Contents

Structured Finance

STS-compliant ABS issuance to be 'higher than expected'

Lack of certainty continues around areas of Securitisation Regulation

The EU Securitisation Regulation came into force as of 1 January this year, despite several parts of the legislation not yet having been finalised and amid concerns that market participants may lack the necessary infrastructure to adequately comply. Despite this, it is thought that there will be more STS-compliant transactions issued at the start of 2019 than expected, with many issuers hoping to attain the STS label at a later date in the absence of official third-party verification agents.

Kevin Ingram, partner at Clifford Chance, comments that level one legislation is all but complete but there is a large amount of secondary legislation that still is not finalised. While more complex transactions may struggle to comply with the new regulation, there are less hurdles for more standardised transactions in traditional asset classes and so issuance should be forthcoming in early 2019.

Although there are areas of the new securitisation regulation that lack clarity, such as the use of disclosure templates, Ingram says STS is “actually one of the clearer areas in relation to the new securitisation regulations” and is more or less developed. As a result, Ingram expects more issuers putting out STS compliant deals in early 2019 than originally expected, and that “market conditions” rather than STS is hampering new issuance.

In terms of what asset classes will be first off the mark in 2019, Ingram says: “The bulk of deals likely to be issued at the start of this year under the new Securitisation Regulation - and possibly STS - will…probably be more vanilla transactions from previous issuers - mainly RMBS and, possibly, auto ABS. That’s far from saying these deals will all be STS from day one, but it is possible they may notify as STS at a later date.”

He continues: “Away from these kinds of deals it’s a little more complex, however. Bear in mind that RMBS loan level data is already more standardised with publicly available templates from the Bank of England and the ECB which will help compliance.” Away from RMBS and auto ABS, Ingram thinks that issuers will struggle – at least initially – to issue trade receivables securitisations, CLOs and other corporate loan securitisations, other than SMEs.

Despite the difficulties in getting new securitisations over the line in 2019, Ingram doesn’t necessarily think that this will lead to different funding methods being deployed, like ABCP conduits. He adds that while ABCP conduits may be able to get STS on the transaction, they are much less likely to achieve that on a programme level.

Ingram does point out however that a lack of clarity in disclosure requirements could create hurdles, even for traditional asset classes: “Certain issues around disclosure standards could complicate matters further, for example in the requirement for homogenous pools in STS securitisations”, says Ingram.

He continues: “We expect most prime RMBS will be able to comply with the homogeneity requirement, but if you have a mixed pool - such as combining first lien and second lien mortgages - you may have an issue around definitions of homogeneity unless the final RTS clarifies matters.”

Structured finance analysts at Rabobank comment that the slow start to the year in terms of new European issuance is “more about the time needed to interpret the vast set of rules, both at the investor and issuer side.” The analysts say that they think the main issue is the lack of regulatory market infrastructure, with “no data repository appointed yet” and that adjusting to the new reporting templates is going to take longer.

The analysts also suggest that there is a lack of clarity around the appointment of third-party certification agents for the STS designations, adding that there is some optionality in the regulation but expect most issuers will seek a certification before calling a deal STS compliant. This is a point Ingram agrees with, although he adds that in terms of third party verification agents “a number of likely entities are known and we believe issuers and investors will expect the deals to be verified at least initially.”

Rabobank’s analysts highlight further that the regulators have called on competent authorities to apply their supervisory power in the day to day enforcement of applicable legislation in a “proportional manner.” Ingram also concurs on this point and says that, particularly in the case of more complex deals that could struggle to meet disclosure requirements, the attitude of the regulators is important.

He adds: “The expectation, encouraged by the ESAs, is that we’ll see some leeway and an interim period where - as long as issuers and originators are seen to be using their best efforts to do the right thing - they won’t be penalised. That’s important to allowing issuance to proceed.”

In terms of when all aspects of the Securitisation Regulation and STS will be completed, Ingram isn’t confident that the dust will completely have settled perhaps even until “much later this year.” He adds that things may be clearer – especially in terms of infrastructure – by the middle of 2019 and into 3/4Q19.

He concludes: “Unfortunately there are many distractions for Europe at the moment so securitisation won’t be the main focus, such as EU parliamentary elections. There are around 28 pieces of secondary legislation which impact securitisations not yet completed, so it’s hard to see when the end will finally be in sight.”

Richard Budden

RMBS

Redemption relief?

RMBS calls could boost European supply

The European securitisation pipeline remains all but empty as regulatory uncertainty continues to hamper new issuance activity. Upcoming optional redemption dates could provide a much-needed source of supply, however, with the potential restructuring of the Towd Point Mortgage Funding 2016-Granite1, 2 and 3 deals leading the way.

Approximately €21.2bn of outstanding post-crisis European RMBS transactions will hit their optional redemption dates throughout 2019, according to JPMorgan figures. European securitisation analysts at the bank note that €13.1bn of UK RMBS across 24 deals and €8.1bn of eurozone RMBS across 16 deals could be called.

Notable UK transactions with upcoming call dates this year include Cerberus European Residential Holdings’ TPMF 2016-Granite1 and Granite2 deals in April and May respectively, TPMF 2016-Auburn 10 in October and Kensington Mortgage’s Hawksmoor 2016-1 and 2016-2 deals in August. The JPMorgan analysts note that the senior step-up coupons on most UK RMBS transactions with optional redemption dates this year remain considerably wider than current levels, despite the spread widening seen in 4Q18, suggesting that issuers are likely to still be incentivised to call and re-issue these deals - barring further spread widening.

Cerberus is currently exploring ‘strategic alternatives’ with respect to the loans held in its Granite securitisations (SCI passim). Reading between the lines, TwentyFour Asset Management partner and portfolio manager Rob Ford indicates that one such strategic alternative is to refinance the deals – either in the public or private securitisation markets – and potentially involve the same anchor investor.

In 2016 when the deals were originally issued, it was well known that some large Japanese banks (such as Norinchukin) were significant investors in UK RMBS, attracted by the spread levels available at that time - albeit as spreads subsequently tightened, they moved away from RMBS and turned their attention to the CLO market. They are believed to have bought a vast chunk of the £4.63bn senior tranche of Granite1, which was largely pre-placed, and may renew their appetite for the same assets now that spreads have widened back to approximately the same level as when the deal was issued. The pool factor for the senior notes currently stands at 51%, implying that their holding has reduced significantly, due to amortisation.

“A restructuring of the deal would provide access to seasoned loans and another three years of performance history,” Ford observes. “For example, 90-plus days arrears have dropped over the last three years and the pool – which was originally sized at £6.2bn – has only seen £13.5m of losses, meaning that the refinancing may qualify for better credit enhancement.”

He adds: “Originally, there was 24% credit enhancement at the triple-A level; now it stands at 38%. By taking the credit enhancement back to the mid-20s, the cost of the refinanced transaction will be cheaper for Cerberus, especially since the credit yield curve is flatter than in early 2016.”

Another strategic alternative for the Towd Point deals could be to swap them into US dollar-denominated issuances, following the example of the Nationwide and Santander RMBS and Barclays credit card master trusts, which all issued short-dated dollar notes last year (SCI 24 July 2018). “US investors are much less concerned about the short-term Brexit noise and are not subject to the new EU regulation, and the opportunity to buy European triple-A notes that yield similar spreads to US triple-B credit risk transfer notes is attractive. Theoretically, it would be straightforward to put a new US SPV together, transfer all of the Granite assets and sell them plus the swaps - thereby bypassing the European securitisation regulation altogether,” Ford suggests.

A third strategic alternative is for Cerberus to establish a structure similar to the Ripon Mortgages and Durham Mortgages transactions (SCI passim). These deals involved the assets being warehoused and the resulting paper retained by a consortium of ‘stable funding banks’, which proceeded to sell it down at a later date - albeit those banks were providing that funding to a UK government agency, so may be less inclined to do the same for a US private equity house.

In theory, any of the lenders with optional redemption dates due this year may follow similar strategies, but Ford notes that pool size could be a limiting factor.

Whatever the outcome of the Towd Point consultation, it is expected to have a three- to four-month gestation period. Meanwhile, although several new deals were understood to be lined up in December for early 2019 launch, none have materialised so far.

“At present, the only certainty the market has is that whatever the outcome of the current policymaker wrangling, it will be far from ideal. The EBA did a fantastic job in coming up with workable technical standards for the STS criteria, until the ESMA and the European Commission started their meddling by unexpectedly including private deals and conduits in the reporting standards, and also the Commission is still holding up the ratification of the EBA’s homogeneity and risk retention standards,” Ford observes.

ESMA has to report back by 26 January and the Commission then has up to three months to review its conclusions. Ford suspects that little will change, apart from the greater use of ‘no data’ fields - in cases where the data isn’t available or applicable – being sanctioned, as a ‘backdoor’ transition arrangement.

“An originator that was lining up an STS-compliant deal may have to bring a non-STS deal instead, given the continued regulatory uncertainty,” he notes. “If we see a sustained lack of issuance, the market may stagnate - albeit with the spread widening seen at the end of last year, the market is more attractive. There is value to be had in high quality paper, so investors should be putting money to work.”

Theoretically non-conforming lenders and CLO managers could continue issuing, as they are out of scope of the STS framework. “The hope is that national competent authorities will be flexible, should any deals come, given the lack of clarity - although for banks, those that can issue covered bonds are likely to be incentivised to pursue that funding avenue instead of securitisation. Once we do finally have some clarity, issuers could end up in a race to get an STS deal done, perhaps in time for the Global ABS conference. I’m not ruling out a wall of issuance in May,” Ford concludes.

Corinne Smith

Capital Relief Trades

CRT growth continues

Tighter pricing trend points to expanding market

The year 2018 saw a flurry of capital relief trades referencing various asset classes that were priced at tighter levels compared to previous years. Such activity is a reflection of the good performance of the underlying collateral and increased investor allocations in the market, suggesting a growth trend that is set to continue in 2019.

According to James Parsons, portfolio manager at PAG Asia: “Pricing has been more competitive this year because while there hasn’t been a significant increase in the number of specialist investment managers, most of those managers raised more funds from investors and so there was more cash to put to use.”

Investors note a 7%-11.5% pricing range, which is wide, but nonetheless tighter than the traditional 9%-12% range and SCI data suggests the same conclusion. Deutsche Bank, for instance, took advantage of this pricing environment to issue its first trade finance CRT in three years. Dubbed TRAFIN 2018-1, the new deal printed at 8.7% compared to the 10% coupon of TRAFIN 2015-1 (see SCI’s capital relief trades database). Credit Suisse’s latest Elvetia Finance transaction was among the most tightly priced corporate deals at 7%, along with Standard Chartered’s Sumeru 3 (7.70%).

The investors explain that the trend has followed growing allocations in alternative investments, such as private credit - mostly from pension funds and insurers - as the hunt for yield continues. According to a recent report by the Alternative Credit Council, global private credit AUM - which consists of deployed capital and dry powder - reached a record US$666bn at end-2017 and is on track to exceed US$1trn in AUM by 2020. This capital is being put to work, with dry powder as a proportion of industry AUM remaining below the sector’s long-term average.

The ACC defines private credit as all forms of debt finance provided by non-bank lenders. The category is broad enough to cover a broad range of segments from direct lending to distressed debt and structured finance products, including CDOs and CLOs. The ACC report states that two-thirds of private credit AUM is pension fund and insurer capital.

SCI data further indicates the same correlation. In 2018 banks completed 42 capital relief trades, surpassing the 2017 record of 37 risk transfer transactions. However, in terms of total tranche notional issued, the numbers have been lower at €5.8bn in 2018, compared to €10.09bn in 2017. This is a reflection of the smaller tranche sizes that have been placed in 2018, although last year’s figures are provisional, given pending disclosures of five transactions.

The expansion of the market’s issuer base has mirrored these growing investor allocations, with the African Development Bank’s landmark synthetic securitisation opening up the market to multilateral development banks (SCI 20 September 2018). “We’ve seen six to seven leads from other MDBs, so there has been more interest. But obviously the solvency and capital metrics will be different compared to traditional issuers,” says Juan Carlos Martorell, md at Mizuho.

However, growing investor allocations and collateral performance are not the only factors behind the lower pricing. Compared to previous years, the market has seen deals referencing a wide variety of asset classes that are less risky and hence cheaper from an issuer’s perspective.

Parsons explains: “We’ve seen more deals that aren’t the typical corporate and SME deals that often have higher risk weights and risk profile and, consequently, higher pricing. Banks have been completing deals with lending products that have much lower risk profiles, primarily in order to improve return on capital on those businesses, and these deals typically price at the lower end of the range.”

One of these unusual transactions was Santander’s synthetic securitisation of consumer loans (SCI 2 January). Assets of such high granularity aren’t usually referenced in synthetic structures, further raising the question as to whether true sale securitisations of less granular portfolios such as large corporates are possible.

Market sources suggest that true sale structures could be a good way to widen the number of deals that are STS-eligible, given that the STS designation for synthetics is limited to SMEs and SSA counterparties, such as the EIF (SCI 29 November 2018).

However, there are two reasons to doubt any pick-up in true sale issuance. First, according to StormHarbour mds Francesco Dissera and Robert Bradbury, true sale deals may be more operationally complex - particularly if the bank has no particular requirement for the senior financing, for example, through the need for ratings, the demonstration of SRT and other factors (SCI 19 December 2018).

Second, “the main issuing banks are likely to have the greatest continued availability of SME and corporate loans, compared to other asset classes going forward, for which synthetic securitisation is already a well-known route,” says Bradbury.

As to whether the tightening will continue this year, Parsons notes: “The market will continue to see deals involving the more conservative lending product types that command tighter pricing. Moreover, although public markets are expected to be more volatile this year, I don’t think that is going to have a significant impact on the market as there continues to be cash to put to use.”

Indeed, bond spreads have little effect on pricing, although CLO pricing has had an influence in the past. “Investors often compare deals to single-B CLOs. We have seen widening in that space, so going forward the CRT market may see some widening to retain and attract investors,” says Dissera.

Yet price compression remains the talking point, given the thicker tranche requirements of the new Securitisation Regulation that will likely spur a wider adoption of the dual-tranche technique. This involves slicing the junior risk into two thinner tranches (SCI 26 January 2018). Standard Chartered, Lloyds and Credit Suisse have all completed dual-tranche deals.

However, the technique might work best for more granular assets. “Mezzanine tranches are sensitive to idiosyncratic risks if the portfolio is not sufficiently granular. Consequently, you need more granularity for the technique to work and boost the attractiveness of the mezzanine pieces,” states Parsons.

Similarly, Bradbury notes: “You do need a minimum level of granularity for such an approach to work. In the case of large corporate or project finance transactions, for instance - which typically have greater obligor concentrations - investors may be less attracted to relatively thinner mezzanine tranches.”

Growing investor allocations, structural innovations and varied asset classes signify an expanding and promising market, but investors have been vocal about an anticipated turn in the credit cycle (SCI 6 August 2018). Parsons explains: “If there’s a prolonged sell-off in public markets, there will be less liquidity in the CRT market. However, on fundamentals, default rates have remained at historic lows and the few high-profile defaults we have seen - such as Carillion (SCI 5 February 2018) - have been idiosyncratic events.”

He concludes: “Having said that, idiosyncratic defaults do imply caution over concentration limits, even if the corporate entity is highly rated. CRTs though remain healthy and the market is less generic that it was five years ago.”

Stelios Papadopoulos

CLOs

CLOs rebound

US CLO market update

US CLO spreads have tightened from December and the pipeline is bulging, as confidence returns to the market.

“Investors have been coming back to the market, so spreads have tightened and deals are being done. Triple-B mezz pieces, for example, have been pricing in the mid- to high-300s,” says one trader.

However, European CLO spreads are tighter than US middle market CLO spreads, according to the trader. Nevertheless, the US market remains bullish, compared to in December - given that US managers are seeing steady multiples, thanks to organic earnings.

The trader continues: “As long as that equity arbitrage works well, deals will be done.” Indeed, nine US CLOs are in the pipeline.

Stelios Papadopoulos

Structured Finance

SCI Start the Week - 14 January

A review of securitisation activity over the past seven days

Transaction of the week
BBVA has completed an innovative transaction that synchronises credit events with IFRS 9 lifetime expected loss provisions, while also being the first synthetic securitisation to incorporate blockchain technology (SCI 21 December 2018). Dubbed Vela Corporate 2018-1, the €60m financial guarantee references a €1bn Spanish corporate portfolio (SCI 11 January).

The EIF acted as counterparty to BBVA by providing a guarantee on the tranche, which will be used to provide €360m of Spanish SME financing. The agreement has been made possible thanks to the European Fund for Strategic Investments (EFSI).

The forward-looking quality of IFRS 9 is challenging for synthetic securitisations in terms of how a credit event is defined. If deals are to be executed in order to hedge IFRS 9 LEL provisions, credit event pay-outs may have to be synchronised with IFRS 9 LEL provisions rather than incurred losses (SCI 20 December 2017). Yet, in practice, such synchronisation has never occurred, since credit events are still traditionally defined as bankruptcy, restructuring or failure to pay (SCI 15 June 2018).  

The innovation of BBVA's SRT is that it mimics the P&L of the portfolio by linking credit events with IFRS 9 provisions. Pablo Sanchez Gonzalez, structured finance manager at the EIF, explains: "This was already a novelty in an SME transaction that BBVA completed with the EIF in 2017. The difference with the corporate securitisation is that you don't just have a fourth option in addition to the classical three credit event definitions - the fourth option being an increase in generic provisions - but also a tighter synchronisation of all credit events."

This raises a major similarity and difference compared to traditional synthetic deals. The similarity is that investors look at realised losses: credit events are followed by settlements - typically based on estimated losses - until realised losses are crystallised towards the end of the work-out period. The difference, however, is that settlements also take into account the impact of IFRS 9 provisions before losses are again crystallised towards the end of the work-out period.

Other deal-related news

• BCC Grupo Cajamar has completed a €972.1m Spanish true sale significant risk transfer transaction with the EIF, ICO and hedge fund investors (SCI 9 January). Dubbed IM BCC Capital 1, the transaction is the first cash SRT issued by a standardised bank and the first risk-sharing transaction by a standardised bank that involves both the EIF and private investors, paving the way for further private sector involvement in EIF transactions.
• Canadian Solar has completed the first equity securitisation to be backed by long-term contracted solar assets (SCI 11 January). The firm successfully raised ¥6.3bn from a diversified mix of Japanese and Korean institutional investors in its inaugural transaction, dubbed Canadian Solar Securitized Green Equity Trust 1.
• Freddie Mac has expanded its multifamily credit risk transfer platform with the closing of its first transaction - dubbed MCIP 2018-1 - under its new Multifamily Credit Insurance Pool (MCIP) offering (SCI 7 January). In MCIP transactions, Freddie Mac enters into long-term credit insurance contracts covering credit losses from existing multifamily loans in its portfolio or bonds that Freddie Mac fully guarantees.
• The French servicer of the Rive Defense loan, securitised in RIVOL 2006-1, received a further €4.9m in principal and €33,700 in interest. A total of €5m in cash assets will be paid to the issuer on the January payment date, marking the final payment in respect of the loan. For more on CMBS restructurings, see SCI's CMBS loan events database.
• Separate meetings of Marketplace Originated Consumer Assets 2017-1 noteholders have been convened for 14 January to consider and, if thought fit, pass an ordinary resolution in accordance with the provisions of the transaction's trust deed to dispose of 550 delinquent loans from the portfolio (SCI 11 January). Based on the cut-off date of 16 October 2018, the loans have a total principal amount outstanding of £3.86m, of which £75,102 subsequently defaulted (as of 31 December 2018). The proceeds from the sale of the assets is expected to be £957,015.

Regulatory round-up

• The facility recently inked by Texel Finance and Liberty Specialty Markets (SCI 9 November 2018) signals an increasing interest among insurers in providing meaningful risk transfer solutions for structured finance opportunities. One key area being targeted by the facility is mezzanine risk transfer for SRT transactions, following the coming into force of the new securitisation framework (SCI 10 January).

Data

Pricings
As is typical of this time of year, last week was quiet in terms of new issuance. A pair each of ABS and CMBS priced.

The ABS were US$1.23bn GM Financial Consumer Automobile Receivables Trust 2019-1 and US$550m Golden Credit Card Trust Series 2019-1, while the CMBS were US$644.1m CGCMT 2019-SMRT and US$515m NYT 2019-NYT.

BWIC volume

NPLs

Fintech deal completed

Cerberus and Debitos close NPL transaction

Cerberus has acquired a €2.1bn portfolio of Italian unsecured non-performing loans via online auction platform Debitos. The move is believed to be the largest NPL transaction undertaken in the fintech sector.

The purchase price of the portfolio could not be disclosed, although Italian unsecured NPLs typically price at 5%-15% of face value. Ernst & Young Italy executed the transaction on the Debitos platform.

However, bringing in Ernst & Young as a transaction adviser proved challenging, given the scarcity of such large online NPL transactions. Indeed, Debitos had to reconfigure the way it processes a large amount of documentation that corresponds to 200,000 individual loans.

Debitos founder and ceo Timur Peters notes: “The deal shows that transaction advisers can use online platforms, so we expect bigger ticket sizes.”

The platform’s counterbidding functionality facilitated the execution of the trade. “Typically investors don’t get the level of transparency in bidding levels that you get here. This feature allows for counterbidding until a final price is determined,” explains Peters.

NPLs are selected before data is uploaded, along with the reserve price and the duration of the auction on a centralised online platform that provides both fast valuation and real-time information on competitor bids. This process is then followed by due diligence, valuation and bidding by investors. The digital nature of the platform reduces the expected disposal time to three to eight weeks, compared to three to six months for more traditional processes.   

The announcement of the Cerberus transaction follows a 15 January European Commission roundtable of stakeholders, with the aim of agreeing industry standards for European NPL platforms. The Commission is pushing for an agreement before the European Parliament elections in May.

Stelios Papadopoulos

Structured Finance

Agency launches new Euro office

Company hires and sector developments

Europe

Alantra has hired James Fadel as md. He was previously head of structured finance advisory at Deloitte.

DBRS has opened a new office in Madrid, making this its third European office - it is already up and running with analysts having relocated to Madrid from the London office. It will assign ratings to serve market participants looking for expertise in the analysis of sovereigns, banks, covered bonds, securitisations and ultimately corporate risk.

Mayer Brown has recruited Dasha Sobornova to its banking and finance practice as a partner, based in London. Previously a senior associate at Paul Hastings, Sobornova advises arrangers, investment managers, issuers and corporate service providers on a range of structured finance work, with a particular focus on CLO transactions.

US

Finitive, a financial technology platform providing institutional investors with direct access to alternative lending investments, has appointed Steven Lee to lead the company's San Francisco office and Guido Geissler as head of capital markets based in New York. Prior to Finitive, Steven Lee worked as partner, cio, and portfolio manager at Eaglewood Capital Management, where he led the effort to pioneer Eaglewood's software and algorithms to enable programmatic analysis and purchasing of loans in the online lending sector. Geissler has extensive structured finance experience and previously worked in Macquarie’s credit markets division involved in origination, structuring and managing portfolios for principal investments and financing solutions across the capital structure for specialty lenders in the consumer, small business, corporate middle market, equipment finance, factoring and commercial receivable or residential real estate space.

Standard Solar has hired Dan Dobbs as evp, structured finance. He was previously an executive at SunEdison and co-founder of Solar Grid.

Structured Finance

Risk retention for Japan?

Sector developments and company hires

ILS

Sarah Demerling has joined Walkers Bermuda as a partner in the firm's corporate, finance and funds group. With more than 17 years' experience in the financial services industry in Bermuda, Demerling adds asset management, investment funds and ILS expertise to the practice. She was previously client director at Estera Services (Bermuda) and before that a partner at Appleby in Bermuda.

Japanese risk retention eyed

A Japanese Financial Services Agency proposal to introduce a risk retention rule may result in some Japanese investors being disincentivised from purchasing securitisation positions, where an appropriate entity has not committed to hold a 5% retention piece in the transaction. In a recent client memo, Anderson Mori & Tomotsune and Milbank notes that although the rule will apply to global securitisations, given that Japanese investors are estimated to account for 50%-75% of demand for triple-A rated CLO tranches, the proposal could have a dramatic effect on the sector. The proposal stipulates that certain types of Japanese financial institutions should apply an increased regulatory capital risk weighting to a securitisation exposure, unless it has established that the ‘originator’ of the transaction retains a ‘securitisation exposure’ in the transaction equal to not less than 5% of the total underlying assets via vertical, horizontal or ‘L-shaped’ retention. In addition, the AMT/Milbank memo highlights that the retention requirement may be met by the originator retaining an alternative exposure to the securitisation, provided that the credit risk borne by the originator for the life of the transaction is at least equal to the retention amount. Unlike in the US and Europe, the Japanese retention requirement would not apply where an investor is able to judge that the origination of the underlying assets is appropriately conducted, based on various factors such as the originator’s involvement in and the quality of the underlying assets - which AMT/Milbank suggests could be used to exempt middle market and ‘open market’ CLOs. 

Strategic alternatives

Cerberus European Residential Holdings has added Towd Point Mortgage Funding 2016-Granite 3 to the deals for which it is exploring strategic alternatives with respect to the mortgage loans held within the trusts. The firm announced the move – in connection with the Towd Point Mortgage Funding 2016-Granite1 and 2016-Granite2 RMBS – in December (SCI 17 December 2018).

US

CBRE has hired Thomas Didio as vp to its debt and structured finance team. He was previously a director at Black Bear Asset Management.

Wellfleet, the performing credit business of Littlejohn, has promoted Dennis Talley and Scott McKay to md. They both joined Littlejohn in 2015 as portfolio managers to launch the Wellfleet business. Jeff Tynik has also been promoted to senior credit analyst and loan trader, having joined Littlejohn as a credit analyst in 2015.

Structured Finance

Global investor promotes duo

Sector development and company hires

Europe

Martin Munte has been named director, investor relations at CVC Credit Partners in London. He was previously director, sales for Germany, Austria and Luxembourg at BlueBay Asset Management.

Zenith Service has recruited Maria Bianca Mascheroni as head of SPVs corporate department, based in Milan. She is tasked with coordinating and supervising all of the corporate activities required in connection with the establishment and management of SPVs incorporated to carry out securitisation transactions pursuant to Italian Law 130/1999. Mascheroni was previously head of corporate affairs and company secretary at Green Arrow Capital SGR.

US

Apollo Global Management has expanded its executive leadership team by promoting coo, credit, Anthony Civale and cfo, Martin Kelly, to serve as co-chief operating officers at the firm. Kelly will also continue in his role as cfo. Civale joined Apollo in 1999, has served in senior roles across the company and is a member of the firm’s management committee. Kelly has been the cfo at Apollo since 2012 and is a member of the firm’s management committee

Structured Finance

Innovative ILS transaction launched

Sector developments and company hires

Auto ILS closed

AlphaCat Managers has securitised a non-standard passenger auto insurance portfolio. “This innovative transaction creates new ILS market opportunities in securitizing broader classes of insurance risk. We look forward to working with more MGAs and insurers. "The bilateral transaction comprises a private placement of two tranches of notes: a US$6.67m senior note and a US$3.33m junior note, which will pay ILS fund investors retained earnings after payments made to support the senior tranche under a profit-and-loss share agreement. The funding for both notes is variable, with just-in-time capital contributions designed to closely match any increase in risk as the underlying auto insurance portfolio grows. Ledger Capital Markets acted as the structurer and bookrunner on the deal.

ILS group formed

Guy Carpenter has formed a new global capital solutions group and announced a series of new leadership appointments related to the Jardine Lloyd Thompson Group (JLT) acquisition. The global capital solutions Group – comprising the Global Capital Solutions and GC Securities businesses - will be led by David Priebe, vice chairman of Guy Carpenter, and will work closely with the firm’s analytics, strategic advisory and broking teams. Ed Hochberg, ceo of North America at JLT Re, will head the Global Capital Solutions practice, advising clients on capital, reinsurance optimisation and risk transfer solutions. Shiv Kumar will continue as president of GC Securities, responsible for the ILS and M&A practices.

Securitised assets sold

Charter Court subsidiary, Charter Mortgages Limited, has agreed to sell its residual economic interest in the Precise Mortgage Funding 2018-1B and Precise Mortgage Funding 2018-2B securitisations to Merrill Lynch International (MLI) for cash consideration of £6m, payable on completion. The transaction, which is expected to complete on 23 January 2019, will involve the sale of the RC2 residual certificates to the securitisations. MLI managed the sale process and purchased the Certificates for onward sale. The transaction will generate a pre-tax gain of £30.3m, which will be recognised in the 2019 financial year. It will also result in a reduction in the gross assets of the group of around £584m and a reduction in risk weighted assets currently attributable to the securitised mortgages of around £197m. The associated increase in common equity tier 1 capital ratio through the reduction in risk weighted assets and the gain on sale will be reinvested to support new loan originations in Charter Court's specialist lending segments and ongoing business activities. During the period between the issuance of each instrument (24 January 2018 for PMF 2018-1B and 20 March 2018 for PMF 2018-2B) and 31 December 2018, the assets being disposed of contributed around £6.9m in profit before tax.