Contents

Structured Finance

Easing up

European ABS market update

Activity levels have been high across European ABS/MBS and CLOs of late, but appear to be easing up ahead of the Global ABS conference next week.

“It’s been pretty busy in both primary and secondary over the past couple of weeks,” says one trader. “We’ve seen a lot of new deals being priced in the run up to Barcelona and a fair amount of secondary activity revolving around bid lists.”

However, the trader adds: “It has felt like people clearing the decks, making space for new issuance and tidying up their books. Equally, I’m not sure how much paper is reaching end-accounts – the dealer bid is pretty significant, given the selling seems to be combining with new issuance and therefore they are taking the lion’s share of secondary.”

In any event, the BWIC and new issuance pipeline is easing up for the week ahead, though a large auction of mainly GBP ABS/MBS due yesterday is still holding participants’ attention. “I heard that all the line items traded, but we’ve not yet seen covers or had any colour as to where it ended up. It was an odd list in that it involved a bunch of fairly small pieces, but they were from all parts of the capital structure in different deals, so everyone was interested,” says the trader.

Despite the hefty supply and macro volatility, pricing levels in most ABS/MBS sectors are steady. “Spreads have generally held up well, given the moves in broader credit in the past couple of weeks,” the trader confirms. “The latest NewDay deal priced at the tighter end yesterday, as did some of the RMBS we saw last week.”

The four non-retained tranches of NEWDAY FUNDING 2019-1 priced as follows: £149.7m class As at SONIA plus 128bp; £23.1m class Bs at SONIA plus 190bp; £33.9m class Cs at SONIA plus 250bp; and £42.3m class Ds at SONIA plus 310bp. One more European ABS/MBS deal is set to price pre-Barcelona – the Bowbell No.2 UK RMBS - and just two ABS/MBS BWICs remain in the visible pipeline.

The European CLO market has a little more supply coming in the form of five BWICs due today and a further three tomorrow (see SCI’s BWIC calendar), but prices there have been less robust. “CLOs are a bit softer, particularly down the capital structure and in lower tier names,” says the trader.

Mark Pelham

Structured Finance

SCI Start the Week - 3 June

A review of securitisation activity over the past seven days

Transactions of the week
The buy-to-let RMBS market continues to see heavy issuance in Europe with two new transactions marketing this week (SCI 29 May). 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 benefits from interest coverage ratio criteria that, Moody's 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.

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.

The provisional pool is backed by legacy loans previously securitised in Residential Mortgage Securities 25 or Moorgate Funding 2014-1.

Other deal-related news

• 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 (SCI 31 May). Dubbed Pillar Finance, the transaction is backed by a €2bn portfolio of principally secured residential mortgage NPLs.
• Credit Suisse has completed its first capital relief trade of the year, dubbed Elvetia Finance series 2019-1 (SCI 29 May). 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 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 (SCI 30 May). 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.

Regulatory round-up

• The EBA is set to publish a discussion paper on STS criteria for synthetic securitisations in September, which is expected to further facilitate significant risk transfer through provisions for excess spread and triggers from pro-rata to sequential amortisation (SCI 22 June 2018). However, uncertainty over the risk weights for retained tranches persists (SCI 29 May).
• Uptake of the STS label has been tentative and cannot be credited with the current strong momentum in the European ABS sector (SCI 31 May). This is according to some market participants, which also suggest that greater investor support may be needed for the STS label to flourish.
• The European Commission has published the delegated act for the regulatory technical standards (RTS) on homogeneity, a key requirement in the STS securitisation framework (SCI 29 May). The final text is similar to the standard developed by the EBA, according to Rabobank credit analysts, with some small differences.
• 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 (SCI 29 May). The scheme was initially approved in February 2016 and last extended in August 2018 (SCI 5 September 2018).
• 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 bank is calling for a robust and transparent securitisation framework to be created. The committee will submit its recommendations by end-August 2019.

Data

Pricings
A mixed bag of securitisations priced last week, from a variety of jurisdictions. As usual, ABS accounted for the majority of prints, but there was a good showing of RMBS and CLOs too.

Last week's ABS new issues comprised: US$1.3bn Applebee's Funding/IHOP Funding series 2019-1, US$600m CARDS II Trust series 2019-1, US$80m Hana Financial 2019-1, US$800m Kubota Credit Owner Trust 2019-1, US$306.11m Prosper Marketplace Issuance Trust 2019-3, €500m Silver Arrow Merfina 2019-1 and US$938.73m SpringCastle Funding 2019-A. Among the CLO prints were: US$455.7m AIMCO CLO 10, US$499.56m Audax Senior Debt Middle Market CLO I, US$508.05m Dryden 68 CLO, US$507.5m FS KKR Middle Market CLO 1, US$457m HPS Loan Management 14-2019 and US$743.3m Palmer Square CLO 2015-1 (refinancing).

The US$629.05m-equivalent Lanark 2019-2, €422m Media Finance 2019, A$1.75bn SMHL Series Securitisation Fund 2019-1 and US$274.86m Spruce Hill Mortgage Loan Trust 2019-SH1 accounted for the RMBS pricings. Finally, among the CMBS prints was the £226m Scorpio (ELoC 34) deal.

BWIC volume

Podcast
The latest edition of the SCI podcast is ready to download. We take a look at subprime auto ABS servicing and portfolio transfers, the US student loan crisis and the impact of the Carillion and Interserve defaults on the capital relief trades sector. The podcast can be accessed on the website here and it is also available through Spotify and iTunes.

Upcoming SCI event
Middle Market CLOs, 26 June, New York

Structured Finance

'Significant divergence' in Libor preparations

Libor transition still 'choice rather than necessity' for some firms

There are still a “number” of firms in the UK that view the transition from Libor to a new reference rate a choice, rather than a necessity, according to the responses from a request for information published by the UK's financial regulators. The regulators also found that there is “significant divergence” in the way certain UK firms are managing the Libor transition.

The UK FCA and PRA has published the key findings from a request for information (ROI) in September 2018, sent to banks and insurers regarding preparations for the transition away from Libor to alternative interest rate benchmarks. The responses highlight what these firms have done so far in making this transition and the progress made to move to another rate.

According to the responses, many firms have undertaken a comprehensive assessment of how Libor interacts with their business, involving a range of shareholders. For some firms, this went as far as looking beyond balance sheet exposure and at where Libor is present in pricing, valuation and risk management.

The regulators note that “most” firms recognise the need to transition away from Libor, although some have limited understanding of the inherent weaknesses in Libor and some see the transition as a choice rather than a necessity. They also find that firms have found exposure to Libor is not just embedded in assets and liabilities structures, but also in applications and infrastructure used for valuation, pricing, performance evaluation and risk management.

In terms of quantifying Libor exposure, some firms still lack the ability to provide a clear understanding of current Libor exposure, including where contracts mature after 2021. As such, the PRA and FCA say they expect firms to implement the necessary tools to monitor their Libor exposures and other risks.

Further to this, most firms indicate that they have to extract exposure information manually requiring considerable time and effort with “varying degrees of robustness in these numbers.”

An additional finding is that a clear governance framework, reporting to key senior managers was a good determinant of a strong response. As such the regulator recommends that firms should develop a project plan for transition, including key milestones and deadlines to ensure delivery by the end of 2021 and it will likely need to involve nominating a senior executive to oversee the project.

The regulators also find that there is “significant divergence in the governance structures described in firms’ responses, most notably influenced by the scale and type of firm responding” such as if they are domestic or international. Additionally, they find that project plans by these firms are of varying degrees of granularity and only a small number of firms have completed detailed resourcing work to assess the level of support transition work required for an effective transition.

In terms of prudential risks, the regulator also notes that some firms have completed a detailed risk assessment, subject to review and challenge, but that an even better indication of progress is where firms have considered all the risks of the transition which could be relevant to its operations. With regard to conduct risks, the PRA and FCA says that some firms have considered a range of conduct risks, including management of potential asymmetries of information and the potential for conflicts of interest when forming a transition plan.

The regulator notes too that the strongest responses came from firms indicating that they are using Libor discontinuation at the end of 2021 as a base case scenario in order to plan and manage their risks. In line with this the PRA and FCA recommend that firms should plan based on the likely cessation of Libor at the end of 2021.

The regulators also state, however, that a small number of firms continue to assume that there will be extended transition arrangements for Libor. As such, these firms are planning assumption and actions on this basis.

The FCA and PRA also note that stronger responses demonstrated a good understanding and engagement with transition issues and evidence an understanding of the impact of Libor on their business. In line with this, it says stronger responses came from firms that showed an up-to-date understanding of relevant industry initiatives and the regulatory bodies recommend that companies consider the role they play in driving consensus and market standards as well as what contingency plans they have in place.

Despite this, there is a “wide range of understanding of, and engagement with, the various initiatives being led by market participants, trade associations and regulators” including the replacement rate they are hoping to utilise. However, some firms are still adopting a “wait and see” approach in terms of further regulation that may be introduced.

The regulators note also that stronger responses came from firms that are looking at opportunities to proactively transact RFRs to reduce the risks from Libor discontinuation or to take steps to incorporate robust fallback language. However, they also state that a “significant number” of firms don’t appear to have plans to support transacting alternatives and a “number” of firms are relying on the development of “market solutions to overcome potential barriers to transition.”

In the US, the ARRC has released fallback language for US dollar Libor-denominated securitisations. In a speech on Monday, Randal Quarles, vice chair for supervision of the board of governors of the Federal Reserve System, at the ARRC roundtable, commented that the ARRC has also now provided the tools to enable firms to manage the transition away from Libor but that it is now up to businesses to begin using them.

He comments: “With only two and a half years of further guaranteed stability for Libor, the transition should begin happening in earnest. I believe that the ARRC has chosen the most viable path forward and that most will benefit from following it, but regardless of how you choose to transition, beginning that transition now would be consistent with prudent risk management and the duty that you owe to your shareholders and clients.”

Of the ARRC’s recent fallback recommendations, he said that this represents a significant body of work on the part of a wide set of market participants and sets out a robust and well-considered set of steps that consider an end to Libor. He also notes that it is “important for prudent risk management and your fiduciary responsibilities that you incorporate better fallback language. Issuers should demand it of themselves, and investors should demand it of issuers.”

However, he adds that the easier path is for firms to “simply stop using Libor”, urging those that are continuing to use it out of comfort to reconsider, as “history may not view that decision kindly.” He also tries to assuage concerns with regard to banks being penalised for switching to SOFR and states that, “choosing to lend at SOFR rather than Libor will not result in lower projections of net interest income under stress in the stress-test calculations of the Federal Reserve.”

Additionally, Moody’s comments that adoption of the ARRC's recommended language would be credit positive for new securitisations with Libor exposures, because inconsistency in transition mechanisms across derivative and debt sectors heightens certain risks. In particular, the rating agency comments, inconsistencies would likely expand the risk of diverging cash flows in structured finance transactions, as well as the risk of reduced market liquidity negatively affecting securitisation sponsors or their underlying borrowers.

Consequently, the rating agency says that the adoption of ARRC’s fallback language would also be credit positive because it calls for relying on guidance from a relevant governmental body. Namely, this would be “the Federal Reserve Board, New York Fed, ARRC, or a future panel similar to ARRC – for some steps in calculating new bond benchmarks, which would reduce legal and operational risks."

Richard Budden

Capital Relief Trades

Risk transfer round-up - 7 June

CRT sector developments and deal news

Santander is believed to be readying three SME significant risk transfer transactions, along with a rumoured auto deal. The Spanish lender’s last SME SRT closed in July. Dubbed FT Pymes Magdalena, the €166.3m CLN pays 8.85% and references a €2.5bn Spanish SME portfolio (see SCI’s capital relief trades database).

CMBS

Lineage lines up

UK cold storage CMBS debuts

Lineage Logistics Holdings is in the market with a CMBS backed by 14 temperature-controlled and ambient storage industrial properties located throughout the UK. Dubbed Cold Finance, the deal securitises a £282.8m floating-rate senior loan advanced to four borrowers - Wisbech Propco, Real Estate Gloucester, Harley International Properties and Yearsley Group - ultimately owned by Lineage.

The loan refinances an initial bridge facility provided by Goldman Sachs for the acquisition of the Yearsley Group in November 2018 and a further refinancing of two existing UK cold storage assets. The Yearsley Group owns 12 temperature-controlled storage facilities, with five of the assets providing a mixture of chilled and ambient storage options and the remainder offering frozen storage. The ongoing management of the portfolio will be brought within Lineage’s operations, which is part of a wider European platform established in 2017, according to DBRS.

The portfolio’s net lettable area of 2.6 million square-feet was 77.8% utilised by over 1000 customers over a 12-month period ending in December 2018. The top 10 customers contributed 49% of the total sum invoiced last year (£87m). The top two customers - Brakes and Unilever - account for approximately 22% of the total sum invoiced.

DBRS notes that the portfolio is located strategically close to customers’ distribution centres, as well as their target market throughout the UK, including one property in Scotland. The two largest assets by market value are located in Gloucester and Wisbech, Cambridgeshire.

In DBRS’s view, the senior facility represents moderate leverage financing with a 68.6% LTV, based on CBRE’s valuation of £412.1m (dated 31 March 2019). The loan bears interest at a floating rate equal to three-month Libor (subject to a zero floor) plus a margin that is a function of the weighted average of the aggregate interest amounts payable on the notes. As such, there is no excess spread in the transaction and ongoing costs will ultimately be borne directly by the borrowers.

The loan structure includes financial default covenants, such that the borrower must ensure that the LTV ratio is less than 83.6% and the debt yield on each interest payment date must not be equal to or less than 8.6%. Other standard events of default include a missing payment, borrower insolvency and a creditor’s process or cross-default.

DBRS points out that the transaction benefits from a £13m liquidity support facility provided by Credit Agricole. This facility may be used to cover shortfalls on the payment of interest due to class A to D noteholders and no more than 20% of the outstanding class E notes. The agency estimates that the liquidity reserve amount will be equivalent to approximately 12 months on the covered notes, based on an interest rate cap strike rate of 3% per annum and approximately nine months of coverage based on the Libor cap after loan maturity of 5% per annum.

The expected maturity of the loan is three years. However, the sponsor can exercise two one-year extensions subject to certain conditions.

DBRS has assigned expected ratings of triple-A to the class A notes, double-A (low) to the class Bs, single-A (low) to the class Cs, triple-B to the class Ds and double-B (high) to the class Es. To satisfy risk retention requirements, Lineage will retain - through its majority-owned affiliate - a residual interest consisting of no less than 5% by subscribing to the unrated and junior-ranking £14.2m class R notes. This retention note ranks junior to all rated notes in the transaction in relation to interest and principal payments.

Cold Finance is the second UK CMBS to be issued in 2019, following Morgan Stanley’s Scorpio (ELOC 34), which priced last week.

Corinne Smith

NPLs

JV announced

Intrum acquires Piraeus platform

Intrum is set to purchase Piraeus Bank’s servicing platform, which will be hived-off into a separate €410m legal entity dubbed NewCo. The transaction is Intrum’s first such acquisition in Greece and follows its joint venture with Intesa Sanpaolo last year and similar acquisitions in Italy (SCI 14 December 2018).

Intrum will fully consolidate the entity and own 80% of it, while Piraeus will own the remainder. The total purchase price for Ιntrum’s 80% share of the platform has been agreed at €328m and the transaction is expected to close in October.  

“This is the first strategic partnership that we have entered into in Greece and another example of our growing foothold in the market. We see an uptick in the Greek economy that improves recoverability and collectability of non-performing exposures,” says Thomas Moss, investor relations director at Intrum.

NewCo will service €28bn (GBV) of the Greek lender’s NPEs and REOs over a 10-year period, with the majority of the loans transferred to an SPV. However, the €1bn REO portfolio will be serviced by a separate servicer.

Unlike previous joint ventures, such as the Intesa deal, this latest acquisition doesn’t involve the securitisation of non-performing exposures. Although the Piraeus deal includes an SPV, the vehicle is used solely for ring-fencing purposes. The ring-fencing would compensate Intrum, should Piraeus decide to move NPE assets in and out of the SPV.

Furthermore, unlike the Intesa venture, Intrum is only buying the servicing platform and not the portfolio.

Maths Liljedahl, analyst at Handelsbanken, explains: “In the Piraeus case, they are running the portfolio through the servicing platform without taking any of the risk of owning it. They can’t do a securitisation if the portfolio is still consolidated with Piraeus.”

In both cases, however, the joint venture model provides the bank with skin in the game. Ermin Keric, analyst at Nordea, notes: “The bank has an incentive to provide good volumes of NPLs and retain exposure. In Greece, though, investors are limited in their choices, given the lack of an independent servicing market. Greek banks have typically serviced their NPLs internally.”

Analysts suggest that further joint ventures by Intrum are unlikely this year, given that it is expected to focus more on improving margins through collections on existing portfolios.

Looking ahead, Liljedahl concludes: “Intrum will most likely boost margins by improving collections rather than acquire new portfolios. It has confirmed that it won’t be moving with more acquisitions for this year and given its stressed financials, I think that’s a smart thing to do. Its target is Skr8.5bn for the year, which includes the Piraeus acquisition.”

Stelios Papadopoulos

NPLs

Deleveraging continues

UniCredit expands NPL ABS programme

UniCredit has expanded its Sandokan non-performing loan ABS programme. While the transaction is being carried out for asset management purposes, deconsolidation is expected to be achieved at some point, with the bank aiming for a gradual approach in order to mitigate the P&L impact of the deleveraging.

The transaction involves the transfer of management and special servicing activities to Aurora Recovery Capital (AREC), a special servicer with a track record in real estate NPE management. AREC is owned by Finance Roma, GWM and PIMCO.

The expansion of the Sandokan programme - which is a co-investment programme between UniCredit, PIMCO, GWM and Aurora - is designed to freeze risks connected to certain loans and boost their future value through proactive asset management and new funding. The first Sandokan transaction closed in December 2016 and securitised €1.3bn of real estate-backed loans.

The latest deal will not result in the deconsolidation of UniCredit's portfolio - although the bank confirmed that this won’t be excluded in the future.

Massimo Famularo, board member at Frontis NPL, notes: “Any deterioration in credit quality ends once you transfer the assets to the SPV. The involvement of PIMCO, GWM and Aurora’s special servicing capabilities will improve the quality of the underlying assets and therefore increase expected recoveries. However, the deal will achieve deconsolidation at some point, but the bank has to transfer tranches gradually in order to mitigate the P&L impact.”

Indeed, one analyst states: “The market will note this deal as having taken place because the loans are up for sale and won’t appear in the financial statements. It’s a small transaction when compared to other deals in the market, including UniCredit’s €17.7bn FINO deal, so it’s an incremental step. As with FINO, the bank won’t deconsolidate immediately, but it will happen as it sells more tranches over time.”

Sandokan 2 is expected to include loans of up to €2bn in gross book value terms, which are widely believed to be unlikely to pay. The loans will be transferred to Yanez SPV, the Sandokan programme’s securitisation vehicle. The transfer of the loans to Yanez is expected to take place in multiple tranches, with the first tranche planned for mid-June.

Stelios Papadopoulos

RMBS

Option boost?

Conditions ripe for UK RMBS calls

Ten UK RMBS transactions have call dates during the remainder of the year and the refinancing of these deals should boost issuance volumes (SCI 18 January). However, while the incentives and conditions for exercising these calls are present, funding issues could raise obstacles.

The deals with 2019 call dates comprise: Hawksmoor Mortgages 2016-1 and 2016-2, and Thrones 2014-1 (with call dates in August); Gosforth Funding 2014-1, Paragon Mortgages No. 23 and Towd Point Mortgage Funding 2016 - Auburn 10 (October); Albion No. 3, Finsbury Square 2016-2, Towd Point Mortgage Funding 2016 - Granite 3 and Towd Point Mortgage Funding 2016 - Vantage 1 (November). They were issued between 2014 and 2016 and include legacy collateral from specialised and buy-to-let lenders.

Two principal conditions have to be satisfied for call option holders to exercise their right: the economics need to make sense; and option holders should enjoy a sufficient level of funding in order to make the call. According to Alastair Bigley, credit analyst at S&P, the economic incentives for calls are satisfied at present.

“Current spreads are at levels that encourage calling UK RMBS deals before step-up margins kick in,” he confirms. “Furthermore, the cheaper senior debt gets paid first over time, so you’re left with the most expensive tranches. Calls then become advantageous, since they offer the chance to restructure the deals and keep the cost of funding low.”

Additionally, calls may become necessary for reputational reasons, even if there are no economic benefits in exercising them. Although call options are defined as options, in practical terms the market often interprets them as a "promise to do so". If an issuer does not honour the call, investors will be less likely to invest in future transactions.

Since 2010, step-up margins have moved towards 1.5x rather than 2x, which has coincided with a period of narrowing margins – meaning that UK issuers have tended to honour their call options. During this time, the cohort of mortgage originators also expanded and, as such, originators were keen to establish long-term programmatic RMBS issuance.

For the 10 RMBS with the ability to call in 2019, on average S&P calculate the estimated current weighted-average margin to be 1.14%. After the step-up margin, the agency anticipates that this figure will rise to 1.89%.

However, a call option can only be honoured if the option holder has the financial means to do so. For banks with alternative sources of funding, this might be perceived as a lower risk than for non-bank lenders that are reliant on wholesale and capital markets funding.

Bigley concludes: “Typically, there is a high correlation between high spreads in term securitisations and the cost of warehouse funding. Warehousing is the only alternative source of funding to securitisation for non-bank lenders, so if there is spread widening, it will make it more difficult for them to get that funding.”

Stelios Papadopoulos

Structured Finance

Bank bulks up commodities expertise

Company hires and sector developments

Bank bulks out commodities unit

Credit Agricole has hired Aude Sauty de Chalon as director, structured commodity finance, EMEA. She was previously deputy head of commodity and structured finance at ICBC, London. The firm has also hired Badia Taleb-Nehlil as ed, structured commodity finance at the same bank and both hires are based in London.

Verification agent expands

PCS has hired Martina Spaeth as a senior analyst to work on STS verifications. Martina joins PCS from FMS Wertmanagement AoR in Munich which she joined from Unicredit’s German and Austrian securitisation business.

Structured Finance

Agri-linked note prepped

Company hires and sector developments

Agri-linked note prepped

The African Development Bank has approved a €100m partial credit guarantee (PCG) to African Agriculture Impact Investments (Mauritius) to develop commercial agriculture in Africa. The company will leverage the PCG to catalyse additional financing from international pension funds through an agri-linked note to facilitate investments in sustainable farmland and agricultural infrastructure across Africa. It will be authorised to operate in various African countries through an SPE that will include two other active portfolios worth €62.5m.

CRE insurance offering

LGIS Group has launched a commercial property loan insurance (CPLI) product aimed at the commercial real estate finance industry. Similar in concept to private mortgage insurance (PMI) in residential mortgage lending, CPLI is designed to be an institutional grade-rated loan guarantee that serves as an effective risk transfer and mitigation strategy for lenders. Removing the need for a personal guarantee also benefits the borrower, improving borrowing terms and increasing their capacity for more CRE deals.

Delay on CMBS resolution

Following the loan event of default on the Maroon Loan in Elizabeth Finance 2018-1,  the servicer, CBRE confirms that a special servicing transfer event has occurred with respect to the Maroon loan as the loan event of default has not been cured and the servicer has determined that the loan event of default is likely to have a material adverse effect in respect of the issuer. CBRE has met with the borrower and mezzanine lender to discuss the current situation. The borrower has also been in discussions with the mezzanine lender who is considering its options.

The servicer has subsequently served the mezzanine intention notice to the Mezzanine facility and security agent to confirm if the Mezzanine lender intends to exercise its intercreditor agreement rights including either its rights under clause 5 (default cure payments) or clause 6 (senior purchase option) and/or take any mezzanine enforcement action (as applicable).  The mezzanine lender has until 25 June to confirm its intentions.

Equity stake

White Mountains Insurance Group has acquired a minority equity stake in Elementum Advisors, an independent ILS manager with over US$4bn AUM, and will also invest US$50m across Elementum's funds. Elementum's principals continue to own a significant majority of the firm and will control the operation of the business following the transaction.

Fallback language finalised

The Alternative Reference Rates Committee (ARRC) has released recommended contractual fallback language for US dollar Libor-denominated securitisations, which proposes a hardwired approach regarding triggering events and the waterfall for rate determination. It also addresses the unique challenges presented by the securitisation market’s asset and liability components. The final language was prepared after consideration of all comments received - over 50 in total - on the fallback language consultations for bilateral business loans and securitisations (SCI 11 December 2018).

Italian law firm launches energy/infra unit

Gattai, Minoli, Agostinelli & Partners has launched an energy and infrastructure department. Ex-Lombardi Associati lawyers Carla Mambretti and Nicola Gaglione will head up the department with a team of six lawyers. Mambretti has experience in the renewable energy industry and in the infrastructure sector, advising on project finance in structured finance deals and investment transactions in energy production facilities from renewable sources (wind power, biomass and biogas, solar and hydropower) and on projects for the construction of energy production power plants in the context of public concessions and in the infrastructure industry.

Structured Finance

New P2P platform rules announced

Sector developments and company hires

ABS facility expands

Amigo Holdings has increased its securitisation facility to £300m. It has a three-year term and is set to close on Thursday. The company intends to use drawdowns from the facility for general corporate purposes and the potential repayment of indebtedness. The facility, which has a minimum three-year term and amortises thereafter, will have a funding rate around 500bp below the current cost of the company's senior secured notes and will, in time, lower Amigo's overall average cost of capital.

Bank bulks up real estate expertise

BNP Paribas Real Estate, Ireland has hired Robert Murphy as director, business development and capital advisory. He was previously head of debt and structured finance at Cushman & Wakefield, Ireland.

Ceo appointed

CleanFund has named Lain Gutierrez as ceo. He most recently founded SolFin Capital and before that was a senior rating analyst at DBRS. The appointment is concurrent with a US$500m financial commitment from Starwood Sustainable Credit for C-PACE investments originated by CleanFund. In addition, entities affiliated with Vulcan Capital have made a follow-on investment in CleanFund, atop their investment in 2017. CleanFund founder John Kinney will become chairman.

New rules for UK P2P platforms

The UK FCA has announced new rules for UK peer-to-peer lending firms to limit the negative consequences for investors. The regulator will now limit the amount of money first time customers can invest to 10% of the customer’s investable assets. There is no limit, however, on investors who have received regulated finance advice.

Additionally the FCA is bringing in further rules for UK P2P platforms to covering more explicit requirements on what governance arrangements and systems they have in place to support the outcomes they advertise as well as plans for the wind-down of P2P platforms if they fail. The new rules also introduce a new requirement to assess investors’ knowledge and experience of P2P investments when they haven’t received professional advice. The new rules come into effect on 9 December 2019.

Structured Finance

Livestock first inked

Sector developments and company hires

Australian livestock deal debuts

StockCo has launched the first securitisation warehouse transaction in Australia consisting of financing receivables primarily secured by livestock. The transaction has been completed with Goldman Sachs and the facility will be available for three years and will be able initially to accommodate up to US$150m of livestock receivables subject to pre-agreed eligibility criteria, and will replace a substantial portion of StockCo’s existing senior debt club facilities, with a view to providing a pathway to funding further growth in StockCo’s business. StockCo expects the facility to increase in the short to medium term as StockCo continues to grow its livestock funding business in the Australian market.

Compliance deficiencies flagged

Deer Park Road Management Company has agreed to pay a US$5m penalty to settle US SEC charges stemming from compliance deficiencies that contributed to the firm’s failure to ensure that certain securities in its flagship MBS fund were valued properly. The firm’s cio Scott Burg agreed to pay a US$250,000 penalty. An SEC investigation found that Deer Park Road’s flagship STS Partners’ fund failed to have policies and procedures to address the risk that its traders were undervaluing securities and selling for a profit when needed. The firm also failed to guard against its traders’ providing inaccurate information to a pricing vendor and then using the prices it got back to value bonds. Burg oversaw the valuation of certain assets in the flagship fund and approved valuations that the traders flagged as “undervalued”, with notations to “mark up gradually.” Also overseeing valuation was a committee comprised of the principal’s relatives and others without relevant expertise. Without admitting or denying the findings in the SEC’s order, Deer Park consented to a censure and Deer Park and Burg agreed to cease and desist from committing or causing any violations and future violations of a provision of the Investment Advisers Act requiring reasonably designed policies and procedures.

RFC on catastrophic risk

Fitch is requesting feedback on proposed changes to its US RMBS loan loss model criteria, including updating its approach to catastrophic risk. The agency is proposing to adjust the property value of each loan by its exposure to catastrophic risks, which will affect borrowers’ sustainable LTV ratio and consequently influence both probability of default and loss severity model calculations. If this update – along with the other proposals – is implemented, the impact on mortgage pool loss projections is expected to be relatively modest and result in no rating changes. However, Fitch estimates that 90 outstanding classes of notes currently benefiting from positive rating pressure may take longer to realise upgrades as a result of the changes, as they generally have high geographic concentrations in areas with catastrophic risk or have higher concentrations of loans with small property values. Feedback is invited by 5 July.