Contents

Structured Finance

STS not yet 'embraced'

Ambiguity stifling STS label success

Uptake of the STS label has been tentative and cannot be credited with the current strong momentum in the European ABS sector. This is according to some market participants, which also suggest that greater investor support may be needed for the STS label to flourish.

Sam Ellis, svp at Maples Group, comments: “ESMA publishes all STS compliant transactions but it is worth noting that it has recorded only 11 so far, which isn’t a huge number, especially given we’re almost half way through the year. I think we could reasonably have expected to see more than that, if STS had been truly embraced.”

In terms of why this might be, Ellis says his firm has a number of clients that are grappling with the ambiguities around STS. He adds that issuers are not just looking at the applicability of its scope but also how best to comply, as there is a degree of uncertainty in the market.

Similarly, he is working on a number of public and private deals that are looking to go down the STS route, but notes that several others are waiting for further development or clarity on regulation. Some issuers, however, are building flexibility into transactions so they can become STS compliant, further down the line.

The discrepancy between some issuers going down the STS route, while others do not, is in part due to the cost of compliance, says Ellis, but it’s not the main factor for their hesitancy. This, he says, is simply that many are waiting for market practice to develop and to see the general response from investors.

There have been some suggestions around the value of acquiring the STS label at all, which Ellis says is still unclear, although he notes that investor sentiment may lead the way. “Some originators are certainly still questioning whether to do it at all and the general value in the STS label. It comes down to what the investor attitude to the label is – will it impact upon demand?”

He continues: “If some investors start to demand the STS label, then there will likely be growing impetus on issuance of STS compliant deals. Preferential capital treatment for certain investors on STS compliant deals may drive this, even if there is a cost involved.”

There have, of course, been a number of originators that have issued STS compliant transactions, although Ellis suggests that these have, so far, been larger firms with a more established issuance framework. As a result, they may be more able to meet the onerous reporting and compliance requirements, while smaller issuers might need to build out this capability.

Ellis is optimistic that the positive momentum in the European ABS market will continue to build, but says this isn’t so much a result of STS. He concludes: “STS may end up being a positive for the sector but issuance volumes are driven by several factors, such as firms choosing to utilise securitisation as a funding tool, and basic investor appetite for the product.”

Richard Budden

NPLs

NPL securitisations eyed

Fire, StormHarbour JV granted license

Greek authorities have granted a license to EuPraxis, the joint venture between Italian servicer Fire and StormHarbour. It is the first cross-asset licence for an independent servicer and non-performing loan securitisation will be a key area of focus.

George Kofinakos, md at StormHarbour and chairman of the board at EuPraxis, states: “Fire and StormHarbour have decided to combine their expertise and apply it to the Greek market like no other servicer before. Fire is the largest private servicer in Italy, with more than 26 successful years in the servicing market. StormHarbour complements the JV with its tried and tested experience in raising debt and equity for portfolios or large corporate restructurings. Furthermore, ceo Ilias Kyriakopoulos brings expertise in REO management and corporate restructuring.”

He continues: “The licence gives us the right to service loans across all asset classes, from consumer to credit cards, mortgages, SMEs and large corporates. Only a handful of NPL servicers in the Greek market have obtained this licence and EuPraxis is the only independent one that can offer a holistic approach to NPL management through independent recovery and advisory services.”

NPL securitisation will be a key area of focus. “NPL outright sales have been the preferred option for Greek banks until now. However, as the market matures, we are expecting a larger role for NPL securitisations over the next few years,” says Kofinakos.

Indeed, Greek banks have to reduce their NPL exposure below 20% over the next threeyears and the HFSF’s and the Bank of Greece’s securitisation programmes will prove crucial in this respect. The Bank of Greece’s proposal stipulates the transfer of €40bn of NPLs and approximately €8bn of tax credits, which will be used as a portfolio guarantee for the securitisation of the loans.

The HFSF’s proposal is comparable to Italy’s GACS, given the use of a state guarantee. Although both are positive developments, Kofinakos notes some drawbacks with regards to the HFSF’s proposal.

“The drawback is the gigantic Greek debt and the limitations in providing such a guarantee. The most likely scenario is a synthesis of the two proposals. This will achieve a substantial reduction in NPL exposures,” he says.

However, the servicing approach towards securitisations will not differ from that used in outright sales. Kofinakos comments: “The goal is to maximise recoveries for the beneficiary, whether an SPV and its noteholders or another party. What differs is that EuPraxis is able to cover the full range of services, thanks to the capabilities of the partners in the JV - Fire and StormHarbour. StormHarbour’s expertise in securitisation adds particular value by sourcing investors in such structures and ensuring that structural features enable an efficient investment when built alongside the servicing plan.”

EuPraxis is already working on NPL sale and securitisation projects that will be announced in due course.

The granting of the license occurs amid a pick-up in current and expected NPL securitisation issuance, as the market waits for Commission approval of the HFSF’s NPL securitisation programme. The National Bank of Greece announced recently that it would securitise €3bn of mortgage NPLs by 2022, while Eurobank is in the market with its €1bn Pillar Finance deal backed by €2bn residential mortgages. Eurobank is expected to securitise another €7.5bn of NPLs by November.

Stelios Papadopoulos

NPLs

Pillar prepped

Public Greek NPL ABS debuts

DBRS has provided the first public rating for a non-performing loan securitisation in Greece as the market awaits European Commission approval for the HFSF’s asset protection scheme. Dubbed Pillar Finance, the transaction is backed by a €2bn portfolio of principally secured residential mortgage NPLs.

Alessio Pignataro, svp at DBRS, notes: “The transaction has a double-B rating, so it could potentially benefit from the HFSF’s asset protection scheme. Greek NPL deals totalled €16bn last year, but - as with Italy - outright sales won’t be enough. Public securitisations can also spur more private sales, given added transparency and the larger size of the transactions.”

Rated by DBRS, the transaction consists of €1.044bn double-B (low) rated class A notes. The mezzanine and junior notes will be sold to investors.

The notes are backed by a €2bn portfolio in gross book value terms, consisting of restructured loans and denounced and non-denounced Greek NPLs originated by Eurobank. The majority of the portfolio comprises secured residential mortgage loans disbursed to private individuals (87% residential assets, 5.2% mixed commercial properties and the remaining 6.4% land), with 59.9% of the loans benefiting from a first-ranking lien. The properties are homogeneously distributed across Greece, with concentrations in the metropolitan area of Athens (46.6% by real estate value).

Legal factors are the primary drivers of portfolio performance. Pignataro explains: “The old Katseli law was very protective of borrowers and included loopholes that were beneficial to strategic defaulters. Law 4605/2019 (amended) reduced arbitrage opportunities and the eligibility criteria have been rendered more stringent.”

He adds: “The business plan of Eurobank includes restructuring frameworks that try to mimic certain elements of Katseli law, giving non-eligible borrowers the opportunity to restructure loans rather than liquidate. Restructuring extracts more value compared to liquidation.”

The geographical diversification of the portfolio and the secured nature of the collateral are positive rating drivers, although servicing fees are paid senior in the structure, so there’s no subordination in case of underperformance. Set to close next month, the deal is also expected to receive a recovery boost from a Greek government programme that aims to subsidise monthly mortgage payments (SCI 22 February).    

Looking ahead, Eurobank plans to securitise another €7.5bn portfolio, dubbed Project Cairo. The deal - which is expected to close in November - will be split into three tranches, consisting of senior, mezzanine and junior notes.

Half of the mezzanine notes will be sold to shareholders, while the other half will be sold to investors. Both Project Pillar and Cairo enable shareholders to benefit from an upside, notes Jonas Floriani, director of research at Axia.

However, the Cairo securitisation features a more complicated structure that protects shareholders from dilutions. Under normal circumstances, shareholders would have to suffer a dilution in their shares, given the recognition of losses that follow NPL disposals. However, Project Cairo’s securitisation structure escapes the clause that triggers such dilutions by hiving off assets to the SPV, while raising capital and recognising losses at the holding level.

Stelios Papadopoulos

Structured Finance

Investible assets

Trade finance solution to enable institutional access

Allianz Global Investors and HSBC are collaborating on a programme designed to make trade finance easily accessible to institutional investors. Dubbed Starts, the solution utilises securitisation technology to wrap loans into investible notes.

Although banks collectively provide almost US$10trn of trade finance to companies annually, the small secondary market for these assets - estimated at about US$300bn - mainly comprises bilateral trading between banks. Trade finance contracts are typically short term and self-liquidating, with default rates as low as 0.03%, but they aren’t standardised and so it can be hard for investors to price them.

The Starts solution allows HSBC to wrap a range of customers’ trade finance assets – from traditional products, such as trade loans, to structured solutions like supply chain and receivables finance – into notes that the newly-created Allianz Working Capital Fund (ALWOCA) will buy and offer to AllianzGI clients later this year. Surath Sengupta, global head of trade portfolio management and distribution at HSBC, notes: “We’re aiming for nothing less than a major reform of the trade finance market that will benefit exporters, importers and investors keen to buy into real economy transactions. Given that global demand for trade finance already outstrips supply by about US$1.5trn a year, we see huge potential for a thriving secondary market to stimulate trade in goods and services – the lifeblood of the global economy.”

Under the programme, HSBC’s global banking and markets team will pool a selection of trade finance assets originated by the bank’s global trade and receivables finance (GTRF) business and sell them to an SPV. These assets have different risk profiles and typically short tenors, such as 60-day fixed term corporate payables.

AllianzGI acts as portfolio manager for the SPV, selecting the transactions purchased. The SPV’s assets are then wrapped into notes that ALWOCA will buy, enabling the fund to take exposure to trade assets through a securities format.

This model can flex to fit the supply of suitable assets and buyer demand, with AllianzGI aiming to invest a large portion of its ALWOCA fund into the notes. ALWOCA is aiming for a duration of below one year and generate returns significantly in excess of those available in public markets for the same duration.

Deborah Zurkow, global head of alternatives at AllianzGI, says: “ALWOCA’s launch helps unlock a whole new asset class for our institutional clients, providing unique, short-dated, uncorrelated cashflows. Having pioneered infrastructure debt as an asset class, we are now putting that same entrepreneurial spirit to work to open up another new market - one that’s of significant interest to our clients and one that helps keep the wheels of commerce turning.”

HSBC and AllianzGI will initially select European corporate trade finance assets for the notes, before expanding to include other markets as demand increases.

In order to increase access to liquidity for trade finance assets, HSBC’s GTRF business has built trade asset distribution hubs in Hong Kong, Singapore, London and New York over the past three years. By working with alternative investors as well as banks, the team increased distribution volumes of HSBC trade finance assets from US$2bn in 2016 to US$32bn in 2018.

Corinne Smith

Structured Finance

MPL ABS dissected

Rating agencies clash over sector

US marketplace loan (MPL) ABS transactions have seen steadily declining credit enhancement (CE) that isn’t justified by performance on the transactions or other factors, according to a recent comment from Fitch. Coming out in defence of the sector, KBRA says that it has seen considerable improvements over a number of years and that this has led to widespread acceptance among investors.

Fitch says that credit enhancement on single-A rated US marketplace lending ABS has declined, while asset quality remained steady, meaning bondholders of more recent transactions have less loss protection for the same amount of asset risk. While the rapidly deleveraging nature of MPL ABS deals has supported stable ratings so far, this only holds when there is sufficient time for CE to build from initial levels, before the ratings are reviewed.

The rating agency notes, however, that should significant stress occur after deal closing, noteholders are likely to be subject to downgrades across the capital structure, adding that it has not assigned ratings in the sector since 1Q18.  The agency says, too, that declining CE may be warranted if the underlying collateral quality has improved but that in the case of MPL ABS, it has just remained stable.

KBRA takes a slightly more bullish tone with regard to MPL ABS, and states that it has grown in terms of total originations, with platforms maturing over time and resulting in greater acceptance among investors. It notes that the MPL ABS sector has evolved in recent years with platforms making several “improvements that address many of the key credit considerations highlighted by KBRA when it first began rating consumer MPL securitisations.”

The rating agency says, for example, that several platforms have bulked out their staff with the relevant expertise, built more sophisticated credit scoring models, built up historical performance data, tightened underwriting criteria, made operational advances - such as in fraud identification – and diversified funding sources. As a result of these improvements, KBRA suggests that this has led to more predictable credit performance and upward migration for MPL securitisations.

Furthermore, the rating agency says that spreads on consumer MPL ABS seniors rated single-A trended tighter from 1Q16 through to 2Q18. Likewise, primary market spreads reached all-time tights of 70bp over swaps at the start of 2Q18, although spreads widened 20-25bp by the end of 2018 as demand for ABS products waned.

Despite this, however, KBRA says that spreads on consumer MPL ABS have since recovered – in line with other ABS asset classes – with single-A seniors now pricing and trading around swaps plus 75bp. This, the rating agency says, suggests that investors have a favourable view of the asset class and risk-adjusted premium offered through consumer MPL ABS and, the agency concludes, consumer MPL ABS has improved since its inception, like “nearly all securitisation sectors.”

A similar tone is struck by PeerIQ, which says that as of 1Q19 the pace of issuance has recovered in benign market conditions, with ten transactions pricing this quarter, totalling US$3.6bn. It does note, however, that this represents a 14% drop over the total volume issued in 1Q18.

Furthermore, the data firm says that spreads tightened on new issuance, while yields decreased, which was a reversal from the previous quarter. PeerIQ adds that new issue spreads on consumer MPL ABS were wider on the seniors and tighter in the juniors, while spreads tightened across the stack on student loan ABS.  

Additionally, rating agencies continue to upgrade tranches, with 75 consumer MPL ABS tranches upgraded and 77 student MPL ABS tranches that are outstanding. PeerIQ says that consumer mezzanine tranches have seen the most pick up in credit enhancement.

Fitch, however, remains steadfast in its stance, adding that aside from SoFi, CE on single-A rated ABS from the most frequent MPL ABS issuers declined between 2017-2019, despite the fact that FICO borrower scores remained steady. This was in contrast, again, with SoFi, which saw incrementally stronger FICO profiles over this period.

The rating agency also says that overall the performance of the outstanding securitisations has not significantly improved to warrant the decline in credit enhancement. Furthermore, it says that the sector still suffers from limited historical data and that the MPL ABS sector is still “still unproven against the magnitude of macroeconomic stress consistent with investment-grade ratings”, but notes that it has displayed volatile performance despite this limited history.

• Meanwhile, UK peer-to-peer property lender, Lendy, has entered into administration, with Damian Webb, Phillip Sykes and Mark Wilson, all of RSM Restructuring Advisory, appointed to the task, as of 24 May 2019. The administrators are working closely with the UK FCA who consented to their appointment over Lendy, as well as Saving Stream and Lendy Provision Reserve Limited. Lendy comments that it will use its website to provide investors and creditors with information and will be updated when information becomes available on the administrations of the companies.

Richard Budden

Structured Finance

SCI podcast - episode 7 now live

All the most pressing topics in structured finance discussed

The latest edition of the SCI podcast is now live. This month, we take a look at servicing within subprime auto ABS and also how consolidation is becoming a running theme, with several acquisitions of smaller, regional issuers’ portfolios having been witnessed recently.

As well as this, the podcast explores the student loan crisis in the US, asking the question, will servicers be able to handle a large rise in defaults? Many market participants think not.

Finally, we discuss the recent defaults of the UK firms, Carillion and Interserve, and what this may be able to teach the capital relief trade sector about forecasting loss and recovery rates for businesses referenced in CRTs.

The podcast can be accessed on the website here and it is also available through Spotify and iTunes.

Capital Relief Trades

Interpretation issues

Credit Suisse completes capital relief trade

Credit Suisse has completed its first capital relief trade of the year, dubbed Elvetia Finance series 2019-1. The Sfr336m eight-year CLN references a Sfr5.6bn Swiss SME portfolio and is a replacement trade for Elvetia Finance series 2016-1, following the call of the transaction in May (see SCI’s capital relief trades database).

The deal attracted healthy investor interest and was structurally similar to past Elvetia trades. However, it represents another example of the data interpretation issues that CRT issuers and investors have to grapple with when complying with ESMA’s securitisation disclosure requirements.

The latest Elvetia trade priced at a tight Libor plus 7.9%, albeit slightly higher than last year’s Elvetia Finance series 2018-6 (which priced at Libor plus 7.75%). Features include a weighted average life equal to 1.8 years and a sequential amortisation structure, as well as a call option that can be exercised after three years.

The investor base ranged from hedge funds and asset managers to pension funds and professional family offices. The Elvetia deals have been performing well, while offering diversification, given that most risk transfer transactions don’t reference Swiss loans.

ESMA’s securitisation disclosure requirements apply to both public and private securitisations and raise a number of compliance issues pertaining to the collation, collection and interpretation of data (SCI 22 February). Banks believe that information that can’t be collected or is alternatively stored in different systems can be addressed through the no-data options (ND1-4).

Interpreting data for the reporting templates requires context and a detailed understanding of the issuing bank’s business model. The ‘origination date’ of a short-term rollover loan, for instance, could refer to the most recent advance or to the very first initial advance, which may go back years. Similarly, the ‘original principal balance’ could refer to two different origination dates.

Stelios Papadopoulos

CMBS

Morgan indicted

CMBS properties to be forfeited upon conviction

The US Attorney’s Office for the Western District of New York has issued a 114-count superseding indictment charging Robert Morgan, Frank Giacobbe, Todd Morgan and Michael Tremiti with conspiracy to commit wire fraud and bank fraud in a US$500m mortgage fraud scheme. KBRA has identified 11 CMBS loans with an unpaid principal balance of US$264.4m that are secured by properties named in the conspiracy, four of which have transferred to special servicing.

According to the indictment, between 2007 and June 2017, the defendants conspired with Kevin Morgan, former Aurora Capital Advisors mortgage broker Patrick Ogiony, Morgan Management coo Scott Cresswell and others to fraudulently obtain funds, assets and securities from financial institutions and the GSEs by overstating the incomes of properties owned by Morgan Management or certain of its principals. The false information allegedly induced financial institutions to issue loans for greater values than they would have authorised or would not have issued, had they been provided with truthful information.

To facilitate the conspiracy, Morgan Management provided property management, accounting and financial reporting services for the properties owned by limited liability companies controlled by Robert Morgan. The defendants also conspired to: manipulate income and expenses for properties to meet DSCRs required by lending institutions; present lending institutions with inflated construction contracts and invoices that falsely reported that the contractor constructing a property was being paid more than the contractor was actually being paid; employ various mechanisms to mislead inspectors, appraisers, financial institutions and GSEs with respect to the occupancy of properties; falsely inflate the amounts owed on properties; and present false and inflated contracts and invoices for repairs to insurers after damages to properties. Additionally, the defendants are charged with money laundering conspiracy for engaging in monetary transactions in excess of US$10,000 using the proceeds of wire fraud and bank fraud.

During the course of the conspiracy, Robert Morgan was the managing member and ceo of Morgan Management, and also controlled and owned a substantial portfolio of real estate holdings. Giacobbe owned and operated Aurora Capital Advisors and employed others to assist him in brokering real estate loans. Todd Morgan and Tremiti were employed at Morgan Management, as a project manager and director of finance respectively.

The charges carry a maximum penalty of 30 years in prison and a fine in the amount of double the loss caused by the crimes, which is currently estimated to exceed US$25m. 

Kevin Morgan and Ogiony were previously convicted of conspiracy to commit bank fraud, and Cresswell was previously convicted of conspiracy to commit wire fraud for their roles in the fraud scheme (SCI 8 June 2018). All three defendants are awaiting sentencing.

Based on new information that came to light during the investigation, Freddie Mac is in the process of obtaining additional information from master servicers for all loans in Freddie K series CMBS with exposure to Robert Morgan. The GSE states that all payments connected to loans securitised in a Freddie Mac transaction with exposure to Robert Morgan are current, as of the April 2019 remittance period.

However, KBRA notes that one loan - Reserve at Southpointe, securitised in FREMF 2016-K57 - transferred to special servicing in March 2019. The other properties identified in the conspiracy that have transferred to special servicing are Brookwood on the Green (securitised in COMM 2014-CR17), Rivers Pointe Apartments Phase II (COMM 2014-UBS6) and Preserve at Autumn Ridge II (CSAIL 2016-C7).

The financing packages for a number of the loans included mezzanine debt held by SteepRock Capital, which is seeking to foreclose on the equity interests of the borrowers based on accounting irregularities, according to KBRA. Special servicer commentary states that SteepRock has foreclosed on the Rivers Pointe Apartments Phase II loan and is now in ownership of the collateral. Meanwhile, the Preserve at Autumn Ridge II loan is delinquent, as of May 2019, and is also subject to a foreclosure complaint and a motion to appoint a receiver for the property.

Overall, KBRA has identified 170 loans totalling US$1.79bn affiliated with Morgan and related entities as a sponsor across 81 CMBS. Approximately 58% of the exposure by balance comprises loans securitised across 35 Freddie K transactions. The remaining balance is made up of loans securitised in 46 post-crisis conduit transactions.

The agency notes that six CMBS have exposure to properties that would be subject to forfeiture in the event of a conviction: COMM 2013-CR9 (Ellicott Apartments), as well as FREMF 2013-K29 (Rugby Square Apartments), 2013-K30 (Park Place Apartments), 2015-K44 (Avon Commons), 2015-K48 (Rochester Village Apartments at Park Place) and 2016-K57 (Reserve at Southpointe).

Concurrent with the criminal charges against Robert Morgan, the US SEC filed an emergency action charging him with defrauding investors with a Ponzi-like scheme related to two of his entities, Morgan Mezzanine Fund Manager and Morgan Acquisitions (SCI 24 May).

Corinne Smith

RMBS

BTL RMBS market surging

UK RMBS sector continues to thrive

The buy-to-let RMBS market continues to see heavy issuance in Europe with two new transactions marketing this week. One is a prime inaugural securitisation from UK marketplace lending firm LendInvest, while the other is a deal backed by nonprime BTL mortgages from two previous securitisations.

LendInvest’s debut £259.2m buy-to-let RMBS transaction is dubbed Mortimer BTL 2019-1 and is backed by 713 mortgages extended on residential properties to prime private and commercial borrowers in England, Scotland and Wales.

The transaction has been provisionally rated by and Fitch and Moody’s as AAA/Aaa on the £215.1m class A notes, AA-/Aa1 on the £14.3m class B notes, A-/A1 on the £13m class C notes, BBB-/Baa1 on the £9.1m class D notes and CCC/B3 on the £7.8m class E notes. All the notes are offered, barring the class Es and they are all tied to Sonia.

Moody’s notes that as well as being the first RMBS securitisation from LendInvest, the firm is also acting as servicer on the deal. It has, however, delegated the servicing activity to Pepper UK.

The rating agency says that the deal benefits from a static structure – with no revolving period – so there is no additional loss potentially arising from replenishing portfolios. Likewise, there are no product switches and further advances allowed, limiting adverse changes to the portfolio after closing.

Furthermore, the transaction benefits from interest coverage ratio criteria that, the rating agency says, are stronger than the market average for complex BTL products. Additionally, the portfolio has a relatively low weighted average LTV of 71.1%, while positive excess spread on the deal provides an extra layer of protection.

On the downside, says Moody’s, LendInvest presents some operational risk as an unrated entity having only started operating in 2008. Likewise the firm has limited historical data and the portfolio demonstrates “vintage concentration”, with the majority of the BTL portfolio originated in 2018 and 2019.

The second new BTL RMBS is dubbed Stratton Mortgage Funding 2019-1 and the provisional pool totals £407.3m and comprises UK non-conforming BTL and owner-occupied residential mortgages. The issuer will purchase the beneficial interest in an initial portfolio of UK residential mortgages from the seller - Ertow Holdings IV - using the proceeds from the issuance of the rated notes and the unrated Z1 notes.

According to Rabobank, the provisional pool is backed by legacy loans previously securitised in Residential Mortgage Securities 25 or Moorgate Funding 2014-1. The bank’s analysts add that the loans have been originated by a variety of lenders including GMAC, Mortgages Plc, Kensington, Edeus, Paragon, Wave and Close Brothers.

The deal is provisionally rated by S&P and DBRS as AAA/AAA on the class As, AA+/AA on the class Bs, AA/A (low) on the class Cs, AA-/BBB (low) on the class Ds and BBB+/B on the class Es while the rest of the notes are not rated. The notes will be tied to Sonia plus a margin and classes A to E are offered while classes F, Z1, Z2 and Z5 are retained.

Richard Budden

Structured Finance

Agency acquisition announced

Sector developments and company hires

Agency acquisition

Morningstar has entered into a definitive agreement to acquire DBRS, the world’s fourth-largest credit ratings agency, for a purchase price of US$669m. The combination of DBRS with Morningstar Credit Ratings’ US business will expand global asset class coverage and provide an enhanced platform for providing investors with leading fixed-income analysis and research. Morningstar intends to fund the transaction with a mix of cash and debt, which will include the placement of a new credit facility at closing. The transaction is expected to be accretive to net income per share in the first fiscal year after completion with an estimated closing in the 3Q19, subject to regulatory approval and customary closing conditions.

GACS extension approved

The European Commission has approved, under EU State aid rules, the third extension of the GACS scheme (to 27 May 2021) to facilitate the securitisation of non-performing loans. The scheme was initially approved in February 2016 and last extended in August 2018 (SCI 5 September 2018). Between February 2016 and November 2018, the scheme was accessed 17 times, removing €51bn (gross book value) of NPLs from the Italian banking system - which corresponds to almost two-thirds of the total reduction of non-performing loans in Italy during that period. The Commission's assessment showed that, under the scheme, the State guarantees on the senior notes will continue to be remunerated at market terms according to the risk taken – in other words, in a manner acceptable for a private operator under market conditions.

Homogeneity RTS released

The European Commission has published the delegated act for the regulatory technical standards (RTS) on homogeneity, a key requirement in the STS securitisation framework. The final text is similar to the standard developed by the EBA, according to Rabobank credit analysts, with some small differences. The RTS states that underlying exposures shall be deemed to be homogeneous where they: correspond to one of eight asset types (including residential and auto loans/leases, and credit card receivables); are underwritten in accordance with standards that apply similar approaches for assessing associated credit risk; are serviced in accordance with similar procedures for monitoring, collecting and administering cash receivables on the asset side of the SSPE; and one or more of the homogeneity factors are applied. The act will only go live once published in the official journal.

Structured Finance

Indian RMBS market in the works?

Sector developments and company hires

Alt sales head hired

Schroders has hired Peter Arnold to lead its alternative sales unit, which was established last year and focuses on the distribution of the firm’s private assets investment offering, which includes ILS and securitised credit. He reports to Schroders global head of distribution John Troiano and global head of private assets Georg Wunderlin. Arnold was most recently global head of international fund distribution at Citi, specialising in private debt, real estate and global infrastructure. Prior to that, he worked at JPMorgan, UBS and SG.

Community bank debt fund launch

Angel Oak has priced a registered public offering of 10,750,000 common shares of the Angel Oak Financial Strategies Income Term Trust (FINS), a closed-end fund that will invest in the community bank debt sector at a public offering price of US$20.00 per share, for gross proceeds to the fund of US$215m. The offering is subject to customary closing conditions and is expected to close on 31 May 2019. Led by Angel Oak’s experienced community bank team, FINS will invest in community bank debt including securitisations of community bank debt.

RBI MBS committee

The Reserve Bank of India has formed a committee on the development of a housing finance securitisation market, with a view to reviewing the existing state of mortgage securitisation in the country, the various issues constraining market development and to develop the market further. The mortgage securitisation market in India is primarily dominated by direct assignments among a limited set of market participants and the RBI notes that for a vibrant securitisation market to develop, it is imperative that the market moves to a broader issuance model with appropriate structuring of the instruments for diverse investor classes. At the same time, the bank says it is critical to address the issues of misaligned incentives and agency problems resulting from information asymmetry between originators and investors. Consequently, it is calling for a robust and transparent securitisation framework to be created. The committee will submit its recommendations by end-August 2019.

Structured Finance

Bank nabs CLO expert

Company hires and sector developments

Mizuho has hired Stefan Stefanov as director, Euro CLO specialist and he will report in to Juan-Carlos Martorell and Andrew Feachem in the securitised products and structured finance team. Stefanov will join in July from Commerzbank where he was director in the treasury investment office. In this newly created role, he will be performing a structuring, origination and syndication role for Euro CLOs.