Contents

Capital Relief Trades

Trade finance CRTs gather pace

Transactions offer multiple benefits to issuers and investors

Interest is growing in synthetic securitisations backed by trade finance receivables - collateral that is particularly suited to the synthetic structure. These transactions exhibit several differences to corporate capital relief trades and while some of these can cause certain challenges, they also offer issuers and investors unique benefits.

Peter Wong, md, portfolio management at Standard Chartered, says that the synthetic trade finance securitisation market has been growing steadily in recent years, with a healthy pipeline and good investor appetite for deals. He adds that financial regulation is still the main concern for issuers and investors, with RWA relief the main motivation for issuance across the asset class.

He adds, however, that synthetic trade finance deals can be done without capital relief as an outcome. “The primary objective of the protection buyer (i.e. the originating bank) might be to free up credit limits on referenced borrowers; and hence a synthetic CLO structure that fails to be significant risk transfer (SRT)-compliant for claiming RWA relief, or generate minimum RWA relief, might not be an issue for the protection buyer,” elaborates Wong.

Structurally, synthetic trade finance deals differ from a typical corporate loan-backed CRT. In particular, they have a much shorter WAL, which necessitates a revolving pool structure with a long replenishment period, almost until the scheduled maturity.

Wong adds that there is a higher concentration of collateral to financial institutions, given the nature of trade finance products. Additionally, there is generally a weaker average credit grade of trade assets in the pool, which reflects the high proportion of smaller firms that commonly use trade finance facilities.

Edward Hickman, partner at Dentons, notes: “One difference, for example, is that the number of loans backing a synthetic trade finance securitisation is generally much larger than other synthetics. A corporate loan synthetic securitisation, for example, typically has a portfolio backed by around 30-50 loans. So, in a trade finance synthetic securitisation, an investor should be exposed to a more diverse portfolio.”

He adds that trade finance deals are typically backed by receivables with a much shorter life of around 90-180 days per loan, compared with corporate loan WALs of around five years.

True sale trade finance securitisations have been hampered in part by low yielding underlying loans and the cost of conducting extensive due diligence. In contrast, synthetic deals allow interest rates to be engineered for investors in this area.

Furthermore, trade finance loans have historically seen low default rates, due to their short term and self-liquidating nature. Alongside this, securitising trade finance receivables synthetically - rather than through true sale - permits more versatility, as they enable banks to transfer letters of credit.

There are challenges involved in the structuring, however, including a lack of standardised documentation and comparable data. Hickman adds that this makes them hard to put together from an issuer perspective and difficult to analyse for investors.

Nevertheless, the portfolios are often international in nature, with receivables coming from a range of jurisdictions, including Africa, the Middle East and Asia. Hickman comments that this is far more diverse than some CRTs seen recently that are backed solely by corporate loans on commercial real estate.

Wong says that the deals are also operationally slightly more challenging, given the short WAL of the trade finance assets, and they therefore require management of the run-off of the portfolio. He adds that investors’ return requirements need to be “guided lower to reflect the lower risk-weight percentage of trade finance assets, compared to the risk-weight percentage of term loans extended to the same borrower; otherwise the deal economics will not work for the protection buyer.”

From Hickman’s point of view, while trade finance CRTs certainly offer an attractive option for issuers, most activity in the sector is in true sale. He concludes that while there is investor appetite for synthetic trade finance securitisations, he is mainly “seeing non-bank trade finance lenders looking at true sale securitisation, for funding purposes.”

RB

NPLs

NPL issuance surging

Italian lenders look to beat GACS deadline

Banco di Sardegna has completed a €253m non-performing loan securitisation called 4Mori Sardegna, the senior notes of which are expected to be granted a GACS guarantee. The transaction features high credit enhancement levels for the senior and mezzanine notes and it is the latest in a slew of GACS issuance aiming to beat the expiration of the Italian government guarantee in September.

According to David Bergman, executive director, structured finance at Scope Ratings: “The most important features of the transaction are the credit enhancement levels, which are second only to the Banca Monte dei Paschi di Siena NPL securitisation, as well as the low loan-to-value ratios. Nevertheless, it also stands out for the geographical concentration in Sardinia, something we have stressed for in our scenarios.”

The senior and mezzanine notes of the Sardegna transaction benefit from credit enhancement levels of 77.8% and 76.6% respectively (calculated as a percentage of GBV), which are high compared to those in peer transactions rated by Scope. The only transaction to surpass these levels is the BMPS transaction, with 87.9% and 84.4% for the senior and mezzanine tranches respectively. Furthermore, the loan-to-value of 56.3% is much lower than peer transactions (65%-85%) and supports secured loan recovery rate levels.

Rated by Scope and DBRS, 4Mori Sardegna comprises €232m A/BBB (low) rated class A notes, €13m BB/B class B notes and an €8m unrated tranche. The deal is backed by a €1.04bn GBV portfolio consisting of secured (accounting for circa 53% of the pool) and unsecured loans, most of which defaulted between 2008 and 2017 and are in various stages of resolution. The secured loans are backed by residential (51.3% of indexed property valuations) and non-residential properties that are highly concentrated in the metropolitan cities of Sardinia (24.4%) and other Sardinian regions (62.9%).

Gross recoveries for the secured portion of the portfolio are driven by a number of factors, although fire sale discounting and market value declines and the geographical concentration of the portfolio are the most important drivers, according to Scope. The agency assumed a gross recovery rate of 38.8% over a weighted average life of 7.4 years. By portfolio segment, it assumed a gross recovery rate of 61.4% and 9.2% for the secured and unsecured portfolios respectively.

Scope applied a combined security value haircut of 48.3%, which consists of: fire-sale discount of 33.5% to security valuations, which reflect liquidity or marketability risks; and severe property price decline stresses (21.4% on average), which reflect Scope’s view of downside market volatility risk. The stresses for the rest of the provinces on Italy’s islands incorporate a level that is 50% higher than Scope’s standard stresses. This accounts for the portfolio’s heavy concentration in Sardinia.

The unsecured portion, on the other hand, is driven by seasoning since default. “The weighted average time since default is approximately 6.4 years for the unsecured portion. Most unsecured recoveries are realised in the first years after a default, according to historical data,” observes Martin Hartmann, associate director at Scope.

The transaction is riding a wave of GACS deals, as Italian banks expect the guarantee to expire in September. Indeed, a surge in planned GACS NPL securitisations has prompted Scope to raise its issuance forecast by up to 50% to €60bn in gross book value (GBV) sales (SCI 29 May).

Another transaction riding the GACS issuance wave is 2Worlds, an NPL securitisation issued by Banco di Desio e della Brianza and Banca Popolare di Spoleto this week. The notes are backed by a €1bn GBV portfolio consisting of unsecured and secured non-performing loans.

Approximately 72% of the pool (GBV) is secured and 58% (GBV) of the pool benefits from a first-ranking lien. The deal has been rated by Scope and DBRS.

Since the Italian guarantee for NPL ABS was launched, GACS issuance has surged from €500m in 2016 to €42bn in 1H18, with another €20bn in the pipeline (on a GBV basis), according to Bank of America Merrill Lynch figures.

SP

Structured Finance

Green ABS branches out

Commercial PACE and renewables gain traction as green ABS expands

PACE is catching on in both the US and Europe. An April whitepaper from the New York State Energy Research and Development Authority (NYSERDA) presents PACE as a tool to achieve the state’s ambitious energy efficiency targets, while a trial programme in Spain is looking at both residential and commercial PACE, although PACE is not the only green ABS sector that is growing.

While residential PACE continues to grow in its established markets, the rate of growth has begun to slow down. This may not be entirely surprising, considering the speed at which the market developed in California.

“The rapid growth was driven by the availability of an alternative financing option, while the reduction in the cost of solar panels also made going solar more affordable. However, California is now pretty saturated and origination volume will be checked by the ability to pay and income verification requirements that are now in effect,” says Gutierrez.

The residential PACE market is dominated by Renovate America and Renew Financial. Between them they accounted for over 80% of total PACE ABS issuance in 2016-2017.

“PACE is there when you need it, it can finance the entire cost of the improvement and it comes with a lot of protections that other forms of financing do not, so it is an attractive option,” says Craig Braun, svp, head of capital markets, Renovate America.

He continues: “The fact that PACE is only for energy efficient improvements also has a strong appeal for many people. This is a product that is held back only by the fact that it has to be approved on a state-by-state basis.”

While the New York whitepaper makes recommendations for both residential and commercial PACE, the markets are very different. “Commercial and residential PACE share a name but very little else,” says Jessica Bailey, co-founder and ceo, Greenworks Lending.

Greenworks set an industry standard when it brought the first securitisation backed entirely by commercial PACE assets last year. The US$75m ABS was arranged by Guggenheim Securities and privately placed, with Morningstar Credit Ratings assigning a double-A rating.

Bailey notes that the origination pathway for commercial PACE is very different to residential, with far deeper involvement in conversations with property owners and the stakeholders they bring to the table. The assets are lumpier but commercial PACE is also much more widely available.

Commercial PACE remains a smaller market than residential PACE but its slower growth does not point to more limited prospects, argues Bailey. The available market into which it can grow “is huge” and the policy environment is beneficial.

“We foresee 30 states into which we can lend and that will grow as states such as Pennsylvania and New Jersey will become available. A lot of states are turning onto commercial PACE lending,” she says.

Braun also acknowledges the wider availability of commercial PACE, but notes that the difficulty is that there is not the same volume, so while deals are bigger than residential PACE, they also take a long time to complete.

He says: “It is much like the difference between RMBS and CMBS. RMBS is a flow business but CMBS has to be far more bespoke and takes so much longer to underwrite and for those deals to flow through the system.”

While PACE has risen as a green ABS asset class, solar is not being left in the shade; solar ABS also remains a central pillar of green ABS and continues to grow rapidly, with new entrants to the market and the prospect of a first triple-A rating drawing closer. There are also many other markets being made possible by new technology or by finding green uses for existing technology and products, such as the innovative use of ground leases.

“[Solar ABS] is growing quickly, which can be seen for example in the fact that both Mosaic and Dividend each issued their inaugural solar loan securitisations last year. Since February 2017 KBRA has rated US$922m in solar loan ABS, three securitisations for Mosaic totalling US$682m and two securitisations for Dividend totalling US$240m,” says Eric Neglia, md, ABS, Kroll Bond Rating Agency.

As well as solar loan ABS there are also solar lease or PPA deals. Kroll spotted three of these in 2017, two of which came from Tesla in November and December and “were well received and oversubscribed”, which is impressive considering the short time between them.

“With PPAs or leases the key difference to solar loans is that the homeowner does not own the solar panels. There has been a healthy amount of solar lease and PPA transactions, but none of it has been sold in the ABS market. Not everybody can take advantage of the investment tax credit (ITC) which makes solar loans more affordable, so the solar lease and PPA option should continue to be popular, particularly as the ITC sunsets in the next few years,” says Cecil Smart, md, ABS, Kroll Bond Rating Agency.

In Europe, the solar finance market is expected to develop mainly in the private placement or institutional investor market. There could be public securitisations further down the line.

Europe’s latest public green RMBS – Green Storm 2018 – was announced in May, while beyond Europe there was also a green RMBS tranche from National Australia Bank sold earlier in the year. It is anticipated that RMBS or other large sectors such as auto ABS would make likely candidates for future green ABS issuance.

“Green ABS activity in the UK and Europe remains limited but we continue to see growing interest from clients and investors. Green ABS is clearly a huge growth area which will need a lot of funding in the next few years and securitisation will be a significant part of that,” says Kathryn James, managing associate, Simmons & Simmons.

She continues: “The easier ABS markets to make the green transition are going to be the likes of auto loans and RMBS because they are already large, well established markets which could treat green securitisation as a variation on current practice. The likes of PACE or other totally new concepts would be more challenging, but that only means they might take longer, not that they cannot be done.”

JL

A full discussion of the growth and opportunities presented by green ABS appears in the Summer 2018 issue of SCI’s print magazine. This is available to subscribers and was distributed at Global ABS. A digital version is available here.

NPLs

Multi-seller GACS deals pending

Large portfolio sizes facilitate critical mass

Multi-seller GACS securitisations brought by smaller Italian banks are emerging, with at least two transactions in the pipeline. However, as the transactions come to market, banks and investors will have to deal with challenges that are atypical for single-seller deals.

During the two years that the GACS scheme has been operational, portfolio sizes (in GBV terms) have evolved towards larger sizes. For instance, last year Banco Popolare di Bari’s second NPL securitisation amounted to €319.8m (GBV), while the most recent transactions total over €1bn (GBV).

Consequently, it makes sense for smaller Italian banks - such as cooperative groups - to work together to issue an NPL securitisation. Indeed, both Iccrea Banca and Cassa Centrale have already announced multi-seller GACS transactions. The former is expected to securitise a €1bn NPL portfolio.

The Italian market has already witnessed multi-originator NPL securitisations, such as Cassa Centrale’s €560m Project Buonconsiglio from October 2017. Yet, if completed, the recently announced deals would be the first multi-seller GACS transactions.

According to Monica Curti, vp and senior credit officer at Moody’s: “Some multi-originator deals backed by performing loans were complex, since each originator acts as servicer. But multi-originator non-performing deals might have a single independent servicer and, therefore, might be far less complex.”

An example of this complexity as manifested in multi-seller performing deals is Credico Finance 11 issued in October 2012. The deal features 22 originators that are also servicers; there are 22 waterfalls, with one class A note and 28 class B notes. Each waterfall repays the class A and class B notes allocated to the relevant originator’s portfolio.

As each sub-pool can experience different levels of delinquencies, defaults and prepayments, the portion of class A notes of each originator are reimbursed at different speeds. Another transaction with similar complexities is BCC SME Finance 1, which printed in December 2017.

Complexity wouldn’t be the main challenge of multi-seller GACS transactions, however. Curti continues: “The main challenge is the fact that each originator needs to provide loan data that are not standardised. Larger systemic banks took years to prepare data tapes, so it will be harder for smaller banks with unsophisticated IT systems. Data quality is a key element of multi-seller deals.”

Nevertheless, the transactions feature beneficial diversification that is not common in single-seller transactions. Curti notes: “Multi-seller deals involve, by definition, regional banks operating even in the north of Italy. Consequently, any investor would benefit from diversification across different tribunals. This would, in turn, decrease the uncertainty in the timing of lengthy court proceedings.”

SP

Structured Finance

SCI Start the Week - 25 June

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

Pipeline
The securitisations remaining in the pipeline at the end of last week were fairly evenly split between ABS, CMBS and RMBS. A single CRE CLO was also announced.

The ABS remaining in the pipeline are: US$180.21m Credit Suisse ABS Trust 2018-LD1, US$1bn Crown Castle Towers Series 2018-1 and 2018-2, Gracechurch Card Programme Funding Series 2018-1 and 2018-2, US$317.5m Mosaic Solar Loan Trust 2018-2-GS, £1.36bn NewDay Funding 2018-1, US$236.8m Oportun Funding IX Series 2018-B and US$1bn Volkswagen Auto Loan Enhanced Trust 2018-1. The RMBS are: US$402.01m Angel Oak Mortgage Trust I 2018-2, US$236.78m CoreVest American Finance 2018-1, US$1.6bn CSMC 2018-J1, US$938.15m JP Morgan Mortgage Trust 2018-6, US$490.47m JP Morgan Mortgage Trust 2018-7FRB, £6.3bn Lanark Master Issuer Series 2018-2, US$1.15bn Towd Point Mortgage Trust 2018-3 and £290m Twin Bridges 2018-1.

The newly announced CMBS comprise: US$932.9m Ashford Hospitality Trust 2018-KEYS, US$750m Aventura Mall Trust 2018-AVM, US$1.16bn Benchmark 2018-B4, US$1.1bn FREMF 2018-K732, US$675m Independence Plaza Trust 2018-INDP, US$1.02bn MSC 2018-H3, US$803.8m UBS 2018-C11 and US$658.77m WFCM 2018-C45. Finally, US$470m Marathon CRE 2018-FL1 was also marketing.

Pricings
ABS dominated last week’s pricings, across auto and non-auto collateral. A good number of CLOs and RMBS were also issued.

The auto ABS prints consisted of: US$1bn Ally Auto Receivables Trust 2018-3, US$379.35m California Republic Auto Receivables Trust 2018-1, US$1.24bn GM Financial Automobile Leasing Trust series 2018-2, US$200m Hertz Vehicle Financing II Series 2018-2, US$200m Hertz Vehicle Financing II Series 2018-3 and US$1.11bn Santander Drive Auto Receivables Trust 2018-3. The non-auto ABS prints were: US$673.6m Business Jet Securities 2018-2, US$525m Discover Card Master Trust 2018-3, €253m 4Mori Sardegna, US$423m MVW Owner Trust 2018-1, US$997m Navient Student Loan Trust 2018-3, US$150m Regional Management Issuance Trust 2018-1 and US$586.9m START 2018-1.

The €507m Fanes 2018-1, €1.44bn Fastnet Securities 14, €428m FT RMBS Prado VI, US$1.1bn Invitation Homes 2018-SFR3, £351m Malt Hill No. 2, US$2.99bn-equivalent Permanent Master Issuer Series 2018-1 and A$1bn Progress 2018-1 Trust accounted for last week’s RMBS pricings. The US$510.2m Alinea CLO, US$1.03bn ALM XVI CLO (refinancing), €413.2m Anchorage Capital Europe CLO I, €412.85m Arbour CLO V, US$407.95m BlueMountain CLO XXII, US$405.88m Crown Point 5 CLO, US$607m KKR CLO 22, US$407.85m JMP CLO V and US$463.75m Magnetite XVII (refinancing) accounted for the CLO prints. Finally, US$278.3m RCMF 2018-FL2 rounded out the issuance.

Editor’s picks
Mortgage SRT booster voted down: MEP Caroline Nagtegaal’s amendment 596 to Article 234 of the CRR was rejected by the European Parliament in a vote this week, in order to prevent the establishment of an unwanted precedent. The amendment had been expected to boost significant risk transfer (SRT) transactions of mortgages (SCI 20 April)…
Questions remain over insurer participation: The European Commission recently published the Delegated Act on Solvency 2, which improves the capital treatment for certain ABS exposures, as of 1 January 2019. However, market participants suggest that STS securitisations deserve fairer capital treatment and, as a result, insurance firms remain unlikely to return to the securitisation market in great number…
PRA's tough stance continues: Banks have been reviewing the PRA’s significant risk transfer (SRT) consultation, which proposes a full capital charge for excess spread in SRT securitisations and is expected to reduce the capital relief that can be achieved by UK issuers. The paper also introduces uncertainty over the hierarchy of approaches and is another indication that, going forward, the UK regulator’s stance on capital relief trades will remain far stricter, compared to the position of the EBA…
Capital computation: The complexity involved in executing capital relief trades is driving increased focus on the operational requirements necessary for efficient cost of capital computation. Indeed, implementing a joined-up approach across the front, middle and back offices can benefit an issuer’s bottom line – not only in terms of RWA savings, but also in other areas of their business…

CLOs

Multi-currency CLO launched

Large transaction appeals to broad investor base

Barclays has launched an unusual multi-currency CLO based on a £4.5bn portfolio of corporate loans made by the bank to borrowers in the UK and Europe. The transaction, dubbed Sirius Funding, will be managed by Barclays and comprises three large tranches denominated in euro, US dollar and sterling, respectively.

Moody’s and Scope have assigned ratings of Aaa/AAA on the €1.265bn class A1 notes (which priced at three-month Euribor plus 140bp), Aaa/AAA on the $1.527bn class A2 notes (three-month USD-Libor plus 140bp) and Aaa/AAA on the £1.125bn class A3 notes (three-month GBP-Libor plus 140bp). There are also £1.125bn of unrated subordinated notes and all the notes are scheduled to mature in 2039.

Under the terms of the CLO, Barclays will transfer the credit risk of a £4.5bn equivalent portfolio to the issuer, Sirius Funding. The portfolio consists of senior secured and senior unsecured loans originated by Barclays and extended predominantly to large corporate obligors in Western Europe.

The initial reference portfolio comprises 706 corporate loans of 325 reference entities. In terms of jurisdiction these are to firms in the UK at 71%, Netherlands 6%, Spain 6%, France 5%, Ireland 4%, Switzerland 3%, Luxembourg 3%, Germany 2%, Denmark 1% and Norway at 0.5%.

The top five industries are business services, 14%, construction & building, 10%, healthcare and pharmaceuticals, 7%, beverage, food and tobacco, 7% and banking at 6%. Up to 12.5% of the portfolio may consist of leveraged loans and the portfolio is expected to be 100% ramped up as of the closing date.

Moody’s notes that each of the three rated notes will receive interest and principal payments from the loans denominated in the same currency. If there is a shortfall in one of the currencies, then interest and/or principal proceeds will be converted from proceeds of loans denominated in the other two currencies to ensure that any potential payment shortfall will be equally borne by all three rated classes of notes.

Following redemption of any of the rated classes of notes, proceeds from loans denominated in the same currency will be also used to make payments to the outstanding senior classes of notes, until such time that all rated classes of notes are fully redeemed.

Scope comments that the transaction is supported by the ability and incentives of Barclays as loan originator and collateral manager of the loan portfolios, while exposure to continental Europe is well diversified. The rating agency adds that a post-Brexit slowdown of the UK economy is well mitigated by Barclays’ focus of lending to large corporates which don’t only depend on the UK market.

The rating agency also comments that its rating accounts for the transaction’s partial risk exposure to fluctuations in the three reference rates: 3-months Euribor, USD-Libor and GBP-Libor, and the three currency pairs involved: USD/GBP, EUR/GBP and USD/EUR. Scope adds that while the transaction is exposed to fluctuations in foreign exchange rates and interest rates, these are partially mitigated by the natural hedge provided by the senior notes.

Furthermore, Scope says its ratings also account for the credit enhancement of the rated notes, with 25% subordination individually and cross-collateralisation on shortfalls and note pay-offs. Additionally, there is around 0.48% of excess spread available during the revolving period, subject to portfolio losses.

RB

RMBS

Fastnet refi completed

Permanent TSB has completed a €1.44bn RMBS, dubbed Fastnet Securities 14. The collateral previously formed part of the Fastnet Securities 3 portfolio, the notes of which have been called.

The collateral was obtained by removing non-performing loans and loans in arrears from the Fastnet 3 pool and dividing the remaining portfolio into two. The first half of the remaining portfolio has now been securitised under Fastnet 14.

The collateral consists of first-ranking residential mortgage loans originated by PTSB, largely for the purpose of purchasing primary residences (representing about 76% of the pool) in Ireland. The portfolio has 11.9 years of seasoning, with 75% of the mortgages originated in 2006 and 2007 – vintages that have shown relatively worse performance compared to other PTSB originations. Restructured loans account for 26% of the portfolio.

The weighted-average current loan-to-value (indexed) of the pool is 83.2%, which is relatively higher than those of Fastnet 12 and 13 – a reflection of the concentration of the loans originated around the peak in house prices in Ireland (2007). However, DBRS notes that the recovery in house prices since 2012-2013 has resulted in a significant proportion of loans in the Fastnet 3 portfolio moving out of the negative equity category. As such, only 20.5% of the loans in Fastnet 14 are in negative equity.

About 22% of the loans are interest-only and the majority of them (17% of the total pool balance) are buy-to-let loans. Approximately 11% of the borrowers are categorised as self-employed.

DBRS and Moody’s have assigned AAA/Aaa ratings to the €1.096bn class A notes, which priced at one-month Euribor plus 35bp. The €346.15m class Z notes are unrated.

The capital structure provides 24.4% credit enhancement to the class A notes through subordination of the class Z notes and 0.48% credit support available from the reserve fund at closing. Liquidity support is provided by a general reserve fund (sized at 2%) and a liquidity reserve fund (2%) – both of which are funded via a €21.9m subordinated loan provided by PTSB - that are expected to provide the equivalent of approximately 12 months of liquidity coverage.

DBRS notes that a key structural feature of the transaction is the provisioning mechanism, which is linked to the arrears status of a loan besides the usual provisioning based on losses. “The degree of provisioning increases with the increase in number of months in arrears status of a loan. This is positive for the transaction, as provisioning based on arrears status will trap any excess spread much earlier for a loan that may ultimately end up in litigation for recovery,” the agency explains.

The majority (80%) of the loans in the pool pay interest indexed to the ECB rate, whereas the remainder are indexed to the standard variable rate set by PTSB. That the class A note interest is linked to one-month Euribor therefore gives rise to basis risk that is not hedged. However, the transaction includes an SVR floor of one-month Euribor plus 2.25%, which partially mitigates the basis risk, according to DBRS.

The servicer in the transaction is PTSB. Unlike the previous series of Fastnet transactions, Fastnet 14 does not envisage a back-up servicer. Instead, Wilmington Trust SP Services (Dublin) has been appointed as the replacement servicer facilitator.

To ensure payment continuity over the deal's lifetime, the transaction documents incorporate estimation language, according to which the cash manager (PTSB) will prepare the payment report based on estimates if the servicer report is not available.

Citi is arranger on the transaction.

CS

Structured Finance

Market moves - 29 June

CLO manager acquired

THL Credit Advisors has acquired the collateral management business of Kramer Van Kirk Credit Strategies, which currently manages seven CLOs totaling approximately US$3.4bn of assets. THL Credit currently manages 15 CLOs, including the recently priced THL Credit Wind River 2018-1. The acquisition would bring THL Credit's CLO assets under management to approximately US$12bn and the firm's total AUM to over US$15.5bn. The closing of the transaction is expected during the summer, upon receipt of certain required consents.

Digital loan registry launched

Global Debt Registry has launched a loan registry designed to verify and provide transparency on loan data on the cloud-based IBM blockchain platform. All loan-level collateral positions and verification activity will now be immutably recorded on the decentralised registry with highly secure permissioning and access controls to provide new levels of efficiency to the ABS market. By bringing this marketplace to a distributed ledger environment, the aim is to optimise market processes by reducing the need for middlemen, as well as provide a higher level of transparency among issuers and auditors. The registry has more than 700,000 loans registered to date, across multiple credit facilities, primarily focused on digital lending.

Europe

Kartesia has appointed Sharif Anbar-Colas as portfolio manager for structured credit, based in London. He was previously md and head of European CLO/CDO trading at Jefferies and before that traded ABS and CLOs at Cohen & Co, UBS and Bear Stearns.

Värde Partners has hired Shannon Gallagher as head of EMEA business development and investor relations, based in London. Gallagher has over 15 years of experience working with institutional investors to achieve their investment objectives. She previously led the EMEA client development team at Magnetar Capital and, prior to that, was a principal at Park Hill Group.

The EIF is looking to hire a structured finance analyst/associate. They will be expected to contribute to the appraisal of securitisation transactions, through data analysis, review of transaction documentation and monitoring of the deal portfolio. They will report to the head of the securitisation division, who then in turn reports to the head of equity investments and guarantees department.

Global promotion

Alcentra has promoted Vijay Rajguru to global cio, effective 2 July this year, from his position of global co-cio which he has held since joining the firm in September. The promotion follows Paul Hatfield’s decision to retire from Alcentra at the end of this year, although he leaves the role of co-cio as of 29 June this year. Previously, Rajguru worked for GoldenTree Asset Management, where he was a partner, having joined the firm in 2007.

Leopalace investigation underway

Construction issues may affect the cashflow and value of the properties securing the Leopard Two Funding, L-MAP One Funding and ORIX APL Trust 2010-1 securitisations, according to Fitch. A recent investigation has found that 38 properties developed by Leopalace 21 Corp - the builder and manager of the three transactions' underlying properties - between 1996 and 2009 were not compliant with plans and may not satisfy Japan’s Building Standards Act, as the parting walls in the celling spaces were not constructed or insufficiently constructed. The company plans to investigate all 37,853 properties it built by June 2019 and complete repair work by October 2019. Fitch believes that it is essential for Leopalace to complete its investigation and repair work, as announced, to minimise vacancy risk – although the agency does not expect the transactions' ratings to be affected in the near term, since performance to date has been strong.

Non-QM partnership agreed

Starwood Property Trust and Impac Mortgage Holdings have entered into a strategic relationship to collaborate on the origination and securitisation of non-qualified mortgage loans. Under the agreement, Starwood will purchase up to US$600m of non-QM loans over the next 12 months that meet its investment criteria, while Impac will retain the right to co-invest - along with Starwood - in future Starwood-sponsored securitisations that contain non-QM loans originated by Impac. Starwood is working on an initial non-QM RMBS that will be 100% backed by Impac collateral, in which Impac expects to co-invest. 

North America

Ryan McNaughton has joined King & Spalding’s corporate, finance and investments practice group as counsel in the New York office. McNaughton focuses on structured finance and specialty leveraged finance matters and will broaden the firm’s esoteric securitisation practice into several new asset classes. He was previously counsel at Paul Weiss. 

Morningstar has promoted Becky Cao to a new role overseeing the quality of the agency’ securitised product ratings and Michael Brawer and Brian Vonderhorst are to split a job following coo, Joe Petro’s departure. Brawer inherits the coo title and Vonderhost will be newly created head of sales and business development. Cao and Brawer will enter into their new roles 2 July while Vonderhorst has already begun in his new position.

Real estate programme launched

A new commercial real estate lending platform called Starz Real Estate has launched to provide middle-market loans - sized at €10m-€50m, with loan-to-value ratios of up to 75% - across Europe to borrowers for properties that have historically been underserved by traditional bank lenders. Starz is led by David Arzi (who previously led Marathon Asset Management’s US real estate lending business and European CRE business) as ceo, Heather Jones (who was previously coo of Deutsche Bank’s European CRE lending platform) as coo and Limor Shilo (formerly director of debt origination for Deutsche Bank’s European CRE lending platform) as head of loan origination. The platform is sponsored by Sightway Capital, a Two Sigma company focused on private equity investments.

RFC on purchased receivables

The EBA has launched a public consultation on draft regulatory technical standards specifying the conditions to allow institutions to calculate capital requirements of the securitised exposures (KIRB) in accordance with the purchased receivables approach laid down in the amended CRR. The draft RTS specify the conditions under which institutions may use the provisions on purchased receivables to make them fully workable in the context of securitisation transactions, including a general approach to the relationship between the IRB rules on purchased receivables and the SEC-IRBA framework, as well as eligibility conditions to compute KIRB. The consultation runs until 19 September 2018, with a public hearing on the RTS scheduled for 4 September 2018 at the EBA premises. 

Securitisation programme extended

Arrow Electrics has amended its securitisation programme, extending maturity to June 2021 from its original date of September 2019 and increasing capacity to US$1.2bn, from US$910m. The programme is led by Bank of America as administrative agent and Mizuho Bank as structuring agent.

Supervisory structure changed

China has set up a new supervisory structure whereby leasing companies that were previously regulated by the Ministry of Commerce (MOFCOM) are now supervised by the China Banking and Insurance Regulatory Commission (CBIRC). The new regulatory framework will likely lead to more stringent regulation of leasing companies that were previously supervised by MOFCOM. Before the change, leasing companies were regulated by either the CBIRC as nonbank financial institutions or MOFCOM as corporations. More leasing ABS may be issued through the Credit Asset Securitisation (CAS) scheme. The new supervisory structure may, in the long run, result in a greater proportion of Chinese leasing ABS deals being issued under the CAS scheme.