Contents

NPLs

Tax credits eyed

Second Greek NPL ABS proposal unveiled

The Bank of Greece has unveiled a securitisation scheme backed by its deferred tax credits (DTCs) that aims to reduce the country’s large non-performing loan stockpile. The plan is seen as a positive development, with any move to introduce a government guarantee on the senior tranches expected to raise the prospects of its success.

The proposed scheme envisages the transfer of nearly half of Greek banks’ non-performing exposures (NPEs), along with a decline in the share of DTCs - as a percentage of regulatory capital from 57% to 30% - to an SPV. Loans will be transferred at net book value or net of loan loss provisions.

According to official data, in mid-2018 the four Greek systemic banks had approximately €180bn loans, €86bn of which were NPEs. In the same period, DTCs were around €16bn, equivalent to 57% of banks' regulatory capital.

According to George Kofinakos, md at StormHarbour: “If the project is to succeed, the highest demand must be and will be for the mezzanine tranches, because of the non-performing status and size of the loans. Furthermore, the large transfer of DTCs can ensure more subscription and better pricing of the senior piece, while the junior tranche could be retained and placed as repo.”

He adds: “An investment grade rating and a government guarantee can make the senior tranche more attractive and it wouldn’t be considered as state aid. However, this wouldn’t apply to the junior and mezzanine tranches, since there is a possibility that they will never get an investment grade rating.”

DTCs equate to upfront tax relief, granted by the Greek state to the banks following rounds of recapitalisations since 2010. However, they are considered of low quality compared to convertible equity.

Another option could have been a conversion of these credits into shares, but the drastic shareholder dilution and the acquisition of an overwhelming equity stake by the state that this would entail meant this was undesirable. Specifically, the Bank of Greece states it would be of no value to the Greek state, since further losses would lead to further rounds of recapitalisations. 

The sale of the NPLs to the SPV is expected to create losses due to the bid/ask gap - between the current book value of the loans and their current commercial value - but the amount of deferred tax asset that will be transferred will be used to cover these losses. Subsequently, legislation will be introduced enabling transferred DTCs to be transformed into an irrevocable claim of the SPV on the Greek state with a predetermined repayment schedule.

The SPV will then finance the transfer with the issuance of senior, mezzanine and junior tranches. The junior tranches will be subscribed to by banks (each participating by no more than 20%) and the Greek state.

The Bank of Greece states that private investors will absorb part of the senior and mezzanine tranches, adding that the ability to absorb additional losses arising from the participation of the Greek state - through the transformation of deferred tax credits into an irrevocable claim of the SPV - significantly enhances the probability of repayment of the senior bond classes. Furthermore, by participating in the lower class of notes, the Greek state and banks will be entitled to any upside.

The transfer, however, is expected to be challenging. Kofinakos explains: “NPL valuations will prove hard because most collateral is real estate. The issue with this is that with the exception of two or three cities, land registries are not that widespread. This will, in turn, make it difficult to identify the owner and value of the asset. Furthermore, commercial value and tax value in Greece are different compared to other jurisdictions.”

The European Commission’s decision on the plan’s compatibility with state aid rules is pending. The scheme follows another proposal by the Hellenic Financial Stability Facility last month (SCI 12 October), which envisages a government guarantee on bonds issued by an SPV.

Stelios Papadopoulos

Capital Relief Trades

Basel 4 impact will 'vary massively'

Regulatory changes represent 'complete overhaul'

Regulatory changes coming into effect next year will have a major impact on the way European banks calculate risk weighted assets (RWAs), resulting in a greater incentive for some banks to utilise risk transfer mechanisms. However, it is expected that a nuanced picture will emerge, with regulatory changes impacting banks’ RWA calculations differently depending on a range of factors, such as asset class and the calculation model used.

Martin Neisen, partner at PwC, says that the regulatory changes coming in will represent a “total overhaul” for the calculation of risk weighted assets (RWAs) for banks using either the standardised or internal model. It therefore “makes sense”, he says, that the regulatory changes be known as Basel 4.

He says that the most important changes affecting the risk transfer market relate to capital flows, which have to be calculated using the standardised approach. As a result, there will be a big increase in RWAs for some banks which, in turn, could be a big motivator for them to issue capital relief trades.

“As a result of the changes, and probably the most important one,” says Neisen, “capital floors calculated using the standardised approaches can’t be below 72.5%. However, there may be differences between banks, depending on how much they use the internal model or the standardised model as this could affect things to a large degree.”

As a result, the impact of Basel 4 could be far more diverse than Basel 3, with some European banks seeing a “huge increase” in RWAs of 50% or more, says Neisen, while others will see a reduction in RWAs. As a result, there won’t just be one impact of Basel 4, but banks will have double the motivation to do a CRT transaction if they experience an increase in market and credit risk.

Neisen emphasises: “The impact of Basel 4 will be very individual, and the reaction will, therefore, be very individual. It depends on the business model of the bank and whether they use an internal model. The more they use the internal model, the higher the impact, potentially, and the results can vary massively.”

Jo Goulbourne-Ranero, consultant at Allen & Overy, comments that Basel 4 will bring several economic implications for deals, particularly in relation to balance sheet securitisation. Among these are a number of drivers for increased tranche thickness in the revised CRR risk weighting hierarchy, EBA SRT discussion paper and revised PRA securitisation guidance, she says, with “concerns” in the sector about the impact of this trend on deal economics.

Goulbourne-Ranero reinforces the view that regulatory changes will not be universal: “‘Basel IV’ does, however, present some, longer-term, regulatory drivers to balance sheet securitisation, albeit issuer and asset specific. The IRB output floor will put significant pressure on IRB banks with large mortgage and corporate lending businesses in low default rate jurisdictions. Other changes by asset class will make specific assets less attractive to hold, such as residential mortgages with an LTV over 80% on the standardised approach.”

She also says that the industry has a number of hurdles ahead in terms of implementation of the securitisation regulation, particularly regarding disclosure and STS regimes. With regard to disclosure, she says that there is an “alarming absence of workable transitional provisions” and that “even ESMA” acknowledges firms will need 15-18 months to establish systems to comply with the “hugely detailed” templates outlined in the draft final RTS, but the “RTS makes no transitional provision.”

According to Goulbourne-Ranero, ESMA has expressed a hope that the European Commission will provide for phased adoption and - in the final draft RTS on securitisation repositories and the related Securitisation Regulation implementation statement - anticipates the use of phased ‘tolerance thresholds’ in reporting to securitisation repositories.

“However, it’s hard to see this as a meaningful ‘fix’ for the problem”, she continues, “especially in relation to private deals where reporting through securitisation repositories is not required – and it’s unclear how the Commission will respond.” She adds that if a new regime isn’t in place by the start of 2019, the CRR backstop comes into effect which is a temporary application of a different disclosure regime under article 8b of the Credit Rating Agency Act 1986 – the application of which is unclear.

In terms of the substance of the disclosure requirements, she suggests that the RTS surprised the market by applying the full, loan level, on-going disclosure templates to private deals and greatly restricting the use of no-data options. This is at odds, she says, with market practice and could create additional problems for non-bank lenders, CLOs and NPLs.

Ian Bell, head of the PCS Secretariat, suggests that STS could potentially make true sale securitisations more attractive for capital relief purposes or, perhaps, that transactions will emerge where the seniors are sold as well as the mezzanine piece.

“With STS coming in and CRT not being allowed in STS,” says Bell, “STS has a lot of consequences – a range of firms can’t or won’t buy non-STS deals. Does STS  therefore make true sale more attractive for capital relief?”

He continues: “Alternatively, could we see risk transfer take place at the mezzanine level but then seniors being sold in true sale format?...Without the seniors being STS, they must be held by banks in synthetic non-STS form, which will be painful.”

From the investor perspective, David Moffitt, md at LibreMax, sees a rapidly evolving market, in which there are “an increasing number of structural nuances between issuers and what each hopes to achieve with CRT transactions. As an investor we see evolutionary pressure and the fact that many of the transactions can’t be compared side by side, along with a lack of transparency in the market generally, as being good from a pricing perspective.”

He says that this lack of standardisation in the market is something his firm aims to take advantage of and says that his firm aims to “craft a solution rather than provide a fungible commodity for our counterparties. That allows the banks to optimise the type of protection we provide, and in that capacity we become a more desirable partner.”

Further to the concept of evolution in the CRT market, Tim Cleary, partner at Clifford Chance, says that there is some focus in applying article 270 to wider CRT transactions. Currently, “article 270 only relates to SME securitisations and excludes the majority of CRT deals”, says Cleary, but adds that “it could be a good way of demonstrating to the European Commission that, if article 270 can be used effectively on SME deals, its scope could be expanded to cover other types of synthetic CRT transactions.”

Cleary adds that there are two provisos to the concept that you first need to comply with STS criteria to use article 270. First, he says that there isn’t a requirement to comply with the true sale requirement and, second, the requirement is to comply with STS criteria “as applicable” – he suggests that these requirements are therefore open to interpretation when applying them to a synthetic securitisation.

In terms of the future of the regulatory landscape for securitisation, Cleary feels that the most significant change to the securitisation framework in the CRR is a reversal in the hierarchy of approaches used to calculate risk weights for securitisation positions. He concludes that, the “ratings based approach currently comes first, but this will be reversed from 2019, which opens the possibility of a senior unrated tranche also having an externally rated mezzanine tranche. This may help to facilitate placing tranches higher up in the capital stack, where investors may require a rating.”

Richard Budden

Capital Relief Trades

Tough approach

PRA guidance puts UK CRT issuers at a disadvantage

The UK PRA’s latest significant risk transfer guidance is putting UK capital relief trade issuers at a disadvantage compared to their European peers, mainly due to the regulation’s provisions on excess spread and the capital treatment of standardised portfolio transactions. The regulation is broadly in line with a consultation from May that sparked a market backlash (SCI 22 June).

According to the paper, banks that want to include synthetic excess spread in a CRT transaction should count it as an “off balance sheet securitisation position” for the purposes of calculating capital requirements. In particular, banks should apply a 1250% risk weight for such positions, which amounts to a 100% capital charge and a deduction from CET1 ratios. The capital impact of the provision will be especially felt by high loss portfolios, such as consumer and credit card loans.

Synthetic excess spread has been used as credit enhancement in synthetic securitisations to absorb losses before an investor takes on losses. Requiring a full capital charge for excess spread renders the PRA the exception when compared to European peers and signals a tougher approach by the UK regulator.

The capital charge for excess spread raises a double counting challenge, since banks will now have to recognise a1250% risk weight for the first loss tranche and a 1250% risk weight for the excess spread position. A structurer at a large European bank notes: “The ratings are based on the attachment and detachment points and the thickness of the tranches, so if you impose a 1250% risk weight for the excess spread, you end up double counting your capital if you are not able to recalibrate the remaining tranches.”

He adds: “The CRR has no provision which would allow the adjustment of attachment or detachment points. This can raise the cost of capital relief to potentially uneconomic levels.” 

The PRA also states that it reserves the right to question (post-closing) the use of the Internal Ratings Based Approach and the Standardised Approach for calculating capital requirements, if it considers that they do not adequately address risk factors in a transaction.

Jo Goulbourne Ranero, consultant at Allen & Overy, says: “The final guidance attempts to allay market concerns that the PRA will use its discretions to preclude use of SEC-IRBA and SEC-SA altogether. However, the uncertainty inherent in the discretions could result in external ratings being sought on a precautionary basis or at least impact transaction structuring in relation to features - such as turbo amortisation and investor exposure to residual value risk - identified as potential triggers for the exercise of its discretion.”

The probability that the PRA can switch to the External Ratings Based Approach is real, given the regulator’s historical insistence on external ratings. This is further complicated by the fact that the SRT guidance stipulates that when evaluating CRT transactions under the ERBA, the UK regulator will also be able to decide whether the chosen rating agency has the appropriate expertise in the asset class being rated. 

Another challenge pertains to capital relief trades referencing standardised portfolios. The standardised approach for calculating capital requirements does not take into account PD and LGD calculations, due to lack of sufficient data, and it tends to be more conservative than the IRB approach.

The PRA paper notes that banks must sell tranches with a thickness equal to 1.5 times the sum of the expected and unexpected losses of a standardised portfolio. The structurer explains: “This is going to make the deals far more expensive. The problem here is that you have to sell large tranches; this raises the cost of the protection, since selling more tranches means higher total premiums in return for a fixed level of capital relief. Selling more tranches doesn’t necessarily mean freeing up more capital, since the CRR prescribes minimum risk weights for the more senior retained tranches, no matter the level of subordination provided by the sold tranches.”

However, the PRA states that the said provision is a “fall-back provision”, although market sources interpret this as simply a bare minimum of tranche thickness.

The final concern raised by the paper is the capital treatment of commercial real estate portfolios. The PRA stipulates that banks should assume a 50% LGD for slotted assets, such as commercial real estate portfolios.

A European issuer states: “Essentially you will be getting less RWA relief, which means thicker first-loss tranches or, alternatively, the same thickness but less RWA relief for the same CDS premium costs.”

He adds: “Thicker tranches raise the question of whether you sell mezzanine tranches, in addition to the junior tranches you are selling.”

Under the slotting approach, property loans are assigned to a number of categories - or slots - depending on how risky they are seen to be, given the underlying credit risk. This information is then used to calculate how much capital a bank must hold.

The capital treatment of commercial real estate portfolios is particularly relevant for UK banks, which have been the only known active CRE CRT issuers (see SCI’s capital relief trades database).

However, there are caveats, despite the costs of the new regulation. Initially, excess spread is not prevalent in most transactions, since regulators - including the PRA and the ECB - have raised objections to its usage. Furthermore, most banks in the market are large IRB banks, not standardised banks.  

Stelios Papadopoulos

ABS

Timing issues

European ABS market update

The two-year senior notes of Compass Banca’s €900m Quarzo Series 2018 consumer ABS are being talked at three-month Euribor plus 95bp. However, the transaction is not considered to be well-timed, as Italian spreads continue to widen.

“The deal is attractive, but not compared with the yield on Italian government paper,” says a trader. “It makes no sense to buy Italian ABS now, when you can purchase government bonds, which pay a no-risk 85bp spread. Compared with that, auto loan ABS looks very cheap at the moment.”

The trader refers to the A-BEST 16 German auto ABS, which was well-received by the market. The transaction priced yesterday (27 November), with the senior notes printing at one-month Euribor plus 40bp, well above other recent auto loan deals.

On the secondary market, £100m worth of auto loan BWICs are out for the bid. “More BWICs are coming around, but a lot of people are still waiting on the sidelines. Dealers are full-up,” continues the trader.

He concludes: “Everything is heading much wider right now. It is not easy at the moment.”

Tom Brown

Structured Finance

Term leveraging

European ABS market update

The European primary ABS market is still drifting wider, due to concentration of supply.

“Investors are using their leverage to dictate terms and push deals as wide as possible. That’s one of the reasons why the pipeline has been brought forward,” says one trader.

He adds: “If a deal is struggling, an investor can offer to push it over the edge. If a deal is oversubscribed in the primary market, they can make it price wide.”

The €252.1m EDML 2018-2 Dutch RMBS is set to price today (29 November), possibly alongside several Australian deals. “Any deals will need to be settled by next week, otherwise they risk going into January,” says the trader.

The trader adds that only a week’s worth of trading days remain to “push deals through” and that light ABS and CLO primary issuance is forecast for December.

The trader echoes concerns about STS regulations heard in the market and provides an example of how the rules are disrupting primary issuance: “The regulations require a third party to give a rubber stamp to any eligible deals. So far, no-one has been given the authority to give that stamp.”

He concludes that some investors are selling on the secondary market in order to make way for cheap primary paper. Indeed, a high prevalence of European ABS BWICs are out for the bid today.

Tom Brown

CLOs

Two-sided market

European secondary market update

There are a few CLO BWICs out for the bid today with another RMBS scheduled for this evening. The European market has not followed an identifiable trend since the US thanksgiving holiday and activity remains subdued.

“A number of accounts are waiting on the sidelines and only going for highly discounted paper,” says one trader. “It could be the calm before the storm, but it is hard to tell.”

There are ongoing concerns about the STS regulations to be implemented in January, the trader says: “My worry is that we could see a fragmentation in the market between STS and non-STS paper.” 

The trader continues: “I wonder whether banks will focus on STS-compliant paper whereas managers might focus on non-STS, based on prices. That could lead to the market splitting in two in order to satisfy both sides – meaning less liquidity.”

The trader concludes that there is a great deal of uncertainty going into 2019: “This is the first time in five or six years where we are headed into the next year with no idea what it will bring."

Tom Brown
 

CMBS

Mezz concessions

US CMBS market update

US CMBS new issues appear to be struggling, following market volatility at the beginning of the week.

One trader says: “It seems like the new issue pipeline is struggling to get off the ground and many dealers are having to give concessions in the mezz area in order to get deals done.”

Meanwhile, in the secondary market, attention is focused on triple-Bs. Activity is subdued, as dealers appear to be holding back somewhat.

“People are waiting for a fund or something to start selling, despite the volatility, but it hasn’t quite happened yet,” the trader continues. “We have seen a fair amount of volatility over the past few days, though not compared with last week.”

The trader states that the US CMBS market has not been impacted by last week’s stock market sell-off, beyond “what is expected.”

Tom Brown

RMBS

Green wave

International RMBS market update

A pair of RMBS bid-lists comprising mostly senior non-conforming and prime collateral are set to hit the market tomorrow at 2pm GMT. One list consists of 16 euro-denominated line items, while the other has 15 sterling bonds, including a chunky £34.25m slice of the WARW 2 A tranche.

“The question is where the appetite is going to come from,” says one trader. “I can’t see an individual dealer writing tickets for such a large volume.”

The trader says the market is still “a little soft”. He points to rumours that GAM Investments is currently liquidating about US$90m worth of funds, following leadership changes at the firm after it suspended the investment director of its absolute return bond funds and suffered losses of over US$3bn since July.

Meanwhile, in the primary market, the A$750m-equivalent Pepper Residential Securities Trust No. 22 RMBS includes a 1.5-year US dollar tranche, as well as euro- and Aussie dollar-denominated tranches designated as green bonds. IPTs stand at 140bp-145bp for the green and non-green Aussie dollar triple-A tranches and 90bp-95bp for the green euro triple-A tranches.

“It will be interesting to see if there is any pricing difference between the Aussie green and non-green tranches,” says the trader. “Green bonds are still a bit of a novelty.”

Tom Brown

Structured Finance

Start the week - 26 November

A review of securitisation activity over the past seven days

Market commentary

US CLO equity and double-B bonds were casualties of last week’s drop in the S&P 500 index, with bids softening across the secondary market (SCI 21 November).

“A handful of CLO equity and double-B bonds were out for the bid and did not trade,” said a trader. “There was some clear hesitation in the market compared with a week ago. Other bids dropped a couple of points, which could be a good buying opportunity for those with cash in hand.”

The trader confirmed that strong demand remains for new issues and predicts that the secondary market could tighten in the coming weeks if primary supply continues at its current pace. “The next few weeks are a little chopped-up because of the holiday and the conference, but we should see people getting back in their seats,” he observed. “We are not done with the year yet.”

The European ABS market was also impacted by US stock market woes (SCI 21 November). “We’re seeing the market repricing after the bloodbath that happened [in the US],” another trader noted. “A lot of paper hit the shelf and nobody wanted to trade it; the market was 10 or 20 points off. It feels more stable [now], but not necessarily much better.”

Meanwhile, the European CLO pipeline continued to see plenty of supply (SCI 22 November). “The market is responding to the amount of supply,” the trader added. “Everything is wider; new issues are also coming in wide. I guess to a small extent the seize-up in equities has affected the market and there has been at least one loan default.”

Transaction of the week
Be-Spoke Capital is marketing an unusual inaugural securitisation, backed by a portfolio of loans to Spanish SMEs and expected to total around €300m, with pricing targeted for early December (SCI 21 November). Dubbed Alhambra SME Funding 2018-1, Natwest Markets is sole arranger on the transaction, while the EIB is looking to invest €80m in the mezzanine tranche.

Miles Hunt, head of securitised products and alternatives syndicate, NatWest Markets, says that the transaction is a static securitisation of bilateral loans originated by Be-Spoke and made to Spanish SMEs and midcaps, the majority of which are family-owned companies. The maximum loan size is €10m and the businesses span a range of different sectors located across the whole of Spain, although there is some concentration in Catalonia and the Madrid area.

Since the transaction was announced in June, there has been some confusion amongst investors over its classification. Egbert Bronsema, senior portfolio manager at Aegon Asset Management, says he thinks it is “more like a CLO than an ABS as it isn’t a hugely granular portfolio, but it is lumpy with 60-80 loans.”

As a result, he says “there is a lack of granularity on the pool and therefore, unlike an ABS, you can’t look at traditional measures such as CPR and CDR to assess the credit risk - something that you can normally use on a typical ABS portfolio. This makes it difficult to assess the future performance of the portfolio and should therefore be considered as a riskier investment.”

Split ratings are also expected on the deal, says Hunt: “Notes will be rated by Moody’s and DBRS. Interestingly, indicating that it is an SME ABS and not a CLO, ratings are expected to differ between agencies. With CLOs, these tend to be the same across agencies because they all use the same methodology, while for SME ABS methodologies are more varied.”

Investors are reported to be comfortable with the ratings they’ve seen so far and have taken comfort from the transparency on the transaction. To facilitate this, Be-Spoke has a data room where investors can access a detailed data tape of every loan, as well as anonymised reports from the Spanish credit rating agency, Axesor, which are updated annually.

Other deal-related news

• Brit has launched Sussex Capital UK, the first vehicle to be given permission by the PRA under the UK’s new ILS regime to write general collateralised reinsurance for multiple cedants. The SPV’s multi-arrangement designation enables the vehicle to write a broad range of reinsurance contracts, each written by a different cell but using approved template documents and therefore only requiring post-transaction notification to the regulator (SCI 23 November).
• Lloyds became the first bank to issue a benchmark covered bond referencing the sterling overnight index average (SONIA) in September. The move has sparked predictions that the first securitisations tied to alternative reference rates will emerge next year (SCI 20 November).
• Scope has lowered its rating on the €145m E tranche of Santander’s Renew Project Finance CLO 2017-1 from double-B plus to double-B, after a credit event resulted in the restructuring of one of the underlying projects. The rating agency affirmed its ratings on tranches A to D of the significant risk transfer transaction, reflecting what it says is a “comfortable” level of credit enhancement from subordination (SCI 21 November).
• S&P has placed its triple-B rating on the class B notes of Honor Automobile Trust Securitization 2016-1 on credit watch with negative implications and lowered its rating on the class C notes to double-C. The agency reports that CNLs have risen to approximately 27.2%, overcollateralisation (as a percentage of the collateral balance) has declined to zero as of 31 October (from 13.4% as of 30 June) and US$1.4m was drawn from the reserve account on the November distribution date to pay down the class A notes so that overcollateralisation would not turn negative (SCI 21 November).
• The latest twist in the Fairhold CMBS saga (SCI passim) sees the return date hearing in respect of Clifden's appeal application listed for 17, 18 or 19 December. For more on CMBS restructurings, see SCI’s CMBS loan events database.
• A new UK House of Commons Committee of Public Accounts report finds that the government “received too little” in return for its sale in 2017 of student loans via the Income Contingent Student Loans 1 securitisation. The report notes that loans with a face value of £3.5bn were sold for £1.7bn, equating to a return of only 48p in the £1. While the committee states that it did not expect the government to recover the face value of the loans, as repayments rely on borrowers’ earnings, its own analysis shows that it could have expected to recoup the £1.7bn sale price in only eight years (SCI 23 November).

Regulatory round-up

• The future of securitisation and closed-end securitisation funds in Poland remains uncertain, following the Polish financial supervisory authority’s (KNF) approximately PLN6.4m (€1.49m) fine against Raiffeisen Polska in September. KNF fined the Austrian bank over its alleged failure in safeguarding securitisation fund assets as a depository bank in securitisation transactions, citing an incomplete register and lack of awareness over the status of fund assets. The move broadens the scope of liability, which could in turn deter depository banks from undertaking future securitisations (SCI 21 November).
• The United Arab Emirates continues to ameliorate investment concerns by introducing new legislation and addressing issues presented by Sharia finance. In an amendment released on 12 November, the government abolished limited liability companies in the Dubai International Financial Centre (DIFC) and introduced new categories of public and private companies as part of a broader initiative in line with international best practices, providing a suitable regulatory framework and creating greater certainty and flexibility for companies (SCI 22 November). 

Data

Pipeline composition by jurisdiction (as of 23 November)

Pricings

ABS: €3.325bn Caixabank Pymes 10, $2.31bn FT PYMES Santander 14, US$120.09m GoldenTree ABS Management 2018-B, €387m Marzio Finance 2018-1, €626.7m SCF Rahoituspalvelut VII (Kimi 7), €1.11bn Sunrise SPV 50 2018-2, $189m Vx Cargo 2018-1 Trust

CLOs: US$1bn Antares 2018-3, US$554.15m CIFC Funding 2018-V, US$403m Guggenheim MM CLO 2018-1

CLO refinancings: US$416m Atlas CLO VII, US$638m OHA Credit Partners X-R, €200m Voba Finance 7.

CDO: US$348.5m Trups Financials Note Securitization 2018-2

CMBS: €308.2m Arrow Global 2018, €197m ELoC 32 (Oranje), A$315m Think Tank 2018-1.

RMBS: €476.2m Dutch MBS XIX, A$750m Resimac Premier Series 2018-2.

BWIC volume

Source: SCI PriceABS

Capital Relief Trades

Tighter pricing

Latest Elvetia trade completed

Credit Suisse has completed a Swiss corporate and SME significant risk transfer trade from its Elvetia programme, dubbed Elvetia Finance Series 2018-6. The trade printed at tighter levels compared to previous Elvetia corporate and SME deals, due to wide syndication. The transaction was completed under the new securitisation framework, which stipulates thicker tranches and was also a driver of the tighter pricing.

The Sfr156m eight-year CLN references a Sfr2.6bn portfolio and pays Libor plus 7.75%. The weighted average life of the reference portfolio is approximately 1.7 years. Further features include a three-year replenishment period and a three-year non-call period.

The transaction follows a mortgage deal from the same programme in March (see SCI’s capital relief trades database). The mortgage deal, dubbed Elvetia Finance Series 2018-2, was priced slightly lower at Libor plus 7% and was also widely syndicated.

Switzerland implemented the new securitisation framework in January 2018. The lower returns resulting from thicker tranches have previously led Credit Suisse to slice the junior tranches of transactions into thinner ones that offer higher returns.

This structuring technique has been used for the Swiss issuer’s existing transactions (SCI 9 March). Standard Chartered also utilised the technique in its recent Sealane 4 trade finance SRT (SCI 14 November).

Stelios Papadopoulos

Structured Finance

Canadian asset expansion

Sector developments and company hires

ILS

TigerRisk Partners has hired Stephen Fromm as vice chairman of TigerRisk capital markets and advisory. In his new role, Fromm will act as a senior investment banker focusing on insurance industry M&A, capital raising and strategic advice. Fromm was previously md and vice chairman of financial institutions investment banking at Deutsche Bank.

MBS purchase plans

The Bank of Canada has expanded the assets it acquires outright to include the purchase of Canadian dollar federal government-guaranteed debt securities issued by federal Crown corporations. Under these changes, the bank plans to allocate “a small portion” of its balance sheet for purchasing mortgage bonds on the primary market on a non-competitive basis, commencing in late 2018 or 1H19. The bank says the move is part of the regular management of its balance sheet through acquiring securities to offset its liabilities, as well as providing it with more flexibility to reduce its participation at primary auctions of government bonds where necessary to support their secondary market liquidity.

US

Fitch has hired five senior analysts to its Toronto, Canada office including Michael Buzanis, who joins the firm's North American structured finance group, where he will focus on the Canadian market while supporting cross border and US originated transactions. Buzanis worked as a principal at Silver Ash Financial Consulting prior to joining Fitch.

Structured Finance

Funding boost for online lender

Sector developments and company hires

Alesco CDOs transferred

The collateral management agreements for the Alesco Preferred Funding X to XVII Trups CDOs have been assigned to Hildene Collateral Management Company (HCMC), an affiliate of Hildene Capital Management. Under the terms of the assignments, HCMC agrees to assume all the responsibilities, duties and obligations of the current collateral manager (ATP Management) under the agreements and under the applicable terms of the indentures. Moody’s has confirmed that the move will not result in the reduction, withdrawal or qualification of its current rating of any notes issued by the transactions. For more CDO manager transfers, see SCI’s database.

SME financing facility

The British Business Bank – via its ENABLE Funding programme – has committed up to £150m for lending to UK small businesses through the Funding Circle platform. The new facility will provide senior financing to a transaction with the Funding Circle SME Income Fund and is expected to support the growth of over 2,000 UK firms. To date, 85,000 individuals, the EIB, the EIF, KfW and other financial institutions have lent £5.6bn through Funding Circle to 56,000 businesses across the UK, US, Germany and the Netherlands.

US

Morgan Lewis has hired Sarah Nelson as a securitisation tax partner, based in New York. Nelson was previously a director at Credit Suisse where she led in-house coverage of CRE finance and CMBS.

The Carlton Group has promoted Michael Campbell to the position of ceo. Prior to joining the firm in 1999, Campbell worked as associate at Prudential Investments. He is joined as co-managing principal of Carlton by Daniel Bildner, who assumes the role of coo after holding a position as Carlton’s general counsel.

Podcast

SCI’s new podcast is now online! Click here to listen to the team discuss divergence in the Australian RMBS market and a new SME ABS with a Spanish flavour.

Structured Finance

NPL plans accelerated

Company hires and sector developments

Eurobank merger

Eurobank is merging with Grivalia in a bid to accelerate the reduction of non-performing exposures to a ratio of approximately 15% by end-2019 and single-digits by 2021. The transaction envisages an NPE deconsolidation of approximately €7bn, with all shareholders keeping potential upside from the assets. The merger will create the best capitalised bank in Greece, with a total capital ratio at 19%, and it is hoped that the real estate management skills of the Grivalia team - led by George Chryssikos - will unlock the value of the combined group’s real estate assets. Chryssikos is set to become non-executive vice-chairman of the Eurobank board and will join its strategic planning committee.

NPL disposal

UniCredit has disposed of a €590m (gross claim value) portfolio of Italian SME non-performing unsecured loans on a non-recourse basis via securitisation vehicles managed by J-Invest and Illimity. J-Invest purchased a €384m portion of the portfolio and Illimity bought the remainder. The average ticket size of the assets is €2.7m. Separately, Illimity has signed a €50m financing contract to a Fortress affiliate, guaranteed by a portfolio of non-performing corporate secured loans with a gross nominal value of €1.2bn.