News Analysis
RMBS
Mortgage 'institutionalisation' gains traction
The Dutch mortgage market continues to receive high levels of interest from investors, but RMBS faces stiff competition from other funding options like covered bonds and whole loan strategies. However, securitisation remains well-suited to funding the development of the fast-growing buy-to-let sector in the Netherlands, due to its lack of homogeneity and current light-touch regulatory regime.
Hans Starrenburg, head of treasury and trading at NIBC Bank, comments that while the bank is active in the Dutch mortgage market, it currently favours other funding methods over RMBS. One such method is known as ‘originate-to-manage’, which allows institutional investors to invest directly in the Dutch residential mortgage market without the operational burden of ongoing management of the mortgages.
He explains: “We oversee the origination and servicing process of the loans and the borrower works with us throughout the entire process, but the investor then holds the loans on their own balance sheet. We receive…upfront and ongoing fees for services like the acceptance, arrear management and servicing processes throughout the life of the loan, while being able to move risk and return to their balance sheet.”
This strategy is partly motivated by the strong investor appetite for Dutch mortgages, but it has also been driven by changes in loan tenor. While most Dutch mortgages used to have a fixed-rate of up to 10-15 years, this has shifted towards fixed-rate 20- or 30-year terms, with consumers wanting to lock in the low rate while they can.
NIBC prefers not to have such long-dated exposures on balance sheet, but they do appeal to insurers and pension funds that need long-dated assets to match their liabilities. Starrenburg adds that appetite for whole loan products among insurers is on the rise, due to regulations - such as Solvency 2 - making securitised products less favourable for these firms from an economic perspective.
A recent report from Integer Advisors suggests that the Dutch mortgage market is the most institutionalised in Europe, with banks and non-banks sharing almost equal proportions in new mortgage originations. An estimated 40%-45% of all front-book lending in the Netherlands is undertaken by non-banks, such as insurers, pension funds and specialist lenders, while the equivalent share was around 20% in 2008.
The Integer Advisors research also notes that Solvency 2 has played a large role in the development of unlevered mortgage funds in the Netherlands, reflecting “the capital constraints of investing in geared mortgage instruments” under the regulation.
Starrenburg says that while his bank’s originate-to-manage strategy competes with securitisation to an extent, he describes it as more of a “nice add-on” in funding NIBC’s mortgage business. Currently, covered bond programmes are the main funding method the bank opts for, although he says that securitisation is always considered when it looks to fund its balance sheet.
He comments that securitisation has fallen out of favour because it no longer adequately transfers credit risk, with only senior notes being sold to investors. For NIBC, securitisation is lengthier, more complex and more expensive than using covered bonds and - of the securitisations the bank has executed recently – the bank has retained all the notes to form part of its liquidity buffer framework.
This is not to say, however, that RMBS won’t be utilised by the bank in future. Securitisation still offers some benefits over covered bonds, says Starrenburg, such as less subordination on the senior notes and more flexibility with regard to the securitised assets.
He adds that there have been Dutch securitisations where all of the notes have been sold to investors and, in these instances, risk and return are “really transferred”. Additionally, he agrees with the bullish sentiment surrounding Dutch buy-to-let, which he agrees could be a fertile area for securitisation.
A report from S&P recently commented that the Dutch BTL market is still “niche”, but has potential to grow as a result of structural changes and a lack of regulatory barriers. The rating agency suggests that the segment lacks even basic regulation and, being in the “early stages of development, products are not yet homogenous or commoditised, meaning this approach supports bespoke lending solutions.”
The rating agency adds that high yields on offer are luring in finance providers, some of which may look to harness RMBS to fund their operations. Additionally, S&P says that lenders look at the additional yield and lower LTV ratio to compensate them for higher default risk.
As an example, the BTL RMBS Dutch Property Finance 2017-1 has a deal level average margin of 3.74%, which is notably higher than that of the owner-occupier backed RMBS FORDless STORM 2018, at 3.20%. The agency adds that BTL allows some lenders to diversify away from the “crowded” owner-occupied mortgage market.
Starrenburg comments that, certainly for his bank, BTL mortgage originations have grown, from €100m in 2015 to €600m in 2017. He concludes: “I think RMBS is potentially well-suited to BTL as, for example, it is not as easy to put BTL into a covered bond programme. However, it is yet to be seen how the regulatory environment might play out, particularly in terms of STS and whether it will be treated favourably under this framework. Furthermore, origination of BTL mortgages is probably too low to feed into a large number of issuances in the coming years, but it is certainly a possible growth area.”
RB
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News Analysis
NPLs
Provisioning impact muted
The ECB and European Commission have both put forward new rules for minimum loss coverage, which are a step towards improving provisioning practices across Europe and avoiding future unreserved non-performing loan build up. Although having two different sets of rules may create regulatory uncertainty across the banking sector, the impact for NPL securitisation seems muted.
“The rules deal with new loans, while most NPL securitisations reference existing loans, so the regulatory uncertainty and the impact for NPL securitisation are two separate issues,” says Gordon Kerr, head of European structured finance research at DBRS.
However, Kerr expects the rules to have a positive impact for securitisation when taken separately from each other. He refers specifically to the Commission’s proposal.
“It reduces the cost and time necessary to liquidate the collateral backing those NPLs, thanks to a swift out-of-court mechanism,” he observes.
The Commission’s proposals include three main instruments: an out-of-court mechanism to liquidate the collateral of NPLs granted to business borrowers; a blueprint for member states to set up asset management companies as a backstop for NPL transactions; and a passport for credit purchasers and servicers to carry out their activities throughout the EU. According to DBRS, regulatory uncertainty stems from the fact that the ECB and the Commission apply different sets of rules, even though both target the same goal of improving NPL provisioning practices.
Among the differences is the targeted perimeter. The ECB addendum focuses on new NPLs from 1 April 2018, regardless of the origination date.
On the other hand, if approved, the EC proposal has a smaller perimeter, as only NPLs from new loans originated from 14 March 2018 would be affected. Moreover, the provisioning calendar is not the same, as the ECB addendum has, in general, more conservative provisioning requirements.
Furthermore, each provisioning standard has a different enforcement mechanism. In the EC proposal, if banks do not comply with the minimum provisioning standards, the shortfall must be deducted from its capital. However, in the ECB addendum, the provisioning calendar will be part of the supervisory review and evaluation process (SREP) and therefore capital requirements may increase.
SREP shows where a bank stands in terms of capital requirements and the way it deals with risks. In the SREP decision, which the supervisor sends to the bank at the end of the process, key objectives are set to address the identified issues. The bank must then correct these issues within a specific time.
Another important difference is the applicability of the rules. While the EC proposal is still to be approved by the European Parliament, the ECB addendum is already in place.
The consequent challenge of this regulatory uncertainty is contradictory market signalling. “It’s going to be difficult for the market to assess whether the bank has the right coverage ratios and they have to convince regulators that they have prudent coverage levels,” notes Pablo Manzano, avp at DBRS.
For example, there is a wide discrepancy between coverage ratios for secured NPLs - which rise to 85% over a six-year timeframe, according to the ECB addendum, and 55% in the Commission’s proposal. Yet which threshold will apply remains unclear.
Manzano adds: “According to the ECB, the threshold will be when the central bank views provisions as non-prudent, but what counts as prudent is not clear.”
One reason for the lack of clarity is the likelihood that the addendum represents moral suasion. “The ECB is simply telling banks to deal with their high stock of NPLs, rather than offering something more concrete,” notes Elisabeth Rudman, md at DBRS.
Another reason is the lack of transparency between banks and regulators. If the ECB considers provisions as non-prudent, this will simply show up in SREP.
Indeed, Sharon Donnery, chair of the ECB’s High Level Group on NPLs, stated: “As part of our ongoing supervisory dialogue, we continue to discuss the progress on the stock with each of the individual banks. I think that we will continue to see what progress banks are making; if they are making progress, then that points in one direction. If they're not making progress, then we have to consider whether we have to take any further steps or not.”
The Commission’s proposals appear less opaque, but they still need to be approved by the European Parliament. Following implementation, the market would still have to deal with compliance.
“Compliance will take time, since they are tackling NPLs of new originated loans, so future challenges are unclear,” observes Manzano.
Looking ahead, Rudman concludes: “We may in time need some further clarification, due to conflicting guidance. It’s still early to discuss implications.”
SP
News Analysis
NPLs
Italian NPL securitisations outpace loan sales
Non-performing loan securitisation volume has outpaced outright sales in Italy, as banks seek to benefit from the GACS guarantee scheme. The trend is expected to continue this year, thanks to a strong track record over the last 12 months and an investment shift towards Southern Europe.
Italian NPL transaction volume last year totalled €32.67bn across 33 deals (up from €12.54bn in 2016 and €5.27bn in 2015), with €22bn related to securitisation. The bulk of the transactions (€19.68bn) was bought by the Atlante fund, while the top seller was Banca Monte Dei Paschi di Siena (accounting for €16bn). Commercial real estate made up €32.44bn of transactions closed.
“GACS allows the Italian government to claim that risks remain on bank balance sheets without any expense to the taxpayer, since the senior tranche is retained. At the same time, banks have their senior tranche guaranteed without any effect on their RWA calculations,” says Anurag Sharma, head of loan advisory at CBRE.
This is complemented by a shift in investor focus away from the traditional loan sale markets, such as the UK and the Netherlands, towards the less mature markets of Italy, Portugal and Greece that still have a significant stock of NPLs to resolve.
“Where else can you go?” asks Clarence Dixon, global head of loan services at CBRE. “Mature markets are done, the Spanish market is not big enough and the CEE is small and fragmented, with opportunities that don’t justify the costs.”
During the summer of 2015, the Italian government introduced Law 83/2015, which contained several measures aimed at improving the efficiency of collateral enforcement and level the playing field with respect to fiscal treatment of write-offs and loan loss provisions. In particular, the law allowed for the full deduction of loan loss provisions, as well as losses on NPL disposals in the year they are booked. Under the previous regime, these were only deducted over a five-year period.
Subsequent reforms have led to a significant increase in deleveraging and opened up the market for buyers, mainly via securitisation. However, challenges that can deter some investors remain.
“It depends where you are in Italy. But if you are dealing, for instance, with Southern Italian loans, recoveries can take up to 10 years - with collateral enforcement and legal complexity being serious issues,” notes Sharma.
These issues though are not expected to dent any future issuance this year. “Italian banks have an excess of €200bn of NPLs on their balance sheets, the highest in Europe, and the previous 12 months have shown that the Italian market is open for business,” the CBRE report states.
The firm is currently tracking €7bn of NPL sales in Italy and securitisation will continue to play a key role, although it expects a small number of traditional vanilla loan sales too.
SP
News Analysis
ABS
Microfinance ABS regroups after defaults
A number of Indian microfinance loan securitisations recently defaulted, halting a trend of strong performance and steady growth in the asset class. While demonetisation is partly to blame, lender overexpansion and the introduction of a competing credit instrument also took their toll.
Several firms have historically used securitisation to fund their microfinance lending in India, culminating in 2016 with microfinance securitisation volumes of R104bn. A range of financial pressures - including demonetisation - saw issuance fall in 2017 to almost half, at around R65bn.
This was accompanied by a sustained rise in delinquencies, which contributed to seven microfinance ABS defaulting. The junior notes in the affected deals were wiped out entirely by the defaults and the senior notes saw losses of 2%-3%.
Another factor behind these defaults was the aggressive growth of microfinance firms, with some doubling their books in a year, possibly at the expense of underwriting quality. Furthermore, through overexpansion, these firms may have extended loans to more borrowers than they could adequately service.
Demonetisation, in turn, exposed these lender weaknesses in the industry and put borrowers and lenders under an unexpected level of strain.
Other features also played a role in the transactions defaulting. Mithilendu Jha, director of structured finance for Fitch subsidiary India Ratings, explains: “Structurally, credit enhancement didn’t adequately factor in the high volatility of microfinance loan performance in some transactions. Delinquencies have been traditionally very low compared to other asset classes, but rose sharply in many geographies, as a result of socio-political events and drought.”
He continues: “Because microfinance has historically [seen] very low delinquencies, credit enhancement was not sized adequately to absorb the losses on some deals when delinquencies jumped after demonetisation. A further structural problem was that the main form of credit enhancement in microfinance securitisations is overcollateralisation. If there is such a rise in defaults…overcollateralisation in the form of excess collateral is of little use.”
In general, most Indian securitisations have a single-tranche structure and are issued to meet priority sector lending requirements, says Jha. Furthermore, they tend to only have one investor - typically a bank - that holds it to maturity.
Microfinance securitisations, however, tend to have two tranches – a senior and junior – with credit enhancement provided mainly in the form of overcollateralisation and a cash reserve account. Additionally, they tend to be sized at R250m-R1bn and, under bank guidelines, 50% of microfinance loans should be for income-generating purposes, with most microfinance loans extended to groups of individuals in rural and semi-urban parts of India.
Typically, microfinance loans had a default rate of below 1%, but after the recent default of the seven deals, investors are requesting greater protections. Jha says: “Investors have obviously been concerned and looked at this seriously. This has led to them demanding greater credit enhancement on the transactions and an increase in the reserve account. Investors are also doing more due diligence and putting issuers and originators under more scrutiny.”
The downside for issuers now is that issuing microfinance securitisations is costlier, as they are having to put aside a larger cash reserve for each deal. This has had a negative impact on microfinance securitisation volumes.
However, securitisation volumes in India have fallen across the board, in part again due to demonetisation, but also since the introduction of priority sector lending certificates. Banks with an excess of priority sector loans can issue these certificates for a fee to an institution that needs them, while the institution can then credit their priority sector exposure by the value of the certificate. The issuing institution can then debit their exposure by the same amount.
The process provides an alternative method for banks to direct credit to priority sectors, such as agriculture, SMEs, education, social housing and low-income groups. Jha says that a downside of this instrument is that the certificate buyer pays a fee, whereas in a securitisation the investor earns income, while meeting its priority sector exposure. He adds that while it isn’t a directly comparable product to securitisation, it has certainly impacted securitisation volumes.
Despite these challenges to securitisation in India, Jha is optimistic for the future of microfinance ABS and believes that it is already picking up the pace again. He concludes: “While demonetisation slowed the sector’s growth significantly, it looks set to pick up again in terms of originations and securitisations, particularly as it looks like delinquencies have slowed. We think, therefore, it will likely pick up again to a pre-demonetisation level.”
RB
News
ABS
Financial guarantee ILS debuts
Build America Mutual Assurance Company (BAM) is in the market with what is believed to be the first ILS to transfer the risk of loss on a portfolio of financial guarantees. The Fidus Re Series 2018-1 transaction features US$100m twelve-year class A notes, with a five-year par call.
BAM provides financial guarantees exclusively on lower risk segments of the US public finance market. Fidus Re Series 2018-1 – a Bermuda bankruptcy-remote special purpose insurer – will provide reinsurance against aggregate losses that exceed US$165m on a pre-defined portion of BAM’s financial guarantee portfolio. The transaction will cover 90% of all net paid claims over this attachment point up to a maximum payout of US$100m, while BAM will pay the remaining share.
KBRA has assigned a preliminary long-term credit rating of double-A with a stable outlook to the notes.
The covered portfolio consists of approximately 95% of BAM’s entire portfolio of US public finance financial guaranty policies issued through 31 December 2017, but excludes surety policies and all exposures rated below investment grade. While the covered portfolio includes policies that mature over thirty years, the reinsurance agreement covers only those amounts of insured principal and interest that come due through the period ending 12 years from note issuance. The amount of total debt service maturing over the 12-year scheduled redemption date of the notes comprises approximately US$37bn, according to KBRA.
The portfolio consists of financial guaranty policies covering 2,789 US muni bonds. KBRA states that unlike traditional P&C insurance, financial guaranty policies constitute non-cancellable, unconditional and irrevocable guaranties to cover timely payment of scheduled principal and interest. The financial guaranty company is obliged to pay – generally within 24 hours – all debt service payments that an obligor fails to make.
The agency notes that the portfolio is granular, geographically diverse and does not contain any exposure to higher risk sectors of the US municipal market, such as healthcare, housing and private higher education. Based on P&I, 37% of the pool relates to local school district obligations, 27% for cities and counties, and 21% covers municipal utility debt. The remaining sectors include public higher education, special district/assessment and transportation.
To minimise ongoing exposure to its credit and premium payment risk, BAM will pre-fund three months of premium payments and will continue to make monthly payments in an amount necessary to top up this reserve. Failure to top up the premium reserve or make a monthly premium payment would trigger an EOD under the excess of loss reinsurance agreement and a redemption of the notes.
Recoveries received with respect to the claims covered by the reinsurance agreement would be used to replenish the collateral account. Recoveries can accrue to noteholders for the term of the notes plus a maximum extension period of five years.
Interest payments on the notes will be variable and paid monthly from earnings on permitted investments and from a reinsurance premium paid by BAM for the excess of loss reinsurance coverage.
CS
News
Structured Finance
SCI Start the Week - 9 April
A look at the major activity in structured finance over the past seven days
Pipeline
A mixed bag of securitisations remained in the pipeline at the end of last week. ABS dominated the newly announced deals, split between consumer/esoteric and auto assets.
The consumer/esoteric ABS transactions comprise: US$200m ELFI Graduate Loan Program 2018-A, US$235.25m Mosaic Solar Loan Trust 2018-1, US$225m OnDeck Asset Securitization Trust II Series 2018-1, US$188m and US$188m PFS Financing Corp Series 2018-C and Series 2018-D, US$544.6m SoFi Consumer Loan Program 2018-2 and US$227.21m Upstart Securitization Trust 2018-1. The auto deals consist of: US$650m Chesapeake Funding II Series 2018-1, US$201.82m CPS Auto Receivables Trust 2018-B, US$1.23bn GM Financial Consumer Automobile Receivables Trust 2018-2, US$900m Hyundai Auto Receivables Trust 2018-A and US$1.09bn Santander Drive Auto Receivables Trust 2018-2.
A handful of RMBS were also announced last week: €1.35m Ardmore Securities No. 1, US$374.46m Bellemeade Re 2018-1, €1bn FCT Credit Agricole Habitat 2018, US$704.07m Flagstar Mortgage Trust 2018-2 and US$339.97m Tricon American Homes 2018-SFR1. Additionally, the US$688.2m BANK 2018-BNK11, US$382m BX 2018-MCSF, US$1.2bn FREMF 2018-K731 and US$186.1m Velocity Commercial Capital Loan Trust 2018-1 CMBS began marketing. Finally, the US$537.75m TruPS Financials Note Securitization 2018-1 CDO is expected to price this week.
Pricings
CLOs accounted for the majority of pricings last week. Issuance across other asset classes was subdued, due to the Easter holidays.
The €378.3m CVC Cordatus Loan Fund VI, US$323.75m Denali Capital CLO XII, US$424.25m Galaxy XVI CLO (second refinancing), US$368.75m Loomis Sayles CLO II, US$425.9m Shackleton 2013-IV-R CLO, US$506.5m TICP CLO III (second refinancing) and US$646.5m Venture XVII CLO (second refinancing) were refinanced last week. New issue CLOs comprised US$707.1m Antares CLO 2018-1, US$528.29m Ballyrock CLO 2018-1, US$511m Barings CLO 2018-II and US$464.15m OZLM XX. The A$700m Driver Australia Five Trust, US$177.62m Upstart Securitization Trust 2018-1 and US$802.84m World Omni Auto Receivables Trust 2018-B ABS, together with the US$952.9m CSAIL 2018-CX11 CMBS rounded out last week’s issuance.
Editor's picks
CMBS 'haves' and 'have-nots' highlighted: The planned conversion of the Westside Pavilion property in Los Angeles - securitised in WFCM 2012-LC5 - is one recent example of a mall borrower resolving a troubled CMBS loan creatively (see SCI’s CMBS loan events database). Morningstar Credit Ratings highlights the move in new research illustrating that the majority of 2012 vintage mall loans should remain stable, with low term default risk, despite having higher leverage than their 2013 and 2014 counterparts and significant exposure to regional shopping centres…
News
CLOs
CLOs becoming too equity-friendly?
Loosening documentation and a greater proportion of income being distributed to subordinate noteholders have sparked concern that US CLOs are becoming too equity-friendly. Nevertheless, headwinds may be approaching for equity investors as a result of a Libor mismatch.
Respondents to JPMorgan’s Q1 US CLO investor survey suggested that some documentation has become too “equity friendly”, highlighting the growth of features, such as longer reinvestment periods (which are now more commonly five years versus four years) and flexible post-reinvestment language. In particular, respondents commented that par flush language is “pushing the envelope” in terms of being overtly equity-friendly. They also pointed to other equity-friendly features, including length of WAL test relative to length of reinvestment period.
Moody’s also recently noted that allowing CLOs to erode par more easily can benefit equity holders, as it has become more common for CLOs to treat trading gains as interest proceeds rather than principal proceeds. This then allows cash to leak from the deal to equity holders, rather than to be used for reinvestment or to amortise notes.
The agency warns that other factors, such as managers being able to more easily alter a CLO’s risk profile, along with greater ease in amending governing documents could lead to weakening CLO credit profiles. However, it states that this loosening isn’t necessarily seen across the board and that it is mitigated to an extent by the structural quality of CLO 2.0 deals.
Meanwhile, triple-A notes have experienced the largest fall in the relative share of CLO income. In a new report, S&P finds that investment grade notes now take a smaller share of the income compared with the first post-crisis CLOs, while speculative grade notes receive more.
Excess spread is at its highest since the CLO market revived post-crisis. This indicates further that subordinated noteholders are receiving the highest share of the income.
S&P highlights that in 2017 pricings resulted in significant reductions in the relative margin for investment grade notes. The agency adds that for speculative grade notes, although 2017 relative margins were down from the highs of 2016, they exceeded the levels seen in 2015 or earlier.
While these trends may imply a more attractive environment for CLO equity investors, Morgan Stanley CLO strategists suggest that the rise in one-month and three-month Libor is likely to cause headwinds for the sector. The increasing three-month Libor rate has resulted in a higher absolute coupon contribution from the benchmark rate. As a result, the benchmark rate now accounts for 73% of CLO triple-A yield-to-maturity.
For equity investors, however, an asset-liability benchmark mismatch has emerged because around 50% of CLO collateral is benchmarked to one-month Libor - thus creating negative exposure to an increasing three-month to one-month Libor basis. Consequently, the Morgan Stanley strategists estimate that for a ten times leveraged deal with 50% one-month Libor assets, the annual equity cash returns would be 2% lower if the current 40bp three-month to one-month Libor basis environment persists.
RB
Market Moves
Structured Finance
Market moves - 13 April
Aircraft ABS on watch
KBRA has placed the class A, B and C notes of the US$411m Prop 2017-1 ABS on watch for downgrade. The ABS represents the first securitisation from Elix Aviation Capital, with the proceeds being used to buy 63 aircraft on lease to 17 airlines in 12 countries. KBRA notes that one aircraft was not delivered to the securitisation and the proceeds from the aircraft were used to prepay the loans, while three aircraft in the portfolio were on lease to bankrupt Islands Air – although they have now signed leases. Another stress on the transaction is late payment by lessees in the portfolio, resulting in lower than expected cashflow.
Asia
The Asian Development Bank has hired Thomas Kessler as principal disaster risk insurance and finance specialist. Kessler was previously at Swiss Re, where he was a director.
Koh Ueda has joined the Tokyo office of Greenberg Traurig as a senior associate in its real estate practice. Ueda has significant experience in structured real estate finance and joins from Japanese law firm Nishimura & Asahi.
CDO transfer
Dock Street Capital Management has replaced Cairn Capital as collateral manager on Altius III Funding. Under the terms of the appointment, Dock Street agrees to assume all the responsibilities, duties and obligations of the collateral manager under the applicable terms of the indenture. The ABS CDO’s original manager was Aladdin Capital Management, which was replaced by Cairn Capital in February 2013 (see SCI’s CDO manager transfer database).
CDS definitions eyed
As part of its ongoing dialogue with the credit derivatives market, ISDA is gathering feedback on whether further amendments to its credit derivatives definitions should be considered, in light of Hovnanian Enterprise’s recent debt refinancing deal (SCI passim). In a statement, the association says it believes that narrowly tailored defaults - those that are designed to result in CDS payments that do not reflect the creditworthiness of the underlying corporate borrower - could negatively impact the efficiency, reliability and fairness of the overall CDS market. It notes that swap market participants remain subject to relevant anti-manipulation and anti-fraud laws, and that whether any specific narrowly tailored arrangements meet the definition of a credit event will be determined by one of the determinations committees.
EMEA
Ashurst has appointed Thomas Picton as a securitisation partner in the London securities and derivatives group. Picton joins from Clifford Chance, where he has been since 2006. With over 10 years’ securitisation experience, Picton’s practice covers a wide array of asset classes, with a key focus on the consumer sector.
London-based PVE Capital is forming Prosperise Capital to continue its expert credit investing, led by cio and founder Gennaro Pucci. This evolution involves a number of legal and operational changes, including new partners and new offices in London and Milan. The investment team remains the same and expects to add to the firm’s stable of credit funds in 2018.
FNMA RPL sale
NRZ Mortgage Holdings (Fortress) and Towd Point Master Funding (Cerberus) have been named as the successful bidders in Fannie Mae’s sixth reperforming loan sale transaction, which comprised approximately 9,400 loans totalling US$1.96bn in unpaid principal balance, divided into two pools. The weighted average broker's price opinion loan-to-value ratio was 75% for pool 1 and 87% for pool 2. The cover bid on the aggregate was 92.30% of UPB (63.25% of BPO).
Fund launch
Semper Capital Management has launched the Semper Total Return Fund, a daily dealing Irish-domiciled UCITS fund. Launched with over £35m in assets, the fund will emulate the firm’s Semper MBS Total Return Strategy and will provide access for investors in the UK and Europe to Semper’s MBS strategy for the first time. It is structured as a sub-fund of the GemCap Investment Funds.
LSTA judgement granted
The opportunity for the government to file an appeal to the US Circuit Court for the DC Circuit in its risk retention litigation with the LSTA expired at midnight on 26 March, with the agencies choosing not to pursue further action in this venue (SCI passim). The DC District Court, in turn, last week ordered that summary judgement is granted in favour of the LSTA regarding the application of risk retention to open-market CLO managers, that summary judgement is vacated on the issue of how to calculate the 5% risk retention under the credit risk retention rule and that this rule is vacated insofar as it applies to investment managers of open-market CLOs. The government agencies can still ask the US Supreme Court to review the DC Circuit’s decision until 10 May, but the LSTA believes this is unlikely and that, if they did, it is unlikely that the Court would grant their petition.
MPL ABS indices
KBRA has rolled out marketplace loan ABS indices, aimed at providing high-level commentary, as well as making the underlying data available to investors. The indices include data from all rated securitised marketplace loan collateral pools, not just from deals that KBRA rates, and show annualised net losses and 30-plus delinquencies.
Nationstar fine
The New York Department of Financial Services (DFS) has fined Nationstar Mortgage US$5m for violations of New York State banking law, stemming from the company’s failure to develop effective controls that could keep pace with its rapid growth. DFS’s servicing examination focused on Nationstar’s servicing operations between 1 January 2011 and 31 March 2014, while its origination examination reviewed loans produced between 1 March 2012 and 31 March 2014. As a result of the examinations, which uncovered numerous deficiencies, Nationstar has made restitution of US$7m to New York borrowers. Under the consent order with DFS, the company will also donate US$5m in residential real property or first-lien mortgages to one or more non-profit organisations to assist in the rehabilitation of vacant and abandoned properties.
North America
Analytics firm dv01 participated in its first RMBS, acting as loan data agent for CSMC 2018-RPL2, a US$275m securitisation of re-performing loans serviced by Select Portfolio Servicing. The appointment provides investors with access to loan-level data and dv01’s cashflow engine, as well as a suite of reporting and analytics tools. The firm already provides loan data agent services for an aggregate securitised collateral balance in excess of US$25bn of marketplace lending loans.
FS Investments and KKR have formed the market's largest BDC platform, with US$18bn in combined assets under management. The new partnership – named FS/KKR Advisor – will serve as the investment adviser to six BDCs: FS Investment Corp, FS Investment Corp II, FS Investment Corp III, FS Investment Corp IV, Corporate Capital Trust and Corporate Capital Trust II. All of the BDCs are able to participate in the same transactions alongside each other and KKR Credit's institutional funds and accounts. FS Investments and GSO Capital Partners have concluded their relationship with respect to all of FS Investments' sponsored funds that were sub-advised by GSO.
Ryan Suda has joined Mayer Brown’s banking and finance practice and structured finance group as a partner in New York. Suda advises financial institutions, asset managers, private equity funds and hedge funds in structured finance transactions and other complex financings, focusing in particular on CLOs. He joins from Freshfields.
SoFi has hired Michelle Gill as cfo, effective 30 April. Gill joins SoFi from TPG Sixth Street Partners and has previously spent 14 years at Goldman Sachs, where she was most recently co-head of the structured finance business. Gill replaces interim cfo, Steven Freiberg, who will continue to serve as vice-chairman.
Single-tenant risks highlighted
Fitch has published an unsolicited comment on the TRU Trust 2016-TOYS CMBS, following the bankruptcy of the sole tenant Toys R Us (SCI passim). The agency notes that it identified a number of concerns when it looked at the deal in April 2016, including that the tenant is a specialty operator in a sector that is facing considerable weakness and that the ‘value’ of the properties is highly correlated to whether the tenant continues as a viable operating business. As such, it provided feedback to the arranger that the credit risk would not be compatible with high investment grade ratings and the arranger decided to discontinue the rating process with Fitch. The agency suggests that the risk of bond losses due to the TRU bankruptcy will give investors pause when contemplating CMBS exposed to either single-tenant names or specialised use of real estate.
Solar ABS RFC
Moody's is seeking feedback on its proposed global approach to rating solar ABS backed primarily by payments made under distributed generation solar systems and related production-dependent solar contracts, such as leases or power purchase agreements (PPA). Under the proposed methodology, four key risks to solar ABS would be analysed: variability in solar power production; variability in solar payments, due to potential future contract modifications and/or shifting solar contract prices; obligor defaults; and operations and maintenance risks. Market participants are invited to comment on the RFC by 8 May.
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