Contents

ABS

New ground

O&G securitisations open up new asset class to ABS investors

For the first time, working interests in oil and gas wellbores have been securitised, marking a new partnership between the oil and gas and ABS industry. These deals have been warmly received by investors and potential issuers, with more transactions expected to follow.

Diversified Gas and Oil (DGO) recently announced an inaugural US$200m securitisation and the first deal backed by operated working interests in wellbores. A different transaction from Raisa Energy also recently closed, marking the first securitisation backed by non-operated working interests.

Dubbed Diversified ABS, DGO’s transaction - through its wholly-owned subsidiary Diversified Production - conveys a 21.6% working interest of its 50,000-plus wellbore portfolio in the Appalachian basin. Fitch has assigned a rating to the deal of triple-B minus.

The rating agency comments that the notes are backed by oil and gas proven, developed and producing (PDP) assets with a PV-10 value of approximately US$299m (depending on strip price), full life PV-10 originated and managed by Diversified Production. It adds that this current valuation is based on a gas price at US$2.462 and a differential price of -US$0.433 (as of November 13, 2019) and estimated advance rates of 66.7% full life PV-10) for the notes.

Fitch notes that it has a view on the credit quality of DGO, but unlike other future flow transactions, the seller/originator's (DGO) credit quality is a secondary factor when analysing future production risk in PDP wells. The future generation of the flows is expected to continue with limited disruption in the case of a bankruptcy of the originator but the rating is capped in the triple-B rating category due to the reliance of DGO as the sole operator and manager of the assets.

Additionally, Fitch states that base case production levels have been assessed in conjunction with a third-party independent engineer (IE) and determined to be in line with the IE projections due to the historical stability of production. Furthermore, the transaction hedges the majority of price risk over the first ten years and basis risk with a two year rolling hedge, while the deal also benefits from “significant” structural protections including backward looking cash sweep mechanisms based on DSCR and production tracking levels.

Rusty Hutson, ceo and founder of DGO, comments that the transaction is the inaugural deal for his firm as well as the first of its kind for the sector. He adds that, by being secured by 21% of working interest across the entire DGO portfolio, cherry-picking of assets is avoided.

In terms of why his firm utilised securitisation for the first time, he says that the assets backing the transaction - long-life, low decline collateral - fits the securitisation model. He comments: “It also matches the needs of our investors that want long term locked-up capital which we can provide through the ten year duration. Investors also benefit from the ten year hedge – an important feature minimising volatility.”

The added benefit of securitisation, says Hutson, is that it provides a higher advance rate and boosts the firm’s liquidity compared to the existing reserve-based lending (RBL) facility, while also having no redeterminations and lower covenants. Hutson says, however, that the deal had some challenges, as with any debut deal.

He comments: “As with completing any inaugural transaction, there were certain legal hurdles we had to overcome as well as finalising indentures and achieving investor alignment. It was also a challenge to find willing counterparties for the ten year hedge, as it is a relatively long time. However, now those have been overcome, we have a very repeatable structure and the ability to add further tranches whenever the need arises.”

Otherwise, the transaction is relatively straightforward structurally and that, while it utilises an SPV, this “consolidates up to DGO and all excess all excess cash flows sweep back up to the company”, says Hutson. He adds that in terms of investor reception, there is very strong appetite among insurers and traditional bond investors for the “types of asset backing this deal.”

Orrick worked with the noteholders in both transactions from DGO and Raisa Energy, ensuring investor needs were met, while Guggenheim acted as a driving force in bringing them to fruition. Leah Sanzari, partner, structured finance and ABS at Orrick, says that these transactions represent an “exciting collaboration between the oil and gas sector and the ABS industry”, successfully marrying the interests of oil and gas companies in need of capital and ABS investors looking for yield.

Sanzari adds: “Investors have been particularly interested by the transactions because they provide access to an asset class previously untapped via securitisation, while providing comparable structural protections as other traditional securitisations, such as a bankruptcy remoteness and cashflow triggers. The transactions equally provide access to mature, stable cashflows that can be modelled and rated by the rating agencies.”

Jonathan Ayre, partner, oil and gas, energy, at Orrick, reaffirms that the transactions, for the first time, open up access to working interests in wellbores. The Diversified ABS deal, he says, successfully segments the low risk wellbores that the company has exposure to and pools together a hugely diverse portfolio of thousands of - generally older - wellbores.

He continues: “The appeal of older wellbores is that they come to provide stable and predictable production which, combined with an effective hedge, can then translate to reliable long term returns for investors and an even more attractive investment prospect.”

In terms of future deals, Hutson comments that his firm may look to issue a further transaction “quite soon” but that it will come down to whether the firm needs the liquidity provided by such issuances. While this deal took about three months, further transactions shouldn’t take much more than a month, he adds.

With regard to other players, Hutson thinks some firms in this industry will look at securitisation as a funding tool, especially with a similar profile to DGO – meaning long term cash flows, low decline assets and a high level of visibility. However, Hutson notes that,  “in my opinion, I don’t think every company in this field is suited to securitisation – certain firms drilling shale gas for example aren’t suited to securitisation in my view, due to the heavy decline rate.”

Ayre seconds Hutson’s view, that not every firm in the sector is suited to the ABS model. He adds, however, that, “DGO is absolutely suited and I would say there are some other firms out there that would be suited to the securitisation model.”

Looking to the future of the new asset class, Sanzari is optimistic and says that she sees no specific reason it should be capped in terms of growth. This sentiment is echoed by Ayre who adds: “What I would say is that many of our clients are coming to us at the moment asking about these transactions. There is huge interest on both the issuer and investor side in these transactions and I certainly think we’ll see more of these in the near future.”

Richard Budden

Capital Relief Trades

Template concerns

Paper proposes mitigants for unintended consequences

Major risk-sharing transaction investor PGGM has published a position paper on the ESMA securitisation disclosure templates (SCI 1 November). The paper proposes changes to mitigate the unintended consequences of applying true sale ABS reporting standards to balance sheet synthetic trades.

Mascha Canio, head of credit & insurance linked investments at PGGM, explains: “We wanted to highlight these issues primarily because we care about how the risk-sharing market develops. Current proposals, if made into law, will likely cause a disturbance in the market and discourage issuers and investors alike.”

She continues: “Initially, our understanding was that the templates would not apply to private transactions, but when it became clear that they would, we shared our feedback on the templates with ESMA and the European Commission earlier this year. I believe other firms have similar concerns, but we’re not yet seeing any signs of changes, so wanted to publish the position paper to bring broader attention to the issues.”

The PGGM paper argues that while standardised minimum reporting standards might increase transparency in the securitisation market, improve price discovery and ultimately help attract new investors and issuers, the set of reporting standards currently proposed seem to have been designed with true sale securitisation in mind and contain elements that make best practices in investment analysis for risk-sharing transactions more difficult to implement. Specifically, PGGM sees two major issues with the current standardised reporting templates.

The first relates to client confidentiality. “Many risk-sharing transactions, and certainly the ones we invest in, are structured as blind pools, in which the names of the borrowers included in the portfolio are not disclosed… It is crucial that the confidentiality of such data can be preserved, which is not possible by requiring banks to provide detailed data on financials, region within a country and economic sector of the borrower [as the templates require]. The level of required granularity in this data is so high that the investor can easily identify the actual borrower, especially in the case of a large corporation.”

Therefore, the paper adds: “The templates create the risk that banks will not be able to share with investors the borrower internal rating and loss given default data. This data is so crucial to us, that not receiving it may lead to the conclusion that we are unable to do the necessary analysis to make investment decisions at all.”

The second issue PGGM identifies relates to the complexities that the new standard reporting would create for non-European banks that wish to enter into a risk-sharing transaction. The paper suggests that non-EU banks transacting with any EU-based institutional investor will become obliged to complete the templates as well.

“Similar to EU banks, it would impose a burden and, in addition, for non-EU banks it would increase complexity, as several fields must specifically be completed based on EU definitions… This puts EU-based investors at a serious competitive disadvantage.”

The paper proposes some changes to mitigate what it describes as the unintended consequences of the templates. First, it argues for exempting the issuers of private securitisation transactions from the requirement to provide data in accordance with the ESMA templates and exempt investors from verifying that such data has been received.

Alternatively, the paper continues: “There could be increased flexibility in the manner of compliance with the regulation, particularly for private transactions. For example, rather than requiring strict compliance with the template, a ‘comply or explain’ principle could be adopted – allowing the issuer and investor to jointly agree to deviate from the template, as long as it can justify the deviation, for example for confidentiality reasons.”

Another possibility, PGGM says, could be to use a template specifically designed for blind pool risk-sharing transactions, a draft of which it supplies. “We believe having such a template added to the set will be of great help and, at the same time, we realise there may still be data challenges for certain securitisation transactions.”

To alleviate the competitive disadvantage that would otherwise occur for EU-based investors, PGGM suggests greater clarification in the rules. For instance, stating that a non-EU issuer is not required to disclose information on the basis of the templates – even when the investor is an EU-based institution – and that any EU-based investor is not required to verify a non-EU entity’s compliance with the disclosure templates.

All that said, Canio is realistic that there is not much time left to implement changes. “There is still a window of opportunity. We’re not sure how long, but typically once proposals reach the European Parliament – as the templates have – there is at most a couple of months to make amendments before they become law,” she observes.

She concludes: “It will also be difficult, as Q4 is a very busy period for banks and investors and so not the best time to get broad-based feedback. However, we feel we have to try to get something done, as otherwise this could adversely affect the growth of the risk-sharing market.”

Mark Pelham

The full position paper and a suggested template for blind pool risk-sharing transactions can be found on the PGGM website here.

ABS

SME programmes launched

EIF supports two inaugural funding initiatives

The EIF has for the first time provided funding support for a German online SME lending platform. In another first, the EIF has announced a funding guarantee to support lending to French cooperatives.

German online lending platform creditshelf has launched a diversified closed-ended private debt fund, with €30m being provided by the EIF. It will have a target size will be up to €150m, with the goal of investing in more than 150 loans to German SMEs.

The fund will invest through the platform alongside creditshelf’s existing institutional investors and, as a result, creditshelf’s SME borrowers will benefit from increased funding. The EIF is using resources from the European Fund for Strategic Investments to act as a cornerstone investor.

The investment comes under the new investment programme for debt funds created within the Juncker Plan, called “Private Credit Tailored for SMEs”. This is tied to the firm’s continued commitment to invest in diversified pools of SME credit to foster a functioning capital market across the European Union.

The EIF has also signed a €25m guarantee to Socoden-FEC, a cooperative public limited company created in 1965 by the French General Confederation of Cooperative Companies (CG SCOP). The aim of Socoden-FEC is to provide participating loans of under €500,000 to worker-owned and multi-stakeholder cooperatives.

The support of the EIF will enable Socoden to provide loans worth €4.8m in 2019 and up to an expected €6.5m a year by 2023. The EIF notes that Socoden will focus its financing on underserved sectors currently seen as too risky, such as worker-owned cooperatives and multi-stakeholder cooperatives in the start-up phase.

The funds have been allocated from the budget of the European Commission's Programme for Employment and Social Innovation (EaSI), a funding programme designed to promote a high level of quality and sustainable employment, in order to guarantee adequate and decent social protection, combat social exclusion and poverty and improve working conditions across Europe.

Richard Budden

ABS

Growth surge?

Russian structured bonds expected to grow

The Russian structured finance market has traditionally been dominated by a small number of asset classes and securitised issuance volumes have remained low compared to the US and Europe. This may soon change, however, after regulation introduced last year paved the way for the development of structured bonds which, after a slow start, may see an uptick in issuance as regulation becomes finalised, with several banks on the cusp of launching debut issuances.

Broadly speaking, securitisation in Russia has comprised mainly of transactions backed by mortgage portfolios, with non-mortgage ABS only permitted in the country since 2014. Before this, securitisation of non-mortgage based assets were generally conducted with the involvement of foreign jurisdictions and under the law of these jurisdictions.

Konstantin Potapov, head of legal services, TMF Group, comments that the introduction of new financial instruments, such as structured bonds, is a step in the right direction for the Russian structured finance market. He adds that this is not just in terms of increased diversification of the Russian market but that it also increases harmonisation of Russian legislation with the highly regulated EU jurisdictions, for capital markets.

He explains that structured bonds are debt obligations containing an embedded derivative component that adjusts the security's risk/return profile. The return performance of a structured bond will track the underlying debt obligation and the derivative embedded within it. 

They are regarded, he notes, as high-risk financial instruments whose yield is linked to fluctuations in the price of goods, securities, currency, interest and inflation rates and which offer higher returns but are only open to qualified investors, at present. The main difference compared to other bonds is that the issuer does not guarantee the total repayment of these bonds’ par value.

Structured bonds can be issued by banks, brokerage firms, dealer firms and SPVs in Russia, although there are some differences in regulation depending on the type of issuer. Potapov says: “The local brokerage and dealer firms as well as SPVs are only allowed to issue structured bonds, collateralised with a pledge of receivables and/or other property. These rules do not apply to the banks.”

As it stands, Potapov doesn’t think structured bonds are – as yet - cannibalising traditional structured finance products, like securitisation, and he says that structured bonds are still a novelty for the Russian market. He adds: “In my view, the majority of market players prefer to launch new securitisation deals on the basis of proven formats...as regulation for structured bonds is still at the emerging stage.”

The market is still small, with one Russian brokerage firm having issued four of these bonds, with the volume of each issuance coming in at around RUR600m, registered by the Bank of Russia. Potapov suggests that the market is, however, set to grow now that this brokerage has taken the crucial first step and adds that “some major banks are planning to issue these bonds by themselves, without the involvement of an SPV.”

Looking ahead, the structured bond market could soon receive a further, regulatory, boost broading the buyer base. Potapov concludes:“Only qualified (accredited) investors can buy these bonds…from November, the Bank of Russia stated it would plan to return to the discussion on allowing non-qualified investors to buy structured bonds in early 2020.”

Richard Budden

Structured Finance

SCI Start the Week - 18 November

A review of securitisation activity over the past seven days

Transaction of the week
UniCredit has completed what is believed to be the largest European ABS transaction post-crisis. Dubbed Impresa Two, the deal is a departure from previous securitisations, given the inclusion of large corporate loans in the portfolio.
The two-year revolving cash securitisation is backed by a €11.05bn portfolio of secured and unsecured loans granted by UniCredit to SMEs, mid-cap and large companies located in Italy. The previous ABS SME transaction originated by the bank - Impresa One - closed in 2011 and included only SME loans. See SCI 14 November for more...

Stories of the week
Choose risk
Richard Robb, ceo of Christofferson, Robb & Company, answers SCI's questions
Full-stack trend continues
FCA completes Italian auto SRT
Meaningful progress
Non-agency eMortgage securitisation on the cards
Spanish RPL RMBS prepped
Transaction re-securitises paid-off SRF loans

Other deal-related news

• Commonwealth Bank of Australia's new A$1bn Medallion Trust Series 2019-1 is set to become the first Australian RMBS linked to the Australian Overnight Index Average (AONIA) instead of one-month BBSW (SCI 11 November).
• The European Bank for Reconstruction and Development (EBRD) is providing up to EGP1bn billion (€55m) in a securitised local currency multi-tranche bond issuance totalling EGP6bn, issued by El Taamir for Securitisation Company (SCI 11 November).
• Funding Circle is marketing its first STS-compliant and SONIA-linked SME securitisation (SCI 13 November).
• The SFA has launched an industry initiative to facilitate the application of ESG principles to the structured finance market. The association notes that advancing the integration of ESG factors into business practices and reporting will require industry-wide collaboration (SCI 13 November).
• The long-awaited Spanish SME ABS Alhambra SME Funding 2019-1 has priced. The closest Europe has yet seen to a public middle market CLO came in broadly in line with updated guidance (SCI 14 November).
• Lone Star has priced its latest Irish non-performing loan RMBS at the same levels as its previous ERLS deal from July. Dubbed European Residential Loan Securitisation 2019-NPL2, the deal is backed by mortgages from the €1.34bn Project Glas portfolio acquired from Permanent TSB in 2018. (SCI 15 November).
• The New York Fed's open market trading desk plans to conduct four small value agency RMBS coupon swap operations on 19 and 21 November. On these days, the desk intends to swap out of three unsettled December TBA positions (SCI 15 November).
• The US$25.3m Raintree Apartments loan, securitised in COMM 2013-CR9, prepaid prior to its 1 June 2023 maturity date with a US$2.5m penalty (SCI 15 November).

Data

BWIC volume

Secondary market commentary from SCI PriceABS
15 November 2019
US CLO
Quite a busy day for sub-investment grade trading with 13 x BBs trading whilst there was 1 x BBB, 1 x A and 2 x AAA rated. The AAAs both had >4y WALs and traded in a 119dm-123dm range, both names MDPK 2018-27A A1A (CSAM) and BLUEM 2013-2A A1R (Blue Mountain) are 2023/2022 RP profiles respectively and have strong MVOCs but neither deal is exempt from some weaker performance metrics, eg. BLUEM 2013-2A A1R has 223bps of defaults, -0.94 par build whilst MDPK 2018-27A A1A has 56bps of defaults and 7.06% CCC / 2945 WARF. Both trades are at the tighter end of trades post summer and we observed >4y WAL AAA generic levels this week widen 2bps to 129bps. 

The single-A trade today is TRNTS 2014-2A C (Trinitas Cap) cover 307dm / 3.22 WAL, the first single-A trade seen this month. The BBB trade today was MP12 2018-1A D (Marble Point) cover 430dm / 8.5y WAL, this has a 2023 RP profile and is at the wide end of trades this week where we have seen generic levels of 385bps across $30m of trades - the MVOC is low 108.94, whilst lo-WARF 2914, 50bps defaults and 7% of assets priced under 80.

With BBs the focus today and also for this week, today saw 2021-2023 RP profiles trade in a 683dm-943dm range - at the tight end MAGNE 2014-8A ER² (Blackrock) cover 683dm / 7.5y WAL, this has a 2022 RP profile and has a hi-MVOC 104.98, 2784 WARF, 81 diversity along with excellent performance metrics. Since we observed almost $100m of BBs trade this week we analyse the activity as follows: generic BB spreads tighten 30bps to 838bps, 2024 RPs traded 852bps, 2023 RPs traded 846bps, 2022 RPs traded 768bps and 2021 RPs traded 816bps.

SCI proprietary data points on NAV, CPR, Attachment point, Detachment point & Comments are all available via trial, go to APPS SCI + GO on Bloomberg, or contact us for a trial direct via SCI

Capital Relief Trades

Ramping up

Standard Chartered boosts corporate issuance

Standard Chartered has completed a US$135m CLN that references a US$1.5bn portfolio of US and European corporate revolvers. Dubbed Chakra 4, the deal was carried out for both credit risk management and capital relief purposes.

The disclosed pool totals approximately 150 loans - mainly undrawn commitments - with a replenishment period equal to three years and weighted average life equal to 3.4 years. Further features include an eight-year maturity and a sequential amortisation structure, as well as clean-up and regulatory calls. The investor base consisted of mainly hedge funds and real money funds.

Chakra 4 is the fourth transaction from the Chakra programme. Standard Chartered initiated it last year, as it builds up the corporate and institutional banking (CIB) business in the US and Europe, while managing concentration risks through the credit cycle.

The transaction follows a previous Chakra transaction from June (SCI 21 June). Standard Chartered’s corporate CRT issuance has broken a four-year record this year, reaching US$415m of tranche notional volume across three deals (see SCI’s capital relief trades database).

The lender returned to the risk transfer market last year, with the rollover of two trade finance transactions from the Shangren and Sealane programmes, following a three-year hiatus as a result of a £3.3bn rights issue.

Stelios Papadopoulos

NPLs

Hercules tapped

Alpha Bank preps NPL securitisation

Alpha Bank is set to securitise a €12bn mixed portfolio of retail secured and unsecured loans, mortgage and wholesale non-performing loans in 1H20. Dubbed Project Galaxy, the transaction protects shareholders from dilution and is one of the first to utilise the Greek government’s Hercules asset protection scheme (HAPS) (SCI 11 October).

Alpha Bank’s main priority is to accelerate the de-risking of its balance sheet, given that a high cost of risk has been the main driver behind the low profitability of past years. As part of the bank’s planned NPL ABS, it intends to tap €3.7bn of HAPS guarantees.

The deal will be accompanied by a carve-out of the bank’s NPE management platform to servicing firm Cepal Hellas and the sale of the New Cepal to investors. New Cepal will consist of Alpha Bank’s platform and Cepal Hellas, and investors will acquire a controlling stake in it.

Accordingly, the bank’s NPE ratio is expected to decrease from 44.1% to less than 20% by year-end 2020, with the corresponding NPL ratio at below 10%, and a cost of risk that is expected to normalise at less than 100bp pro-forma for the Galaxy transaction. Following the completion of Project Galaxy, Alpha Bank will further reduce its core NPE book, predominantly through restructuring and reperformance strategies, resulting in an NPL and NPE ratio of less than 5% and 10% respectively in the bank’s Greek operations by end-2022.

Under the securitisation, the bank will issue junior and mezzanine tranches that will be sold to investors, with the senior tranche retained on the bank’s balance sheet. Eurobank and the National Bank of Greece have followed similar retention strategies in their securitisation transactions, since it allows them to benefit from any upside (SCI 20 May). However, securitisations also feature the added benefit of protecting shareholders from dilution (SCI 31 May).

Looking ahead, Alpha Bank aims for €14bn of loan disbursements until 2022 to support its retail and business segments.

Stelios Papadopoulos

Structured Finance

Structured credit head announced

Sector developments and company hires

Acquisition finalised

Artex has completed the acquisition of Horseshoe Insurance Services Holdings. This acquisition significantly strengthens its ILS operations and furthers the company’s goal to become the best service provider to the world’s risk capital. Horseshoe will become the global brand of ILS services for Artex, which will operate as one global team across multiple jurisdictions. Andre Perez and his associates will continue to operate from their current locations under the direction of Peter Mullen, ceo of Artex.

NPL ABS outlined

Banca Popolare Agricola de Ragusa has launched a derisking initiative and, as part of this, it is planning to securitise a €400m portfolio of Italian non-performing loans. At the same time, it plans to launch a debt collection platform in partnership with a primary specialised servicer.

Structured credit head named

Imperial Capital has hired Mark Green as head of special situations and structured credit, based in New York. He will be responsible for expanding the firm’s credit sales, trading and investment banking efforts further through credit event-driven situations, structuring expertise and investment strategies designed to allow clients to develop valuable solutions to issues they face and benefit from market opportunities across a range of asset classes. Prior to joining Imperial Capital, Green was the managing partner and cio of Chatham Road Capital, a credit-focused investment firm he co-founded that exploited market imbalances and inefficiencies in the public and private markets.

Structured Finance

Italian AM expands to US

Sector developments and company hires

Azimut expands

Italian asset manager Azimut has established a US-based operation named Azimut Alternative Capital Partners (AACP), with the purpose of investing in GP stakes of alternative managers specialised in the private markets space. Concurrently, it signed an investment and shareholder agreement with AACP’s new ceo Jeffry Brown to execute a 10-year business plan, which aims to build a leading private markets strategic permanent capital solutions provider and business operator. AACP’s focus is on the underserved segment of sub-US$3bn AUM alternative asset management businesses and it anticipates an investment of capital sufficient to achieve over US$7bn of pro-rata AUM, as well as the entrance of further key senior managers over time. Brown has over two decades of investing, due diligence and operating management experience in the alternatives asset management industry. He was previously an md at Dyal Capital Partners and, before that, worked at Bear Stearns Asset Management and Morgan Stanley Asset Management.

Credit firm bulks up

Monroe Capital has expanded its opportunistic private credit team with the addition of four new hires: Jason Starr, md, responsible for sourcing, underwriting, conducting due diligence, negotiating legal documents and managing opportunistic real estate credit investments, Darrick Ginkel, md, responsible for originating, analysing, evaluating and managing opportunistic private credit investments, Joseph Valickus director in the New York office, responsible for originating, evaluating, underwriting and managing opportunistic private credit and equity investments across multiple industries, including specialty finance, corporate loans, secondaries, and real estate and Chris Spanel, avp, in the Chicago office, is responsible for analysing, evaluating and managing opportunistic private credit investments across multiple industries, including specialty finance, corporate loans, secondaries, and real estate.

DFHL default

Moody's notes that the general operational practice among banks in the Indian ABS market to require the consent of the sponsor before cash reserves are released to trustees is credit negative, because it significantly increases the risk of immediate default for ABS deals upon the sponsor's default. A number of Indian RMBS issued by Dewan Housing Finance Limited (DFHL) defaulted last month because the cash collateral bank required DHFL's consent before it could release cash to the trustee. As the sponsor did not provide the consent, the trustee could not access cash reserves in time to make payments to investors. Following the DHFL default, sponsors and trustees have been working with cash collateral banks to provide the trustee unhindered access to cash reserves, which are held in trust for the securitisations. The lien over the bank accounts holding the cash reserves is also in favour of the trustees.

Fallback language adopted

Fannie Mae and Freddie Mac has announced that they will use the ARRC’s recommended fallback language for new USD denominated closed-end, residential adjustable-rate mortgages (ARMs) and plan to publish updates to their uniform ARM notes in the first quarter of 2020. Simultaneously, the ARRC has released recommended contractual fallback language for new USD denominated closed-end, residential adjustable-rate mortgages (ARMs). These provisions are for market participants’ voluntary use in new residential ARMs that reference USD LIBOR, and were developed with the goal of reducing the risk of serious market disruption in the event that LIBOR is no longer available. The recommendations provide clear language that would replace USD LIBOR with a spread-adjusted index based on SOFR which had been recommended by the ARRC for consumer products.

Mortgage ILS priced

Genworth has priced its first mortgage ILS – Triangle Re or TMIR 2019-1. The deal’s $135m 1.6 year wal M1 notes printed at plus 190bp; the $151m, 3.8 year M2s at plus290bp and $17m 5.2 year B1s at plus 415bp. This means that all six major US mortgage insurers have now entered the credit risk transfer market via securitisation structures.

RFC on interest rule

The FDIC and OCC are soliciting comments on a proposed rule to clarify that when a national bank or savings association sells, assigns or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer. This proposal aims to address confusion about the effect of a transfer on a loan’s valid interest rate, including confusion resulting from the recent Madden versus Midland Funding decision by the US Court of Appeals for the Second Circuit. Comments will be accepted for 60 days after publication in the Federal Register.

Structured Finance

Legal firm beefs up

Sector developments and company hires

GSE capital rule eyed

The FHFA plans to re-propose the entire regulation on capital requirements for Fannie Mae and Freddie Mac sometime next year, stating that the 2018 capital rule was proposed before it began the process of retaining capital at the GSEs as a first step towards ending their conservatorships. The agency says that the new rule will be finalised “within a timeline fully consistent with ending the conservatorships” and will require the enterprises to build capital that can properly support their risk. Separately, the FHFA has extended from 19 December 2019 to 21 January 2020 the deadline for interested parties to provide input on potential changes to Fannie Mae and Freddie Mac UMBS pooling practices (SCI 5 November).

Legal firm beefs up SF expertise

Maples Group has announced the appointment of a number of strategic hires to its team in the Cayman Islands.  Luana Guilfoyle, Nicolas Rogivue, Sonja Salmon, Nadish Seebaluck, and Linval Stewart have joined as vice presidents within the Maples Group’s fiduciary services team to provide specialist services to a broad range of structured finance transactions and special purpose vehicles. Guilfoyle has over 14 years of experience in the Cayman Islands’ financial services industry, having served on the boards of various Cayman domiciled hedge funds, investment management companies, special purpose vehicles and private equity structures.  She focuses on a wide range of structured finance products, in particular, CLOs/CDOs, structured note issues and programmes. Previously, she was a principal in the investment services department of a specialised trust and corporate services provider and held the role of group manager at a global fund administrator managing several strategic relationships for its clients. Rogivue brings a depth of experience in the provision of directorship and trustee services, as well as experience as a debt capital markets lawyer in the UK. He has supported a range of structured finance transactions, including a significant number of cashflow and synthetic CLO/CDOs, securitisations and note programmes in both the US and European markets. Previously he worked at a global investment bank and financial services company focused on global transaction banking, trust and agency services. 

Structured Finance

Ceo retires

Sector developments and company hires

Capital markets head appointed

23 Capital has hired Sreesha Vaman as md, head of capital markets. 23 Capital is a capital and solutions provider focused on the sports, music and entertainment sectors. Vaman has more than 15 years of experience across the finance, investment banking, sports and entertainment landscape and is joining the team’s New York office with a remit to build on 23 Capital’s work in the capital markets division globally. He will work closely with the company’s origination and structuring teams in the US and Europe to expand the firm’s capital initiatives as well as its presence in the broader capital markets. He will continue to help establish the company as the pre-eminent provider of capital and solutions to the sports, music and entertainment sectors. He previously spent seven years as an md at Guggenheim Partners, based in New York, across multiple roles, most recently as co-head of ABS/CLO syndicate. 

Ceo retires

Kevin Keyes has retired as chairman, ceo and president of Annaly Capital Management, but remains available for consultation to ensure a smooth transition. Glenn Votek has been named ceo and president on an interim basis, while continuing to serve as cfo. The board has commenced a search for a permanent ceo, including both internal and external candidates. As part of the company’s ongoing efforts to strengthen its corporate governance, the board has separated the roles of chair and ceo and named independent director Thomas Hamilton to serve as chair. Jonathan Green (formerly lead independent director) and Wellington Denahan (co-founder of Annaly) have been appointed vice chairs of the board.

Partnership launched

Quilam Capital has launched a new strategic partnership with US investment firm, Wafra Capital Partners. The new venture, Quilam Special Opportunities, will sit complementary to the existing Quilam Capital business.  However, with the support of WCP, the new vehicle plans to deploy several hundred million pounds over the next five years in the UK and European speciality finance markets.

Structured Finance

FRTB consultation launched

Sector developments and company hires

APAC poll highlights key risks

More than 80% of market participants polled by Moody’s at its recent Asia Pacific Structured Finance Conference in Singapore identified slowing global economic growth as posing a key risk for the Asia Pacific finance sector in 2020. In particular, 54% of respondents said that trade tensions were the biggest threat to Asia Pacific economies next year – with such tensions leading to falls in GDP growth – while 29% of people surveyed indicated specifically that slowing economic growth will pose the largest risk. Poll results also showed that 45% of respondents believe ABS issuance in China will rise and 72% anticipate Japan’s aging population will weaken asset performance in structured finance deals. Almost half (45%) of those surveyed said the housing market in Australia will drive performance in the country’s structured finance sector in 2020.

FRTB consultation

The EBA has launched a consultation on specific supervisory reporting requirements for market risk, which are the first elements of the Fundamental Review of the Trading Book (FRTB) introduced by CRR² in the prudential framework of the EU. The consultation paper includes proposals for a thresholds template, providing insights into the size of institutions’ trading books and the volume of their business subject to market risk, and a summary template, reflecting the own funds requirements under the ‘Alternative Standardised Approach’ for market risk (MKR-ASA). The reporting requirements on the new market risk framework will be gradually expanded over time. A public hearing will take place at the EBA premises on 2 December and comments should be submitted by 7 January 2020.

Portfolio lead hired

DECALIA Asset Management has hired Reji Vettasseri as lead portfolio manager for alternative funds and mandates invested in private markets. Vettasseri has more than 14 years’ experience of private debt and private equity investment. He was previously an executive director at Morgan Stanley Alternative Investment Partners in London, where he led the group’s private debt and special situations investment activities in Europe. Before Morgan Stanley, he worked at Bain & Company and Goldman Sachs.

Student loan benefit welcomed

Moody’s notes that the increasing use of employer-provided payments for employees' student loans will lower the risk of default and is therefore credit positive for ABS backed by such collateral. These benefits generally provide some or all of an employee's monthly student loan payment directly to the lender, reducing the risk of delinquency and default by providing an additional source of funds, as well as increasing the speed and certainty of payments. Faster pool amortisation improves the likelihood that the bonds backed by these loans will pay off before their legal final maturity dates, which is particularly beneficial for FFELP ABS, since such pools have high usage of deferment, forbearance and income-based repayment plans that typically slow payments to the ABS bonds. With unemployment rates near historical lows and competition for talent high, companies have been expanding benefits to retain their current workers and attract new talent.