Contents

Capital Relief Trades

Potential solution to IFRS 9 volatility

Capital relief trade issuers are understood to be considering whether credit guarantees which are accounted for as a “reimbursement asset” can be used to mitigate volatility arising from the implementation of IFRS 9 expected credit losses. However, the accounting technique features its own challenges and raises a number of other questions.

A reimbursement asset is recognised for holders of credit guarantees at the time that loss allowances relating to those guaranteed loans are recognised. The holders then do not suffer a loss to the extent covered by the guarantees. IFRS 9 allows for an earlier recognition of reimbursement assets for those loans which are covered by credit guarantees.

IFRS 9 requires earlier recognition of loan loss allowances, which is expected to increase model volatility due to the migration over the accounting standard’s three credit stages. The higher volatility that will, in turn, be generated is expected to increase lifetime expected loan loss provisions and thus reduce CET1 capital ratios (SCI 23 June 2017).

This raises the prospect of significant risk transfer trades that are able to hedge provisioning increases. Unlike traditional synthetic securitisations, the trigger point for IFRS 9 transactions is a rise in provisioning after a loan has become impaired, rather than a typical credit event such as bankruptcy and failure to pay. Provisions increase when an asset moves from stage one to stage two, at which point lifetime loan loss provisions must be made.

However, reimbursement assets feature their own challenges. One market source notes that banks’ commercial appetite to mitigate IFRS 9-related volatility is likely to be limited to segments of their portfolio.

They say: “Specifically, protection will be sought on a revolving reference portfolio, allowing for substitution of assets in the protection contract. The revolving nature of protection could complicate the accounting analysis, which is typically focused on the identification of specific protected loans.”

Another challenge is determining how the losses arising from the transactions are settled. “How do you determine a loss event or loss amount?” questions the same source. The regulatory capital treatment of the assets subject to protection is significantly affected by the settlement terms, both with respect to the initial loss settlement and any eventual true-up mechanism needed to establish when the losses have occurred.

Specifically, within the context of protection provided through a credit derivative, the challenge of transparently identifying the migration between stage one and stage two is something that needs to be addressed to allow protection buyers and protection providers to efficiently value the protection instrument. Market participants have raised similar issues in terms of how one defines a credit event under IFRS 9 (SCI 20 December 2017).

These complexities raise questions over whether the credit protection in a synthetic securitisation can actually cover what it was designed to cover. An adjustment or solution according to another market source is an understanding of that stage migration in terms of collateral rather than settlement.

“If regulatory rules require cash collateral and cash flows then we might be talking about collateral and not settlement,” she says. This would amount to having investors depositing additional cash collateral rather than paying for any migrations from stage one to stage two. Indeed, in the end, any credit event pay-out would have to be for actual losses rather than for stage two losses (SCI 16 February).

The posting of additional collateral remains an idea, especially since regulatory rules require initial loss settlements. Furthermore, any potential implementation would have to be accompanied by an additional layer of collateral accounts, such as SPV accounts.

The complexities also raise a corollary question as to whether IFRS 9 is actually a challenge for the CRT market, if credit event pay-outs are in the end triggered following actual loss events. “I would not agree with that. Migration across IFRS 9 stages is important because banks do not securitise their whole portfolio,” says the second source.

She continues: “From an investor perspective the only probable risk is posting more collateral but bank balance sheets will have to book more provisions due to IFRS 9 stages.”

Nevertheless, the market still has to wait for bank stress tests to further understand the capital impact of the accounting standard. Two important stress tests in this respect are the Bank of England’s stress tests for this year, with stress scenarios having already been disclosed (SCI 19 March), and the European Banking Authority’s EU wide stress test, also for this year. The EBA expects to publish the results of the exercise by 2 November 2018.

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CDO

Investors seek more Trups CDO issuance

EJF Capital recently launched a US$535.090m Trups CDO, TFINS 2018-1, which is its sixth Trups CDO since 2015. While this underlines revived interest in the asset class, supply constraints continue to be a dampener on the market.

Kroll Bond Rating Agency has assigned provisional ratings of double-A minus on the US$360.790m class A1 notes (which will pay three-month Libor plus 155bp), double-A minus on the US$23.7m class A2 notes (429bp), single-A on the US$12.1m class B notes (474bp) and double-B minus on the US$71.25m class C notes (three-month Libor plus 500bp).

The class A2 and class B notes are fixed rate at closing. On 17 October 2022 they will switch to Libor plus 155bp and plus 200bp, respectively.

The bank obligors are headquartered in 32 different US states and are generally regarded as community or small regional banks. 85% of the collateral has been purchased through CDO liquidation, 10% in the open market and just under 5% in the primary market.

A market source comments that after a “significant withdrawal during and following the crisis, there has been heightened interest in the product, spiking in times of supply via FDIC or portfolio sales”.

Typically, the issuance landscape post-crisis has taken the form of securitised legacy Trups across bank and insurance such as in the FINS and TFINS shelves from EJF. Additionally, BFNS 2017-1, managed by Angel Oak, comprised recently issued sub debt.

Investors are drawn to the asset class as it is a floating-rate, long-dated maturity product often pricing at a discount. Additionally, Trups CDOs can provide diversified exposure to the regional bank space.

Furthermore, investment in the asset class is now facilitated by greater transparency than before on the underlying collateral – a lack of which was previously a major issue for investors.

Appetite for the product is also buoyed by alterations to post-crisis Trups CDO deals, such as greater credit enhancement, as well as a move towards 10-year sub debt collateral compared to 30-year Trups, according to the market source. The source adds that 2.0 deals have usually avoided swaps and limited the fixed/float basis and individual asset exposure while trying to maintain geographic diversity.

However, investor interest continues to ebb and flow with supply, falling off when paper is scarce, and waiting for it to appear can be an added frustration. Sourcing supply is a major challenge as smaller banks tap the capital market irregularly and retrieving capital from legacy transactions is limited to a small number of liquidations and auction calls.

In addition to these constraints, ensuring the purchase price or spread provides enough return for the securitisation to work is essential, says the source. Similarly, in the secondary market, the source comments that there is a strong bid for long-dated floaters although it can require a lot of patience in waiting for the right CDO profile.

Furthermore, with senior tranches getting the benefits of improvements in prepayment and upgrades, these are often placed in buy-and-hold accounts, further limiting the amount of paper available. As such, “secondary activity often focuses on the mezz bonds that are not covered on a par basis, testing the fundamental credit views of a particular investor,” the source notes.

The source says that, despite this pick-up in activity, there are only likely to be two or three more new issue Trups CDOs this year. Regardless, they believe that “investors are hungry for more”.

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Capital Relief Trades

SRT features incorporated

The EIF has granted BBVA a €90m guarantee on a mezzanine tranche of a €1.95bn portfolio which will enable the provision of up to €600m financing of new investment projects to Spanish SMEs. The transaction incorporates structural features from the EBA’s significant risk transfer discussion paper and is part of a wave of agreements supporting SMEs across Europe.

Among the SRT paper features which have been included are those relating to excess spread pro rata amortisation and call options (SCI 28 September 2017). This is part of a trend of CRT issuers incorporating structural features from the paper in an effort to gain regulatory certainty in the absence of further guidance (SCI 23 March).

The EBA’s paper says pro rata amortisation should only be used in conjunction with clearly specified contractual triggers determining the switch of the amortisation scheme to a sequential priority. Regarding call options, the paper notes that time calls can be included in synthetic securitisations if they can be exercised at a point where the time elapsed since the securitisation's closing date is equal to, or higher than, the weighted average life of the initial portfolio. On excess spread, there is a requirement for a trapping mechanism that is capped at the expected loss of the portfolio.

The BBVA agreement was made possible by the support of the European Fund for Strategic Investments (EFSI). The main function of the EFSI is to take on some of the risks associated with the activities carried out by the EIB and the EIF.

The enhanced risk-bearing capacity that the EFSI provides to the EIB allows the EIB to invest in projects with a higher risk profile than usual. It is estimated that the fund, which totals €21bn, will generate around €315bn in new investments.

The transaction is also the second mezzanine guarantee operation in a synthetic SME securitisation in which the EIB and EIF are jointly participating in Spain. The previous one, signed in June 2017, has so far enabled the provision of €640m worth of finance for firms in various sectors, such as wholesale, transport and tourism.

Over the last few years, the EIB and BBVA have signed a number of other operations targeting SMEs. In November 2017 they provided €300m to finance innovation and the digitalisation of small Spanish businesses; in June 2016, they launched a €600m credit line; and in 2015, they approved a €1bn credit line to foster economic recovery and job creation in SMEs.

The latest transaction follows another EFSI transaction, COSME, from last week between the National Bank of Greece (NBG) and the EIF. The two institutions signed three guarantee agreements worth €640m to improve access to finance Greek SMEs.

Under the new InnovFin agreement, the NBG will provide loans at favourable terms to innovative SMEs and small mid-caps for two years. The EIF's guarantee is provided under the EU InnovFin finance for innovators initiative with financial backing under Horizon 2020, the EU’s research and innovation programme. The EU's support for innovative Greek companies under this transaction is expected to generate a portfolio of €100m of loans.

The COSME transaction is an extension agreement, which will allow the NBG to provide €500m of loans to around 1,900 small businesses in Greece over three years. The EIF will provide the NBG with a guarantee backed by the European Commission, allowing the bank to substantially reduce its collateral requirements, while making it easier for companies to obtain loans.

Furthermore, the fund signed an EaSI microfinance guarantee transaction with the NBG, supporting €40m of loans to 3,400 micro-borrowers who have difficulties accessing credit across the country. The EaSI Guarantee scheme, launched in June 2015, is funded by the European Commission and managed by the EIF.

All these guarantee agreements are part of the various EU programmes that aim to support SMEs across Europe. George Passaris, head of the EIF’s securitisation division, explains: “InnovFin is an uncapped (pari-passu) portfolio guarantee or counter guarantee facility, targeting innovative SMEs and small mid-caps as its final beneficiaries. It offers a guarantee rate, maximum of 50% on a loan-by-loan basis. There is also a fee for SMEs/small mid-caps based on the guarantee amount.”

He continues: “COSME on the other hand is a cap first loss portfolio guarantee or counter guarantee facility free of charge that aims to address the needs of SMEs that are perceived as risky, perhaps due to their start-up nature, their business model, or their lack of collateral. The loans have a minimum maturity of twelve months.”

As of April 2018, total financing under the EFSI in Spain amounts to €5.9bn with €34bn in additional investments pending. The €5.9bn total is the third-highest in the EU after France and Italy. Greece has also benefited from EFSI financing with €2.5bn and €9.2bn of additional investments pending. The EFSI is on track to meet its goals with 90% of their original €315bn target having been accomplished.

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Structured Finance

SCI Start the Week - 23 April

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

Pipeline
Auto ABS dominated the pipeline once again last week. A handful of other ABS, as well as CMBS and RMBS were also announced.

The auto ABS remaining in the pipeline by the end of the week were: US$1.1bn Ally Auto Receivables Trust 2018-2, US$400m Avis Budget Rental Car Funding Series 2018-1, Bavarian Sky German Auto Loans 8, US$482m Hertz Fleet Lease Funding Series 2018-1 and Securitized Term Auto Receivables Trust 2018-1. The other ABS were US$379.6m CLI Funding VI series 2018-1, Fair Hydro Trust Series 2018-2 and US$1bn Kubota Credit Owner Trust 2018-1. The RMBS comprised US$1.1bn Invitation Homes 2018-SFR², PMT Issuer Trust - FMSR Series 2018-FT1 and US$380.09m Sequoia Mortgage Trust 2018-5, while €300m TAURUS 2018-1 IT was the sole CMBS.

Pricings
It was a similar story for new issuance last week. ABS accounted for the majority of pricings, although there was a slew of RMBS prints too.

The auto ABS that priced last week consisted of: US$577.3m Canadian Pacer Auto Receivables Trust 2018-1, US$1.33m CarMax Auto Owner Trust 2018-2, €455m Driver Italia One, US$549.97m Exeter Automobile Receivables Trust 2018-2, US$1.06bn Ford Credit Auto Lease Trust 2018-A and US$185.3m Tidewater Auto Receivables Trust 2018-A. The US$318.48m Ascentium Equipment Receivables Trust 2018-1, US$825m Domino's Pizza Master Issuer series 2018-1, US$275m Driven Brands Funding Series 2018-1 and US$197.85m Westgate Resorts 2018-1 ABS were also issued.

The RMBS prints were: A$1.25bn Apollo Series Trust 2018-1, €1bn Ardmore Securities No. 1, €1.2bn FCT Credit Agricole Habitat 2018, £705m Paragon Mortgages No. 25, US$140.13m SG Residential Mortgage Trust 2018-1 and US$249mn Verus Securitization Trust 2018-INV1. Finally, the US$1.29bn FREMF 2018-K75 CMBS rounded the issuance out.

Editor’s picks
Proportional protection reviewed: EU policymakers are currently negotiating an amendment to Article 234 of the CRR that would allow banks to treat first-loss protection as proportional protection. If successful, the move is expected to boost mortgage significant risk transfer issuance…
Swiss mortgage portfolio sale eyed: BNP Paribas last week acquired Raiffeisen Bank Polska (Polbank), the Polish subsidiary of Raiffeisen Bank International (RBI), but carved out from the acquisition a portfolio of mainly Swiss franc-denominated foreign currency residential mortgages. The €3.5bn portfolio derailed earlier attempts by RBI to either sell or IPO Polbank, so Polish financial regulator KNF finally rejected the transfer of the portfolio, which will be retained by a newly established Polish subsidiary of RBI. Sources expect Raffeisen to attempt a sale of the portfolio eventually…

Deal news

• Intesa Sanpaolo and Intrum have agreed to form a strategic partnership in respect of non-performing loans. The agreement involves two transactions, including what is expected to be a landmark securitisation for the Italian market.

Regulatory news

• The New York Fed has begun publishing the Secured Overnight Financing Rate (SOFR), a much-touted Libor replacement, despite industry participants suggesting that a thorough plan has yet to be made for the transition away from the benchmark. At the same time, there is concern over whether enough consideration has been given to the financial products tied to Libor - including securitisations - which will not mature by the Libor 2022 cut-off.

Structured Finance

Risk-sensitive update for Solvency 2

The European Commission has launched a consultation on its proposed new risk-sensitive treatment of securitisations under Solvency 2. The proposal – which seeks to harmonise existing legislation with the STS framework - has been welcomed for its potential to attract insurers back into the ABS market.

The Commission proposes replacing the existing Solvency 2 classification of securitisation positions as either Type 1 or Type 2 with one that specifically references whether a position is STS or non-STS. Differentiated capital treatment for senior STS, non-senior STS and non-STS, as well as resecuritisation positions is being put forward.

For example, for triple-A rated senior tranches with an STS designation, the capital charge will decrease to 1% per year of spread duration, from the 2.1% currently in place for Type 1 securitisations. For double-A, single-A, triple-B and unrated senior exposures, the proposed charge decreases to 1.2%, 1.6%, 2.8% and 4.6% respectively, from 3%, 3%, 3% and 100%.

JPMorgan international ABS strategists note that the proposed approach for STS positions is now more consistent with the spread risk calculation used for other (non-securitised) bonds and loans. “At a high level, the proposed recalibration results in a notable improvement in the capital charge for securitisation positions that will qualify as STS under the Securitisation Regulation, driving an estimated 50%-60% reduction in required capital for triple-A rated senior STS positions, depending on duration. Moreover, the differentiated capital treatment for non-senior STS positions is considerably better than their current treatment as Type 2 exposures,” they observe.

This reduction in capital requirements is expected to make investment in STS securitisation positions more appealing for insurance companies utilising the standard formula. Nevertheless, the JPMorgan strategists suggest that compared to capital requirements for securitisation for bank investors under the revised CRR, the recalibrated Solvency 2 capital requirements are still visibly higher.

“Thus, while the revision partially corrects the previously stark misalignment of bank and insurance company capital requirements, they still remain somewhat incongruous,” they comment.

The STS designation alone does not mean a securitisation will achieve beneficial capital treatment under Solvency 2, however. In order for this to happen, STS securitisations also have to comply with the additional requirements in Article 243 of the CRR, including the average risk weight and current indexed LTV criteria.

The treatment of securitisations that do not comply with the STS designation or do not fulfil the additional requirements under the CRR is equivalent to that of the current Type 2 securitisations.

Rabobank credit analysts believe that the need to fulfil the additional CRR requirements is “unnecessary and confusing”. From a practical perspective, with investors having to check if a securitisation is STS-compliant, they question whether this “feedback loop to Article 243 in the CRR amendment is going to work for insurers, who will have to use banking regulations - for example, to check the average risk weight of a pool - assuming the standardised approach for bank credit risk.”

Under the proposal, grandfathering provisions would be put in place for existing transactions to avoid cliff effects. Type 1 securitisation positions issued before 1 January 2019 will be treated as senior STS positions for calculating capital requirements, even if they do not qualify as STS, provided no new underlying exposures are added or substituted after 31 December 2018.

Type 1 securitisation positions issued before 18 January 2015 will continue to be treated as Type 1 exposures under the existing Article 178. Finally, Type 1 RMBS positions issued before 1 January 2019 that did not meet the average LTV nor LTI requirements outlined in Article 177 of the existing legislation will continue to be treated as Type 1 exposures under the existing Article 178 until 31 December 2025.

The Rabobank analysts suggest that on balance, the grandfathering provisions seem relatively generous. However, they note that the condition for no new underlying exposures after 2018 could represent a drafting error if it disqualifies deals with revolving pools.

The feedback period on the proposals runs until 15 May. The amendments are anticipated to enter into force on 1 January 2019, in tandem with the introduction of the new Securitisation Regulation.

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RMBS

Performance sparks RPL upgrades

Many post-crisis RMBS reperforming (RPL) loan transactions have performed better than expected, leading Fitch to upgrade 171 classes from 18 RPL deals. A dozen subordinate bonds were upgraded from double-B to investment grade, while 486 RPL ratings were affirmed.

The upgrades follow a review of RPLs, seasoned performing loans and one REMIC transaction, spanning 657 loans over 44 deals issued from 2014 to 2017. The rating agency has already upgraded 40% of these and says that 67% of RPL classes are now “showing positive credit migration”.

Fitch finds that these transactions have performed within initial expectations to date, reflecting positive borrower selection, growing loss protection and supportive deal structures. As such, loans that are more than 60 days delinquent average less than 5%, with losses to date averaging only 0.32%.

Collateral performance has shown lower-than-expected delinquencies and losses, which are driving lower collateral loss expectations on the remaining pool balances. Steady prepayment rates have de-levered rated classes and increased credit enhancement levels as a percentage of the remaining pool balance.

Fitch highlights that of the 43 RPL deals it has rated, 14 have a 60-plus day delinquency rate over 5%. The only pool with a 60-plus delinquency rate above 10% was 13% delinquent at deal close.

Towd Point 2015-5 is the only deal RPL rated by Fitch with a cumulative loss greater than 2% but this is attributable to HAMP modifications with a Principal Reduction Alternative (PRA), where an amount is forgiven if the borrower pays on time for three years. Additionally only four other deals have a cumulative loss greater than 1% but these continue to pay down at a steady rate for roughly 10% CPR on average.

Wells Fargo MBS analysts note that Moody’s has also recently assessed many of the same transactions. They expect more rating upgrades as a result of benign delinquencies and losses, but note these might not happen until later this year or in 2019.

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NPLs

ECB encourages action on NPLs

Gifford West, md, international operations and business development at DebtX, examines the ECB's call for greater progress on NPLs

At a recent NPL industry event, a banker credited with completing some of the largest European NPL sales observed: “The Irish and UK banks were distressed sellers. Now their banks are on the path to recovery. The Italian banks refused to be distressed sellers. Now they are mostly distressed banks.”

The ECB’s guidance published on 15 March 2018 is likely to increase the pressure on European banks to follow the approach Irish and UK institutions took to clean up their NPLs, executing bulk or smaller note sales.

The Irish/UK experience

The successful resolution of NPLs in Ireland and the UK shows what is possible when governments and banks are proactive in moving dead weight off their balance sheets.

When Irish and UK NPL sales were being conducted by NAMA and UKAR, there was much consternation that these dispositions were nothing more than fire sales and that governments had left money on the table. As it turned out, this approach proved to be very effective.

The assets were put into funds that scaled up their recovery operations faster than any bank or government agency could. The funds had greater flexibility to negotiate with the borrowers and committed additional capital to projects where they saw opportunity.

Today, these NPLs have largely been resolved. The partially completed development projects that dotted Dublin are now completed or under construction.

Private equity firms are moving on from Ireland to other markets for the next opportunity. Though some still argue that assets were sold too cheaply, no one believes that the recovery would have happened as quickly if these NPLs were still held by the government or banks.

As important, the banks that were weighed down with NPLs are becoming competitive institutions again. Their workout departments are slowly winding down and management is again focused on growth and productive lending.

The ECB agenda

The ECB has indicated it wants banks to show progress on multiple fronts.

First, the ECB has made it clear that hiring more staff for workout departments is no longer considered an acceptable response to managing NPLs. Second, the ECB wants to see evidence that loans are being properly valued and that the level of NPLs is being steadily reduced. Third, ECB regulators want to see more competitive bidding for NPLs that are being sold.

With regard to this third point, the ECB is increasingly frustrated with the oligopolistic nature of the European buy-side. It wants greater competition and is encouraging banks to facilitate more frequent, smaller sales.

Smaller sales work

For banks with a large inventory of NPLs, smaller sales will provide two critical benefits. They provide evidence to the ECB that the institution is progressing. The market pricing data from these transactions is also useful in determining future sales for the entire NPL market.

DebtX’s experience executing smaller transactions has proven effective for banks across Europe.

Smaller transactions have frequently resulted in higher loan sale proceeds than larger bulk transactions. The competitive bidding leads to elevated prices and to more transparency for all parties. Given the ECB’s focus, it is likely that 2018 will see a growing number of smaller transactions. The ultimate goal is a robust and dynamic European NPL market, similar to that in the US.

In the meantime, the go-to strategy for European NPLs will continue to be the larger bulk sale. Disposing of large amounts of NPLs in a single transaction is a favored approach at the board level of many institutions because it visibly moves the needle.

In 2018, we are likely to see more of these larger transactions, which some believe could total €100bn. For banks with access to adequate capital or those that have adequate reserves, bulk sales will be a key part of the disposition strategy for 2018 and 2019.

Whether the sales are large or small, moving beyond the currently unacceptable level of NPLs is very important. As the ECB noted in its recent guidance: “High levels of NPLs affect banks’ capital and funding, reduce their profitability, divert resources that could be put to more effective use, and inhibit the supply of credit to households and companies. Addressing NPLs is therefore important for both bank viability and macroeconomic performance.”

Europe, and the entire global economy, would be well served to follow the ECB’s wisdom.

Structured Finance

Market moves - 27 April

Australia

FIIG Securities has hired Anne-Marie Hunter-Brown to the role of markets business manager, Australia. She was previously at Deutsche Bank as IB markets coo and business manager across global credit including structured credit.

Assured Guaranty rebuttal

Hedge fund manager David Einhorn recently stated that he is betting on Assured Guaranty’s stock falling, and that it “hasn’t got enough new business coming into the firm to offset amortisation of the portfolio.” In its defence, Assured Guaranty has released a statement that it “strongly disagrees” with Einhorn’s comments and says that “in the event of a municipal default, Assured Guaranty is obligated to cover shortfalls in scheduled principal and interest payments only when those payments are due. Our insurance policies do not permit acceleration of payments without our consent. Mr. Einhorn’s focus on total debt service ignores this lack of acceleration, as well as the strength of our balance sheet, and the highly liquid nature of our investment portfolio, which generates significant investment income over time. Furthermore, Assured Guaranty is well reserved for its municipal exposures and, due to the non-acceleration feature, does not face liquidity risks. We have US$11.5bn of cash and investments with US$2.8 bn of estimated excess capital over S&P’s AAA level. In addition, we have strong legal rights, including for Puerto Rico under PROMESA, which requires that fiscal plans must respect contractual liens and constitutional priorities established under Commonwealth law.”

CDO manager replaced

Dock Street Capital Management has been appointed successor collateral manager to Straits Global ABS CDO I, as well as the Independence IV, V and VII CDOs originally managed by Declaration Management & Research (see SCI’s CDO manager transfer database). For each transaction, two employees of Dock Street will replace key management personnel, effective from 20 April. Moody’s confirms that the move will not impact its ratings (including any shadow, private or confidential ratings) on the deals.

Commercial lending venture

Angel Oak has launched Angel Oak Commercial Lending, which will provide both short- and long-term financing to underserved commercial real estate owners, developers and investors. The firm hopes to move into what it describes as a “lending void” in specific segments of CRE, including transitional and stabilised projects, especially those under US$5m in size. Ex-Ansley Atlanta Real Estate evp Ben Easterlin has been named svp of commercial lending at Angel Oak. Over his 20-year career, he has provided, arranged or consulted on over US$3bn of debt and equity placements.

Europe

Vegard Nilsen has been named ceo of London-based Securis Investment Partners. He has served as coo at the firm since July 2005 and before that worked at ORN Capital, Digital Capital and Salomon Brothers. Securis co-founder Rob Procter continues as cio.

European bank recruiting CRT talent

Banca IMI is looking to hire a senior loan management specialist with experience in experience in securitisation, regulatory capital transactions or deleverage of illiquid and non-performing assets, amongst other things. The scope of the role will cover a range of activities including supervising and preparing marketing material for origination activities and will be based in Italy.

Legacy mortgage portfolio sale

Bradford & Bingley, part of UK Asset Resolution Limited (UKAR), has agreed to sell two separate portfolios of buy-to-let and residential owner-occupied mortgages to an investor group led by Barclays Bank for a total of £5.3bn. The sale is expected to be completed within the next few weeks and will enable total loan repayments of £5.3bn to HM Treasury, which includes the remaining £4.7bn of the Financial Services Compensation Scheme (FSCS) loan. This follows the repayment of £10.9bn in 2017 and means that the £15.65bn FSCS loan extended to Bradford & Bingley when it was nationalised in 2008 will have been repaid in full. The sale is based on the portfolio position as at 30 September 2017, from which point the purchaser will acquire the risks and rewards of ownership of approximately 45,000 Bradford & Bingley and Mortgage Express mortgages. The mortgages in this transaction will be sold to two wholly-owned subsidiaries of Barclays Bank with equity funding from funds managed by Pimco. A finance package in the form of a commitment to buy investment grade bonds has been made available to the purchasers by a consortium made up of Barclays Bank UK, HSBC, Lloyds, Nationwide, NatWest Bank and Santander UK. Morgan Stanley acted as financial advisor to UKAR in this process.

North America

Jason Yang has joined BNP Paribas as head of credit structuring, New York. He was most recently founder and ceo of Polly Portfolio and prior to that was a partner and senior portfolio manager at C12 Capital Management.

Prytania Asset Management has hired Fahd Basir as md, based out of the firm’s newly opened New York office. Previously, Fahd was a director at 25 Capital Partners and he brings broad structured credit experience spanning 14 years including both agent and principal transactions across the capital structure over a wide variety of asset classes.

RCR criteria launched

S&P has introduced criteria for resolution counterparty ratings (RCR), which represent a new special-purpose rating type applicable to certain financial institutions subject to a bail-in resolution policy framework. The criteria are applicable to financial institutions globally that are likely to be subject to an effective bail-in resolution regime in the event of distress. The agency expects that fewer than 50 collateralised bonds globally that are currently rated at the level of the issuer ICR could be upgraded by a notch because they may be classified as RCR liabilities.

RFC on STS guidelines

The EBA has launched a public consultation on its draft guidelines that aim to provide a harmonised interpretation of the STS securitisation criteria, including for ABCP. The guidelines will be applied on a cross-sectoral basis throughout the EU to facilitate the adoption of the STS criteria. The consultation runs until 20 July, with a public hearing due to take place at the EBA premises on 11 June.

Statement issued on manufactured credit events

The CFTC divisions of clearing and risk, market oversight, and swap dealer and intermediary oversight has issued a statement regarding manufactured credit events in connection with CDS. It says that, "The CDS market functions based on the premise that firms referenced in CDS contracts seek to avoid defaults, and as a result, the instruments are priced based on the financial health of the reference entity.  However, recent arrangements appear to involve intentional, or ‘manufactured,’ credit events that could call that premise into question.” The CFTC adds: "Manufactured credit events may constitute market manipulation and may severely damage the integrity of the CDS markets, including markets for CDS index products, and the financial industry’s use of CDS valuations to assess the health of CDS reference entities.  This would affect entities that the CFTC is responsible for overseeing, including dealers, traders, trading platforms, clearing houses, and market participants who rely on CDS to hedge risk. Market participants and their advisors are advised that in instances of manufactured credit events, the divisions will carefully consider all available actions to help ensure market integrity and combat manipulation or fraud involving CDS, in coordination with our regulatory counterparts, when appropriate.”