News Analysis
CDO
Retail opportunity
Singapore CFO adds to PE fund investment products
The launch of the US$510m-equivalent Astrea IV collateralised fund obligation in June marked the first time that a securitisation backed by private equity cashflows was made available to retail investors. Indeed, the manager – Azalea Investment Management – was motivated to bring the transaction in part by a desire to contribute to the development of private equity fund investment products in Singapore.
Astrea IV is backed by interests in a diversified pool of 36 private equity funds, with approximately US$1.1bn net asset value of funded commitments and US$168m of unfunded capital commitments. The class A1 notes were listed on SGX.
Mark Law, md, alternative assets for the Asia-Pacific and Mauritius region at SANNE, notes: “These two elements taken separately are no great shakes, but combining them and offering retail investors access to the pool is an interesting proposition.”
He confirms that the main driver behind Astrea IV being offered publicly is that Azalea – which is a unit of Singapore government investment arm Temasek – is focused on introducing new investment products to make private equity accessible to a wider investor base. Other motivations were the desire to drive innovation and returns, as well as provide another funding source and maintain the Astrea securitisation programme.
Additional requirements in order to offer the deal publicly included more extensive due diligence and increased transparency around each party’s role. The prospectus was also tailored to make it more accessible to retail investors.
Law notes that the assets themselves are unusual: while normal securitisation pools comprise assets that pay on a regular basis, Astrea IV’s consists of global top-performing funds, whose pay-out and distribution schedules are less uniform than regular receivables. “The portfolio was constructed to have more seasoned funds, which would provide more distribution cashflows. Generally with private equity funds, distributions occur in the later stages of the investment,” he explains.
The funds in the portfolio are managed by 27 general partners and comprise 596 underlying investments across 24 different industry sectors. The largest holding accounts for circa 2.6% of NAV, while the software and services sector accounts for the largest industry exposure, at 17.4% of the portfolio.
Funds with a buyout strategy make up 86% of the portfolio, funds with a growth equity strategy account for 12% and the remaining exposure is in a private debt fund. US-based funds account for 63% of the NAV, while the remaining exposure is split between Asia and Europe. The three largest private equity sponsor exposures – Blackstone, Silver Lake Partners and PAG Asia - represent 10.8%, 8% and 6.6% of the portfolio respectively.
Approximately 52% of Astrea IV’s NAV falls in the top two performance quartiles, according to Preqin data. The funds have a weighted average vintage of 2011 and a weighted average investee company investment holding period of circa 4.3 years.
The underlying funds will distribute cash as they exit investments and will make capital calls when they require additional cash to invest. Cashflows generated by the funds will be used to pay off the bonds, as well as interest and other expenses.
Rated by Fitch and S&P, the deal comprises S$242m A/A rated class A1 notes, US$210m A/NR class A2s, US$110m BBB/NR class Bs and an US$597.4m unrated equity tranche. Additionally, there is a US$100m liquidity facility and a capital call facility sized at the amount of unfunded commitments of the underlying funds.
The senior bonds have a scheduled call date of five years, while the legal maturity of all the notes is 10 years from the closing date. S&P notes that while private equity cashflows are less predictable than those of fixed income instruments, they have historically followed a J-curve that may extend up to 10 years.
The issuer is an SPE that is sole shareholder of two asset-owning companies (AOCs), which used the note proceeds to repay a portion of existing loans from the sponsor incurred in connection with the acquisition of the fund investments. The AOCs will hold the fund investments as limited partners for each of the underlying interests.
The AsterFour Assets I AOC holds 22 fund investments and AsterFour Assets II holds 14 fund investments. The structure of the AOCs and allocations of specific private equity funds to each are for tax reporting purposes, according to Fitch.
The sponsor - Astrea Capital, which is owned by Azalea - is expected to retain the entire equity stake (approximately 54% of NAV) in Astrea IV. The transaction is the fourth in a series launched by the sponsor in 2006, 2014 and 2016 (SCI 7 June 2016).
A number of key structural changes have been made between Astrea III and Astrea IV, however, including the fact that Astrea IV’s fixed maximum LTV ratio is 50%. Astrea III featured a step-down maximum LTV ratio, which started at 45% and declined throughout the life of the transaction, thereby requiring more NAV to support the rated bonds in the transaction’s later years compared to Astrea IV.
Additionally, Astrea IV features a disposal option, which provides an additional source of cash to pay obligations. The manager has the ability to sell stakes in the underlying private equity fund interests at its discretion, providing the aggregate NAV of underlying funds sold prior to the redemption of all bonds is not greater than 10% of the aggregate initial NAV.
Astrea IV also features larger rated debt tranches than Astrea III, accounting for 46% of its NAV versus 39% for Astrea III. These changes make Astrea IV somewhat less resilient to extreme stress than Astrea III, according to Fitch.
Law says that there was strong appetite for the Astrea IV notes and the deal was oversubscribed. “It took a while to prepare a retail offering and, subject to positive feedback, there is no reason why Azalea wouldn’t issue another public deal,” he suggests.
SANNE has two roles on the deal: transaction administrator (to calculate waterfalls and ensure debt covenants are met and so on) and fund administrator (to ensure that valuations are received on time and as expected, and aggregate the NAV of the overall asset pool). “We have a private equity division that generally undertakes administration for private equity funds and a debt unit for securitisations,” Law explains. “It’s rare to be able to incorporate both functions and there are few firms that have the ability to do both; even fewer of them are public companies like SANNE. Moreover, SANNE is also agile: we don’t have the regulatory burden of a large bank, for example, and so we can provide a tailored service.”
The financial and structuring advisor on the deal was Greenhill Cogent, while Azalea Asset Management was the arranger.
Law notes that securitisation activity appears to be on the rise in the Asia Pacific region, largely evolving out of credit fund investments in loans, but also due to a shift more generally into debt. “Banks pulling out of credit and financing activities means we’re beginning to see a gap for securitisation to start taking hold. An obvious candidate is the Chinese ABS market taking off, but an increase in non-performing loan opportunities is also interesting.”
He continues: “The latter is being fuelled by regulatory changes. For example, Indian bankruptcy laws are making it easier for assets to be disposed of. And in Singapore, a relaxation of some regulations is allowing alternative sources of financing to emerge.”
However, Asian CDOs appear to be particularly in demand at present – given the recent closing of the Bayfront Infrastructure Capital transaction (SCI 18 July) – and further deals are expected to follow.
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News Analysis
Structured Finance
Firms favour floating rate
Investors find value in range of SF asset classes
US investors are seeing relative value in a number of pre- and post-crisis securitised asset classes, including non-agency legacy RMBS, TruPS CDOs and US BSL CLOs. While firms’ allocations to different sectors may vary, the overriding theme is a move away from fixed rate products, with further interest rate rises expected.
As a result, floating rate products are of growing appeal to structured finance investors. One firm, Angel Oak, is pursuing such a strategy and is seeing particular relative value in securitised products backed by US real estate.
Clayton Triick, portfolio manager at Angel Oak says that he favours investing in “floating rate non-agency mortgages at a discount” which hold up well in a rising interest rate environment. These are currently supported, he says, by the healthy state of the US consumer and a reversing trend of declining homeownership, with a growing number of millennials now looking to become homeowners.
More specifically, the firm’s Multi Strategy Income Fund which Triick manages mainly invests in pre-crisis non-agency mortgages and, within that fund, hybrid ARM mortgages make up around 65% of its RMBS allocation. Triick adds that many of these reset in 2012 but, because of the state of the housing market, several people couldn’t refinance and there was no incentive to prepay.
In terms of why Angel Oak see value in this asset class over traditional ABS, for example, Triick explains: “One reason is that the valuations are much cheaper. Also, spreads are more attractive on non-agency RMBS and the bonds are still pricing at a discount. In our view this is largely because they prepay at a slower rate than you would expect.”
The portfolio manager continues: “As such, you can buy at a discount but still get paid at par. In terms of return, we’ve found that while it might be expected that they will return 5%, they may return 7% as they then begin to pay off quicker.”
The fund also has a small allocation to ABS where the focus is on very short duration cash flows, typically in prime or subprime auto bonds at triple or double A, with around 1 year maturity. He adds that they compare favourably to high yield short duration corporate bonds, but offer credit enhancement and other structural protections.
His fund also has 15% allocation to mainly US BSL CLOs from tier-one managers, typically toward the higher end of the credit spectrum with 50% of the fund in triple-A tranches. As well as providing floating rate exposure, Triick says spreads of around 100bp on the triple-A notes compares well with investment grade corporate bonds, but with the added protections afforded by the CLO structure.
CIFC is another investor taking a very bullish approach to US CLOs. Jay Huang, managing director, senior portfolio manager and head of structured products investments at CIFC says: “We invest in CLOs across the entire capital structure, AAAs down to equity. Many CLO mezzanine debt investments can fundamentally withstand a repeat of the 2008 crisis and still have a 98% probability of returning you a 7-9% yield.”
He continues: "As per a research article from Bank of America Merrill Lynch on 27 July, 2018, BB CLOs can withstand going through the 2007-2009 default scenario at a 1.6x multiplier to incur a dollar of principal loss, assuming a 60% recovery rate. We have not been able to find another asset class offering similar returns that also have that level of fundamental protection.”
In terms of manager selection, Huang comments that his firm is “comfortable investing in CLOs managed by both large and small platforms”. This is as a result of its “ability to underwrite a substantial portion of the underlying loans in a CLO”, as well as its, “rigorous collateral manager due diligence process.”
As well as primary issuance, Huang explains that CIFC also finds “opportunities in shorter-dated CLO debt in the secondary market because the market often misprices the relative duration. For premium dollar bonds, many are priced assuming the bond has a 90-100% chance of getting called at par on the next call date. Conversely, for discount dollar bonds, many are priced assuming the bond has a 0-20% chance of getting called at par on the next call date.”
He continues: “In both cases, when you examine the CLOs in more granular detail, you can identify many instances where that probability is substantially mispriced. The result is an investment that eventually realises a higher yield than that what was originally projected by the market. Generally speaking, CLO debt in the secondary market can often offer significantly more attractive convexity, higher current cashflow and/or more stable mark-to-market than that of new issue.”
One firm that is taking a slightly different approach to finding relative value in the US structured finance sector is Hildene Capital. Dushyant Mehra, co-cio at Hildene says that their largest allocation is now in TruPS CDOs and, within that, REIT and bank TruPS CDOs, mainly from the pre-crisis era.
While scarcity is sometimes regarded as a hurdle for the asset class (SCI 26 April) Mehra feels it is no longer an issue, with improved liquidity driven by new entrants and increasing participation. Furthermore, he says, there is increasing frequency of auction calls which, while they decrease the number of outstanding CDOs, create supply for the underlying TruPS.
Mehra adds that TruPS CDOs continue to appeal because the collateral has proved robust and the structures have performed well. Additionally, Mehra says that there are a number of deals at present, with six getting called this year, so “it’s not a waiting game at the moment.”
He adds that, “optionality is also a positive factor with TruPS, with call options growing”, that it is attractive too as a floating rate product and is now benefiting from spread compression as a result of growing interest. Mehra says: “In general, it’s where we see the most value today in structured credit.”
Brett Jefferson, also co-cio at Hildene, says that the firm seeks to set itself apart by delving into products others are less familiar with. As an example, it recently acquired distressed reinsurer Scottish Re, which it intends to turn around and make profitable again.
He adds that the firm tends to avoid new issue products. “We don’t see as much value there. We like to find products that are typically seen as perhaps harder to understand, which lends itself to inefficiency and undervaluation by others. We tend to not take a view on spread compression, and rather are interested in structure optionality,” comments Jefferson.
Furthermore, Mehra says that the firm also favours REIT TruPS CDOs backed by pre-crisis real estate company debt. Many of these have a huge amount of trapped excess spread in the mezzanine and equity notes.
He adds: “While many of the companies are distressed, just as many of these companies are cured, with many performing well now after a number of years of being in default. We are therefore able to realise very strong returns on these investments.”
Additionally, Dushyant says: “It is certainly a very small market, but the transactions are backed by debt from firms which are readily identifiable and generally have other debt that trades in the liquid markets at tighter spreads. So we can wear our relative value hat. Despite this, REIT Trups CDOs are very overlooked.”
He continues: “It’s been the biggest outperformer for us at Hildene in the last two years and we still see good relative value in the product moving forward. We may also see prepayment start picking up and expect to see a number of deals called in the coming years.”
As well as TruPS CDOs, Hildene also finds some relative value in CLOs, mainly in the equity of US BSL CLOs, while tending to avoiding European CLOs due to liquidity constraints. In terms of manager selection, Mehra comments that the firm sees “significant value in undervalued smaller or newer managers” and adds that there are “established names” that have performed “terribly”, while some newer and smaller CLO managers have outperformed.
Hildene takes a broad approach to CLO selection, says Mehra, investing in 1.0 and 2.0 CLOs, with pre-crisis CLOs in particular offering a more attractive risk/reward profile than some of the more “generic” 2.0 CLOs. He adds that in in 2.0 they find that equity provides better value than higher up the structure because “cash-on-cash return in equity is very high.”
Mehra concludes: “In fact, we think it potentially represents less risk than holders of B or BB notes. We are also seeing good value in the refi and reset market; however, we believe the opportunity there lies in taking the CLO first and then executing the refinance or reset so we can receive the potential upside as the spreads compress once the bonds are called. Excess spread typically will fall to the equity holders, which is why we position ourselves there.”
RB
News
Structured Finance
SCI Start the Week - 20 August
A look at the major activity in structured finance over the past seven days
Pipeline
The pipeline was quite sparse by the end of last week. A handful of ABS were still marketing, as well as a CLO and a CMBS.
The newly announced ABS were: US$251.67m CCG Receivables Trust 2018-2, US$2.25bn Honda Auto Receivables 2018-3 Owner Trust, US$500.5m Prosper Marketplace Lending Issuance Trust 2018-2, NZ$150m Q Card Trust 2018-1 and CNY8.01bn Silver Arrow China 2018-1. The US$530m CSWF 2018-TOP CMBS and US$460.2m Marathon CLO XII were also marketing.
Pricings
ABS and CLOs accounted for the majority of last week’s prints. A pair of CMBS and an RMBS also priced.
The auto ABS new issues comprised US$398.3m Credit Acceptance Auto Loan Trust 2018-3, US$297.28m Flagship Credit Auto Trust 2018-3, US$979m Santander Drive Auto Receivables Trust 2018-4, US$1.9bn Toyota Auto Receivables 2018-C Owner Trust and US$1.1bn Westlake Automobile Receivables Trust 2018-3. The non-auto ABS pricings were US$70m CLIF V Holdings Series 2018-1, US$400m Diamond Resorts Owner Trust 2018-1 and US$373.44m Willis Engine Structured Trust IV.
Meanwhile, last week’s CLO refinancings included €411.7m CVC Cordatus Loan Fund VII, US$567.61m Magnetite XII, US$415.8m Marathon CLO VIII, US$509.4m MP CLO VII and US$365.7m Park Avenue Institutional Advisers CLO 2016-1. The CLO new issues were US$444.15m Ares XXVIIIR CLO, US$435.16m Golub Capital Partners CLO 37(B), US$509.6m Myers Park CLO and US$409m TICP CLO XI.
The US$505m FRESB 2018-SB52 and US$212m MSC 2018-BOP CMBS, together with the US$998.97m JP Morgan Mortgage Trust 2018-8 RMBS rounded out last week’s issuance.
Editor’s picks
SMEs supported: A new ecosystem is gaining traction in the securitisation market, with supranational institutions stimulating organic origination by non-bank lenders. By facilitating the flow of credit and acting as a bridge to the capital markets, the prevalence of their activity – especially in the SME sector – is creating a new sub-category of transactions…
Integrated fund structure developed: A new fund structure has been devised, which combines the fund and insurance elements of ILS structuring and investment. Dubbed the “fund of one”, it aims to simplify the ILS investment process by aggregating the disparate jurisdictional and regulatory requirements that currently hamper the ILS sector…
Deal news
- The EIF has completed a guarantee agreement with Banca Popolare di Bari under the SME Initiative for Italy. The transaction consists of a number of structural features designed to reduce moral hazard.
News
CLOs
CLO issuer explores new ground
Blackstone/GSO in middle-market first
GSO Capital Partners, a Blackstone subsidiary, is marketing its first CLO backed by a portfolio of primarily first lien, senior secured middle-market loans. The US$510.71m transaction, dubbed Diamond CLO 2018-1, will also include some allocation to broadly-syndicated speculative grade senior secured term loans.
S&P has assigned provisional ratings on the transaction of triple-A on the US$277.50 class A-1 notes (three-month Libor plus 127bp), triple-A on the US$32.50m class A-2s (plus 150bp), double-A on the US$30m class Bs (plus 180bp), single-A on the US$45m class Cs (plus 260bp), triple-B minus on the US$30m class Ds (plus 370bp) and double-B minus on the US$33m class Es (plus 750bp). Fitch has also provisionally rated the class A-1 notes as triple-A, but the rating agency does not expect to rate the rest of the notes.
The transaction follows GSO’s acquisition of NewStar Financial’s balance sheet assets in December last year which resulted in new entity, GSO Diamond. As of 20 August 2018, a portion of the par balance of the collateral that has been identified for purchase may initially be transferred to the issuer by participation from GSO Diamond Portfolio Borrower, the seller.
S&P expects the seller will grant the issuer a 100% participation interest in any loans purchased by the issuer and not assigned on the closing date.
Fitch notes that a key rating driver is the sufficient level of credit enhancement (CE), with 44.5% of CE on the class A-1 notes. In addition to excess spread, the rating agency says this is sufficient to protect against portfolio default and recovery-rate projections in a triple-A stress scenario.
The credit quality of the obligors falls mainly in the single-B and single-B minus category. According to Fitch, the class A-1 notes are unlikely to be affected by the foreseeable level of defaults.
The CLO will have an average WAL of 3.6 years as wel as a 1.3-year reinvestment period, which is much lower than the average of 4.1 years for CLOs issued between 4Q17 and 4Q18. Similarly, it will have a one-year noncall period, which is also lower than the 1.8 year average for CLOs issued between 4Q17-4Q18.
The spread on the triple-A notes of 127bp comes in at the tighter end, with the average triple-A spread for CLOs issued between 4Q17-4Q18 being 139bp. It is, however, still some way off the lowest spread on a triple-A note for a new issue CLO in that time period of 117bp, according to Fitch.
The transaction is backed by 145 loans from 119 middle-market obligors and the transaction permits a maximum exposure of 3% each for five obligors, with the rest limited to a maximum of 2.5% of the portfolio. Additionally, no more than 1% of the portfolio can consist of second lien loans and first lien, last out loans issued by a single obligor.
The portfolio’s top five industry concentrations comprise of business services at 12.1%, banking and finance at 9.8%, automobiles at 8.7%, consumer products at 8.1% and industrial and manufacturing at 7.8%. The transaction permits concentrations of 20%, 17% and 15% of the largest industries, with all other industry concentrations capped at 12%.
RB
News
CMBS
CMBS rating questioned
RA queries top rating on Elizabeth Finance 2018
The provisional triple-A rating from DBRS on the senior notes of the £90.707m UK CMBS, Elizabeth Finance 2018, is ‘not supported’ by the transaction. This is according to a recent comment from Fitch which queries the validity of the rating, especially because repayments from refinancing borrowers will be repaid to note classes on a pro-rata basis.
S&P and DBRS recently assigned provisional ratings on the transaction, respectively, of triple-A/triple-A on the £50.68m class A notes double-A/double-A (low) on the £10.97m class Bs, single-A/single-A (low) on the £10.2m class C notes, triple-B/triple-B (low) on the £14.67m class Ds and double-B plus/double-B on the £4.187m class Es.
The CMBS is a securitisation of two British CRE loans advanced by Goldman Sachs. These loans comprise the £69.6m Maroon loan which was advanced to three borrowers and the £21.1m MCR loan, advanced to Cypresshawk.
The collateral securing the Maroon loan comprises three shopping centres located in England and Scotland, with each property held by holding companies under the respective Maroon borrower. The MCR loan is secured by a campus-style office building in Manchester and Oaktree is the sponsor for the Maroon loan, while Naeem Kauser - as trustee of the Mussarat Children’s Trust - is sponsor of the MCR loan.
According to Fitch, the transaction is weakened because if either loan is refinanced, class A notes would still be outstanding and therefore reliant on the performance of the remaining loan. The agency says this would constrain its rating by the result of the “weakest link” approach in which the Maroon loan is refinanced, so returning principal pro-rata.
The remaining loan would then be the weaker £21.1m MCR loan, which is secured on a transitional office on the outskirts of Manchester city centre - a non-core office location. As a result, Fitch states that "unless suitably mitigated", ratings are capped below the double-A category where there are assets "contributing a significant share of collateral value without being prime quality.”
Furthermore, Fitch says, if the larger Maroon loan is refinanced, a secondary-quality office posing considerable idiosyncratic and market value risks would contribute 100% of collateral value for all classes. The rating agency adds that given the level of tail risk from this scenario, it would not base triple-A or double-A ratings on potential recovery proceeds from one non-core property.
Fitch adds however that in its lower rating categories these risks are progressively mitigated, allowing its credit opinions to converge more closely with DBRS in the class C to E notes. Additionally, while the Maroon portfolio benefits from diversity, its three constituent in-town shopping centres are exposed to the mounting challenges afflicting the UK high street, especially for secondary-quality stock.
A number of the tenants in these centres, including anchors, are subject to company voluntary arrangements which could lead to imminent store closures or rent reductions. As such, were the Maroon loan to default, despite potentially resulting in more principal for senior notes than a refinancing would, it could pose losses for the class A notes, under Fitch’s most severe rating stresses.
DBRS states that the portfolio benefits from high occupancy rates and a debt yield of 12.4% which should provide sufficient comfort on the borrowers’ ability to meet their debt obligation. Additionally the rating agency says that the Maroon loan benefits from being sponsored by Oaktree Capital Management.
In addition, DBRS says that the loans to be securitised are smaller than most in a typical European CMBS. As a result, the borrowers are expected to have a large and diversified lender base to source financing at maturity.
DBRS also recognises that the Maroon portfolio is exposed to a weakening UK retail market with one store, Poundworld, in the Rushes Shopping Centre announcing its closure. However, DBRS feels that the town centre locations of each Maroon property could mitigate the impact of market difficulties and has underwritten a higher vacancy for the portfolio.
Another European CMBS recently priced in the form of Taurus 2018-2 from Bank of America Merrill Lynch. This £261.6m transaction is the securitisation of 95% of a £235.3m CRE acquisition loan and a £40m capital expenditure facility backed by Devonshire Square Estate.
S&P and Fitch have rated the transaction, respectively, as triple-A/triple-A on the £213.9m class A notes (three-month Libor plus 110bp) and double-A minus/double-A on the £47.6m class Bs (plus 170bp). The £100,000 class X notes are not rated.
The property is a large mixed-use office, retail, leisure, education and residential estate in the City of London and comprises a 12 building configuration. Fitch believes this means the property is unlikely to compete against various City office towers offering larger footprints to attract single or large tenants.
Additionally, Fitch notes that the LTV ratio of 46.7% is well below most senior loans in CMBS and the agency considers a very sizeable equity investment a strong sponsor incentive to invest in the real estate over time. This is particularly true, says Fitch, as with limited contractual security and a partial owner-operator, capex is likely to be viewed as key to maintaining and enhancing operating income in the flexible office space.
The rating agency adds that the transaction has a built in borrower swap as well as a cap to hedge interest rate risk. Fitch says swaps are rarely used in CMBS 2.0 and their ratings account for potential swap breakage costs.
RB
News
NPLs
Disposal partnership inked
Fintech set to unlock CSEE NPL markets
Trace Capital Advisors and Debitos have formed a partnership that could prove to be a turning point for non-performing loan deleveraging in Central, Eastern and South Eastern Europe (CSEE). The agreement aims to bring efficient and cost-effective financial technology to NPL disposals across the region.
According to Robert Bruckner, director and founding partner at Trace Capital: “We see the NPL market in the CSEE growing mainly due to heavy deleveraging by financial institutions. The average NPL rate of the CSEE region is still above the EU average.”
He continues: “Fintech will take its place in the market dynamics. Online auction platforms, in particular, present a new efficient and cost-effective method for the sale of single names and portfolios of non-performing exposures. This method is especially suited to CSEE markets.”
Trace Capital specialises in mid-market transactions in CSEE and the firm is now utilising fintech to execute such deals. CSEE markets tend to be shallow – with portfolios that are relatively granular and small, comprising many single names – and there is a need for a transparent expedited process of disposal. Hence the importance of online auction platforms.
Timur Peters, founder and ceo of Debitos, notes: “Transparency of process and outcome is the key to the Debitos platform. When banks sell assets themselves or through an intermediary, the process and outcome are not always clear. With Debitos, the process is captured on a data tape and all the bids are visible to all bidders. Once the reserve price is reached, there is execution certainty for all parties (SCI 23 August 2017).”
He adds: “What’s crucial about Debitos is the centralised nature of the platform. Sometimes banks sell portfolios, but there is also a broker, so you might not know who the highest bidder is. When it comes to Debitos, all the bids are placed on our platform.”
Debitos has a pan-European focus as a marketplace for performing and non-performing illiquid credits, ranging from single names with a face value of under €1m to entire portfolios with a face value in excess of €2bn. Since its founding in 2010, the firm has concluded more than 220 online transactions with a total gross book value in excess of €4.5bn.
Regarding the role of Trace Capital, Bruckner notes: “The firm leverages its regional knowledge and extensive contacts across CSEE, providing deal context, account and process management and oversight. We bring together sellers, buyers and assets. Fintech presents an additional leverage: Trace ensures that sellers and buyers engage in a time-efficient, cost-effective and transparent process, with certainty of execution, at the right price.”
Trace and Debitos will be targeting deal sizes of €10m-€200m. The focus on technology and small deal sizes renders the partnership a natural fit.
The online platform selects NPLs before data are uploaded, along with the reserve price and the duration of the auction on a centralised online platform that provides both fast valuation and real-time information on competitor bids. This process is then followed by due diligence, valuation and bidding by investors.
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Market Moves
Structured Finance
Market moves - 24 August
The week's structured finance hires and company developments, all in one place.
Consent solicitation
NN Bank
has issued a consent solicitation seeking investor approval for the early redemption of the Hypenn 3
Dutch RMBS, of which the class A1 tranche has already been redeemed. The class A2 tranche has an outstanding balance of €467m and a FORD of 17 June 2020, according to Rabobank credit analysts. Together with Hypenn 3, NN Bank’s Arena 2014-2 NHG and Hypenn 4 deals are facing FORDs within a three-month period in 2020. The early redemption, with an expected date of 17 September, needs approval from 75% of noteholders and a meeting is scheduled for 3 September. If there is insufficient quorum during this meeting, a second meeting could follow within a month.
Disclosure standards defined
ESMA has published draft regulatory and implementing standards under the Securitisation Regulation, concerning the details of a securitisation to be made available by the originator, sponsor and SSPE, as well as the format and templates for doing so. Specific templates have been developed according to the type of securitisation and underlying exposure, to reflect relevant features for investors and authorities. The RTS distinguishes between non-ABCP and ABCP securitisation, as well as between all securitisations and those securitisations that are required to make information available via a securitisation repository. ESMA says it has sought to ensure an adequate level of data quality, while allowing some flexibility for the market to adjust to the new requirements and to deal with legitimate cases where data is not available, and aims to deliver transitional provisions “well ahead” of 19 January 2019.
Expected loss tool
Scope has launched Scope PT, a free software tool designed to analyse the default and loss distributions of non-granular portfolios of credit exposures and provide an insight into the agency’s rating analysis. Scope uses the expected loss approach to rate structured finance transactions, including significant risk transfer deals, which often require loan-by-loan portfolio analysis techniques. The tool implements a single-step Monte Carlo simulation of portfolio defaults, using Merton default logic together with a multifactor Gaussian correlation framework. It enables users to provide their own asset-specific, default probability, value correlation, recovery and amortisation assumptions.
India
IIFL Asset Management has hired Pranob Gupta and Abhinav Jain to lead the structured debt fund under the Alternative Investment Fund management platform. The duo will lead investing in structured credit opportunities, for Indian corporates and promoters. Gupta was most recently at KKR India where he was a senior structured finance originator. Earlier, he was associated with Citibank NA, Credit Suisse and Deutsche Bank among others. Jain used to run his own advisory and previously worked with Capital First and Deutsche Bank.
Partnerships
solarisBank has partnered with CrossLend to offer digital and fully automated loan securitisation. The partnership allows solarisBank to establish a so-called 'Balance Sheet Light' model with loans generated in a way that makes it possible to pass them on to investors directly or with a delay and without putting a long-term strain on the bank's balance sheet. In order to set up the processes between both companies, solarisBank will use the CrossLend platform to purchase and securitize loan portfolios. This will allow solarisBank to expand its balance sheet to reach an optimal return on equity value. Once this value is reached, the balance sheet light model takes effect using automated securitisation.
Refi not pursued
Dine Brands has decided not to pursue a refinancing of its existing securitisation, Series 2014-1, comprising 4.277% fixed rate senior secured notes (the Class A-2 Notes). The Class A-2 Notes have a maturity date of September 2021. The firm will continue to refinance the class A-1 notes from the 2014-1 securitisation. The new notes will allow for drawings of up to US$225m and have more favorable fees and interest rates. The current Class A-1 Notes allow for drawings of up to US$100m.
RFC on reverse mortgage approach
DBRS is requesting comments on its rating European structured finance transactions methodology and appendix relating to European reverse mortgages. For securitisations of portfolios that consist of European reverse mortgage loans, DBRS’s analysis focuses on: expected and stressed values of mortality and morbidity rates of the borrowers; expected and stressed values of property prices; the granularity of the securitised pool; available sources of liquidity; and generic structured finance legal and structural considerations. Comments on the approach are invited by 20 September.
SFR pilots end
Fannie Mae and Freddie Mac are set to conclude their single-family rental pilot programmes and terminate their participation in the SFR market (except for their Multiple Financed Properties and Investment Property Mortgages programmes). Parallel to the GSEs’ pilots over the last two years, the FHFA conducted an impact analysis and reached out to a wide array of industry stakeholders. As a result, the FHFA says it has learned that the larger SFR investor market continues to perform successfully without the liquidity provided by the enterprises. However, the move does not preclude the GSEs from proposing changes to their existing programmes to meet the needs of the SFR market or from developing proposals that are calculated to utilise single-family rentals as a pathway to homeownership.
Toys R Us auctioned
Bids totalling US$116.9m – equal to US$93 per square-foot – from several third-party purchasers were accepted for 32 TRU 2016-TOYS CMBS trust assets during the Toys R Us auction held last week. Ollie’s Bargain Outlet was responsible for the bulk of the total bid price, having submitted an offer of US$42m for 12 stores, followed by Scandinavian Designs, which bid US$36m for 15 stores, according to KBRA. The agency notes that various objections have been raised to the release of these assets, but the debtors have requested the bankruptcy court overrule the outstanding objections. Should the sale be approved and the funds applied to the trust waterfall – assuming advances and any additional fees associated with the auctions are paid – the class A note balance is expected to be reduced to a factor of 0.46.
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