Contents

Capital Relief Trades

Operational issues

CRT key steps outlined

The operational issues involved in prepping a risk transfer transaction are often overlooked. Indeed, three key steps should be in place before a bank considers executing a capital relief trade.

“Each department of a bank – whether it’s the front, middle or back office – naturally tends to run its own individual processes and prioritise its own responsibilities; each therefore only sees the side of a CRT transaction that they are responsible for, whether replenishment, periodic reporting, RWA reconciliation, loan booking, liaising with investors or the regulator, documentation and so on. Reconciling and coordinating these differing interests and ensuring that the transaction actually runs the way it is intended to is one of the main reasons why first-time issuers can often take a long time to come to the market,” explains Robert Bradbury, head of structuring and advisory at StormHarbour.

An important basis for any capital relief trade is a robust IT infrastructure, given that data quality and replicability are key to a successful transaction. At a minimum, banks should be able to provide relevant data every month for the regulator, investors and the ECB.

Management buy-in is also crucial to the successful execution of a CRT. “For a first-time issuer, a bank’s management team may need to take time to fully understand the costs, benefits and other impacts of a transaction and hence that the CRT transaction is worth doing - rather than addressing the issue another way, perhaps through issuing capital securities, for example. While sophisticated, repeat issuer banks have programmes in place and can generally repeat documentation and processes in order to issue a new deal quite efficiently, it’s more complicated for new issuers (including standardised banks) that often have to overcome internal differences of mandate and opinion,” Bradbury says.

He cites as a simple hypothetical example a two-company structure, with the parent bank acting as RWA aggregator and the subsidiary originating assets, with each entity seeking to preserve its respective priorities. “Determining the corporate architecture in such situations is not a trivial exercise and often becomes quite internally sensitive. Depending on the structure of the entity, which part of the company is buying protection, which part is paying for it, which part is reporting and which part records any RWA benefit all needs to be worked out and agreed upon before embarking on a CRT issuance. Ideally, the transaction benefit should be reflected to some degree at every level.”

The next step is to coordinate a bank’s different teams internally. The aim is to identify and collate appropriate performance data from the last 5-10 years and have the commercial and risk teams work closely together to determine what constitutes credit events and recoveries (including on the determinations made about whether to sell the underlying assets or take collections).

Bradbury notes that the challenges this poses differ according to the size of a bank and the underlying asset class. “Large corporate loans are generally well understood by large banks and the investors in the space, so the default and recovery process is fairly standardised. However, for other asset classes, the features may be less standard; for example, the bank could have the option to terminate a contract if they believe the obligor won’t pay,” he observes.

He continues: “From a credit event perspective, it needs to be considered how that could be incorporated into default and recovery data. Depending on the asset class, other issues might include the ability to declare a credit event being hindered by it not being in the public domain or restricted on the basis of specific disclosure requirements.”

Bradbury suggests that the first and third steps of this process can be solved over time, given adequate resources. Meanwhile, feasibility studies – which typically include a thorough introduction to CRTs, structural options, cost and benefit analysis, scenario analysis, heads of terms, reporting templates, example documentation, expected investor appetite and potential challenges around guarantees, CDS, SPVs or other structural features in a given jurisdiction – can facilitate management buy-in.

“A feasibility study takes up to several months to complete and involves working with many of a bank’s teams to identify appropriate data, IT systems and staff resourcing. The process is often instigated together with the capital management or treasury department,” Bradbury notes.

He concludes: “For a bank that has previously completed a detailed feasibility study, a six-month issuance timeframe is often realistic. A three-month timeframe probably represents the minimum realistic timeframe, but this can become longer for first-time issuers and/or in unproven jurisdictions, if the bank becomes caught up with one or more parties - internal or external - in something of a feedback loop.”

Corinne Smith

Capital Relief Trades

Squaring the circle

CRT issuers struggling with borrower anonymity

Capital relief trade issuers are attempting to anonymise loan-by-loan data in transactions, while simultaneously complying with ESMA’s requirement to disclose such data as part of the new securitisation regulation (SCI 22 February). Market participants are concerned that unless regulators address this tension, it could cause a breach of confidentiality provisions.

According to one legal expert: “The problem is more pertinent for less granular asset classes, such as large corporates, since the probability of identifying borrowers in large, granular pools is much lower. The problem is that once you start disclosing details about borrowers, investors can start connecting dots. If one of the underlying borrowers, for example, is a Spanish firm in the telecommunications sector, it’s not hard to figure out that you are referring to Telefonica.”

Leanne Banfield, counsel at Linklaters, adds: “Many of the data fields that banks are required to provide are not needed or even desired by investors and bear no impact on pricing, while the inclusion of such information could potentially threaten the anonymity of the underlying borrowers.”

The requirement is further complicating an already complicated situation, given the bigger macro challenges that the industry has to address. Suzana Sava-Montanari, counsel at Latham & Watkins, explains: “Synthetic risk transfer securitisations typically involve portfolios of larger corporate exposures. Given the number of fields required to be disclosed for each underlying loan, in the era of ‘big data’ and triangulation of multiple data sources, it may be possible for investors and potential investors to determine the identity of the individual borrowers.”

Nevertheless, ESMA has confirmed that banks should comply with confidentiality provisions and data protection laws when disclosing information, giving rise to the tension in the regulation. Andrew Traynor, partner at Walkers, notes: “It’s conceivable that investors might be able to identify individual borrowers, even if the loan data is being provided on an anonymised or aggregated basis for disclosure purposes, particularly for the portfolios of larger corporate loans. This is the inherent tension in these deals; the challenge of ensuring securitisation regulation compliance versus an accidental breach of loan confidentiality provisions, bank secrecy laws and GDPR or MAR - which could carry significant liability and reputational damage.”

He continues: “We are seeing the market apply a sensible good faith approach to confidentiality, which works for most asset classes and positions. Alternatively, in cases where it’s not possible to anonymise data or there is a risk that a borrower is sufficiently identifiable, there is the nuclear option of removing loans from the deal altogether. We have seen this approach being taken for other products - particularly CLOs or large SME portfolios - where it wasn’t worth the trauma, time and expense. Yet this won't always be possible for the discrete pools.”

The problem is that the templates don’t contemplate a method of aggregating the data or reporting a table of industries, as opposed to a line-by-line industry classification for each borrower. Aggregating the data is not failsafe if there are a few loans in the portfolio, but this approach constitutes a long-standing market practice that has worked well so far.

The issue is further complicated by the fact that regulators haven’t offered any solutions as to how banks can square the circle. Nevertheless, banks are attempting to solve it in the absence of any regulatory guidance.

One solution involves generalising the reported categories. Meanwhile, some portfolios comprise entities that are publicly listed corporate borrowers and the information is therefore public. Consequently, there is no issue of breaching confidentiality provisions.

Nevertheless, the most common solution is non-disclosure agreements (NDAs), which provide banks with more control, since investors have to sign-up to the NDA in order to be considered as potential investors in a deal. However, what allows the preservation of confidentiality through NDAs is the fact that transactions are not listed on a regulated market in the EU.

Indeed, most transactions are listed on stock exchanges, such as the Cayman Stock Exchange or Channel Islands Stock Exchange. If the securitisation is not listed on a regulated market in the EU, it will not be a ‘public’ securitisation, according to the EU’s Securitisation Regulation. Hence, there is no requirement to send the reporting data to a securitisation repository.

The market is also mulling the use of artificial intelligence (AI) to address the challenge, although no such solutions are available at present and there are mixed views as to whether AI is part of the problem or the solution. Nevertheless, AI has been used in the non-performing loan market by firms such as Leverton and Intain.

Richard Belgrave, chief revenue officer at Leverton, notes: “We collect information and use it for data management purposes. We do this by training algorithms to understand and extract data from corporate documentation as part of a due diligence process and we focus mostly on real estate transactions.”

He continues: “Theoretically, these tools can allow you to extract information which can be anonymised with the help of carefully constructed rules. However, banks and investors should be wary of the limitations of AI and have to adhere to guidelines in terms of how you train your algorithms.”

Banks are adapting to ESMA’s RTS, despite these challenges, having changed the way in which they underwrite loans. They have also invested in systems to track additional fields at origination, so that they will be automatically geared up for reporting in line with the relevant reporting template.

Yet it will take a while for this to wash through their books. The expansion of the ‘no data’ option to a wider range of reporting fields helps mitigate some of the challenges, but it’s expected that market participants will use these with caution, since they will be closely policed.

Looking ahead, Traynor concludes: “Further guidance and engagement is needed in the Q&A process around the meaning of ‘not applicable’ and acceptable percentage levels of ‘no data’ fields per deal, especially since some transactions may require a greater ability to use the 'no data' option than others for a variety of reasons.”

The market is expecting both the approval by the European Commission of the annexes to ESMA’s RTS on securitisation disclosures and an ESMA Q&A in 3Q19.

Stelios Papadopoulos

ABS

Secondary pick-up?

Aircraft ABS E-notes proliferate, despite residual value risks

Equity participation in aircraft ABS is picking up, following the execution of transactions with broadly syndicated E-notes, aimed at creating a liquid secondary market. However, the market may be underestimating residual value risk.  

Aircraft equity notes have historically been an illiquid investment, with only the senior ABS tranches broadly offered to investors. “Residual value is important for [aircraft] equity notes,” observes Helene Spro, director at Scope Ratings. “The return on the equity depends highly on the sale of the aircraft at the end of the lease. So investors should always stress residual values by focusing on the portion of the E-notes that is at risk if the residual assumptions are not met.”

Aircraft ABS pools typically comprise younger, mid-life, liquid and vanilla aircraft, such as the Airbus 320 and Boeing 737 families. These are the most flexible and in-demand aircraft in the market and are expected to best hold their value in the future.

Nevertheless, Spro notes: “We see aircraft prices today being inflated, so if you invest today there is the risk that you are putting your hopes on an inflated residual value.”

A Scope analysis of 26 years of historical data revealed that approximately two years before the financial crisis, market values for different aircraft models narrowed sharply. This suggests that the market is increasingly neglecting to discriminate between aircraft specifics, such as the model phase, despite having done so in the past.

The model phase signifies where an aircraft is in its lifecycle (in other words, whether it is flying with new, mature or out-of-production technology). During an expansionary part of the cycle, older-technology models have similar market values to newer-technology models of the same age, suggesting that prices have inflated to unrealistic levels. Indeed, the expansionary part of the credit cycle sees aircraft prices inflate to the point where depreciation is ignored.

Carlos Terre, md at Scope, concludes: “Investors might underestimate the potential tail risk in these deals. When you pool these assets together, they are vulnerable to shocks, so ultimately the most important factor will be correlation assumptions.”

Stelios Papadopoulos

CLOs

US CLOs slow down

US CLO market update

Activity is easing up across the US CLO market driven by both macro and seasonal factors.

“In general new issue pricing is spotty – prices are really moving around,” says one trader. “It seems like there are places in the capital structure and with certain issuers where the underwriters are having trouble finding buyers. At the same time, we are seeing a little bit less overall new issue volume at the moment.”

Meanwhile, in the secondary market BWIC supply remains steady if unspectacular, the trader reports. “Stuff is getting done, but we’re not exactly seeing a wave of buyers.”

Nevertheless, the trader is sanguine about the current slowdown. “With the Fed doing what it’s doing all floating rate assets are being impacted right now. Also, it is 17 July!”

There are currently 11 BWICs on the US CLO calendar for today – see the SCI BWIC calendar for more.

Mark Pelham

Structured Finance

SCI Start the Week - 15 July

A review of securitisation activity over the past seven days

Transaction of the week
Rarely seen Spanish assets are behind the latest non-performing loan RMBS currently marketing. Dubbed ProSil Acquisition, the transaction is backed by a €494.7m by gross book value (GBV) portfolio consisting of mostly secured NPLs and some residual unsecured loans (SCI 10 July).

The receivables were originated by Abanca Corporación Bancaria and Abanca Corporación División Immobilaria. Cortland Investors II operates as the sponsor and retention holder in the transaction.

The majority of loans in the portfolio defaulted between 2010 and 2015 and are in various stages of resolution. The secured and unsecured loans are serviced by Hipoges Iberia.

Approximately 94% of the pool by GBV is secured, of which 95.3% benefit from a first-ranking lien. The secured loans in the portfolio are backed by properties distributed across Spain, with concentrations in the province of Pontevedra, Madrid and Barcelona.

Other deal-related news

• Santander has completed three SME significant risk transfer transactions that total €940.6m of tranche notional (SCI 9 July). This represents Santander's largest total annual SME synthetic securitisation placement to date (see SCI's capital relief trades database).
• Glennmont Partners has sponsored a debut securitisation backed by a portfolio of project finance loans tied to Italian renewable energy plants. It is hoped that the €51.472m transaction, structured and arranged by Natixis, will act as a catalyst for further securitisations of renewable energy assets (SCI 10 July).
• The RMAC Securities No. 1 Series 2006-NS1, 2006-NS2, 2006-NS3, 2006-NS4 and 2007-NS1 issuers have received notices of discontinuance from Clifden, purporting to discontinue its Part 8 claim. The issuers had previously applied for a strike out and summary judgement of the claim, which was to be heard in the chancery division of the high court on 2 July (SCI 8 July).
• Business Mortgage Finance 6 has issued a claim against the following defendants in the High Court of Justice in London: Greencoat Investments, Greencoat Holdings (GHL), Portfolio Logistics, Alfred Oyekoya, Patrick FitzSimons and Maria Stoica. The claim seeks declarations that the actions taken by each of the defendants in relation to the issuer are invalid, including such things as the purported appointment of GHL and Portfolio Logistics as trustee in place of BNY Mellon. The issuer has also made a court application seeking an interim injunction to restrain each of the defendants from holding themselves out as having any authority on behalf of it (SCI 10 July).
• Fannie Mae has secured commitments for two new front-end Credit Insurance Risk Transfer transactions: CIRT FE 2019-1 and CIRT FE 2019-2 will cover up to US$14bn of loans to be acquired by the GSE between May 2019 through April 2020 and transfer up to US$455m of credit risk on those covered loans. With 19 insurers and reinsurers participating, coverage is provided based upon actual losses for a term of 10.5 years from the effective date of 1 May 2019 (SCI 12 July).

Data

Pricings
European transactions once again dominated last week's new issuance volumes. CLOs, credit card ABS and RMBS were in the mix.

Last week's RMBS prints comprised £515m Canterbury Finance No. 1, £465m Finsbury Square 2019-2 and €545m Saecure 18 NHG. The credit card ABS consisted of £1.39bn-equivalent Penarth Master Issuer Series 2019-1 and €181m Wizink Master Credit Cards 2019-02. Among the CLO pricings were €408.36m CVC Cordatus Loan Fund XV, US$254m Shackleton 2016-IX CLO (refinancing) and US$503.45m Southwick Park CLO.

BWIC volume

Awards
Nominations have opened for the inaugural SCI Capital Relief Trades Awards. The aim of the awards is to recognise excellence in, and help bring mainstream attention to, the risk transfer industry. Pitches should be submitted by 16 August and the winners will be announced at the SCI Capital Relief Trades Seminar on 17 October. Further information and details of how to pitch can be found here.

Capital Relief Trades

Czech mate

SME CRT inked

The EIB, the EIF and Česká spořitelna (ČS) have inked a capital relief trade. The synthetic securitisation will channel €306m of new financing into SME businesses in the Czech Republic.

Backed by the European Fund for Strategic Investments, the transaction features a €76.5m mezzanine guarantee to cover potential losses on an existing portfolio of around €1bn SME and mid-cap loans. The guarantee will allow Česká spořitelna to ramp up its lending efforts and provide loans with an advantageous interest rate.

The agreement is expected to help about 250 companies - especially those with riskier business ideas - and support nearly 43,000 jobs across the country. The aim is to offer financing for investments, as well as working capital on simple terms.

Věra Jourová, European Commissioner for justice, consumers and gender equality, says that the agreement will create opportunities for Czech entrepreneurs and open up access to the finance they need to generate better-paying jobs and innovate. According to the latest EIB Investment Survey, 20% of smaller companies in the Czech Republic have suffered from underinvestment over the last three years.

The deal strengthens the cooperation between ČS and the EIB, which has provided ČS with loans and guarantees totalling €1.45bn since 2002. Among these deals was the first Czech risk-sharing transaction – a €100m SME synthetic securitisation closed in March 2017.

Corinne Smith

Capital Relief Trades

Risk transfer round-up - 19 July

CRT sector developments and deal news

Monte dei Paschi di Siena is rumoured to be prepping an Italian SME significant risk transfer transaction for 4Q19. The securitisation would be the lender’s first capital relief trade.

CLOs

Simulation solution?

Monte Carlo methodology utilised in effort to more accurately value CLO reset options

New research takes a fresh approach to the longstanding issue of valuing call options in US CLOs. In particular, it aims to make the problem more tractable in the increasingly complex case of reset options.

The report from the North America securitised products strategy team at Morgan Stanley Research explains: “The economics of the call option have evolved as the CLO market has continued to grow and become more sophisticated. While refis (especially the Crescent variety) are relatively straightforward, resets give equity investors much more latitude to change the deal documents in different ways; a Crescent Refi can only update the spreads on the debt tranches, while a reset can change any number of things, not limited to the spread, the length of the non-call period, the length of the reinvestment period, management fees, deal size, deal leverage, the Moody's Asset Quality Matrix, the WAL test... the list goes on. As we add more and more dimensions, the problem of option valuation becomes increasingly intractable.”

At the same time, the strategists expect the issue to be an increasingly pressing one. “As spreads widened in the back half of 2018 and into 2019, fewer deals have been in the money, contributing to a decrease in refi/reset supply. As CLOs have rallied in 2Q19, however, we expect to see these transactions return if spreads stay near current levels or continue tightening,” the Morgan Stanley strategists explain.

The report uses a variation of a Monte Carlo Simulation called a Nonparametric Bootstrapping with Replacement to approximate this complex problem of callability, combined with a set of simplifying assumptions. The strategists generate a large set of potential spread paths for new issue/reset CLOs.

For each of those paths, they calculate the associated present value of the reset option, assuming that the only aspects that change are the debt spreads, the length of the non-call period and the length of the reinvestment period. The research also assumes that the equity investor is capable of efficiently and optimally exercising their option.

After running 100,000 independent and random simulations, the strategists find that: “The basic reset option is worth about 28bp per year in debt financing costs to the equity holder. We believe that, all else being equal, a current CLO equity investor looking to sell their call option should be seeking to secure financing at least 28bp tight of market in terms of weighted average liability spread across the capital stack.”

The strategists concede that this is unlikely to be the final word on the subject, but as they conclude: “The work done in this report would not have been possible until relatively recently. As the CLO market matures, our computing resources improve and our data becomes more robust, we are excited to continue using new methods to tackle enduring questions.”

Mark Pelham

RMBS

Fast track

ING RMBS turbo kicks in

Moody's has upgraded three tranches from ING’s Orange Lion 2013-10 RMBS, reflecting increased credit enhancement and better-than-expected collateral performance. The preplaced transaction caused a stir at issuance, due to its lack of call option or step-up coupon (SCI 4 July 2013).

The transaction’s €42.6m class C notes have been upgraded from Aaa to Aa1, while the €40.1m class D notes have been upgraded from Aa1 to Aa3. Finally, the €33.9m class E notes have been upgraded from Aa3 to A3.   

Sequential amortisation, a non-amortising reserve fund and trapped excess spread to amortise the rated tranches in a reverse-turbo manner has driven an increase in credit enhancement. Indeed, credit enhancement for classes C, D and E rose to 10%, 6% and 4.8%, from 8.7%, 5.6% and 3.7% respectively, compared to the previous rating action in November 2017.

According to Michelangelo Margaria, svp at Moody’s: “The excess spread has been used to fast track the amortisation of class E using the turbo feature, with two-thirds of the tranche having been amortised. The amortisation is sequential for classes A, B, C, D and E. However, the turbo feature has been beneficial for class E, which now has a higher credit enhancement compared to closing. This, added to the good performance and the overall deleveraging, justifies the upgrade.”

As part of the rating action, Moody's reassessed its lifetime loss expectation for the portfolio, reflecting the collateral performance to date. The performance of the transaction has continued to be stable since the previous rating action, with 90 days plus arrears currently standing at 0.07% of the current pool balance.

Cumulative losses are equal to 0.06% of the original pool balance, stable compared with one year ago. As such, Moody's decreased the expected loss assumption to 0.50% as a percentage of the original pool balance from 0.68%, due to strong and stable performance.

Stelios Papadopoulos

Structured Finance

Fund founder guilty of fraud

Company hires and sector developments

African solar plan approved

The African Development Bank Group has approved an innovative multinational financing programme for Distributed Energy Service Companies (DESCOs), which would see 900,000 households in sub-Saharan Africa – about 4.5 million people - gain access to solar power by 2025.

The DESCOs Financing Program promotes securitisation financing techniques to address barriers to accessing finance for DESCOs, while supporting their growth and expansion into existing and new markets. The program will also facilitate local currency financing for DESCOs and provide local lenders with risk mitigation instruments to support them.

The board approval follows the approval of a €50m guarantee facility and €6m technical assistance grant by the European Fund for Sustainable Development.

Hedge fund founder fraud

Audrey Strauss, the Attorney for the United States, has announced that Anilesh Ahuja, the founder, ceo and cio of Premium Point Investments (PPI) a Manhattan-based investment firm that managed hedge funds, and Jeremy Shor, a former trader at PPI, were found guilty today of securities fraud-related offenses.  Ahuja and Shor were convicted after a six-week trial in Manhattan federal court presided over by US District Judge Katherine Polk Failla, for their participation in a scheme to inflate the net asset value reported to investors for hedge funds managed by PPI, by more than US$100m. PPI managed hedge funds focused primarily on structured credit products, including RMBS.

Rating agency promotions abound

KBRA made four senior personnel changes in its New York office. Anthony Nocera, co-head of the ABS group, has decided to transition to a senior advisory role at KBRA. Nocera, who joined the company in September 2011, will continue to support the ABS team in his role as senior advisor over the next six to nine months, focusing on nontraditional ABS assets. Prior to joining KBRA, Nocera worked at Ambac Assurance, where he managed a portfolio in excess of US$12bn, and at S&P, where he rated commercial asset ABS.

In addition, KBRA has named Rosemary Kelley as head of the ABS group, effective immediately. Kelley, who was co-head of the ABS group along with Nocera, will now assume responsibility for both consumer and commercial asset classes. Prior to joining KBRA, Kelley worked at DBRS, where she rated consumer ABS transactions.

KBRA also announces that Cecil Smart and Eric Neglia have been appointed to lead the commercial ABS and consumer ABS teams, respectively, and will both report to Kelley. Smart has been with KBRA since 2014 and focuses on esoteric and renewable transactions, including residential and commercial solar, PACE, broadcast television rights, and mortality-linked assets. Prior to joining KBRA, he was a vp at DZ Bank specialising in structured credit transactions for nontraditional assets and new entrants to the capital markets.

Neglia has been with KBRA since 2015 and has been working across all consumer ABS transactions, including auto loans and leases, unsecured consumer loans, solar loans, credit card receivables, student loans, as well as small business loans/merchant cash advance ABS. Before joining KBRA, he was head of operational risk management at MasterCard Worldwide.

Structured Finance

Bank fined over MBS trading failures

Company hires and sector developments

Agency heads announced

Morningstar Credit Ratings (MCR) has named Erin Stafford as head of the combined DBRS/MCR North American CMBS group and Quincy Tang as head of the combined US RMBS group, having both served in similar positions at DBRS. The pair will report to Claire Mezzanotte, who will be the head of global structured finance following the successful integration of the two ratings businesses. Mezzanotte served in a similar role at DBRS for more than 12 years and will report to Detlef Scholz, president of the combined entity. Former head of MCR Brian Grow will assume the role of head of US business strategy for the combined entity, also reporting to Scholz.

Bank fined over MBS trading failures

The US SEC has ordered Nomura to repay approximately US$25m to customers for its failure to adequately supervise traders in mortgage-backed securities. The SEC finds that Nomura bond traders made false and misleading statements to customers while negotiating sales of commercial and residential mortgage-backed securities. To settle the charges that it failed to reasonably supervise its traders, Nomura agreed in the two orders to be censured and to reimburse customers the full amount of firm profits earned on any RMBS or CMBS trades in which a misrepresentation was identified, paying over US$20.7m to RMBS customers and over US$4.2m to CMBS customers.  Nomura also agreed to pay a US$1m penalty in the RMBS-related case and a US$500,000 penalty in the CMBS-related case. Both orders note that the penalty amounts reflect substantial cooperation by Nomura during the SEC’s investigation, including remedial efforts by the firm to improve its surveillance procedures and other internal controls.

BUMF 6 update

In another development in the Business Mortgage Finance 6 case, the interim application (as defined in the announcement dated 9 July 2019) has been heard and granted by the court on 11 July 2019. As such, the high court has ordered that neither Greencoat Holdings Limited (GHL) nor Portfolio Logistics Limited (whether by itself, its directors, servants, employees and agents) shall hold itself out or act as if it were duly appointed as an additional or separate trustee or as an agent or any trustee duly appointed under the terms of the trust deed. GHL (whether by itself, its directors, servants, employees and agents) shall not hold itself out or act as if it were duly appointed as the cash/bond administrator or the special servicer under the terms of the master securitisation agreement dated 18 May 2007.

Neither Patrick Anthony FitzSimons nor Alfred Olutayo Oyekoya (whether by himself, his servants, employees and agents) shall hold himself out or act as if he were duly appointed as a receiver of any of the Issuer's property. Neither Oyekoya nor Maria Stoica (whether by himself or herself, his or her servants, employees and agents) shall hold himself or herself out or act as if he or she were duly appointed as a director or other officer of the issuer; and FitzSimons and Oyekoya must disclose in writing on or before 4pm on 15 July 2019, to the issuer and its solicitors, the person or persons to whom they contend that the loans outstanding were sold, to be verified by way of affidavit sworn by both of them.

The issuer further wishes to inform noteholders that its substantive claim is to be listed to be heard by the court (on an expedited basis) on 25 and 26 July 2019 with a time estimate of one and a half days.

Elizabeth Finance 2018-1

Further to the receipt by the special servicer of a notification from the mezzanine agent stating that that the mezzanine lender wished to make a cure payment in respect of the outstanding loan event of default which occurred as a result of the loan to covenant breach under the Maroon loan. Such cure payment has now been received and, accordingly, the loan event of default has been remedied and the Maroon loan is now a corrected loan.

Mortgage portfolio acquisition

Arbuthnot has agreed to purchase a portfolio of residential mortgages totalling approximately £266m for a discounted rate of 97.2%. The transaction is expected to complete on 8 August 2019 when the mortgage contracts will be released from the securitisation vehicles in which they are currently held.

The mortgages are being acquired from Raphael Mortgages and Magellan Funding No. 2. Raphael Mortgages has been in run off since it was originated by Edeus Mortgages and Victoria Mortgage Funding between 2005 and 2008, while Magellan was originated in 2018 and 2019 by Magellan Homeloans. Both portfolios are geographically distributed around the UK.

The loans have very similar characteristics to the portfolio that the bank acquired from the administrators of the Dunfermline Building Society in December 2014. The bank notes that this portfolio has performed “very well” over the past four and a half years, with credit losses totalling only £40,000 compared to forecast losses at the time of the acquisition of approximately £3m.

Pre-2019 STS application

Santander has submitted an STS notification to ESMA regarding pre-2019 securitisations issued from its Holmes programme to ESMA and the FCA that the requirements of articles 19 to 22 of the Securitisation Regulation have been satisfied in respect of the designation of the notes under, the STS framework of the Securitisation Regulation (the STS notification).

Vida acquisition

RedBird Capital Partners and Reverence Capital Partners are set to acquire Vida Capital, an alternative asset management platform specialising in non-correlated investment strategies, including ILS. Vida's president and ceo Jeff Serra - along with members of the management team - will invest alongside RedBird and Reverence in the transaction, which is expected to close by 4Q19, subject to customary closing conditions. This investment will provide the company with greater financial and operational resources to continue building its proprietary analytical capabilities and expanding its product set.

Structured Finance

Additional resources for disclosure published

Sector developments and company hires

Agri-investing appointment

Arable Capital Partners has appointed Matt Reus a vp in the Bellevue, Washington office. He is responsible for transactional work and due diligence on acquisitions, financial analysis, portfolio management and assisting in overall investment strategy. Reus has 12 years of direct investment, investment banking and fixed income experience, including with securitisation transactions. He was previously with Cascadia Capital and before that was an investment banker at Western Reserve Partners and Wachovia Securities.

Disclosure requirements

ESMA has published additional resources to assist industry implementation of its draft technical standards on disclosure requirements for the Securitisation Regulation (SR). First, it has updated its SR Q&As, clarifying different aspects of the draft disclosure technical standards, including how some specific fields in the templates should be completed. The purpose of this document is to help reporting entities comply with their obligations under the SR, as well as promoting common, uniform and consistent supervisory approaches and practices in the day-to-day application of the regulation. Second, ESMA has published a set of reporting instructions and XML schema for the templates set out in its draft technical standards on disclosure requirements. In addition, the authority has published a set of validation rules, which prohibit the submission of certain combinations of information that are logically incoherent.

ILS acquisition

Schroders has increased its stake in Secquaero Advisors from 50.1% to 100% and the firm will be fully integrated into the Schroders private assets unit. Managed by Dirk Lohmann and based in Zurich, the combined team managing ILS-related strategies will operate within Schroder Investment Management (Switzerland) under the name Schroder Secquaero. Schroders says its objective is to be one of the leading institutional providers of dedicated ILS investment strategies, offering a wide range of funds and bespoke mandates, from pure cat bond strategies to broader solutions, including private transactions and dedicated life-only funds.

Impact asset manager closes ABS

ResponsAbility Investments, an impact asset manager has closed a US$175m securitisation of micro-finance and SME loans to 26 businesses in emerging markets. The proceeds will be used to fund financial intermediaries providing capital to 30,000 small businesses and 5.6 million microfinance borrowers. 81% of the borrowers are women.

It has an expected maturity of three years, the securitisation provides investors a choice of three different risk return profiles (senior, mezzanine, and junior) in a listed, transferable bond format. The senior and mezzanine notes earn fixed interest rates and junior note returns will depend on performance of the underlying loan portfolio. Key investors in this transaction include the Overseas Private Investment Corporation, providing the initial capital necessary to mobilise the private institutional investment in the deal, and Alecta, the fifth largest occupational pension provider in Europe, and investing in the essential risk capital. Impact investing firm Calvert Impact Capital also brings US private capital into the deal.

Safe harbour amend passed

On 16 July, 2019, in an open meeting of FDIC a memorandum and resolution regarding a notice of proposed rulemaking on a proposed amendment to securitisation safe harbour rule was passed. The proposed changes are intended to remove the requirement that safe harbour transactions that do not otherwise have to comply with US SEC Regulation AB, would have to do so in order to be afforded safe harbor treatment by the FDIC. This is meant to ease the reporting and disclosure requirements imposed by Reg AB to encourage certain mortgage backed securitisations that were having problems complying with the former regime, but would apply to other types of private securitisation transactions as well.

Structured Finance

Co-ceo named

Sector developments and company hires

Co-ceo named

Värde Partners has named Ilfryn Carstairs as co-ceo, alongside co-founder George Hicks, effective from 1 January 2020. Hicks intends to transition to an executive chair role in 2022. Carstairs will retain his role as partner and global cio, overseeing the firm’s global investment strategy and co-chairing its investment committee. Based in Singapore since 2017, he joined Värde Partners in 2006 and previously served as co-head of corporate and traded credit, managing the firm’s liquid investing activities globally.

Dutch firm markets debut

Triodos Bank has retained a debut €841m securitisation of Dutch prime residential mortgages. Dubbed Sinopel 2019, the deal is backed by 3,810 mortgages, all of which offer lower interest rates depending on the energy-efficiency of the house with a maximum discount of 0.40% (between most and least efficient) - the bank has a very strong focus on sustainability. It has also been structured to comply with the STS criteria in addition to the LCR requirements, as stated in the prospectus. While less explicit in the prospectus, the deal also seems to comply with the additional ‘STS+’ requirements.

The RMBS has preliminary ratings of triple-A from S&P and DBRS on the €799m class A notes (50bp) while there is no rating on the €42.1m class B notes.

Muni CDO transfer

Lapis Municipal Structured Management has replaced Cohen Municipal Capital Management as portfolio manager to Non-Profit Preferred Funding Trust I, a muni CDO. Moody’s has confirmed that the appointment will not impact the deal’s ratings. For more CDO manager transfers, see SCI’s database.

REIT charge settled

The US SEC has charged AR Capital, its founder Nicholas Schorsch and former cfo Brian Block with wrongfully obtaining millions of dollars in connection with two separate mergers between REITs that were sponsored and externally managed by the firm. The defendants agreed to settle the matter by cumulatively agreeing to over US$60m in disgorgement, prejudgment interest and civil penalties. According to the SEC's complaint, between late 2012 and early 2014, AR Capital arranged for American Realty Capital Properties (ARCP), a publicly-traded REIT, to merge with two publicly-held, non-traded REITs. The SEC alleges that AR Capital, Schorsch and Block - acting in breach of the relevant proxy disclosures - inflated an incentive fee in both mergers, allowing them to obtain approximately 2.92 million additional ARCP operating partnership units as part of their incentive-based compensation. In addition, the complaint alleges that the defendants wrongfully obtained at least US$7.27m in unsupported charges from asset purchase and sale agreements entered into in connection with the mergers.

Renewables firm eyes ABS

CleanCapital and funds managed by CarVal Investors have closed on a US$300m million debt warehouse facility with Credit Suisse. The company plans to leverage the proceeds to further accelerate acquisitions of small-scale renewable energy projects throughout the US, building well-constructed portfolios attractive to institutional investors in the ABS market.