Contents

ABS

Dutch consumer ABS prepped

Transaction features several departures from previous deals

Credit Agricole is marketing a securitisation of Dutch consumer loans originated via subsidiaries of Credit Agricole Consumer Finance Nederland (CACF NL). Dubbed Magoi, the transaction references a €418m eight-month revolving pool of 23,282 unsecured, fixed-rate personal loans and displays several differences compared to previous transactions from the firm.

This ABS is also structured to meet the STS criteria, marking the first Dutch STS deal that isn’t an RMBS, and the full stack is also being offered to investors. The transaction is only the second publically offered deal from the seller with their previous transaction, Matsuba, having launched in October 2016, according to analysts at Rabobank.

The transaction is provisionally rated by Fitch and DBRS Morningstar as triple-A/triple-A on the €326m class A notes (one-month Euribor plus 60bp), double-A/double-A on the €27.4m class B notes, single-A plus/single-A (high) on the €17.1m class Cs, single-A minus/single-A (low) on the €10m class Ds, triple-B/triple-B on the €9.6m on the class Es and single-B plus/single-B on the €9.8m class Fs. The €17.6m class Gs are not rated.

DBRS Morningstar comments that, “while the collateral assets are similar, the structural features of the transaction differ significantly from those of Matsuba 2016.” The liquidity reserve, for example, is available to the issuers until the class B notes are fully repaid during the revolving period and amortisation period, only in a restricted scenario where the interest and principal collections are not sufficient to cover the shortfalls in senior expenses, swap payments and interest on the Class A Notes, and the Class B Notes.

The agency adds that, during the post-enforcement period, the liquidity reserve amount is not available to the issuer and is instead returned directly to the liquidity provider. Additionally, the transaction has a complex pro rata, and potentially sequential, amortisation mechanism during the amortisation period.

Fitch notes that all of CACF NL’s previous securitisations of consumer loans featured revolving credit lines, which reflects a “market-wide shift in borrower preferences, in part due to Dutch consumer regulation.” The agency notes that the portfolio comprises loans with an original term of up to 15 years with 57.2% of the pool having a maturity of ten years and 10% having a maturity of up to 15 years.

Notably, CACF NL’s recovery strategy has shifted “significantly” according to Fitch, with sales of NPLs discontinued in early 2016 and all delinquent loans now worked out in-house. The transaction does not include a back-up servicer or a third-party facilitator, but Fitch thinks that the issuer administrator, Intertrust, will be able to perform the role and the amortising reserve fund and the commingling reserve will cover liquidity risk during servicing disruption.

Richard Budden

Structured Finance

SCI Start the week - 25 November

A review of securitisation activity over the past seven days

Transaction of the week

Hercules tapped

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.

Stories of the week

New ground

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.

Template concerns

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."

Growth surge?

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.

Ramping up

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.

Other deal-related news

• 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.
• 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. 
• 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.
• 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.

Data

Secondary market commentary from SCI PriceABS

22 November 2019
US CLO
A busy end to a buoyant week with 33 covers today – 9 x AAA, 3 x AA, 4 x A, 3 x BBB, 11 x BB and 3 x B rated.  All the AAAs had a WAL >4y and trade in a 119dm-140dm range for 2022/2023 RP profiles.  We saw generic >4y WAL AAAs tighten 2bps to 127bps this week despite the heavy supply ($118m in this bracket), note that 110m of this shared the same RP profile of today (2022/2023), if we isolate 2022/2023 RP profiles week on week we have seen 1bp of tightening to 126bps (>4y WAL AAAs 22/23 RPE).  AAs today trade in a tight range 181dm-196dm (2021/2022 RP profiles) whilst generic AA spreads this week are 194bps for 2021-2023 RP profiles.  The single-As today trade in a 230dm-272dm range for 2020-2023 RP profiles whilst we observed generic single-As this week trade 280bps for 2020-2023 RPEs (290bps if we exclude the 2020 RPEs).  

BBBs today trade in a 382dm-439dm range (2021-2022 RPEs) whilst we observed generic BBB spreads from trades this week widen 83bps to 468bps, predominantly due to a number of distressed bonds offered this week. The BBs today trade in a 644dm-826dm range for 2020-2023 RPEs, we observed 6bps of tightening for generic BB spreads to 832bps with $81.5m of liquidity (vs $90m last week), 2022 RPE BBs this week widened 105bps to 873bps whilst 2023 RPE BBs tightened 26bps to 820bps given a number of distressed offers in 2022 RPE BBs this week as noted during the course of the week. There were 3 x single-Bs that traded 898dm-1266dm, the CIFC 2015-3A FR (CIFC) and SHACK 2014-6RA F (Alcentra) both trade ~1250dm with week MVOC 102.52 and 100.84 respectively so these metrics are reflected in the levels for very thin second loss tranches with equity type returns.

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

Italian SRT inked

UBI Banca seals the triple

UBI Banca has completed its third capital relief trade (CRT) following its inaugural transaction two years ago. Dubbed UBI 2019 RegCap3, this trade differs from the previous two, given the use of pro-rata amortisation and a replenishment period for prepaid loans.

“We received strong interest from investors thanks to the solid performance of the previous transactions. The new structural feature allows us to benefit from the same capital relief as previous deals but with a smaller junior tranche and hedges any prepayment risk”, says Simone Tufo, head of capital strategy at UBI Banca. 

The €110m financial guarantee references a €2.2bn blind pool of corporate and SME loans. Further features include a time call and a pro-rata amortisation structure, although this will shift to sequential, one year following the closing of the transaction. 

The issuer’s latest CRT is broadly in line with the two previous trades: UBI RegCap2 and, before that, UBI 2017 RegCap1. UBI 2019 RegCap3 is the last transaction under the 2017-2019 business plan, although a new issuance programme is being developed under the 2020-2022 business plan.

Stelios Papadopoulos

Capital Relief Trades

Risk transfer round-up - 28 November

CRT sector developments and deal news

HSBC is rumoured to be readying a UK and European corporate loan SRT. This is one of two rumoured corporate SRTs that the bank is believed to be prepping. The second transaction is thought to reference UK corporate loans.

The deals would follow a four year gap from the issuer’s last transaction, dubbed Metrix Portfolio Distribution (see SCI’s capital relief trades database).

Insurance-linked securities

Inaugural cat bonds inked

Transaction marks number of firsts

The World Bank has issued the first cat bond transaction to provide natural disaster cover to the Philippines and the first cat bond listed on the Singapore Exchange. The transaction features two tranches of cat bonds to provide the Philippines with financial protection of up to US$75m for losses from earthquakes and US$150m against losses from tropical cyclones for three years.

The cat bond transaction is not just a first for the Philippines and World Bank but it also the first time cat bonds have been sponsored by the government of an Asian country. The bonds are the result of an eight-year partnership between the World Bank and Philippines government.

The bonds were issued under the International Bank for Reconstruction and Development’s “capital at risk” notes program, which can be used to transfer risks related to natural disasters and other risks from developing countries to the capital markets. Payouts will be triggered when an earthquake or tropical cyclone meets the predefined criteria under the bond terms.  

The US$75m class A notes covering losses from earthquakes have a maturity date of 2 December 2022 and are tied to three-month USD Libor plus a funding margin of -0.12% per annum and a risk margin of 5.5% per annum. The US$150m class B notes covering losses from tropical cyclones also have a maturity date of 2 December, 2022, and are also tied to three-month Libor plus a funding margin of -0.12%  per annum and a risk margin of 5.65% per annum.

Investors in the transactions were mainly from Europe, at 58%, followed by North America at 25%, Asia at 13% and Bermuda at 4%. These investors comprised asset managers, at 50%, ILS funds, 29%, insurers and reinsurers, at 13%, and pension funds, at 8%.

The World Bank notes that The Philippines is among the most disaster-prone countries in the world. It adds that in 2013, Typhoon Yolanda (also known as Typhoon Haiyan) resulted in the loss of 6,300 lives and caused an estimated US$12.9bn in damages, or about 4.7% of the country’s GDP.

GC Securities, a division of MMC Securities, and Swiss Re were joint structuring agents, joint bookrunners and joint managers and Munich Re was a joint structuring agent, placement agent and joint manager. AIR Worldwide is the risk modeller and calculation agent.

RMBS

RMBS 'milestone' prepped

Inaugural non-bank transaction marks post-crisis first

Provident Funding Associates, a non-bank mortgage lender, has prepped its inaugural securitisation of residential mortgages, marking the first post-crisis, private label securities (PLS) transaction backed entirely by agency conforming consumer-purpose residential mortgage loans. Dubbed Provident Funding Mortgage Trust 2019-1, the US$338m transaction is the first in which Provident Funding is the sole originator and servicer and is backed by 947 agency-eligible mortgage loans.

The transaction’s 25 classes of mortgage pass-through certificates are provisionally rated by Moody’s and KBRA, both of which have assigned triple-A ratings to the super senior and senior notes. KBRA comments that the transaction marks a milestone in post-crisis, PLS as it is the first transaction to contain 100% agency-eligible mortgage loans, none of which are investor-purpose.

KBRA adds adds that, up to this point, PLS investors have only been able to access the risk associated with similar loans through investment in Fannie Mae or Freddie Mac credit risk transfer securitisations, or as a subset of a PLS otherwise containing non-agency collateral and/or collateral that is outside the ATR/QM rule, such as business purpose loans. Significantly, adds KBRA, PFMT 2019-1 is backed only by agency conforming consumer-purpose residential mortgage loans that meet QM requirements.

Moody’s notes that the deal has an aggregate principal balance of US$337.597m secured by first liens on one- to four-family residential properties, condominiums or planned unit developments, originated from August 2019 through October 2019. The loans are fully amortising, and are fixed-rate Safe Harbor QM loans, each with an original term to maturity of 30 years.

KBRA adds that, despite being its first sponsored PLS transaction, a strength of the deal is Provident’s proven track record of originating high quality agency-eligible loans relative to the broader market. The agency says that servicing and subservicing have been instrumental in maintaining profitability during periods of slower lending, with over US$66bn currently serviced and over 80% of the servicing portfolio for Provident-originated loans which have notably low servicing costs.

An additional strength of the deal, says KBRA, is the prime credit quality of the borrowers, who also have significant equity. The agency says, however, that the transaction has substantial limitations in the current structure including: no automatic review for certain breaches, initial review expense, materiality determinations not made by an independent reviewer and loser pay arbitration.

Moody’s also points out the relatively high geographic concentration, 25.4%, of borrowers based in California, but add that this is lower than similar transactions. The rating agency adds that the servicer also the option to purchase any mortgage loan from the issuing entity that is 90 days or more delinquent and, finally, the deal features several large loans which exposes the transaction to the risk of losses at the tail of the transaction, when few loans remain.

Richard Budden

Structured Finance

Mortgage partnership announced

Sector hires and company developments

Euro credit team bulks up

CIFC has hired Anders Samuelsen from Muzinich as it continues to build its European team.  Samuelsen, who began his career as a credit portfolio manager at Saxo Privatbank in Denmark, will be based in London, and joins as vp, focusing on northern Europe. CIFC has also announced the hire of Aidan Reynolds, from Murano Connect, where he oversaw the investor research desk. Both will be working with European md, Josh Hughes in the investor services team.

Mortgage partnership announced

NN Investment Partners has entered into a partnership with Venn Partners whereby NN IP has acquired a majority stake in Venn Hypotheken, alongside existing shareholders Venn and Venn Hypotheken management. With the acquisition, NN IP broadens the possibilities for its institutional clients to invest in Dutch mortgages, besides its NN Dutch Residential Mortgages Fund. NN IP has been investing in Dutch mortgages on behalf of its clients since 2015 and sees significant opportunity to develop whole loan investment strategies in Dutch mortgages.

Venn Hypotheken is an established Dutch mortgages origination platform, providing institutional investors dedicated access to Dutch mortgages. The acquisition of a majority stake in Venn Hypotheken enables NN IP to provide a complementary offering to clients who prefer a mandate over a fund. Venn Hypotheken was established by Venn, a specialist manager in European real estate private debt. To date, Venn’s strategies have invested in over EUR 1 billion of mortgages originated by Venn Hypotheken. Next to whole loan investments, Venn Hypotheken will continue to provide mortgages for Venn’s Cartesian securitisation programme.
 

Structured Finance

Italian market developments 'positive' for ABS

Sector developments and company hires

Italian market developments ‘positive’ for ABS

Recent market developments in in the Cessione del Quinto (CDQ) and Delegazione di Pagamento (DP) loan market are credit positive for ABS, according to structured finance analysts from Moody’s. The analysts add that increasing regulatory scrutiny limits the risk of poor underwriting, while lower capital requirements support further loan growth. Both developments support market consolidation with smaller entities merging with larger operators, with 2019 having seen smaller market operators merge into larger market players.

The analysts add that the new Capital Requirements Regulation (CRR II), approved in June 2019, reduces the capital requirements for CDQ/DP loans to a 35% risk-weighting from 75%, increasing banks’ excess capital available to support loan growth. Most market players, Moody’s comments, have already increased their origination volumes during the last year - a number of them with double-digit growth rates.

The rating agency adds that CDQ/DP loans are becoming a more mainstream product, rather than solely being a fallback product to consumer loans, a credit positive for the CDQ/DP market as originators' will be less incentivised to take on higher risks to grow their businesses.

Madden clarification proposed

The US OCC and Federal Deposit Insurance Corporation are proposing a rule to clarify the law around interest rates state banks may charge their customers, still unresolved since the Madden vs Midland case. The rule would help to provide clarification 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.

The proposed rule would apply to all national banks and state and federal savings associations. The OCC is soliciting comments on the proposed rule and comments will be accepted for 60 days after publication in the Federal Register. The FDIC is also issuing a proposal that will address this issue.

RTS on homogeneity finalised

Following publication of the Delegated Regulation (EU) 2019/1851 in the Official Journal of the European Union on 6 November 2019, it is now entering into force as of 26 November 2019. The overarching objective of the homogeneity requirement is to enable investors to assess the risks of the underlying pool of assets on the basis of common points of comparison.

Structured finance lawyers at Latham and Watkins note that the Homogeneity RTS sets out four conditions for the underlying pool to be considered homogeneous. The underlying assets must be: underwritten according to similar underwriting standards; serviced according to similar servicing procedures; placed within the same category of asset type; considered homogeneous with a reference to at least one “homogeneity factor”, provided that the assets fall within a category of asset type to which the homogeneity factor applies.

The Homogeneity RTS includes a non-exhaustive list of common types of assets that typically back securitisations in the EU. Originators and sponsors may treat underlying assets falling outside of the prescribed categories as a single asset type, provided that the other three conditions are satisfied.

Swedish equity release deal prepped

Nodax Bank subsidiary, Svensk Hypotekspension, has prepared a 48-year, non-call 4-year, SEK-denominated senior secured bond for the purpose of refinancing of Svensk Hypotekspension Fond 3 AB (publ), subject to market conditions. The bond will be issued through subsidiary Svensk Hypotekspension Fond 4 AB (publ) and will be backed by a portfolio of equity release mortgages originated by Svensk Hypotekspension. The transaction will be governed by Swedish law and will be listed on the Nasdaq Stockholm corporate bond list. Barclays Bank and DNB Bank, Sweden branch have been mandated as joint lead managers in the transaction.

Structured Finance

Euro lending support announced

Sector developments and company hires

Euro lending support announced

The EIF has committed €100m to online lending marketplace October. The investment renews its support to European SMEs, under the “Private Credit Tailored for SMEs” programme, alongside other institutional investors including CNP Assurances, Bpifrance and Zencap - all of whom were already part of the latest institutional fund launched in 2018.

This new €100m commitment will allow October to finance SMEs with new loans ranging from €30,000 to €5m from all industries in France, Spain, Italy, the Netherlands and Germany. The EIB has also announced that, as part of the Junker Plan and its ongoing commitment to support SMEs and mid-caps in Europe, it has invested €61m in Be-Spoke’s debut securitisation, Alhambra SME Funding 2019-1 which recently closed.

Expansion announced

Gessler Capital has announced that it has expanded into Luxembourg securitisation solutions as part of its client offerings. Through a recent cooperation formed with MTCM Investments, Gessler Capital has expanded its existing Guernsey offering with Luxembourg, allowing clients to choose more competitive options for their alternative investment needs. Through the new cooperation with MTCM Investments, Gessler Capital will now offer European Medium Term Notes (EMTNs). In contrast to the Guernsey structured products, the EMTNs from a Luxembourg Securitisation Vehicle are classified as bonds.

NPL partnership sealed

Colliers International, a leader in real estate debt advice, and Intermoney Titulización, an investment services company of the CIMD Group, combine capabilities to offer an innovative financial service to the real estate and investment sector: the securitization of NPLs portfolios and assets adjudicated (REOs). The new service, provided jointly by Colliers and Intermoney, is aimed at the real estate debt market. A market close to 300 billion euros, in the hands of financial institutions, investment funds and SAREB, which is the second largest in Europe, just behind Italy.

Premium fraudster sentenced

Anilesh Ahuja, founder, ceo and cio of Premium Point Investments, has been sentenced to 50 months in prison in connection with his conviction following a jury trial for engaging in a securities mismarking scheme from 2014 to 2016. The jury convicted Ahuja and Jeremy Shor, a former trader at PPI, on securities fraud-related offenses relating to their participation in a scheme to inflate the net asset value reported to investors for hedge funds managed by PPI by more than $100m.  Ahuja was sentenced by U.S. District Judge Katherine Polk Failla, who presided over the six-week jury trial.

RMBS upgrades

Fitch has upgraded several tranches of multiple Finsbury Square UK RMBS transactions. The upgrades are a result of new rating criteria, deal deleveraging and the completion of the prefunding period (for FSQ 2019-1) as reasons behind the upgrades. The upgrades are to: Finsbury Square 2019-1, tranche D: to A from A-, tranche X: to BB+ from BB. Finsbury Square 2018-1, tranche B: to AAA from AA+, tranche D: to A+ from A and finally Finsbury Square 2017-2, tranche B: to AAA from AA+.