Contents

Structured Finance

Compliance challenges

STS requirements raise regulatory liability concerns

The securitisation market now appears to be embracing the new Securitisation Regulation and adapting to the regime, following uncertainty over technical standards in Q1. Nevertheless, market participants are still grappling with practical challenges, whose solution remains elusive.

According to Salim Nathoo, partner at Allen & Overy: “Filling in the CRE and residential templates is hard because it’s not always clear which one you should fill in. If you have a chip shop with a flat on top of it, how do you know which templates to fill in?”

He adds: “You could squeeze a deal into one of the templates, but that brings us back to square one, since not all the fields will be appropriate. As a general rule, you should fill out more than one template - although knowing what information populates which template remains a problem.”

An alternative option could be to split the cashflows from the CRE and residential assets, while treating the loan as a single loan. However, this would require reading the loan level data across two templates.

The credit granting criteria is another example of the same compliance challenge, in particular for NPL securitisations. The criteria require diligence on the original credit granting for the assets, even though such information isn’t the key consideration for investors in legacy portfolios, where the focus is more on current performance.

Kevin Ingram, partner at Clifford Chance, explains: “If you are an NPL buyer and you are looking to raise finance through a securitisation, it’s difficult to confirm compliance of the original originator with the credit granting criteria, when the assets were created. Portfolios may have changed hands and the entity that generated the assets may no longer exist, so getting the information is challenging.”

He continues: “However, the actual letter of Article 5 doesn’t require investors to verify the credit granting criteria of the original lender, where the original originator is a credit institution established in the EU. Yet it’s a worry because NPL portfolio buyers are still obliged as a securitisation originator under Article 9. In the meantime, the only option for market participants is to provide as much information on historic credit granting as possible.”

Absence of a glide path regarding the publication and implementation of the technical standards further complicates these compliance challenges. According to Andrew Mulley, EMEA head of issuer services at Citi: “STS requires more data fields for the new templates and there should be a glide path for this; think about the scale of the work that implementation requires. For each transaction issued since 1 January, servicers need to adjust servicing platforms, remodel waterfalls and update investor reports; this can’t happen overnight.”

He continues: “Servicing systems don’t always give you perfect data and have some constraints, such as mismatches in cut-off periods or retrospective adjustments to data, so they need to make adjustments before they send the data to service providers, who have to aggregate the data and put them through waterfalls. Every single waterfall model would need to be opened and remodelled.”

Regulators would have to provide more clarity on data providers. Annex 12 and 14 of the new regulation doesn’t offer any clarity in this respect.

Annex 14, for example, has a number of elements around the swap and tranche identifiers, but it’s not clear who will provide them. It could be the law firm or others structuring the deal, given that they draft the documents, but both annexes also require more dynamic data. Moreover, the annexes are predicated on a quarterly paying instrument, even though some deals have monthly data flows.

As market participants grapple with the compliance challenges, higher risk weights for the mezzanine tranches loom. Looking ahead, Boudewijn Dierick, head of ABS markets at BNP Paribas, concludes: “Risk weights and hence costs for bank investors will go up, especially for mezzanine tranches. This may drive up the pricing and reduce liquidity. It is difficult to see how this supports securitisation.”

Stelios Papadopoulos

ABS

Commodity opportunities

Bank expands global SCF activities

Crédit Agricole recently made a number of senior hires to its structured commodity finance (SCF) team in London, indicating that the bank is growing its activity in the SCF space. Alongside this, the bank is pushing boundaries in the sector, such as its recent, innovative US$300m medium term loan transaction with Ghana Cocoa Board.

Constantin Koutzaroff, global head of structured commodity finance at the bank says that, after being established in 1999, its SCF team has become a key player in the structured commodity finance industry across three regions - Latin America, EMEA, and Asia - with a special focus on China. He adds that the bank is also active in Russia, Ukraine and MENA where the bank has built up a large client base through structuring bespoke financing solutions on a “proactive” basis.

In line with this, the bank has remained active in its SCF activities, growing this out over time, indicated by the hires of both Aude Sauty de Chalon, as director and also Badia Tehlab-Nehlil, as an ed in the team. The product works by mitigating the underlying corporate risk of an obligor, often located in emerging markets - through an offshorisation of its revenue stream deriving from sales of commodities to prime buyers.

Additionally, says Koutzaroff, the SCF team accompanies core clients of the bank, producers or traders over a medium term funding period. To illustrate the bespoke nature of the products they structure, Koutzaroff says the bank’s “portfolio varies widely across the globe and the commodity spectrum, including energy, metals and mining and agricultural commodities.”

The SCF team has also worked on several innovative transactions, such as the arrangement and bookrunning of a US$300m medium term green loan in favour of the Ghana Cocoa Board, which is Ghana’s state owned cocoa entity. This product was structured “for the first time, as sustainability-linked financing, integrating key performance indicators designed to enhance the social and environmental footprint of the cocoa industry in Ghana”, says Koutzaroff.

In terms of the benefits offered by SCF compared to other asset classes, Koutzaroff says that it provides liquidity and risk mitigation for the production, purchase and sale of commodities. This is done by isolating producing assets, which have relatively predictable cash flows through pricing assumptions, from the corporate borrower and using them to mitigate risk and secure credit from a lender.

The real upside of this, he adds, is that SCF allows borrowers that are usually credit constrained to monetise their commercial flows and raise funds at comparatively low rates compared to local corporate financing. One of the key structural elements that Credit Agricole’s SCF team can provide is the transferal of offshore payments by the buyers into secured accounts, so mitigating the underlying country and transfer risks.

As a result, Koutzaroff says that for lenders the structures are very resilient, even in a depressed commodity price environment and emerging country specific events. Likewise, he adds, SCF solutions convert credit and country risks into a production risk which is more easily assessed and controlled through regular monitoring of performance.

In terms of developments in the product, Koutzaroff says that deals are emerging with jumbo transactions carried out by a “restricted group of arrangers with new players tapping the SCF market for the first time.” An example of this, he says, is the Middle East which has seen activity recently with business turning to SCF to “shorten the closing timetable compared to project finance deals.”

He adds that the main hurdles for the growth of SCF are evolving regulations and more stringent compliance rules. Despite this, Koutzaroff concludes that, despite businesses having the choice of utilising unsecured corporate loans or bonds issuance the bank’s “borrowers continue to integrate the SCF tool in their financing portfolio.”

Richard Budden

Structured Finance

SCI Start the Week - 24 June

A review of securitisation activity over the past seven days

Transaction of the week
Jack in the Box is marketing an inaugural US$1.45bn whole business securitisation backed by 2,240 franchised quick service restaurants distributed across the US (SCI 19 June). Dubbed Jack in the Box Funding 2019-1, the transaction has been announced despite a number of criticisms from the firm's franchisee association.

Jack in the Box will use around US$1.054bn of net proceeds from the debt issuance to repay existing debt in its entirety and to pay transaction fees and expenses, with excess proceeds used for general corporate purposes. But the transaction has faced criticism from the Jack in the Box National Franchisee Association, which says the securitisation will impair their rights under the franchise agreement, and follows previous criticisms from the association regarding the company's management team and company performance. This culminated in a vote of no confidence in the ceo, as well as filing complaints with the California Department of Business Oversight and the Superior Court of the State of California for the County of Los Angeles.

S&P comments that some of the accusations of mismanagement stem from claims that Jack in the Box withheld an audit of the marketing fund and that the company mischaracterised a tenant improvement contribution programme for purposes of shifting the company's financial obligations to the franchisees. The rating agency notes that the firm has hit back, saying that the franchisees are trying to exert leverage over the company to extract certain concessions.

The rating agency adds that "evidence to date seems to support management's claim", as there have been no defaults or delinquencies in payments coming from its franchisees, scheduled remodelings have continued and the existing franchisees have absorbed 100% of the refranchised stores. As such, S&P says that under the current circumstances, it is unlikely that this will lead to substantial cashflow deterioration.  

Other deal-related news

• Distressed investors are anticipated to become more aggressive in generating cash and overcome the significant complexity associated with on-boarding and servicing tens of thousands of non-performing loans. The move is in light of some rated NPL securitisations performing below business plan expectations in terms of collections (SCI 17 June).
• Standard Chartered has completed a risk transfer transaction that references a US$1bn portfolio of corporate revolvers. Dubbed Chakra 3, the US$90m CLN is the third in a series of programmatic corporate capital relief trades, as the bank builds up its corporate and institutional banking business in the US and Europe while managing concentration risks through the credit cycle (SCI 21 June).
• The first securitisation backed exclusively by distributed network systems (DNS) assets has hit the market. ExteNet Issuer Series 2019-1 is secured by around 5,800 nodes associated with 267 multi-carrier and multi-technology outdoor and indoor DNS networks and related licenses and equipment (SCI 18 June).
• An Irish re-performing loan RMBS has hit the market. The €336.56m Shamrock Residential 2019-1 is backed by owner-occupied (accounting for 92.98% of the pool) and buy-to-let loans that are currently in the mortgage book of Lone Star Funds, which acquired them in 2015 (SCI 20 June).
• KBRA has withdrawn its ratings from Honor Automobile Trust Securitization 2016-1, after the notes were paid in full on 17 June (SCI 20 June). Given the remaining pool factor was less than 20% of the cut-off date pool balance, the servicer exercised its option to purchase the trust property and redeem the notes.
• Moody's has downgraded the provisional ratings of the class D, E and X notes in Mortimer BTL 2019-1 from Baa1, B3 and B1 respectively to Baa2, Caa1 and B2. The move reflects the correction of an input error by Moody's in the yield vector assumption used in its cashflow analysis (SCI 18 June).
• The implementation of the restructuring of Ballantyne Re has been completed and distributions were made to noteholders on 17 June (SCI 15 April). In addition, DTC has allocated escrow CUSIPs to the scheme notes to facilitate the distribution of the deferred consideration (expected to represent up to approximately 1% of the par value of the scheme notes) to the scheme noteholders and the Assured Guaranty financial guarantees trust interests to the Assured Guaranty guaranteed noteholders (SCI 20 June).
• Mount Street Portfolio Advisers (MSPA) has been appointed successor asset manager to Talon Funding I (SCI 19 June). Portigon Financial Services was previously collateral manager on the deal, as well as swap counterparty - although the swap was novated to Erste Abwicklungsanstalt (EAA) in May 2016, following the transfer of Portigon to EEA. For more CDO manager transfers, see SCI's database.

Regulatory round-up

• FHFA director Mark Calabria last week, in the agency's annual report, encouraged Congress to enact housing finance reform that seeks to increase competition to Fannie Mae and Freddie Mac - by chartering new housing finance providers - and strengthen the FHFA's safety and soundness powers. Moody's notes in its latest Credit Outlook publication that a materially lower market share for the GSEs would erode the creditworthiness of both companies and could lead the rating agency to reduce its assumptions of extraordinary federal government support (SCI 18 June).
• Three Capital One cardholders have filed a putative class action in the Eastern District of New York alleging the rates of interest they paid to a securitisation trust unlawfully exceed the 16% threshold in New York's usury statutes. As such, the plaintiffs are seeking to recoup the allegedly excessive interest payments and an injunction to cap the interest rates going forward (SCI 20 June).

Data

Pricings
Last week saw a mixed bag of new issuance from Europe and the US. Auto and consumer ABS accounted for the majority of prints, but several CLOs, CMBS and RMBS also priced.

The auto ABS new issues comprised: US$764.08m Bank of the West Auto Trust 2019-1, US$434.22m Carvana Auto Receivables Trust 2019-2, US$1.05bn Ford Credit Auto Owner Trust 2019-B, US$193.96m Foursight Capital Automobile Receivables Trust 2019-1, €543m Golden Bar (Securitisation) Series 2019-1, US$525m Harley-Davidson Motorcycle Trust 2019-A and US$509.15m Wheels SPV 2 Series 2019-1. The consumer ABS were: €1.83bn Caixabank Leasings 3, US$269.60m Consumer Loan Underlying Bond Credit Trust 2019-P1, US$167.63m Sunnova Helios III Series 2019-A, US$485m Horizon Aircraft Finance II, US$350m Lendmark Funding Trust 2019-1, US$560m Navient Private Education Loan Trust 2019-D, US$850m Synchrony Card Issuance Trust Series 2019-2 and US$381m World Financial Network Credit Card Master Note Trust Series 2019-B.

The US$584.08m Anchorage Capital CLO 9 (refinancing), US$508m Black Diamond CLO 2019-2, US$508.5m Octagon 44 CLO, US$506.5m Rockford Tower CLO 2019-2, US$425m THL Wind River 2012-1 (refinancing) and US$403.65m Voya CLO 2019-2 deals were among last week's CLO prints. The RMBS new issues were €825m Green Apple 2019-1 NHG and US$579m Verus Securitization Trust 2019-2, while the CMBS were £283m Cold Finance and US$435m FREMF 2019-KG1.

BWIC volume

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

Capital Relief Trades

Guarantee inked

Banco BPM prints first capital relief trade

The EIF is taking on the risk of Banco BPM’s €55m mezzanine guarantee in connection with the Italian lender’s first capital relief trade, referencing a portfolio of midcap corporate loans. The regulatory capital that will be released is enough to fund €330m of SME lending.

The new loans are intended for SMEs (accounting for up to 30% of the portfolio) and midcaps operating in the industrial, agricultural, tourism and services sectors. The EIF guarantee will support these firms in their tangible and intangible investments, as well as with working capital requirements.

The EIF will guarantee a mezzanine tranche of a portfolio of loans that have already been granted by Banco BPM to Italian SMEs. The synthetic securitisation is counter-guaranteed by the EIB through funds from the European Fund for Strategic Investments (EFSI). 

Giovanni Inglisa, structured finance manager at the EIF, notes: “It’s a major success for the bank, given the preceding merger and the ramifications of a transaction like this for rating models, IT, risk management and accounting systems.”

Banco BPM was formed out of the merger of Banco Popolare and Banca Popolare di Milano over two years ago. The transaction is the first risk transfer trade in Italy under the amended CRR, which was introduced in January and raises risk weights for the senior tranche from 7% to 15%.

“The rise in the risk weights was a challenge. We addressed it by lowering the attachment point for the mezzanine tranche. This makes for a thinner mezzanine tranche and releases more regulatory capital, while counterbalancing the rise in the senior risk weights,” says Inglisa.

Lowering the attachment point of the mezzanine tranche allows banks to free up more capital, since they can reduce the size of the first loss tranche, which would need to be weighted at either 1250% or deducted from the CET1 ratio. Under the new regulation, if the underlying assets are corporates, mezzanine tranches tend to be thinner.

The deal is the EIF’s third foray into corporate loans, following the Minerva transaction in January with Banca Nazionale del Lavoro (SCI 25 January) and another SRT with BBVA in December last year (SCI 11 January). The EIF intends to carry out at least one more Italian capital relief trade this year.

Stelios Papadopoulos

NPLs

Wholesale switch

Creval eyes NPL reduction strategy

Credito Valtellinese (Creval) has announced a five-year business plan that aims to reduce its non-performing loan and sovereign exposures and improve profitability via cost-cutting. The successful execution of the plan would make the bank more attractive for a possible merger in the future, in line with supervisory calls for reductions in NPL exposures as well as consolidation, in order to boost the Italian banking sector’s flagging profitability (SCI 14 December 2018).  

According to Massimo Famularo, board member at Frontis NPL: “Italian debt has been volatile since the inception of the incumbent populist government. If the target of the business plan is met, the bank will be able to pay dividends and increase internal efficiency, thus becoming more appealing for a potential merger. Furthermore, reducing NPLs improves credit quality; a similar strategy will most likely be followed by other Italian mid-sized banks over the next 18-24 months.”  

Creval must dispose of €800m by 2020, although this will be partly offset by new bad loans that the bank will generate during the execution plan. Overall, the bank intends to shrink its NPL portfolio to €1.1bn by December 2023 from €1.9bn, as of December 2018, and lower its NPL ratio to 6.5% from 11.4% over the same timeframe.

The lender also plans to reduce its securities portfolio to €4bn or 15% of total assets at end-2023, from €7.9bn or nearly 30% at end-2018. This will be matched by a new wholesale funding strategy that is less reliant on ECB funding and reduces its exposure to high-returning Italian government bonds.

Creval holds €5.3bn of Italian government bonds or 20% of total assets, as of December 2018. The new strategy differs from many Italian peers, which have been increasing their exposure to domestic government bonds. Indeed, according to ECB data, Italian banks’ domestic government bond holdings grew by 14% to €396bn between 2018 and 2019.

According to Guy Combot vp and senior analyst at Moody’s: “Italian banks make good returns on their sovereign holdings because of the low cost of ECB funding and high bond spreads. However, investors and supervisors expect less reliance on ECB funding and banks are trying to shift to a more sustainable business model.”

He continues: “Creval will likely issue covered bonds backed by mortgages as part of this shift to wholesale funding. Covered bonds are a prime liquid market and are less expensive to issue, compared to securitisations, for example. The wholesale strategy, along with a cleaner loan portfolio and reduced exposures to Italian sovereign risk make the bank more attractive for a possible merger, since it gets you off ECB funding.”

Monica Curti, senior credit officer at Moody’s, adds: “Securitisation could be added to the funding mix. Creval has been an active securitisation issuer and has printed its last ABS SME transaction in July 2018. However, covered bonds tend to be viewed as more secured, since they benefit from recourse to the bank and the underlying portfolio. Nevertheless, Creval will have access to the wholesale market, so ABS becomes an option.”

The obvious risks of the strategy are that it raises the cost of funding and reduces high-returning sovereign exposures at a time when Italian banks are dealing with profitability issues. However, Creval aims to reorient its lending activities towards customers that yield higher revenue.

“Increasing costs of funding will be partly offset by a higher return on the household loan book, which will include a higher proportion of consumer finance and SMEs.  The bank will generate new NPLs as the execution is carried out, but we expect the new NPLs to generate lower losses than old NPL vintages,” says Combot.

He concludes: “New NPLs will be more seasoned and the bank will be working towards a simple and traditional banking model that is dependent on loan origination and not opportunistic carry trades.”

Stelios Papadopoulos

RMBS

Forward-mortgage first prepped

Global investor markets 'unique' RMBS

Blackstone is marketing an inaugural, US$264.5m forward-mortgage RMBS featuring unique collateral characteristics pertaining to underwriting and property concentration. Dubbed FWD 2019-INV1, the transaction is backed by 1,724 first-lien, fixed-rate investment-purpose mortgages, originated mostly by Finance of America.

The collateral comprises residential mortgage loans secured by non-owner-occupied properties, with 58.7% of the mortgages backed by single-family residences, 9.2% planned-unit developments, 6.3% condominiums, 25.8% two-to-four-family homes and all were originated for borrowers intending to use the property for business or commercial purposes. They were all primarily underwritten using FICO or LTV ratios and about 66.5% of the loans are underwritten to actual or estimated rental incomes, while around 33.5% of the loans were underwritten to a borrower's debt-to-income (DTI) ratio – all are exempt from qualified mortgage/ability-to-repay rules.

While securitisations with 100% investment properties have existed for several years in the single-family rental (SFR) RMBS sector, S&P notes that this transaction is more aligned with an RMBS. This is because of the diversity of individual underlying loans, multiple property operators and a focus on borrower FICO scores and LTVs.

The rating agency adds that FWD 2019-INV1 does not include the same provisions and characteristics often seen in SFR securitisations, such as the substitution of properties and CMBS-like features. Furthermore, S&P says that the collateral in this RMBS is unique, largely due to underwriting methods and investor property concentration.

S&P notes several features that support the transaction, such as most of the borrowers having significant home equity, highlighted by the weighted LTV of 65.7%. A further strength is that 33.5% of the pool comprises agency-eligible investor loans and that the weighted average DSCR is higher than other recent 100% investor non-agency securitisations.

On the downside, the rating agency suggests that the transaction could be weakened by the fact that 66.5% of the loans are non-agency investor loans, underwritten to an investment property business-purpose programme that did not consider borrower income or employment in the underwriting process. Further weaknesses include 61% of the loans being made with the purpose of a cash-out refinance, 501 loans made to borrowers with FICOs below 700 and only partial due diligence has been conducted on 81.6% of the loans.

Furthermore, the R&W framework for the deal is weakened because the sponsor, Blackstone Residential Operating Partnership, makes the R&W and the framework doesn’t provide for a backstop/guarantor. Additionally, the transaction doesn’t have an early payment default provision from the R&W provider to repurchase mortgage loans for which the borrower fails to submit any of the first three payments due after loan origination.

KBRA and S&P have assigned provisional ratings to the transaction of triple-A/triple-A on the US$192.920m class A1 notes (330bp), double-A plus/double-A on the US$16.660m class A2 notes (345bp) , single-A/single-A on the US$27.9m class A3s (365bp), triple-B/triple-B on the US$11.37m class M1s (415bp), double-B plus/double-B on the US$8.07m class B1s (515bp) and single-B plus/single-B on the US$5.03m class B2. The US$2.512m class B3s are unrated and the coupons are all subject to the pool’s net WAC rate.

Richard Budden

Structured Finance

Aussie Investment principles discussed

Sector developments and company hires

Australian business investment principles explored

The Australian Office of Financial Management (AOFM) has released for public comment its draft guiding investment principles for Australian Business Securitisation Fund (ABSF) investment.  The guiding investment principles are intended to be “principles based” rather than prescriptive and will be used by the AOFM for identifying transactions that will meet the government’s primary objective of increasing the availability of finance to SMEs and contributing to the development of market infrastructure that facilitates securitisation of SME loans.

The AOFM invited comments to be made by market participants on the ABSF draft investment principles but not in relation to the broader investment process which will be finalised by the AOFM at a later stage. On 6 June, the ASF submitted a short response on the draft guiding investment principles. The ASF will be facilitating two public information sessions to be presented by the AOFM in Sydney and Melbourne on 23 and 25 July, respectively.  At those sessions, market participants will have an opportunity to receive an update and ask questions about the ABSF.  

Special situations hire confirmed

Pimco has hired Jamie Weinstein as md, pm and head of corporate special situations. Weinstein will be based in Newport Beach and will report to Dan Ivascyn, Pimco’s group cio and will start 1 September. Weinstein will help strengthen the firm’s capabilities across a broad range of opportunistic and alternative strategies, with a focus on special situations in the corporate credit space. He was most recently at KKR as a pm for the firm’s credit and special situations portfolios.

Structured Finance

CMBS auditing upset

Sector developments and company hires

Auditing issue

The JUNO (ECLIPSE 2007-2) CMBS failed to file its financial statements for 2017, together with its annual return by 21 June, as required by the Companies Registration Office (see SCI’s CMBS loan events database). The issuer has a further 28 days to submit its audited financial statements, but its auditors have advised that they cannot give any assurance that the statements will be completed within this extended period. If the issuer is unable to file its financial statements within this period, its status will be changed to ‘strike-off listed’, meaning that it will be dissolved and the assets will become the property of the Irish state. The issuer has requested advice from Irish legal counsel in relation to the action it may take to avoid being struck-off and reiterates its view that a consensual agreement approved by noteholders and other secured creditors is the most likely route to allow it to resume payments to its creditors in the near future.   

Collaborative efforts

The UK FCA, the US CFTC and the SEC have announced that they will make “collaborative efforts” to explore ways to address industry concerns over manufactured credit events and foster transparency, accountability, integrity, good conduct and investor protection in the credit derivatives markets. Such collaborative efforts will not preclude other appropriate actions by the respective agencies, which note in a statement that opportunistic CDS strategies raise various issues under securities, derivatives, conduct and antifraud laws, as well as public policy concerns.

Distressed hire finalised

Blackstone GSO has hired Dan Oneglia as senior md and co-head of distressed investing. He was previously at Goldman Sachs where he spent 20 years, and most recently served as pm and head of multi-strategy investing in the Americas special situations group.

Investor solutions role filled

Capitolis has appointed Shervyn von Hoerl as head of investor solutions to help drive the development of the firm’s new Capitolis Finance solution, which is expected to be launched later this year. Von Hoerl was previously team head and md of portfolio and credit risk management Americas at FMS Wertmanagement Service and, prior to that, worked at 20 Gates Management and DEPFA Bank. He has more than 20 years of experience in the structured finance industry, having developed innovative business solutions for clients in multiple jurisdictions.

Real estate partner appointed

Dechert has hired real estate finance partner Aparna Sehgal, based in the firm’s London office. Joining from Sidley Austin, she will work closely with structured finance partner John McGrath and structured finance disputes partner Simon Fawell. Sehgal represents clients in complex multi-jurisdictional transactions involving secured senior and mezzanine debt, and complex intercreditor issues. She also advises on the acquisition and financing of performing and non-performing loan portfolios.

Structured Finance

GSE reform study released

Sector developments and company hires

Private credit double announced

Solar Capital Partners has hired two senior private credit investment professionals. Eric Herr joins as a partner, to help lead investment origination across the firm's multi-credit strategy platform. Most recently, he served as an md of loan originations at NewStar Financial and previously worked at Churchill Financial, GE Antares and GE Commercial Finance. Eduard Shagas also joins SCP as a partner and senior underwriter, having previously been a principal of WhiteHorse Capital. He has also worked at PennantPark Investment Advisers.

Reform recommendations

Barclays, in partnership with Annaly Capital Management, has released a study entitled ‘GSE Reform: Unfinished Business’, which lays out steps that policymakers might take to reform Fannie Mae and Freddie Mac. Among the key takeaways of the report is that a revolving credit risk transfer structure could enable the GSEs to shed credit risk on most future production, thereby avoiding execution risk while protecting the taxpayer. Further, to attract private capital, the GSEs could shrink their footprint in areas that are not part of their core mandate - such as second homes, investor and jumbo mortgages. Additionally, if the goal of GSE reform is to foster competition and materially decrease ‘too big to fail’ risk, Congress will have to pass legislation that replaces the GSE duopoly with multiple smaller guarantors.

Third-party authorised in France

Prime Collateralised Securities’ Paris based entity, PCS EU, has been authorised by the Autorité des Marchés Financiers as a third-party verification agent pursuant to article 28 of the STS Regulation, effective immediately. With PCS UK, authorised in the United Kingdom, the PCS initiative now possesses authorisation in two separate European Union jurisdictions.  This will allow originators to select which entity they wish to contract with to obtain a verification of the STS status of their transactions.  For so long as the United Kingdom remains in the European Union, both entities’ verifications will fully meet the requirements of the STS Regulation as they both benefit from a passporting authority valid throughout the union.  Thereafter, our current configuration will allow us to maintain our work for the benefit of the securitisation markets across the European space and irrespective of the final outcome of the Brexit process.

Structured Finance

ReoCo impact assessed

Company hires and sector developments

CMIP acquisition

Investcorp Credit Management US has entered into a definitive interest purchase agreement to acquire a majority ownership interest in CM Investment Partners (CMIP), the investment adviser to CM Finance, through its purchase of the respective equity positions held by certain funds managed by Cyrus Capital Partners and Stifel Venture Corp, and newly issued interests in CMIP. As a result of the transaction, Investcorp will become the majority owner of CMIP, with Michael Mauer and Christopher Jansen - CMIP’s co-cios - together maintaining a minority ownership interest. Cyrus and Stifel will also retain their equity interests in the company, which currently represent a 44.1% interest in total. The transaction, which is expected to close in 3Q19, is subject to customary regulatory requirements and closing conditions.

ReoCo impact weighed

Scope comments that the introduction of a ReoCo in the Belvedere SPV will not, in and of itself, result in a reduction or withdrawal of the current ratings of the Class A notes. Scope adds that the implementation of the ReoCo could be positive for the issuer as the ReoCo can add value to the properties and re-sell them on the market with a profit, therefore increasing recoveries for the issuer, while there are no additional senior costs. Any costs in relation with the ReoCo will be made by the issuer only after the full reimbursement of the rated Class A notes and the Class B notes. The mere fact that the ReoCo bids in an auction could also stimulate other potential buyers to also bid instead of waiting until the next auction. Financing for the ReoCo will be received from the ReoCo quotaholders (the three Bayview Global Opportunities Fund S.C.S. SICAV-RAIF sub-funds) to cover the costs related to auction deposits, the ReoCo’s operativity and the properties’ maintenance.

The maximum timeframe to resell the acquired properties is set to three years after the properties’ acquisition date. If the resale of the purchase property does not happen within this timeframe, the ReoCo shall grant an irrevocable mandate to sell the purchased property to a professional acting in the real estate sector and designated by the representative of the noteholders acting upon instructions of the committee. Bayview Italia has been appointed as property manager to carry out all the technical and operating support and coordination activities and the strategic advisory required to ensure the full operation of ReoCo.