Contents

CLOs

Casting a wider net

US CLO managers target European opportunities

Although considerably smaller than the US, the European CLO market is on course for a post-crisis record year. A wave of US CLO managers, many with money to put to work in the wake of risk retention’s repeal back home, are moving across the Atlantic to take advantage of Europe’s growing opportunities.

There were 44 European new issues in 2018 until the end of August, totalling €18.43bn. There was also around €13bn of refis, resets and re-issues, with October expected to bring a renewed focus on refis.

US firms including Angelo Gordon, CIFC and Sound Point Capital Management have hired professionals to build out European teams. Guggenheim Partners, Bain Capital Credit and Voya Alternative Asset Management are among those to have debuted European CLOs this year through Bilbao CLO I, Bain Capital Euro CLO 2018-1 and Voya Euro CLO I, respectively.

“We can use the profile of our US platform to leverage relationships and present the European market with a different proposition. To be successful we have to build the right team that can take advantage of the opportunities which come up. Europe is a much more clubby market than the US so it is also about building relationships with private equity,” says Russell Holliday, portfolio manager and head of European par loans, Sound Point Capital Management.

Holliday was recruited by Sound Point specifically to grow its presence in Europe. He joined in the summer and was previously at Alcentra.

“As we built our business in the US we heard repeatedly from investors that they would love to have the option to invest in Europe as well. Our interest in expanding into Europe really came from reverse inquiry from our US investors,” says Stephen Ketchum, founder and managing partner, Sound Point Capital Management.

Ketchum notes that, although the front office team in the US is large, the back office team is larger. Expanding into Europe as well allows Sound Point to make the most of its sizable operations unit.

He adds: “The US and Europe are of course linked but there are nuanced differences on the margins. Assets and liabilities ebb and flow, so at certain times one market may be more attractive and at other times the other market will be, so having a presence in each allows us to shift our focus depending on where the opportunities are.”

The opportunities in Europe have changed. As investors find little reward in the traditional corporate credit space there is a growing appetite for CLOs. American institutions with strong credibility are well-placed to step in and serve the market.

“For CIFC, Europe represents a chance to leverage off deep expertise and experience in this field and to open up new markets. We do not see this as a trade but as a long-term project and one that merits the serious investment we are planning here over the next few years,” says Josh Hughes, head of European marketing at CIFC Asset Management.

Hughes, who also moved company this summer, was previously at Muzinich & Co and has been appointed by CIFC to lead its push into Europe. The firm is expecting to build an investment team in London shortly and believes the CLO market can grow quite rapidly in the next few years.

Angelo Gordon added Steven Paget to build its CLO business. He began in August, bringing experience in originating and structuring and in identifying opportunities in high yield, as well as experience in CLO management. He was previously at PGIM Fixed Income.

His new firm believes the arrival of new managers into Europe can help to spur loan supply and grow the market. Angelo Gordon is another firm leveraging its existing resources, as it has had a credit arm in London for over 18 years which has historically focussed on stressed investments.

“When there is demand, supply ultimately emerges. If, for example, a European corporation has historically been a bond issuer and they see the opportunity to issue a leveraged loan, they might consider it as an alternative source of funding,” says Maureen D’Alleva, head of performing credit, Angelo Gordon.

She continues: “The arrival of more loan investors into Europe can stimulate supply of new loans. While the market is relatively small at the moment, it is certainly the case that the opportunity set can grow.”

After 2017 was the busiest post-crisis year for European CLO issuance, 2018 is on course to exceed it. Wider economic growth is fueling demand and the cost of issuance has come down, while the European market is also widely regarded to be less far through the cycle than the US, with fewer defaults expected as a result.

“There is both investor demand and issuer demand for more managers in Europe. We are consistently told that there are too few managers in Europe and the issuance statistics support that: the top 10 managers in Europe account for 60% of CLO issuance, whereas the top 10 in the US account for only 30%,” says Holliday.

US managers have targeted Europe before, notably before the last crisis. The inability of many of those managers to generate sufficient AUM in Europe led them cut their losses and refocus on their domestic market. To be successful this time, there are lessons which must be learnt.

“Ultimately a manager’s success will depend upon the capabilities of the investment professionals making the decisions, the firm’s credit selection and risk management processes, and a demonstrable capability to manage credit risk through periods of volatility. Performance will determine the winners and losers,” says Joyce DeLucca, md and US portfolio manager for high-yield and syndicated loans, Hayfin Capital Management.

While there are hopes that the European market can grow, at its current size it looks like it will be a squeeze to fit so many managers in. If Angelo Gordon did not already have a presence in London, it would be far less likely to set up a European CLO business.

“Markets are only so big and there is a limit to how many managers the European CLO market can accommodate. New entrants face significant setup costs with legal fees, headcount and so on, and so for a US manager it might make more sense to simply increase their number of US CLOs rather than set up in Europe,” says D’Alleva.

A key difference in Europe is the size of the loan market, which is several times larger in the US. Putting together a portfolio is frequently more challenging in Europe.

DeLucca says: “Managers that have an established track record of successful investing in the European credit markets are at an advantage. Access to deal flow is key, so investors should look for a proven sourcing capability.”

However, the European market is growing and American CLO managers believe their presence can expedite that growth. The European credit markets are widely expected to follow the path that is so well worn in the US.

“The US loan market is at about US$1trn and, depending on whom you ask, it feels like the European loan market is around about US$160bn, give or take. That is the size of the US loan market in 2002-2003,” says Ketchum.

He continues: “The market has exploded in the US and it is going to grow significantly in Europe as well. There has been a huge increase in private equity capital and it is that increase which makes the growth of the European market inevitable.”

The fact that US managers are further down the road suggests they are particularly well placed to become involved in the European market. This additional experience and expertise can be their trump card.

“Banks [in the US] began retreating from corporate lending much sooner than they did in Europe, for instance, and the American CLO market is longer established and bigger. That means US managers have a huge amount of expertise and experience that can be drawn on, as well as the scale to commit to the sort of credit research and due diligence necessary to make a real success of investing in this asset class,” says Hughes.

James Linacre

A full discussion of US managers moving over to Europe, as well as the state of play in the US now that risk retention for open market CLOs has ended, appears in the Autumn 2018 issue of SCI’s print magazine. This is available to subscribers and a digital version is available here.

Insurance-linked securities

Disparity highlighted

Flood ILS impact gauged

The damage from Hurricane Florence was estimated by Moody’s to be between US$38bn-US$50bn, with 474,000 mortgaged properties affected. However, the only catastrophe bond that was impacted as the hurricane dissipated was the US$500m FloodSmart Re Series 2018-1, a national flood insurance bond issued in July by FEMA via a Hannover Re facility.

Morton Lane, president of Lane Financial, says: “While the storm was happening, it seemed as though it would cause a loss to investors and some holders of FloodSmart started thinking about selling. They certainly were not buying any more, so bids in the secondary market dropped.”

He continues: “Once people realised the claims were not going to be as big as they thought, the bids went back up. Often there is a mark-to-market reaction in the secondary market, but in this case it was contained, limited and reversed.”

At landfall, bid prices for the FloodSmart A and B tranches dropped to 90 and 75 respectively. By end-September, the A tranche returned to par and the B tranche was bid at 91. The B tranche incepts at an occurrence loss of US$5bn.

The ‘insured loss’ was not as extensive as the overall damage. Most estimates are between US$2bn and US$5bn.

Lane says that the reason for the disparity between losses and damages is because not everyone affected was able to a claim for insurance. “Without buying flood insurance, you cannot make an insurance claim,” he explains. “The government programme will cover people who buy from the government. There is a national flood insurance programme and people in some areas are mandated to take out insurance.”

In FEMA-declared areas, the average CLTV ratio is 63%, substantially more leveraged than in the rest of the US, where the CLTV ratio averages 51%. The affected areas had a higher-than-average delinquency rate of 4.4% going into the storm, relative to the national average of 3.5%.

“Other ILS do not have substantial flood components to them. FEMA provides security under its national flood programme,” notes Lane. “It is buying insurance protection by issuing FloodSmart from big events, which in fact fall under protection.”

The historic ratio of economic loss to insured loss has been around 2:1. In the case of Hurricane Florence, the ratio is closer to 10:1. Flood is not a well-insured peril and often has many disputes.

“I think the reason for no realised flood losses in the ILS market is that the ILS market has traditionally built itself around earthquakes and hurricane property protection. Flooding is often excluded from that,” says Lane.

He adds: “When the water has been pushed up river by a storm, is that storm damage or is that water damage? There are often disputes in these cases, about whether it was flood or storm damage. This was a big dispute during Hurricane Katrina as well. Prior to FloodSmart, ILS exposure to flood was minimal.”

According to Lane Financial’s synthetic ROL index, 3Q18 prices are slightly lower than at the end of Q2, showing a drop to 95.9 (from 97.4 at end-Q2). It remains to be seen what impact category-four Hurricane Michael will have on the ILS sector.

Tom Brown

NPLs

Greek GACS?

Greek government considering asset protection scheme

The Greek government is considering the creation of an asset protection scheme as part of the state’s non-performing loan reduction strategy. The scheme will involve state guarantees on bonds issued by SPVs, rendering it similar to the Italian GACS guarantee.

Market sources note that the proposed Greek scheme can only work if the guarantee covers both the senior and junior tranches. However, this option may fall foul of EU state aid rules.

The proposal follows a sell-off in Greek bank stocks in early October, driven by reports of weakening capital buffers across the banking sector. The Greek banking sector's profitability is under pressure and progress on reducing NPLs has been slow, with banks missing their 2Q18 reduction target. The NPL ratio stood at 32.8% in June, with consumer and residential NPLs proving difficult to reduce.

Greek market sources note that the failure to meet the targets can be explained by the use of restructurings. The ECB preferred this option, while Greek banks favoured outright sales. Attempts at restructuring under Article 106 of the Greek bankruptcy code have been made - with the involvement of super senior financing for distressed assets - but have not been successful so far.

The scheme is aimed at boosting investor confidence and reducing capital raising needs. According to Fitch Solutions, this would require tapping some of the funding buffer the state had amassed for its own funding needs post-bailout, which in turn gives rise to the state aid challenge.

Under the EU's Bank Recovery and Resolution Directive, banks deemed to be 'failing or likely to fail', can be wound down but with shareholders and junior bondholders taking losses (bail-in). Consequently, “in Italy, state aid was used to rescue failing banks but with a 'bail in' for private investors taking place. However, given that Greek banks are yet to be deemed as 'likely to fail' the potential for state aid is reduced,” says Fitch.

Furthermore, state aid would bring the government’s fiscal position into focus, given Greece’s need to meet strict primary budget surplus targets as part of its post-bailout agreement. Consequently, a government guarantee programme similar to GACS may prove effective in meeting the twin challenge of complying with state aid rules - without imposing losses on investors - and budget surplus targets.

Massimo Famularo, board member at Frontis NPL, explains: “Under a guarantee scheme similar to GACS, banks could pay for protection that would effectively constitute a market-based remuneration. Investors can also consider investing in NPLs if part of the risk is hedged by a government guarantee.”

State intervention under EU state aid rules is in line with market conditions if a private investor would carry it out on the same terms. This in itself provides enough flexibility, but the obvious precedent - which is GACS - shows why the built-in flexibility of the rules may not be sufficient.

Indeed, in the case of GACS, the European Commission allowed a guarantee for the senior notes, but the junior notes have to be sold to private investors and are not guaranteed by the Italian government. An extension to the junior notes could mean a complete hedge for distressed buyers and therefore an unfair advantage for seller banks (SCI 5 September).

A timeframe for the release of a fully-fledged Greek scheme is unknown. However, the Hellenic Financial Stability Facility - the Greek bank rescue fund responsible for drafting the proposal - has confirmed that discussions on the matter are taking place.

Stelios Papadopoulos

Structured Finance

Primary surge

European ABS primary market update

European primary ABS activity is finally picking up. The PBD Germany Auto ABS transaction is expected to price either tomorrow or Wednesday, while the latest RMAC RMBS has grabbed the spotlight.

“The market is much busier this week than it was last week,” one trader confirms. “The secondary market is still quiet, but primary has picked up a lot.”

The trader notes that the RMAC deal is particularly unusual because these types of transactions aren’t seen often. “The collateral backing the deal was tied up with the Clifden nonsense earlier in the year,” he explains.

Clifden IOM No. 1 had previously sought to introduce an additional right of optional redemption for the collateral, indicating that it would seek a consensual solution through a Part 8 proceeding on 11 September. “A large portion of the loans involved in the legal stand-off have been repurposed within the latest RMAC deal,” the trader concludes. “These are unusual circumstances for a transaction to occur in.”

Tom Brown

Structured Finance

Secondary ticking up

European securitisation market update

A handful of BWICs are out for the bid today as activity in the European ABS secondary market picks up. Of note, the SILVA 2017-1UK A auto bond – with an original size of £80.8m - is set to be auctioned at 2pm London time today.

“Auto ABS is holding up quite firm and the sector is looking positive compared with the wider market,” says one trader. “We are still under a lot of pressure from UK RMBS; the sector needs some space.”

Away from the UK, the trader points to concerns over the Spanish and Portuguese RMBS markets, in which spreads are expected to widen. “The Italian market has been holding up quite well, however,” the trader continues, “mainly because of a lack of new issues. People still need to buy paper.”

In the primary market, meanwhile, the focus on CLO refinancings and resets appears to be causing some indigestion. “I think people are starting to get a bit weary of where this all goes,” the trader concludes.

Tom Brown

CLOs

Little differentiation

European and US CLO market update

Robust demand is being seen in both the European and US CLO markets this week.

Equity arbitrage is up to 16% in the European CLO market and there is currently a zero percent default rate for some portfolios. “This is an equity investor’s best-case scenario,” says one trader, “short of a crisis situation.”

Spreads have moved up in Europe because of the volume of deals in the pipeline. Meanwhile, the trader reports strong activity in US CLOs, particularly in the middle market segment.

“There is not a lot of differentiation going on between good and bad managers in the US, meaning that pricing is consistent,” he concludes. “As such, weak managers have been treated in a competitive way.”

Tom Brown

CLOs

Manager differentiation?

US CLO primary market update

US CLO spreads are tightening, despite increased supply. Fresh primary market issuance is emerging daily.

“Even though there is lots of supply, spreads are still tightening - although we are not really sure why. We think they should be widening. There seems to be a good demand for paper,” says one trader.

The trader reports that participants are being more diligent about what they are buying. “Managers in favour are pricing tighter at the moment, while managers out of favour are pricing wider. When everything is going well, deals price on top of each other.”

Tom Brown

Structured Finance

SCI Start the Week - 8 October

A review of securitisation activity over the past seven days

Market commentary
The European ABS primary market saw a lull in activity last week, which left some traders uncertain as to what the final quarter of the year will bring (SCI 3 October). “I’m seeing a little bit of primary market activity, mostly dealer to dealer or seller to dealer,” said one trader. “It’s pretty quiet; I’m not really sure why.”

However, supply is anticipated to be heavy for the remainder of the month (SCI 5 October). A new RMAC UK non-conforming RMBS has been announced, while the BPCE Home Loans 2018 deal is expected to be sized at almost €1bn.

“The RMAC 2 deal will set the tone for the European ABS market going forward,” said another trader. “There may be a few more RMBS announcements as well.”

Meanwhile, up to 30 CLO transactions were being prepped in the US primary market last week, with four or five also seen in the European market (SCI 4 October). “In the US you might have maybe 15 transactions at a time and a couple in Europe,” said one portfolio manager. “Twice that number in both markets at this time of year is going to distract investors from anything else.”

“The problem is that there is so much to look at that [investors] are not focused on any secondary activity,” the portfolio manager concludes.

Transaction of the week
Atom Bank last week priced its debut UK prime RMBS – Elvet Mortgages 2018-1 – with the £486.2m senior notes printing in line with guidance at three-month Libor plus 75bp and a coverage ratio of 1.25x. The step-up margin was increased to 2x from 1.5x prior to pricing.

The transaction is believed to be the first to securitise loans originated via a mobile phone app interface (SCI 2 October). The bank developed the app to streamline the underwriting process by automating validation, allowing it to compete with more traditional lenders.

“Atom’s app is not used as a direct origination tool, as applicants cannot apply in this way,” said Duncan Paxman, director of European structured finance at Fitch. “Instead mortgages are all originated via an intermediary, which is a common channel for the UK market. The app is used for managing the lending process after application; it is unique – we do not rate any other transactions where an issuer uses the same technology.”

Other deal-related news

• Santander has completed Fitzroy 2018-1 CLO, a financial guarantee and significant risk transfer transaction that references a £1.12bn portfolio of UK project finance loans (SCI 3 October). Regulatory clarity over acceptable structures could pave the way for further project finance CRT issuance in the future.
• The remaining property (the Microsoft UK headquarters in Reading) securing the Mapeley Beta loan, securitised in DECO 8-C2, has been purchased by Valesco Group and AIP Asset Management for £100m. Completion is expected to occur in four to six weeks, after which a final recovery determination will be issued. For more on CMBS restructurings, see SCI’s CMBS loan events database.
• UK Asset Resolution (UKAR) has concluded a competitive sales process for an £860m portfolio of approximately 6,200 UK equity release loans from the legacy books of NRAM, Bradford & Bingley and Mortgage Express to Rothesay Life (SCI 5 October). UKAR says the overall price achieved for the portfolio is at the “upper end” of the likely valuation range and the mortgages were sold for a price above their book value.

Regulatory round-up

• ESMA’s regulatory technical standards (RTS) regarding securitisation disclosures are expected to boost compliance costs for private deals, given the tight implementation timeframe of the Securitisation Regulation. Market consensus points to a transition period as one potential fix, but that option is fraught with its own challenges (SCI 5 October).   
• The Australian Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry last week released its interim report, detailing numerous findings from its first six rounds of inquiries (SCI 5 October). Moody’s anticipates that regulatory and compliance supervision will become more interventionist and more litigious as a result, with significant penalties being recommended in the final report.

Data

Pipeline composition by jurisdiction (as of 5 October)

Pricings
New issue activity picked up ahead of the Columbus Day holiday in the US, with a number of consumer ABS pricing. CLO volume was strong as well.

Last week’s consumer ABS prints comprised: US$900m Discover Card Master Trust 2018-5, US$300m Discover Card Master Trust 2018-6, US$341.4m ECMC Group Student Loan Trust 2018-2, US$209.5m Elm 2018-2 Trust, US$299.28m JG Wentworth XLII Series 2018-2, US$1.3bn-equivalent Penarth Master Issuer Series 2018-2, US$600m Trillium Credit Card Trust II 2018-2 and US$1.6bn Verizon Owner Trust 2018-A. A trio of auto ABS were issued too: US$570m Canadian Pacer Auto Receivable Trust 2018-2, US$288m GLS Auto Receivables Issuer Trust 2018-3 and US$1.25bn GM Financial Consumer Automobile Receivables Trust 2018-4.

The CLO refinancings included: US$460m Carlyle US CLO 2016-4, US$461m Cedar Funding CLO  6, US$531.5m Greywolf III, US$517m HPS Loan Management 5-2015, US$372.5m ICG US 2015-1, US$500.5m OCP 2016-12, US$533.95m Sound Point CLO 2014-3, US$512m Vibrant CLO III and US$230.75m Wellfleet CLO 2015-1. Among the new issue CLOs were €385.3m Bain Capital Euro CLO 2018-2, US$613.2m BlueMountain CLO 2018-3 and US$408m Tralee V.

The £547m Elvet Mortgages 2018-1 and A$600m-equivalent Pepper I-Prime 2018-2 Trust RMBS, as well as the US$547m BX 2018-EXCL CMBS rounded out last week’s issuance.

BWIC volume

Source: SCI PriceABS

Conference
SCI’s 4^th Annual Capital Relief Trades Seminar is taking place on 16 October at One Bishops Square, London. Hosted by Allen & Overy, the event will explore how regulatory change is being reflected in deal structures, as well as examine issuance trends and how the market could expand further in the future. For more information on the seminar, or to register, click here.

Capital Relief Trades

Risk transfer round-up - 12 October

CRT sector developments and deal news

Deutsche Bank is believed to be prepping a trade finance transaction from its TRAFIN risk transfer programme for 4Q18. The rumoured deal would be the German lender’s first TRAFIN deal in three years and follows two issuances in June from the GATE and CRAFT programme (see SCI’s capital relief trades database).

Stelios Papadopoulos

CLOs

iTraxx 'best imperfect' hedge

Main, Crossover indices show Euro CLO correlation

With a number of macroeconomic and political issues leading to volatility across the financial spectrum this year, so CLO investors are thinking more about potential hedging options. In the area of European CLOs, iTraxx Main and Crossover indices have begun to emerge as promising candidates.

While the indices are not necessarily a perfect hedge for European CLOs, both comprise diverse pools of European corporate credit exposures akin to European CLO portfolios. This allows investors to buy protection on their CLO portfolio exposure without selling the CLO bonds themselves, so avoiding the difficulty of sourcing and buying these bonds back at a later date.

According to analysis by Bank of America Merril Lynch, there is relatively high correlation between iTraxx Main and Crossover spreads and European CLO spreads. Correlation is strongest, however, in the middle of the capital stack.

Rondeep Barua, CLO and ABS strategist at Bank of America Merrill Lynch, comments: “We think spreads at the top of the CLO capital stack are driven more by CLO market-specific technicals but lower down - such as single A, triple B and double B - we think spreads are influenced more by broader market trends and investor appetite for corporate credit risk, similar to the iTraxx indices.”

He continues: “Right at the bottom of the CLO capital structure, lower correlations may be explained by the increased sensitivity of these bonds to idiosyncratic risks in the underlying portfolios. Data constraints may also be a factor, given the relatively lower trading volumes of single B CLOs for example.”

Additionally, Barua says that higher correlations were found between European CLO spreads and iTraxx Main spreads, than between CLO spreads and iTraxx Crossover. This is a surprising outcome because iTraxx Main references much higher rated corporate debt than CLOs do.

There is some overlap, however, between the debt in CLO portfolios and that referenced by Crossover. Barua suggests therefore that it is broader investor sentiment towards European credit risk, rather than portfolio specific factors, that seem to be driving the correlations.

The indices are not, however, “perfect by any means” says Barua.  While they seem well correlated over the last three years – particularly in the middle of the capital stack - a large sell off could mean these correlations may not necessarily hold.

Cost, too, could be a sticking point as hedging CLOs with iTraxx indices can “require giving up a siginificant proportion of your CLO spread, particularly higher in the capital structure” says Barua. Regardless, iTraxx Main seems to be the cheaper option at present.

As well as cost, there are limitations in the way correlations can be measured, as a result of data constraints. Barua explains that spreads for the iTraxx indices are calculated from pricing of the underlying constituents, whereas CLO data are based on observed levels for each rating level, each week.

This creates further problems, he says, because “CLO spreads may reflect actual pricing moves with some lag and we think the CLO data may not reflect small week-on-week changes in spreads as well as the iTraxx data does.”

In terms of gauging how many investors are actually using the indices, Barua says this is hard to establish. He concludes, however, that he is hearing from “more CLO investors asking about potential hedging tools for European CLO exposures, given the pick-up in volatility” in the last year.

Richard Budden

Structured Finance

Market moves - 12 October

Company hires and sector developments in structured finance

Cliff edge concerns

ISDA has published a paper highlighting widespread concerns in Europe that the UK may withdraw from the EU without a withdrawal agreement under Article 50 of the Treaty on European Union and without any transition, or implementation period, to allow market participants time to adjust. The paper sets out why a ‘no deal’ scenario has the potential to create a disruptive cliff-edge change in the EU regulatory requirements that apply to OTC derivatives business in a way that may adversely affect EU 27 or UK firms and their EU 27 and UK clients and counterparties. Alongside ISDA, the paper was developed by the Association of German Banks, the Italian Financial Markets Intermediaries Association, the Banking and Payments Federation Ireland, the Danish Securities Dealers Association, the Dutch Banking Association and the Swedish Securities Dealers Association.

Europe

ArrowMark Partners has hired Juan Grana as md and senior member of the ArrowMark investment team. Grana, based in London, will assist the US investment team with the origination, structuring and oversight of SRT investments. He will also help lead the firm’s efforts to cultivate and diversify issuer relationships and sourcing channels. Prior to joining ArrowMark, Grana spent the last five years at Nomura International where he was also md.

CIFC has hired Dan Robinson as cio, Europe, leading the expansion of CIFC’s European investment business with a focus on developing the firm’s European corporate credit investment platform. Previously, he was a portfolio manager and head of liquid credit, Europe, for Apollo Global Management. Based in London, Robinson reports to CIFC’s ceo and cio, Steve Vaccaro.

HSBC has made several external and internal appointments to its real estate group and its global banking division. These include Nicola Free, who joins as md in the infrastructure and real estate group (IRG) financing team from AIG, where she also worked as md. Free also previously worked at Merrill Lynch, responsible for balance sheet management of CRE loans in the UK and across Europe through CMBS. Nikolay Iankov joins as a director in the IRG financing team from Bank of America Merril Lynch and also has prior structured finance experience. Both Free and Iankov will be based in London.

White & Case has expanded its global capital markets practice with the addition of Thomas Falkus as a new partner in London. Falkus will advise financial institutions, sponsors and corporate clients on CLOs, esoteric securitisations, NPLs, fund financings, RMBS and other flow securitisation asset classes. He joins White & Case from Weil, Gotshal & Manges, where he was counsel.

IPO

Bain Capital Specialty Finance (BCSF) a business development company managed by an affiliate of Bain Capital, has filed a registration statement relating to a proposed initial public offering, which is expected to list on the New York Stock Exchange under the symbol “BCSF”.  The completion of the proposed offering depends upon several factors, including market and other conditions. BCSF expects to use substantially all of the proceeds from this offering, net of expenses, to repay a portion of its outstanding indebtedness.  BCSF intends to use any remaining proceeds to make investments in accordance with its investment objectives and strategies and for general corporate purposes. BCSF is an externally managed specialty finance company focused on lending to middle-market companies. 

Rebrand

Halcyon Capital Management has been renamed as Bardin Hill Investment Partners and Jason Dillow has been promoted to ceo from cio. John Bader, who served as chairman and ceo, has retired. The firm and has also sold minority stakes to TPG Sixth Street Partners (TSSP) and Dyal Capital Partners. TSSP has made a new minority investment in the firm, while Dyal has invested additional capital to increase its existing minority investment. As part of the transaction, certain managing principals have purchased equity in the firm. All of the equity sold is new equity issued by the firm, and no current owners are selling equity to the purchasers.

Reference flexibility

LCM Asset Management’s latest CLO – the US$409.9m LCM 28 – seeks to address the phase out of Libor via reference rate flexibility. The coupon paid on the notes can be based on one-month Libor, three-month Libor or “any other applicable reference rate”. The deal’s capital stack comprises class A to E notes, as well as an equity tranche and class X notes.

Return to management

Palmer Square Capital Management is to buy the ownership interest currently held by Montage Investments, returning the company to being entirely management owned. Outside of the ownership change, no other changes are anticipated at Palmer Square and the management team remains in place.  The proposed transaction is subject to various conditions, including the execution of definitive documents and the satisfaction of customary closing conditions.

Risk transfer reshape

Allianz Global Corporate & Specialty (AGCS) is reshaping its alternative risk transfer (ART) line of business into two new specialist teams. With effect from 1 November 2018 the insurance-linked markets team will become a standalone line of business known as capital solutions, led by current ART chief underwriting officer Richard Boyd. The remaining ART practice groups providing corporate solutions, reinsurance, and climate solutions will continue under the existing name of alternative risk transfer, led by Michael Hohmann who moves to ART from his current position as global head of liability at AGCS. To succeed Michael Hohmann as Global Head of Liability, Ciara Brady joins AGCS from January 1 2019, moving on from her current role as head casualty treaty global and international for Swiss Re.

Sears development

Sears has hired M-III Partners to prepare a possible bankruptcy, which could be filed by the end of the week. Sears has a US$134m debt payment due 15 October 2018 which, previous statements by the firm indicate, they may be unable to cover. KBRA has identified 281 CMBS loans, totalling US$20.9bn, across 39 pre-crisis and 221 post-crisis transactions. Of these, KBRA rated 119 deals with exposure to 132 loans, totalling US$9.4bn secured by 132 properties with exposure to the struggling retailer.

Settlements

HSBC has reached a definitive agreement with the US Department of Justice (DOJ) to resolve its multi-year investigation of its legacy securitisation, issuance and underwriting of RMBS issued between 2005 and 2007. Under the terms of the agreement, HSBC North America Holdings will pay a US$765m civil monetary penalty, of which US$492m will be paid by HSBC USA. The settlement releases HSBC from potential civil claims by the DOJ related to its securitisation, issuance and underwriting of RMBS during the period from 2005 through 2007.

US

Freddie Mac has promoted Timothy Kitt to svp and head of pricing and execution in its single family business. Kitt previously led the pricing and analytics team in single-family portfolio management after joining the firm in 2015. Prior to joining Freddie Mac, Kitt held leadership positions in structured finance at Wells Fargo and Sallie Mae.