Contents

Structured Finance

Steady subscription

European ABS primary market update

European primary ABS activity continues to be robust. In the RMBS sector, the BPCE Home Loans FCT 2018 deal is set to price tomorrow (18 October).

“A variety of asset classes are represented in the primary market at the moment, with the French BPCE Home Loans RMBS and the German auto deal that priced last week,” says one trader. “Spreads are well supported – we’re seeing good levels for the most part and nothing appears to be oversubscribed.”

Refinancing remains an ongoing feature of the European CLO market, but new issue deals are starting to emerge. “There are a couple of new CLO deals coming out,” says the trader. “There are rumours that a Spanish SME CLO - which has been talked about for ages - might see the light of day, but I’ll believe it when I see it.”

The trader concludes: “Some years October is very busy. So far, the month has felt busier than it was because everyone was expecting there to be more issuance.”

Tom Brown

Structured Finance

Primary energy

European ABS primary market update

The European primary RMBS market has come to life after the BPCE Home Loans FCT 2018 priced today (18 October). The senior tranches printed at between high-20s to low-30s.

“With a lot of new issues pricing, investors are putting their energy into primary instead of secondary,” says one trader. “Of note, Porsche’s Austrian auto ABS has appeared on the market.”

He adds: “Spanish deals are pricing a bit tight, compared with government bonds. Italy, unsurprisingly, is not moving.”

Regarding Southern Europe, the trader says that issuance activity is fairly muted. “Another factor is if there is no reason to sell now September is over, it would be better [for issuers] to wait until later in the year.”

The trader reports that UK assets are under pressure due to uncertainty surrounding Brexit. He also suggests the UK government’s student loan securitisation is an effective alternative to holding on to the loans.

Tom Brown

Structured Finance

Technicals eyed

European ABS market update

Porsche’s FACT Compartment 2018-1 auto lease ABS has seen no substantial resistance in the European primary market. Indeed, spreads appear rangebound for now.

“Because we are in the last few months of the year, people know that whatever they have done so far, they will have to stick with,” says one trader. “They cannot change their numbers. At this point, people are forcing themselves to be fine with the positions they have.”

The IHS Markit Crossover index was 9bp wider this morning, yet it didn’t appear to trigger any selling in CLOs. “Usually the market is quite sensible and technical,” adds the trader. “There is not much paper in general, particularly not in Europe, and technicals are an important factor right now.”

He concludes: “The situation can change very quickly, however. We do not know what will happen with Italy. We do not know what will happen with China, with President Trump, with the trade wars and so on.”

Tom Brown

ABS

Default proxy

Second income-contingent SLABS prepped

The UK government is readying a £3.88bn securitisation backed by English plan 1 income-contingent loans granted to students whose repayment date fell between 2007 and 2009, the second public transaction of its type (SCI 14 December 2017). Dubbed Income Contingent Student Loans 2 (2007-2009), the deal is characterised by the loans being written-off once the borrowers reach the age of 65.

Preliminarily rated by S&P, the deal comprises £966m single-A rated class A1 notes (which pay 12-month Libor plus a margin), £745m single-A rated class A2 notes (fixed rate) and £184m triple-B class B notes (RPI plus a margin). There is also a £1.79bn class X note, which pays a fixed rate plus profit participating interest.

The agency assumes loss rates to be in the range of 40% to 49% in the triple-B and single-A rated scenarios. The amortisation of initial note balance is fixed at 4.5% lasting until 2044.

“What is interesting about this deal is that the loans do not have a concept of default,” says Matthew Mitchell, director at S&P. “Instead, the equivalent to a default rate is that the loans are written-off once borrowers reach the age of 65. We used this as a proxy for defaults.”

A borrower’s annual repayment depends on whether their taxable income exceeds a repayment threshold, which is adjusted annually to account for the change in the March retail price index. “This is a very esoteric asset class,” Mitchell continues. “The obligation to pay only exists once the borrower's income exceeds the repayment threshold. Our analysis relies on the borrower’s nominal earnings growth compared to the change in the repayment threshold, rather than the specific credit quality of the borrower.”

Between the first income-contingent transaction and the second, S&P changed from the ONS index to the OBR index for earnings inflation data. Its analysis uses a mean reversion process to predict future earnings growth rates. Volatility in the historical data resulted in a change in assumptions between the two issues.

Mitchell explains that the structure of the deal is the same as the previous student loan issuance by the UK government, although repayment forecasts have changed. “Compared to the last issuance,” he says, “the change is a little towards the negative side, meaning we assume lower nominal earnings inflation in the first few years. We believe that there is less adverse selection in the pool than in the first transaction. There is less potential for adverse selection as borrowers have not been in repayment for a long period of time, compared with the last issuance, so higher earnings borrowers have not yet fully repaid their loans.”

The amount of cancelations may be susceptible to regime changes or shifting fiscal policy, as well as macroeconomic factors on employment availability. This limits the data available to predict how the loans will perform in the long term, resulting in S&P capping the asset class at single-A.

The transaction has no reserves to mitigate any potential liquidity shortfalls. To calculate the implied default rate, the outstanding balance at write-off is discounted back to the present value.

The portfolio comprises primarily maintenance loans, with a small percentage of tuition fees, though Mitchell says S&P does not differentiate between the two in its analysis. “Based on historical data, if there was a huge upsurge in the amount of plan 2 loans, this would affect the rate at which the plan 1 loans were paid back,” Mitchell concludes. “However, based on historical uptake of plan 2 loans of about 0.6% per year, we estimate only 20% were above the plan 2 threshold, which wouldn't impact this issuance significantly. We believe there is sufficient credit enhancement for the assigned ratings to mitigate this risk.”

Citi is arranger on the deal, as well as joint-lead together with Bank of America Merrill Lynch, Barclays and JPMorgan.

Tom Brown

Structured Finance

Latest SCI podcast now live

SCI podcast episode two has been released

SCI’s latest podcast is now live. This month the team discuss the African Development Bank’s Room2Run CRT, how fintech is affecting MPL ABS and the changing use of credit derivatives.

The AfDB’s Room2Run deal, scheduled to close imminently, has shaken up the CRT sector, emphatically underlining that issuers do not have to be European and assets do not have to be corporate loans. The MPL discussion includes an insight into how Goldman Sachs’ Marcus platform is changing things, while CDS is facing competition from ETFs, which the podcast discovers is “the flavour of the moment”.

To access the podcast, and all previous episodes, listen here, or search for ‘Structured Credit Investor’ in Apple Podcasts or Spotify.

Structured Finance

SCI Start the Week - 15 October

A review of securitisation activity over the past seven days

Market commentary
Robust demand was seen in both the European and US CLO markets last week (SCI 9 October). Equity arbitrage reached 16% in the European CLO market, with a zero percent default rate for some portfolios.

“This is an equity investor’s best-case scenario,” said one trader, “short of a crisis situation.”

Spreads moved up in Europe because of the volume of deals in the pipeline. Meanwhile, US CLO spreads tightened, with fresh primary market issuance emerging daily (SCI 11 October).

European primary ABS activity also picked up last week, with the latest RMAC RMBS grabbing the spotlight (SCI 8 October). “The collateral backing the deal was tied up with the Clifden legal stand-off earlier in the year,” another trader explained.

The week ended with a handful of BWICs out for the bid in the European ABS secondary market (SCI 12 October). “Auto ABS is holding up quite firmly and the sector is looking positive compared with the wider market,” said one portfolio manager. “We are still under a lot of pressure from UK RMBS; the sector needs some space.”

Away from the UK, the portfolio manager points to concerns over the Spanish and Portuguese RMBS markets, in which spreads are expected to widen.

Transaction of the week
FloodSmart Re Series 2018-1 appears to be the only catastrophe bond to have been impacted by damage inflicted by Hurricane Florence, which is estimated by Moody’s to be between US$38bn-US$50bn (SCI 11 October). The US$500m transaction is a national flood insurance bond that was 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, however. Most estimates are between US$2bn and US$5bn.

Other deal-related news

• Freddie Mac’s recent STACR 2018-DNA3 RMBS marked a further evolution of its credit risk transfer programme in terms of structure and leverage (SCI 9 October). In a first for STACR deals, the DNA3 transaction extended the term from 12.5 years to 30 years, with a 10-year call option. It also introduced a solution to the convexity risk posed by MACR interest-only securities.
• LCM Asset Management’s latest CLO – the US$409.9m LCM 28 – seeks to address the phase-out of Libor via reference rate flexibility (SCI 12 October). The coupon paid on the notes can be based on one-month Libor, three-month Libor or “any other applicable reference rate”.
• The rent on the principal BMI Healthcare leases securing the THEAT 2007-1 and THEAT 2007-2 CMBS wasn't paid on 1 October, constituting a default. However, a restructuring proposal is supported by all stakeholders, which have entered into a lock-up agreement. The obligor is consequently requesting deferrals of rent and counterparty payments due on the 15 October IPD, as well as a waiver of subsequent defaults. For more on CMBS restructurings, see SCI’s CMBS loan events database.

Data

Pipeline composition by jurisdiction (as of 12 October)

Pricings
ABS dominated last week’s pricings, across auto and consumer collateral. There were also a few RMBS prints.

The auto-related new issuance comprised: US$1bn BMW Vehicle Lease Trust 2018-1, US$234m CPS Auto Receivables Trust 2018-D, US$572m DT Auto Owner Trust 2018-3, €815m Globaldrive Auto Receivables 2018-A, US$437.35m NextGear Floorplan Master Owner Trust Series 2018-2, €667m PBD Germany Auto 2018 and US$1bn World Omni Auto Receivables Trust 2018-D. The US$286.78m Avant Loans Funding Trust 2018-B, US$186.94m Amur Equipment Finance Receivables VI Series 2018-2, US$1bn Citibank Credit Card Issuance Trust 2018-7, US$734m Dell Equipment Finance Trust 2018-2, US$300m First National Master Note Trust Series 2018-1, US$383.5m FREED ABS Trust 2018-2 and US$350m Sierra Timeshare 2018-3 Receivables Funding made up the remainder of last week’s ABS prints.

The RMBS pricings consisted of £343m Castell 2018-1, £233m RMAC No. 2, A$700m Series 2018-1 Harvey Trust and US$237.5m SPS Servicer Advance Receivables Trust series 2018-T1. Finally, among the CLOs that were issued last week were US$736m CIFC 2014-III (refinancing) and €411.7m Oak Hill European Credit Partners VII.

BWIC volume

Source: SCI PriceABS

Conference
Less than 50 seats remain available for SCI’s 4^th Annual Capital Relief Trades Seminar, which is taking place tomorrow (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 - 19 October

CRT sector developments and deal news

Credit Suisse is believed to be readying a Swiss corporate deal from its Elvetia programme. The issuer’s last Elvetia transaction was a Sfr300m ticket referencing a Sfr5bn Swiss mortgage portfolio (see SCI capital relief trades database).  

RMBS

SMBC debuts

Structured covered bond programme readied

Sumitomo Mitsui Banking Corp (SMBC) is prepping a €20bn dual-recourse structured covered bond programme, marking the emergence of a new name and a new jurisdiction to the market. The cover assets comprise triple-A rated Japanese RMBS originated by the bank and the deal features an innovative total return swap (TRS) mechanism.

Moody’s has assigned a provisional long-term rating of Aaa to SMBC’s residential mortgage loan covered bond programme, which is expected to benefit from a ¥186.8bn cover pool. There is an LTV cap of 80% for assets included in the pool, to bring the transaction in line with typical European covered bond structures.

Under the programme, the issuer will make all payments of interest and principal on the covered bonds using payments received from SMBC as TRS counterparty. In case of a TRS default event, the issuer will have access to the proceeds from the cover assets (Japanese law-governed senior trust certificates) via either a direct sale of the RMBS or a sale of the underlying residential mortgage loans backing the RMBS to fulfil its obligations under the programme.

The 8,894 mortgage loans backing the RMBS are secured by residential properties in Japan and are mainly floating rate (accounting for 95.4% of the pool), with a WA current LTV of 90.1%, WA seasoning of 0.5 years and a WA remaining term of 31.7 years. The RMBS is issued for the benefit of the issuer and denominated in Japanese yen, while the covered bonds are intended to be issued in foreign currency with bullet maturities, according to Moody’s.

Pursuant to each TRS facility, the issuer will transfer the net issue proceeds of the relevant series of covered bonds to SMBC in exchange for the relevant RMBS. In respect of each transfer, the issuer will pay the TRS counterparty an amount up to the net issue proceeds of the series of covered bonds and an initial overcollateralisation payment.

The obligations of the TRS counterparty under the TRS agreement will be subject to collateralisation. The bank is committed to maintain a minimum OC of 25% based on the mark-to-market valuation of cover pool assets, with adjustments based on the type and ratings of the cover assets over the aggregated funded covered bonds amount converted into Japanese yen. It may add, remove or substitute issuer assets before a TRS default event.

During the term of each TRS transaction, the issuer will pay SMBC all net interest and principal that a hypothetical holder of each RMBS would actually have received, in exchange for fixed or floating payments that effectively match the issuer's payment obligations in respect of the relevant series of covered bonds. Each TRS facility will terminate upon the early or final redemption in full of the relevant series of covered bonds.

Upon such a termination, SMBC will pay to the issuer an amount that is equivalent to the relevant portion of the net issue proceeds of the covered bonds that was exchanged at the commencement of the TRS transaction. In exchange, the issuer will transfer RMBS to the bank as a physical settlement option.

The issuer will use payments by the TRS counterparty to pay interest or repay principal under the covered bonds, provided that following a TRS default event, the liquidation proceeds from the issuer assets will be used for the redemption of the covered bonds.

A roadshow for the programme is expected to start this week, with the first benchmark issue targeted for late October. Barclays, BNP Paribas, Goldman Sachs and SMBC Nikko Capital Markets are arrangers on the programme, and are also dealers along with Credit Agricole and UBS.

Corinne Smith

RMBS

Hurdle cleared

First post-crisis RMBS for Wells Fargo

Wells Fargo is in the market with its first post-crisis prime US RMBS. Named Wells Fargo Mortgage Backed Securities 2018-1 Trust, the US$441.25m deal securitises 660 first lien residential mortgage loans.

Moody’s has assigned preliminary ratings of Aaa to the class A1 to class A16 notes, Aa1 to the class A17 and A18 notes, Aaa to the class A19 and A20 notes, Aa3 to the class B1 note, A2 to the class B2 note, Baa2 to the class B3 note and Ba1 to the class B4 note. The securitisation, which is set to close on 25 October, has a shifting interest structure with a five-year lockout period that benefits from a senior subordination floor and a subordinate floor.

“By doing its first post-crisis deal, Wells has cleared an important hurdle,” says Sang Shin, vp and senior credit officer at Moody’s. “The first deal is a challenge for any new RMBS issuer because many issues come up.”

One issue discussed was that 30.8% borrowers are estimated by loan balance to own more than one property. Moody’s states that borrowers with more than one mortgaged property could be more likely to default than borrowers with one property, especially in a distressed housing market, although Moody’s analyst Khakan Haider remarks that this is not necessarily the case.

“In some instances, the collateral characteristics were stronger than in most prime US RMBS,” says Haider. “The loans have had a 100% third-party review and the deal has a robust representation and warranties framework. Wells is now back in the market for the first time in a long while. This transaction was of prime quality, and that is reflected in Moody’s presale report.”

All loans have an original term to maturity of 30 years, apart from two loans that have original terms to maturity of 25 and 26 years. The pool has a high geographic concentration, with 37.3% of the aggregate pool located in California and 23.7% located in the New York-Newark-Jersey City MSA. A small portion (9.2%) of the borrowers are self-employed and refinance loans comprise 20.9% of the aggregate pool.

“[Wells] has been signalling for a while that it was anticipating a comeback,” says Shin, “but no-one knew when or where. It took quite a while, but it came to fruition. As you saw this year, there has been a wealth of RMBS activity, so it is in a very strong issuance environment.”

The loans in this transaction have a weighted average original FICO score of 774 and a weighted-average original loan-to-value ratio (LTV) of 72.8%. The loans are 100% qualified mortgages and the pool is seasoned for approximately 17 months with perfectly clean pay history.

Yehudah Forster, svp at Moody’s, concludes: “The issuer has to make a lot of decisions around what its securitisation platform will look like. Additionally, as with any new process, a lot of kinks need to be worked out. Now that Wells has done its first deal, it will be much easier for it to access the RMBS market in the future.”

Tom Brown

NPLs

Performance blueprint

Positive predictions for NPL securitisations

Northern Italian non-performing loan portfolios are performing better than Southern Italian portfolios, and Irish transactions are also outperforming assumptions. There are 11 transactions currently in the European NPL pipeline, most of which are Italian.

“At the moment, the majority of the transactions are outperforming DBRS plan assumptions,” says Alessio Pignataro, svp at DBRS. “However, it is early in the process to make a final assessment.”

He adds: “We can see that portfolios with higher concentrations in the North [of Italy] are performing better than portfolios with higher concentration in the South. This difference was somewhat anticipated, given the already conservative assumptions made around the known variation within Italy. This might pave the way for other transactions of this sort in Italy next year.”

Spanish, Portuguese and Greek NPL transactions are also predicted to emerge in 2019. There has also been arranger interest regarding unlikely to pay assets in Italy, leading to the prediction that 2019 will see at least one securitisation of UTP loans.

Meanwhile, Pignataro says: “We can see in Ireland that transactions are performing way ahead of the business plan, partly due to reperforming loans and the way the business plan has been constructed, whereby no credit is given to sale of these positions, which is something that typically occurs when borrowers become reperforming.”

Transactions so far have varied in terms of their transaction points. Many of the NPLs have been haircut down from their original price prior to securitisation, depending on the collateral.

Out of the €50.4bn of GBV issued to date, €47.2bn has come from Italy. Approximately €10bn of this has been securitised, with 20 transactions since 2016 executed via the GACS scheme.

“In terms of Italy, [the GACS scheme] has grown from a very small base in 2016 to a large number of transactions in 2017, multiplying in 2018 and is an ongoing prospect for further issuance,” says Gordon Kerr, svp, head of EU structured finance research at DBRS. “Some portfolios sold privately, which have been worked through and become reperforming loans, are likely to come through in the form of securitisations in the future.”

He suggests that the GACS scheme could be used to cover UTP transactions, with a similar guarantee potentially extended in Greece (SCI 12 October). “Overall the NPL trend in the banking sector has been in a positive direction,” concludes Kerr. “However, the real areas of stress remain in the peripheral countries [such as] Greece, Portugal, Italy and even some of the Eastern European block with high levels of NPLs within the banking sector.”

Tom Brown

RMBS

'Aggressive' underwriting eyed

UK RMBS remains 'robust' in face of Brexit

While the UK buy-to-let (BTL) sector has suffered under new regulatory policies and Brexit uncertainty, market participants believe it still has room to expand in terms of new lenders and products. This was according to panellists at a recent Fitch conference that also suggested that more aggressive underwriting practices, such as extended loan terms, could be a concern for the future stability of the UK RMBS market.

Alessandro Pighi, co-head, EMEA RMBS at Fitch, comments that the BTL sector has encountered a number of challenges after a period of strong growth. “The BTL market grew substantially”, he says, “until 2016 when new challenges emerged, slowing growth, including new regulation and Brexit risk. As lending appetite from established lenders reducing, I still think there is room for new lenders in BTL. In terms of rating the product, lack of originator-specific performance data is a shortfall.”

Despite this, Pighi feels that the sector may still see some upside from more recent developments. He comments: “However, given the PRA rules clearly sets origination boundaries and a comparison of lending criteria between new entrants and established lenders is possible, we believe historical data from traditional lenders can be a good guide to new lenders’ performance.”

Greater standardisation of the BTL market is something that Simon Allsop, director of capital markets at Charter Court, agrees with. He adds that increased regulation has created a more generic product set in BTL.

Allsop adds, however, that the market does see added complexity in the underwriting of BTL loans, which lends itself well to specialised lenders. These include firms such as Charter Court which, he adds, has seen BTL lending volumes remain resilient in recent years.

It was also noted that there has been a growth in more aggressive underwriting policies across the UK mortgage market, including a rise in five-year fixed rate mortgages. Anuj Babber, co-head of ABS credit research at M&G Investments, comments: “New lenders are perhaps taking a more aggressive approach when it comes to underwriting.”

He adds: “From our perspective when we evaluate deals from new lenders we do tend to do an onsite due diligence and focus on underwriting very carefully. The theory is that strongly underwritten loans are less likely to go wrong or delinquent.”

He continues: “We are witnessing a big rise in five-year fixed rate mortgage originations, especially in the BTL lending space and this significant increase is a concern for us. This lending pattern is part of the more general aggressive underwriting approach of new lenders. We have yet to see how the performance of these loans play out.”

Grant England, senior director, structured finance at Fitch, seconds Babber’s view, adding that lenders need to think more about interest rate risk as a result of this growth in five year fixed rate mortgages which, he says, appeal to borrowers due to the extra certainty offered and competitive rates.

England also says there has been growth in longer terms to 30 and even 35 year mortgages, which is also in part a result of changing attitudes to retirement age. He adds that there is a growth too in lending to self-employed individuals.

In terms of UK RMBS structures, England suggests that these have not shown a great deal of innovation. What is of note more recently is how deals are structured in terms of subsequent product switches, after the initial fixed rate period expires.

“In some deals”, says England, “if the mortgage is switched to a new fixed rate period the mortgage is treated as a prepayment and the loans are switched out of the transaction. In others, the loan can switch within the deal and this requires a more complex arrangement in terms of building in hedging options. More variation in terms of hedging and swaps might therefore lead to more variation in RMBS structures.”

In terms of other nuances within RMBS, England says that help-to-buy (HTB) mortgages are treated in a slightly different fashion to other mortgages, particularly in terms of how the LTV is assessed.

He says: “An important thing for us when looking at HTB is how it affects LTV. Whereas a regular mortgage that might make up 55% of the total value of the property would be looked at by us as having 55% LTV, with a HTB mortgage we will combine the mortgage value and the government loan to come to a much higher overall LTV when assessing the default risk of the mortgage.”

Allsop suggests that HTB is no longer an unusual product in the RMBS sector it has not caused them any extra difficulties. He adds that his firm did the first HTB RMBS in the UK with no pushback from investors and that HTB is well understood and regarded as quite a mainstream asset class.

Additionally, he says that it now makes up a reasonable part of his firm’s “overall prime resi book” and while there “might be a small price differential on a HTB RMBS” his firm has been happy with the pricing achieved.

Looking to the future, uncertainty caused by macroeconomic factors, such as Brexit, is a cause of concern, although Allsop feels that his firm is well placed at present. He says: “I am of course concerned like most rational people would be - but I think we are entering into it as prepared as we could be. As a bank, we are well capitalised with a low cost of risk; we have a strong retail arm and a range of funding options, so we are entering the period on an assured footing.”

On the investor side, Babber comments that while Brexit is a concern for his firm, there might actually be other things that are as much, if not more, of a worry including the US-China trade war and central bank policy.

On a similar note, England agrees Brexit is a worry, but adds that it may be manageable, even in the worst of circumstances. He concludes: “On the whole the UK mortgage market is in a good position. Repossessions are at almost record lows, for example, and most RMBS transactions are well positioned to survive the short term disruption of a no-deal Brexit scenario.”

Richard Budden

Structured Finance

Market moves update

OFS equity investment

OFS Credit Company has disclosed that it has invested in the equity tranches of 19 CLOs, 17 of which have a reinvestment period ending in 2022 or beyond, for a total cost of US$43.6m (US$53.4m principal amount). The move follows OFS Credit’s IPO, which closed on 10 October and resulted in net proceeds of US$50m. OFS Capital Management, investment advisor to OFS Credit, paid the sales load and organisation and offering costs associated with the IPO.

UK

Octane Capital has hired Richard Hollingsworth as senior structured finance manager. He joins the firm from HSBC where he worked as a senior corporate banking manager.

Reed Smith has hired Omar Al-Ali as partner to its energy and natural resources group in London. Al-Ali specialises in structured trade and commodities finance and joins from Simmons & Simmons.

White & Case has promoted 41 lawyers around the world to its partnership. These include Laura Hoyland, named a partner to the firm’s global tax practice in London and Richard Lloyd to the global banking practice, also in London. Hoyland advises corporate and individual clients on financing and corporate transactions including securitisations, while Lloyd advises on domestic and cross-border finance transactions, including leveraged acquisition finance, bank lending and financial restructuring. He also works on trade and receivables finance, structured finance and securitisations.

US

Amundi Pioneer has appointed Douglas Breeden to the role of md, director of securitised assets and portfolio manager. Breeden was a founder and senior research consultant of Amundi Smith Breeden, prior to the firm combining with Pioneer Investment Management to form Amundi Asset Management. Breeden has also worked as professor of finance and former dean at Duke University.

*Market moves will no longer be sent out as a weekly email but, instead, as more regular updates throughout the week*

Structured Finance

Market moves update

Company hires and sector developments in structured finance

CRT poll results
The results from SCI’s ‘What’s in a name?’ survey are in. Delegates at SCI’s Capital Relief Trades Seminar yesterday were polled as to what the most appropriate term should be for capital relief trades from 11 different choices. Out of over 80 responses, 22% voted for ‘credit risk transfer’, 20% for ‘risk-sharing transaction’, 18% for ‘capital relief trade’ and 17% for ‘significant risk transfer’. ‘Regulatory capital trade’ captured 8% of the vote, while ‘synthetic securitisation’ captured 7%. ‘Credit insurance’, ‘capital release transaction’, ‘regulatory capital deal’ and ‘risk partnership deal’ all received minimal numbers of votes, and there were no votes for ‘capital protect transactions’.

Fraud claim settled
Nomura Holding America and several of its affiliates have agreed to pay a US$480m penalty to resolve federal civil claims that Nomura misled investors in connection with the marketing, sale and issuance of RMBS between 2006 and 2007. The settlement stems from allegations that Nomura knowingly securitised defective mortgage loans in its RMBS and misled investors regarding the quality and characteristics of those loans. The bank allegedly also knew that a significant number of loans that it securitised had not gone through Nomura’s stated due diligence process and, more broadly, that its process had been compromised. Despite this knowledge, it failed to address the weaknesses in its due diligence processes and continued to do business with originators that, according to its own due diligence personnel, were “extremely dysfunctional,” had “systemic” underwriting issues and employed “questionable” origination practices.

Servicer acquisition
Pretium Partners has entered into an agreement to acquire Selene Holdings from funds managed by Oaktree Capital Management and Ranieri Partners. Selene Finance is a special servicer of non-performing, re-performing, REO and performing loans. The transaction - which is subject to customary closing conditions and regulatory approvals - is expected to close mid-year 2019. Houlihan Lokey served as exclusive financial advisor to Selene, while Buckley Sand served as Selene’s legal counsel. Sidley Austin served as legal counsel to Pretium.

Structured Finance

Market moves update

Company hires and sector developments in structured finance

Alternatives alliance
DWS Group and Tikehau Capital have entered into an alliance, following Tikehau’s participation in the IPO of DWS in March 2018. Under the agreement, DWS and Tikehau intend to launch a joint product leveraging the two companies’ alternative asset management expertise and platforms, which is expected to launch in 2019. The partners intend to cross-invest in respective funds, with DWS planning to participate in Tikehau’s subordinated financial debt expertise and Tikehau participating in DWS’ sustainable and impact investing expertise. Other initiatives include collaborating to identify funds for potential distribution and considering co-investment opportunities for funds managed by either DWS or Tikehau, including a special situations strategy.

CLO ratings change
S&P has downgraded the class D notes issued by the Halcyon 2012-1 and 2013-1 CLOs to single-B from double-B. At the same time, it has raised its ratings on the class B notes from the 2012-1 deal and the class A2A, A2B, B and C notes from 2013-1. The upgrades reflect paydowns to the class A1 notes of both transactions, which improved overcollateralisation ratios for all classes except the class Ds.

GFMT 2018-2 warning
Fitch has issued an unsolicited comment on Galton Funding Mortgage Trust 2018-2, indicating that the prime RMBS allocates greater credit risk to senior bondholders. A key structural feature of the transaction is a non-standard risk allocation of unpaid interest on non-performing loans, which is incurred concurrently by all classes through a pari passu reduction in defined bond coupons. The agency says that the credit protection provided to investors “does not protect against unpaid loan interest and, importantly, the ratings assigned to the transaction do not reflect the risk of reduced bondholder cashflows attributed to unpaid loan interest”. As a result, the structure is more favourable for the issuer as given ratings need less credit enhancement when compared to a traditional structure, according to Fitch.

Servicing acquisition
Hoist Finance is set to lease and subsequently acquire the businesses of Maran and R&S (Maran Group) in a multistep process, in the context of their composition with creditors pursuant to Italian insolvency law. The acquisition is anticipated to add capacity and competence to Hoist’s current activities in Italy, as well as create an integrated servicing platform that enables the firm to be a full-service debt restructuring partner to the Italian financial sector. The transaction is not expected to have a significant effect on Hoist’s financial position.

Upgrade debuts
Ex-LendingClub president Renaud Laplanche’s new firm is in the market with its first unsecured consumer loan securitisation. The US$286.39m Upgrade Receivables Trust 2018-1 comprises four classes of notes and is expected to close on 30 October. Proceeds will be used to purchase the loans and related rights from Upgrade Receivables Depositor, which purchased the loans from unaffiliated transferors, as well as to fund the reserve account and pay transaction expenses.