Contents

Structured Finance

Doubling-up on due diligence?

Securitisation investors believe that their own due diligence procedures will still be required on deals carrying the STS label, for fear they may lose the designation. Nevertheless, the STS framework is expected to lead to better quality ABS product, with reliance on the label increasing over time.

Henry Cooke, executive director at Gryphon Capital, commented at a recent PCS seminar that generally “investors will want to do their own due diligence, despite the specific 102 points that they would have to analyse under STS” to assess whether a deal comfortably meets STS requirements. His concern is that certain approved transactions could “fall off the edge into STS non-compliance, with a resultant significant impact on pricing.”

He added that the STS designation may be similar to ratings assigned by the rating agencies, in that investors first assess a deal before buying and look at the rating second. He suggested that just as ratings have an impact on pricing, so “we’d expect the STS label to have an impact on pricing.”

Another panellist at the PCS seminar challenged this, however, stating that it would not make sense for investors to go through all 102 compliance points again to ensure it is STS-compliant. Instead, the panellist suggested that the level of due diligence completed by investors would fall far short of the extensive level of analysis required for each transaction, prior to receiving STS status.

Markus Schaber, managing partner at Integer Advisors, noted that while “technically” investors can’t fully rely on the STS label, this may develop. He said: “It is reasonable to expect that over time, certainly among the more commoditised or dominant asset classes, some higher degree of reliance will set in. For newer asset or structure types, we would expect that there will be a higher level of investor due diligence, at least initially.”

Concern remains that STS may impose a burden on some participants to find, said Cooke, “retrospective environmental data on loans originated before the environmental aspects were considered relevant” - which would be an especial “headache” for those investing in mortgages. This was countered by a panellist that the requirement isn’t as strict as may have been outlined by the regulation and not necessarily mandatory.

Cooke also raised the issue about requirements on investors to provide an ongoing auditable trail, with variable relevance depending on the asset class. He said: “An issue with the auditable trail is the STS requirements seem to expect regular auditing of factors that don’t affect all asset classes equally and so may not be required in some cases. The credit metrics you’d measure in a mortgage portfolio aren’t the same as those in an auto ABS portfolio, for example.”

In terms of the likely immediate impact of STS, Schaber felt that it may not, in itself, elicit dramatic change - particularly with the RTS yet to be finalised. He said instead that, from an investor perspective, “the outcome of other regulations, like Solvency 2 and LCR, is likely to have a bigger impact on overall demand technicals.”

Indeed, factors other than the STS framework will largely affect whether the European securitisation market thrives or not. Cooke concluded: “STS has been a good a thing in terms of resulting in a better-quality product than before. But Solvency 2 is a critical component. We need insurance and pension firms to be able to invest in this quality product.”

RB

Structured Finance

SCI Start the Week - 12 March

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

Upcoming event

SCI Risk Transfer & Synthetics Seminar – Tomorrow (13 March), New York

SCI’s Synthetic Securitisation Seminar provides an in-depth exploration of how synthetic securitisation is being utilised to transfer risk, achieve capital relief and create bespoke investment opportunities in the post-financial crisis environment. Panels cover capital relief trade structuring and regulatory considerations, issuance trends, index tranches and mortgage credit risk transfer.

Pipeline

Pipeline activity accelerated sharply last week as market participants returned from their desks after the industry conference in Las Vegas. There were 19 ABS and also an ILS, as well as six CLOs, five CMBS and two RMBS.

The ABS were: US$251.3m American Credit Acceptance Receivables Trust 2018-1; Bavarian Sky France Auto Leases 3; BL Cards 2018; US$1.052bn Capital Auto Receivables Asset Trust 2018-1; US$233.75m CommonBond Student Loan Trust 2018-A-GS; US$750.2m Enterprise Fleet Financing 2018-1; US$805m Ford Credit Floorplan Master Owner Trust A Series 2018-1; US$345m Ford Credit Floorplan Master Owner Trust A Series 2018-2; US$278.2m Foursight Capital Automobile Receivables Trust 2018-1; US$192.5m JG Wentworth XLI Series 2018-1; A$523.56m Latitude Australia Credit Card Loan Note Trust Series 2018-1; US$263.19m OneMain Financial Issuance Trust 2018-2; €598m Quarzo CQS 2018; US$850m Santander Retail Auto Lease Trust 2018-A; US$768.4m Sapphire Aviation Finance I; US$147m Skopos Auto Receivables Trust 2018-1; US$675.7m SoFi Professional Loan Program 2018-B; US$250m Triton Container Finance VI Series 2018-1; and VCL 26. The ILS was US$360.75m Radnor Re 2018-1.

The CLOs were: US$409.5m AIMCO CLO Series 2018-A; US$714m Ares XLVII CLO; €370.4m Carlyle Euro CLO 2018-1; €488m Dryden 59 Euro CLO 2017; US$564m Galaxy XX CLO; and US$512m Venture 31 CLO.

The CMBS were: Bancorp Commercial Mortgage 2018-CRE3 Trust; US$405m CGGS Commercial Mortgage Trust 2018-WSS; US$887.1m GSMS 2018-GS9; US$165m Ready Capital Mortgage Trust 2018-4; and US$722.448m WFCM Trust 2018-C43. The RMBS were European Residential Loan Securitisation 2018-1 and US$444m Nationstar HECM Loan Trust 2018-1.

Pricings

As several deals arrived in the pipeline, so several went the other way. There were 10 ABS prints along with four CLOs, four CMBS and six RMBS.

The ABS were: US$625m Discover Card Execution Note Trust Class A 2018-1; US$550m Discover Card Execution Note Trust Class A 2018-2; US$480m DT Auto Owner Trust 2018-1; US$504m ECMC Group Student Loan Trust 2018-1; US$437m NextGear Floorplan Master Owner Trust Series 2018-1; £1.224bn Private Driver UK 2018-1; RMB2.79bn Rongteng 2018-1; US$600m Trillium Credit Card Trust II 2018-1; US$1.18bn Verizon Owner Trust 2018-1; and US$800.57m World Omni Automobile Lease Securitization Trust 2018-A.

The CLOs were: US$463m AMMC CLO 2018-22; US$650m Carlyle Global Market Strategies 2014-1R; US$510.68m Octagon Investment Partners 36 CLO 2018-1; and US$510m TICP CLO X 2018-10.

The CMBS were: US$475m Hilton Orlando Trust 2018-ORL; US$210m Natixis Commercial Mortgage Securities Trust 2018-PREZ; US$179m Natixis Commercial Mortgage Securities Trust 2018-RIVA; and US$1.35bn RETL 2018-RVP.

The RMBS were: US$1bn CAS 2018-C02; €500m EDML 2018-1; A$550m Firstmac Mortgage Funding Trust No. 4 1-2018; US$1.8bn Freddie Mac SCRT Series 2018-1; US$1.364bn-equivalent Holmes 2018-1; and £388m Precise Mortgage Funding 2018-2B.

Editor's picks

Euro CLO manager behaviour 'deserves scrutiny': A recent issuer consent payment provides another example of European CLO manager behaviour increasingly favouring equity to the detriment of noteholders. As risk retention dominates thoughts on both sides of the Atlantic, recent actions in the European market, where underwriting standards are loosening, point to a weakening alignment of manager and investor interests…

Efficiency drive: Credit Suisse is pioneering the re-tranching of capital relief trades, following the implementation of the new securitisation framework in Switzerland (SCI 9 February). However, more widespread re-tranching activity is expected to emerge over the next 24 months, as issuers seek to retain the efficiency of their transactions…

Predicted Euro CMBS pickup awaited: There has been plenty of speculation that European CRE is in the late-cycle stage, and retail exposure has also prompted concerns. With last month's ECB announcement that CMBS is no longer repo eligible, a weak reception for the latest deal and the increasing use of untranched bonds, the market's future is uncertain…

Cyber tops ILS agenda: The insurance sector continues to push the boundaries of innovation, with new product offerings in terror and nuclear risk already structured and a cyber risk ILW said to be in the pipeline. There are also hopes that cyber and terror ILS products may lead to repeat issues and so buck the trend for one-offs in the sector…

CRE CRTs pick up: Synthetic securitisations referencing commercial real estate are attracting more investor interest, following the issuance of three transactions at the end of last year (see SCI’s capital relief trades database). Representing the first post-crisis synthetic CRE deals, issuance is being driven by high risk weights for specialised lending and investor step-in rights…

Deal news

• Permira Debt Managers last week priced Providus CLO I, representing its first CLO 2.0 deal and the beginning of a new CLO management platform. The €362.5m transaction is also one of the first European CLOs to adhere to ESG eligibility criteria, including restrictions on the nature of industries in which the fund will invest and a commitment to assess ESG issues ahead of the investment decision.
• Two innovative US RMBS transactions are marketing from both sides of the agency/non-agency divide. AIG has brought its debut self-sponsored deal to the market, while Fannie Mae is preparing a US$1.007bn CAS transaction, with notable departures from previous offerings.

Regulatory update

• Germany’s Federal Administrative Court has ruled that cities in Germany can impose restrictions on diesel vehicles. The ruling has the potential to lead to diesel car bans throughout the country, with a potential impact on German auto ABS transactions.
• The new Basel 4 capital framework (SCI 14 December 2017) is expected to increase Dutch bank RWAs by approximately 25%, on a pro forma basis, equivalent to around 300bp of CET1. However, the impact is expected to be manageable, considering strong capitalisation and profitability levels, as well as the long implementation timeframe.

RMBS

Servicing liquidity risk highlighted

The spring 2018 edition of the Brookings Papers on Economic Activity includes a report exploring how the funding and operational structure of the non-bank mortgage sector remains a significant channel for systemic liquidity risk in US capital markets. Entitled ‘Liquidity crisis in the mortgage market’, the paper suggests that the typical non-bank has few resources with which to weather interest rate shocks or a decline in revenue. 

The combination of low interest rates, well-functioning GSE and Ginnie Mae securitisation markets and streamlined FHA and VA programmes have created significant opportunities for non-banks to generate revenue by refinancing mortgages. At the same time, low delinquency rates mean that non-banks have not needed to finance servicing advances.

However, the Brookings report indicates that at present the potential for liquidity issues associated with mortgage servicing - both in the funding of mortgage originations and in the servicing of portfolios - is even greater than pre-financial crisis. These liquidity issues have become more pressing because the non-bank sector represents a larger part of the market than pre-crisis, especially for securitised loans guaranteed by Ginnie Mae.

On the origination side of the business, the main vulnerability of non-banks is their reliance on warehouse lines of credit, according to the paper. It cites three important vulnerabilities associated with warehouse funding: margin calls due to aging risk and/or mark-to-market devaluations; roll-over risk; and covenant violations leading to cancellation of credit lines.

“The crux of the liquidity issue in mortgage servicing is that servicers of mortgages in securitised pools are required to continue making payments to investors, tax authorities and insurers when mortgage borrowers skip their payments. Servicers are eventually reimbursed for these ‘servicing advances’, but they need to finance the advances in the interim,” the report notes.

Obtaining private-market financing of servicing advances is difficult for Ginnie Mae advances, so servicers need to fund the advances with cash from current operations. Ginnie Mae servicers may also be required to absorb credit losses on the underlying mortgages. In times of strain, therefore, non-banks will have to continue financing these advances from cash and might not be able to obtain financing from the private market.

“Mortgage delinquencies and the associated need for servicing advances generally rise when house prices fall and unemployment rises. Meanwhile, financing conditions also usually tighten during economic downturns. This combination means that servicer-advance financing is more expensive, and sometimes not available at all, at the same time that the need for it is greatest,” the paper warns.

Non-banks with servicing portfolios concentrated in Ginnie Mae pools are exposed to a higher risk of borrower default and higher potential losses in the event of such a default, it adds. Further, the failure of a non-bank would likely have a disproportionate effect on lower-income and minority borrowers.

The authors of the report conclude that although monitoring of non-banks by the GSEs, Ginnie Mae and state regulators has increased substantially over the past few years, the prudential regulatory minimums, available data and staff resources still seem somewhat lacking relative to the risks. “Although various regulators are engaged in micro prudential supervision of individual non-banks, less thought is being given - in the housing finance reform discussions and elsewhere - to the question of whether it is wise to concentrate so much risk in a sector with such little capacity to bear it and a history, at least during the financial crisis, of going out of business.”

CS

RMBS

Mortgage ILS prepped

Essent Guaranty is marketing a mortgage insurance securitisation, only the second such transaction to be publicly rated since Arch Capital Group debuted the structure (SCI 14 November 2017). The US$360.75m transaction, entitled Radnor Re 2018-1, references a pool of mortgage insurance policies linked to 175,653 residential mortgage loans.

Morningstar has assigned preliminary ratings of triple-B to the US$161.277 class M1 notes, double-B minus to the US$178.253m class M2 notes and single-B plus to the US$21.221m class B1 notes. The notes have a maturity date of March 2028.

The transaction is backed by reinsurance premiums and related account investment earnings and revisionary interests. The pool of insured mortgage loans consists of fully amortising, fixed- and variable-rate first-lien loans that have never been reported as in default, as of the cut-off date.

Additionally, the pool is geographically diverse, with the largest state concentration being California, making up only 10% of the balance. The master policies covering these mortgages contain clauses that generally exclude claims arising because of physical damage to the property.

Morningstar comments that the transaction benefits from the majority of the mortgage loans being subject to the MI policies, for which reinsurance coverage is provided by the reinsurance agreement. Additionally, the reinsurance agreement conforms to GSE guidelines, which generally have tight acquisition guidelines and origination processes and produce a homogenous reference pool.

A potential concern is that Essent samples only a small amount - typically less than 7% - of the loan population for quality control and none of the mortgage loans will be removed from the pool. This raises the possibility of the inclusion of loans that would otherwise be excluded with a full-population quality control.

The indenture trustee on the deal is BNY Mellon. The transaction is expected to close on 22 March.

RB

RMBS

Split-mortgage RMBS eyed

Securitisations of split mortgages could emerge in Ireland, according to DBRS, given improving fundamentals and the clear servicing regime for non-performing and re-performing loan portfolios in the country. However, the unusual features associated with such assets may prove challenging.

Split-mortgage restructuring is one method of resolving mortgage arrears provided for under the Irish Mortgage Arrears Resolution Process (MARP) framework, prior to proceeding with litigation and recovery. Other common practices for dealing with non-performing borrowers include arrears capitalisation and reduced payments.

The restructuring process for split mortgages involves dividing the outstanding mortgage balance into two components: an ‘affordable loan’ (AL) portion; and a ‘warehoused loan’ (WL) portion. The AL is sized depending on an income expenditure assessment of the borrower, which seeks to calculate a sustainable monthly repayment amount (on a capital plus interest basis) that is expected to be paid down by the end of the residual term of the loan.

After the AL size is determined, the remaining portion of the loan amount outstanding is warehoused, albeit the servicer continues to evaluate the borrower’s income-expenditure situation with a view to reducing the WL. No interest is payable on the WL part and the outstanding principal is repaid as a bullet instalment at the maturity date through refinancing or sale of the property. If the borrower fails to repay the WL at the end of the residual term, the amount is potentially recoverable by enforcing on the mortgaged property.

DBRS data shows that as of September 2017, 1.2% of Irish buy-to-let mortgages were split (representing 5% of restructured loans), compared to 2.8% for owner-occupied mortgages (representing 17% of restructured loans). The outstanding volume of split mortgages stood at €2.75bn owner-occupied and €273m BTL. Arrears capitalisation accounted for the largest volume of owner-occupied loan restructurings (at 37%), while reduced payment accounted for the largest volume of BTL loan restructurings (29%).

“The large outstanding volumes of split mortgages provides prospects for securitisation of these loans, as lenders continue to cleanse balances sheets of high capital charged assets, such as long-term restructured loans,” DBRS observes.

The agency’s analysis of split mortgages considers the likelihood of two scenarios occurring: a borrower defaulting on the AL during the remaining term of the loan; or a borrower defaulting at the end of the term of the loan, due to inability to repay/refinance the WL. Under the first scenario, the loan will become classified as defaulted if the AL is not paid, whereas a default under the second scenario is conditional on the loan not defaulting in the first scenario.

Consequently, the rating analysis considers the likelihood of a borrower defaulting during the term under a typical re-performing loan analysis, followed by the conditional ability to repay and/or refinance the bullet balance at maturity. If the borrower defaults under any scenario, recoveries from a sale of the property will look to cover both loan parts.

The Central Bank of Ireland’s revised Code of Conduct on Mortgage Arrears (CCMA) has reduced the minimum time before enforcement proceedings can begin and provided clarification on the legality of enforcement (SCI 15 July 2013), according to DBRS. Alongside the CCMA, regulations including the MARP, the Personal Insolvency Arrangement and the Land and Conveyancing Law Reform Act 2013 have transformed the repossession process.

Overall, the agency has a positive outlook on the Irish mortgage market. Long-term arrears in RMBS transactions have halved over the last four years to reach 8%, while house price appreciation is enabling debt to be refinanced.

“For loan portfolio servicers, house price appreciation - in combination with a clear regulatory stance on the workout process - has improved the environment for taking possession of the property as a last resort. This provides a backdrop for securitisation of the large outstanding NPL portfolios, as well as the long-term restructured loans, such as split mortgages and re-performing loans,” it concludes.

CS

Structured Finance

Market moves - 16 March

EMEA

Citigroup has appointed Laura Coady to the newly created position of head of EMEA, structured finance syndicate desk and she will continue to report locally to EMEA co-heads of global structured finance and securitisation Peter Keller and Bob Liao, and report globally to Vikram Prasad, global head of credit syndicate desk, taking responsibility for distributing all products from the bank’s global structured finance and securitisation group. Coady was previously head of EMEA primary CLO index trading. Garo Tarossian, head of EMEA residential mortgage distribution, will now have an expanded role for distribution of other asset classes, reporting to Coady, but for RMBS distribution he will continue to report to Mark Collier and Milind Chaukar, co-heads of residential mortgage business.

Ocorian has appointed Alan Booth as md of its UK business. Booth was previously global head of product management within Deutsche Bank’s corporate services division.

North America

The Barrent Group has named Art Yeend business development director. Prior to The Barrent Group, Yeend served as md, heading both sales and marketing at MountainView Financial Solutions.  

Oakleaf has promoted Christine Brunie to md, leading its modelling and analytics group out of the New York office. She was previously executive director of structured credit portfolios at EAA Portfolio Advisers.

MUFG has announced that Scott Rodman has joined the firm as head of structured solutions for the Americas. He joins from HSBC where he was head of the US client solutions group.

New York Mortgage Trust has appointed Lisa Pendergast as director of the company, effective immediately. She is executive director of Commercial Real Estate Finance Council, a trade organisation and has previously served as md of the CMBS strategy and risk division of Jefferies and md of RBS Greenwich Capital and Prudential Securities.

Greenberg Traurig, has expanded its global corporate practice with the addition of capital markets practitioner Lee Ann Anderson as a shareholder in the firm’s Washington, DC and New York offices. Anderson will also be a member of the firm’s capital markets and finance practices. She joins from Ashurst and was previously with Sullivan & Cromwell.

Shulte Roth & Zabel has elected Stephen Schauder as partner in the structured finance and derivatives group. He has represented underwriters, issuers, lenders and borrowers across a variety of asset classes, including structured settlements, litigation advances, lottery receivables, personal annuities, timeshare loans, equipment leases and life settlements, among others. 

Lehman settlement

Lehman Brothers Holdings was last week ordered by the Southern District of New York bankruptcy court to pay US$2.38bn in compensation for its role in the RMBS crisis in 2007-2008. Trustees representing noteholders had initially argued for a settlement amount of US$11.4bn, but Judge Shelley Chapman ruled that they failed to meet a ‘burden of proof’ to show breaches on around 72,000 loans. As the Lehman bankruptcy estate’s administrator was unable to provide enough information, she ultimately relied on an earlier settlement with institutional investors that had valued claims at around US$2.4bn.

Zohar bankruptcy filing

The Zohar CDO 2003-1, Zohar II 2005-1 and Zohar III transactions have filed a voluntary Chapter 11 petition in the District of Delaware, in order to monetise their assets and pay off all allowed claims in full. The filing will stay certain litigation matters involving the Zohar funds that commenced after Patriarch Partners ceo Lynn Tilton resigned as collateral manager and was replaced by Alvarez & Marsal Zohar Management (SCI 8 February 2016). Tilton proposes that the court appoint Mark Kirschner of Goldin Associates as chief restructuring officer.

Ryan Labs Asset Management has recruited a five-person leveraged finance and CLO team from American Capital Leveraged Finance Management to provide a non-investment grade floating-rate capability in New York that complements its existing fixed-rate investment grade strategies. The group is led by Mark Pelletier - who assumes the role of senior md and head of Ryan Labs Leveraged Finance - reporting to Richard Familetti, president and cio of Ryan Labs Asset Management. Michael Cerullo, Christian Toro, Dana Dratch and Juan Miguel Estela join as mds, reporting to Pelletier. With the new hires in place, the firm is rolling out its US senior loan strategy, with US$100m in initial seeding from Sun Life Financial. 

Whole loan sale

FGH Bank is set to sell part of its loan portfolio with an outstanding balance of approximately €1.3bn to RNHB, with closing expected to occur in 2Q18, subject to regulatory approvals and successful completion of the consultation process with employee representative bodies. FGH Bank intends to phase out its activities during the course of this year and cease to exist as a separate legal entity.

NPL backstop evaluation

The EBA has published its advice on the European Commission's proposal for statutory prudential backstops on banks' provisioning practices for new loans that turn non-performing. The advice aims to provide some qualitative considerations about the design of the backstop, as well as a conservative quantitative impact analysis of the proposed measures. The results suggest that over a seven-year horizon the cumulative impact of the statutory prudential backstop would lead to a decrease in the CET1 capital ratio of 56bp, equal to 10% of retained earnings.

New risk transfer programme

Arch Capital Group confirms that it is, through a new US subsidiary and in conjunction with Freddie Mac, piloting a new mortgage credit risk transfer program, called IMAGIN (Integrated Mortgage Insurance), to attract a diversified and robust capital base to the US housing market. Arch has established a new Washington DC based subsidiary, Arch MRT, which will insure Freddie Mac and transfer 100% of the risk assumed to a panel of diversified, well-capitalised, and highly rated (re)insurers that provide high quality collateral assets in trust. This arrangement encourages additional participants and capital to support first-loss exposure in mortgages. The panel of (re)insurers will competitively bid, through a transparent process, to provide, over the long term, lower cost mortgage insurance for borrowers.

Litigation

The US subsidiaries of Nomura Holdings have filed a writ of certiorari following the ruling by the District Court, 15 May, 2015, that the FHFA proved that the offering materials for RMBS certificates issued by NAAC and NHEL and purchased by the GSEs contained material misstatements entitling FHFA to rescission. The District Court ordered the defendants to pay US$806m to the GSEs upon the GSEs’ delivery of the certificates at issue to the defendants. On 10 June, 2015, the defendants appealed. As announced in the “Notice regarding Judgment in Litigation against Subsidiaries” the United States Court of Appeals for the Second Circuit rejected the appeal. On 12 March, 2018, the defendants filed a petition for a writ of certiorari to the court stated above.

Partnerships

Apollo Global Management has partnered with Realty Partners to invest in the Italian real estate market. The strategy is to invest in assets which have potential for value enhancement (through conversions, restructuring, market repositioning). Assets can originate from ordinary and extraordinary disposals, acquisitions of real estate companies or investments in secured NPLs.

Strategic transaction agreement

Mid Atlantic Capital Group has entered into an agreement that contemplates a strategic transaction with Parthenon Capital Partners and Waterfall Asset Management. The transaction, which will not be consummated until applicable regulatory approvals (including an approval from South Dakota Division of Banking) are obtained, will provide Mid Atlantic with an opportunity to leverage the investors’ experience and resources to accelerate the development of and investment in client-centric technology, products, services and people. The transaction will also position Mid Atlantic to grow through organic initiatives and opportunistic strategic acquisitions. Also investing in the transaction with Parthenon and Waterfall is long-term industry veteran John Moody.

Euro CLO Volcker work-around

Carlyle Group’s latest €413.50m CLO, Carlyle CLO 2018-1, features a novel way to work around the Volker ruling. According to the Moody’s pre-sale, classes A-1, A-2, B, and C comprise nonvoting and exchangeable non-voting notes which are not eligible to participate in manager removal and replacement resolutions. The aim is to avoid treatment as “ownership interest” in the issuer under the Volcker Rule for the holders of such (exchangeable) non-voting notes. Depending on the proportion of notes actually issued in the form of (exchangeable) non-voting notes, this feature could potentially distort quorum in resolutions of the noteholders. However, given that any class of notes held by or on behalf of the manager or any manager related party will have no voting rights with respect to any vote in connection with the removal of the manager, Moody’s does not expect the feature to have a material negative impact on the rated notes.

Remedy payment

CVC Credit Partners has paid class X noteholders of the CVC Cordatus Loan Fund V CLO €1m to remedy an administrative error. The firm has disclosed that certain amounts payable in relation to the class X principal amortisation amount were not paid on previous payment dates when due and payable. Accordingly, the €1m payment was made in order to avoid the occurrence of a note EOD. The issuer is expected to remain in a position to pay all interest amounts - after taking into account the remedy payment - on the next payment date.

NPL action plan

The European Commission has unveiled its package of measures to tackle non-performing loans in Europe, based on a mix of complementary policy actions that target four key areas. The first measure involves amending the CRR to introduce common minimum coverage levels for newly originated loans that become non-performing, whereby if a bank does not meet the applicable minimum level, deductions from its own funds would apply. The second is enabling accelerated out-of-court enforcement of loans secured by collateral, whereby banks and borrowers can agree in advance on an accelerated mechanism to recover the value from loans guaranteed with collateral. The third is to further develop secondary markets for NPLs by harmonising requirements and creating a single market for credit servicing and the transfer of bank loans to third parties across the EU. The final element is a technical blueprint for establishing national Asset Management Companies (AMCs), which clarifies permissible public support and alternative impaired asset measures.

Emerging markets SRT

IFC and Credit Agricole have closed a synthetic risk transfer trade that will allow the bank to expand its trade finance activities, as well as support health, education and infrastructure projects in emerging markets. The transaction involves IFC making an US$85m investment in credit risk protection on a US$2bn portfolio of Credit Agricole’s emerging market trade finance and corporate loans. The bank will use the freed-up capital to make US$510m of what it terms as ‘social loans’ in emerging markets that comply with the Social Bond Principles 2017. Credit Agricole’s initial SRT with IFC in 2014 was the first such transaction focused on emerging markets credit (see SCI’s capital relief trades database)

Clifden seeks legal action

Paratus AMC has redeemed the RMAC RMBS subject to a tender offer by Clifden IOM No.1 (SCI passim) and is marketing a new securitisation – RMAC No. 1 – backed by the assets (see SCI’s pipeline). However, Clifden maintains that make-whole provision resolutions in connection with the deals have been executed on behalf of noteholders and notes that the issuers have not reserved amounts equal to the MWP distributions, as previously requested. Consequently, the firm says it has reserved all rights to the full extent permitted under law in relation to the failure of the trustee and/or the issuers to implement the MWP resolutions and to any losses that may be suffered. Separately, Clifden is seeking injunctive relief against the note trustee of the Fairhold CMBS in respect of “certain serious concerns” it has regarding the trustee’s conduct.

Toys R Us impact

Toys R Us is seeking authorisation through the bankruptcy court to wind down its US operations, liquidate existing inventory and conduct store closures, after attempts to restructure the company failed (SCI passim). According to Wells Fargo figures, 87 CMBS loans totalling US$4.11bn have exposure to Toys R Us as a tenant. However, taking into account the loan balance for the percentage of GLA occupied by the tenant and cases where only certain properties in a portfolio loan have exposure, structured products analysts at the bank suggest that the dollar volume exposure across CMBS amounts to only US$1.01bn (US$451.23m in single-property loans and US$557.43m in portfolio loans). The impact of the bankruptcy on post-crisis conduit CMBS is expected to be limited, due to industry and tenant diversification.

FNMA NPL sale

Bungalow Series III Trust (Balbec Capital) has been named as the winning bidder for pool 1 and Elkhorn Depositor (Roosevelt Management Company) for pools 2 and 3 in Fannie Mae’s latest non-performing loan sale. Pool 1 comprised 1,061 loans with an aggregate UPB of US$178.27m, pool 2 comprised 2,793 loans with an aggregate UPB of US$441.7m and pool 3 comprised 1,822 loans with an aggregate UPB of US$382.83m. The cover bid for pool 1 was 75.13% of UPB (56.8% of BPO), while for pools 2 and 3 combined, it was 77.69% of UPB (58.05% of BPO). Separately, Fannie Mae’s Multifamily Green GeMS REMIC bond (FNA 2017-M15 A2) is now included in the Bloomberg Barclays MSCI Green Bond Index.

Real estate platform launched

Crescit Capital Strategies a commercial real estate finance platform, today announced its entrance as a provider of highly structured and flexible debt products across the capital stack. It is led by Joseph Iacono, Crescit Capital Strategies ceo and Nik Chillar, co-founder. Iacono has more than thirty years of experience in the commercial real estate debt capital markets and structured finance industries, ranging from direct origination and securitization to distressed debt acquisitions and loan workouts. Nik Chillar, co-founder, will serve as Crescit Capital Strategies’ Head of Banking. Kim Diamond will serve as Crescit Capital Strategies’ head of structuring and credit. Edmund Taylor rounds out the executive team as coo. He joins Crescit Capital Strategies with over thirty years of senior coo experience in the financial services industry, including extensive work in the commercial real estate and structured finance markets.