of experience working directly with global risk models and was formerly director of catastrophe research and development at Liberty Mutual, where he was responsible for developing techniques to evaluate non-modelled catastrophe risk worldwide.

New Penn Financial has promoted Kevin Harrigan to the position of president. He joined the firm in 2013 and most recently served as coo. In his new role he will lead New Penn's daily operations and will join New Penn ceo Jerry Schiano and Shellpoint Partners co-ceo Bruce Williams on the executive management committee for the origination company operated by Shellpoint Partners, the parent company of New Penn.

THL Credit has appointed Brian Murphy as head of capital markets. Murphy, who is based in Chicago, is md and senior portfolio manager for THL Credit's tradable credit strategy. In this newly created role, Murphy will be responsible for overseeing all of THL Credit's capital markets activities, including sourcing investment opportunities from banks and lenders and managing excess risk across THL Credit's tradable credit and direct lending strategies. Murphy joined THL Credit in 2012 in connection with the company's acquisition of McDonnell Investment Management, where he was a senior credit analyst and senior portfolio manager.

Eurosystem update

The ECB has published three new guidelines amending the Eurosystem monetary policy, valuation haircuts and additional temporary measures relating to refinancing operations and collateral eligibility, which will apply as of 16 April. Among the changes are the adjustment of risk control measures for retained covered bonds with extendible maturities and the exclusion of CMBS from collateral eligibility, due to their relatively complex nature. Additionally, the ECB published details on the minimum information that should be provided by firms applying for Eurosystem designation as an ABS loan-level data repository.

NPL data test

European DataWarehouse has launched a new initiative to support the development of the non-performing loan market and the EBA data templates. Starting this month, ED will collect test files for NPLs, in accordance with reporting templates developed by the EBA (SCI 15 December 2017), until the end of June. The organisation says that by providing a unique platform for the collection of test data, it is providing the opportunity for banks, servicers and other market participants to familiarise themselves with the EBA templates and loan-level reporting for residential mortgages and SME loans.

Fino sale completed

UniCredit's disposal of a portion of its retained exposure in the class B, C and D notes issued by the Fino 1 Securitization and Fino 2 Securitization vehicles has been settled (SCI passim). In addition, the bank has placed €617.5m - with a coupon of three-month Euribor plus 150bp - of senior guaranteed notes issued by Fino 1, which benefit from the GACS scheme and have the highest rating assigned in Italy in the context of GACS securitisation (A2 by Moody's and BBB (high) by DBRS). HSBC, Natixis, NatWest Markets and Mediobanca supported UniCredit in the placement of the GACS transaction. This marks the completion of the second and final phase of Project Fino, resulting in the bank's overall position in the Fino portfolio being below 20%.

Transfer request

Newmark Capital is requesting consent from the holders of the controlling class and income notes of Newmark Capital Funding 2014-1 and 2014-2 CLO to assign its rights and obligations under the collateral management agreement to Pretium Credit Management pursuant to a master sale agreement. If no response by the majority of the controlling class is received within 45 days, they shall be deemed to have consented to the assignment.

Bon-Ton exposure

US retailer Bon-Ton last week announced the closure of a further 42 stores, beginning this month and running for 10-12 weeks. An estimated 11 CMBS loans (eight of which are securitised in CMBS 2.0 transactions) totalling US$430m across 12 deals have exposure to the closures, according to Morgan Stanley figures. The largest affected loan is the US$146.1m Fox River Mall, securitised in WFRBS 2011-C4. Two of the loans - the US$16.9m Wausau Center (WFRBS 2011-C4) and US$92m University Mall (LBCMT 2007-C3) - are currently held REO.

Data Enhancement

CoreLogic is set to redistribute credit risk transfer loan-level data from Fannie Mae and Freddie Mac to new and existing non-agency RMBS clients at no additional charge. The CRT redistribution will include CAS, STACR, Whole Loan Securities and Seasoned Credit Risk Transfer Trust data. In addition, the firm's RiskModel is being enhanced to seamlessly integrate the reference pool data for both the CAS and STACR programmes.

RMO consultation

The Reserve Bank of New Zealand's consultation on the terms under which it should accept mortgage bonds as collateral and the proposed new residential mortgage obligation (RMO) standard closes on 16 February. The central bank believes that the proposed new collateral standard would: improve its risk position by promoting the use of higher quality and potentially more liquid, mortgage bonds as collateral in its lending operations; support New Zealand lenders by creating an additional funding instrument for residential mortgages; and promote a deeper capital market through the availability of simple, comparable and transparent mortgage bond instruments. The aim is to create a more standardised and transparent framework for mortgage bonds, thereby improving their quality and making them more marketable.

Acquisitions

White Oak has acquired Federal National Commercial Credit, a specialised commercial finance company providing government receivable financing, commercial factoring and asset based loans to small and middle-market companies. The acquisition expands White Oak's asset-based lending product offerings and capabilities to serve new government and factoring clients. FNCC's senior leadership team consisting of Kwesi Rogers, ceo, and Kysha Pierre-Louis, cco, will continue to lead the business from Bethesda, Maryland. Post-close the business will be named White Oak Business Capital. Terms of the transaction were not disclosed.