Contents

ABS

CPIH calculation

Inflation index switch to support ICSL ABS

The UK government intends to align the RPI with the CPIH index within the next five to 10 years. Scenario analysis conducted by Fitch suggests that the move could improve repayment volumes and reduce asset risk in UK income contingent student loan (ICSL) securitisations.

Since the financial crisis, the basis of RPI over CPIH is considered to have been fairly stable, at around 1%. A consultation in connection with the index is scheduled to close on 21 August and will inform the UK chancellor’s decision regarding the timing of the methodology switch.

The switch is expected to take place in 2025 or 2030. Fitch expects that higher repayment volumes will be possible if a switch to CPIH is made in 2030.

In addition, the agency notes that this RPI calculation methodology will improve the model-implied risk profile of notes. While a reduction in yield is expected for class B noteholders exposed to RPI, Fitch believes an increased total return on investment will be available to investors in the residual class X notes.

There are various ways in which ICSL securitisation notes are impacted. This includes directly via note coupons which reference RPI and indirectly as a result of slower loan repayment threshold growth and the interest accruing on the underlying loans.

Meanwhile, the credit risk of the notes would be reduced by lower RPI values, due to faster pass-through note repayment.

The two affected ICSL transactions are the £2.98bn Income Contingent Student Loans 1 (2002-2006) (placed in 2017) and the £3.38bn Income Contingent Student Loans 2 (2007-2009) (placed in 2018). Fitch’s analysis demonstrates that the class A1 notes for these transactions are not affected by either of the switch dates because they are expected to be fully repaid before 2025. The class A2 and B notes are only exposed to the 2025 switch, but - due to its long repayment profile - the unrated class X equity piece is impacted by both switch scenarios.

The negative cashflow effects in Fitch’s last projection bucket suggest faster repayment by obligors who are earning above the repayment threshold or whose earnings are lifted above it because of the slower threshold increase. With regards to the newer ICSL 2 pool, there is a net lifetime reduction in expected repayments of 0.1%, due to the speed of deterioration in the pool’s earnings profile which dominates the predicted repayment gains under the earlier switch scenario. The agency notes that in all other scenarios, the net effect is cash-positive.

Jasleen Mann

Structured Finance

SCI Start the Week - 3 August

A review of securitisation activity over the past seven days

Last week's stories
Blockchain boost
DLT opportunity for ABS market
CMBS concerns
Tailored Brands exposure eyed
CRT conveyor belt
The second CRT deal from JPM marks a quickening of pace in the bank market
Execution risks?
Hertz performance metrics improving
Lag lustre
Slower recovery in CLOs provides advantages and opportunities
Recovery vehicl
European securitisation 'fixes' on the cards?
SRT boost
BMO launches capital relief trade
STACR surge
Freddie Mac galvanises CRT re-opening with another STACR transaction
'Switch' success
Aussie non-bank issuance on the rise
The perils of Covid CRE
While CRE market has proved robust so far, help is still needed

Other deal-related news

• US CLO equity cashflow performance is defying pessimistic predictions, according to a new report from JPMorgan CLO research analysts (SCI 27 July).
• Hertz has entered into an agreement with VFN and MTN noteholders, whereby it will make US$650m in total payment towards base rent in six equal instalments starting in July through December 2020 (SCI 27 July).
• The FDIC is seeking the public's input on the potential for a public/private standard-setting partnership and voluntary certification programme to promote the efficient and effective adoption of innovative technologies at FDIC-supervised financial institutions (SCI 27 July).
• US$2.8bn of property catastrophe bond limit was placed in 2Q20, bringing the total issued year-to-date to US$6.5bn, according to Aon Securities' latest ILS Update report (SCI 28 July).
• Janus Henderson Investors has filed a preliminary registration statement with the US SEC in connection with the Janus Henderson AAA CLO ETF, which is expected to launch on 22 October and will be offered to US investors (SCI 29 July).
• Fannie Mae's single-family green MBS programme has received a 'Light Green Second Opinion' from CICERO Shades of Green, a global provider of green ratings for bonds (SCI 29 July).
• The US Fed has extended its TALF operations (along with its other lending facilities that were scheduled to expire by 30 September) to 31 December (SCI 29 July).
• The attorneys general of California, Illinois and New York have filed a suit against the OCC's 'valid when made' rule, which they claim would allow the federal government to pre-empt state usury laws and allow third-party entities "to prey on vulnerable" borrowers (SCI 30 July).
• Both Fannie Mae and Freddie Mac have reported sharply improved Q2 results, despite the ongoing housing market dislocation as a result of Covid-19 (SCI 31 July).
• The investment management agreement for B&M CLO 2014-1 has been transferred from Tortoise Credit Strategies to R Squared BM, doing business as Ducenta Squared Asset Management (SCI 31 July).

Data

BWIC volume

Secondary market commentary from SCI PriceABS
29 July 2020
USD CLO AAA
Less liquidity today as we go into month end with 13 covers - 2 x AAA, 6 x BBB, 4 x BB and 1 x Equity. The 1st pay AAA ALLEG 2018-3A A (Axa) trades in line with recent levels 162dm / 4.8y-211dm, a 2nd pay AAA CAVU 2019-1A A2 (Trimaran) covers 211dm / 6.32y WAL which is at the wide end of a 180dm-220dm range for 2nd pay AAAs which haven't been seen since June.
USD CLO Mezz/Equity
The BBBs trade 408dm-527dm (2021/2024/2025 RP profiles) which is more or less in line with a 400dm-550dm range in this cohort. There is an outlier trade OFSBS 2017-1X D (OFS Cap) 631dm / 5.8y WAL - a low MVOC 104.4, a higher CCC 7.4% and a marginally weaker manager record accounting for the wider DM.
The BBs trade unlike yesterday's narrow range, today the range is 686dm-850dm for 2018/2019 RP profiles with only a 740dm comp middle of this month so these levels are in line, there is a significant outlier trade BLUEM 2013-1A DR (BlueMountain) 1803dm / 5.3y WAL - 1.7 ADR, 11.3 Sub80, 3548 WARF and 9.4% CCC along with a weaker manager record vs peers.
There is one Equity today, Sound Point's SNDPT 2016-1A SUB that trades to 2.75y Cashflow, the NAV is negative, reinvestment has just ended but the AAAs have a low coupon +110 so there is small chance of near term refi/reset, the deal has strong metrics with 1.6% Int diversion cushion and 2.6% Jnr OC cushion signalling less chance of interest diversion whilst key metrics like ADR 0.59 and WARF 2871 mean the manager isn't taking excessive risk so we feel comfortable there is at least 2y CF for equity.
EUR MEZZ/EQUITY CLO
Today there are 2 x A, 5 x BBB, 1 x BB, 3 x B & 1 x equity. The AAs traded around 280dm.
The BBBs traded in a range from 470dm to 560dm.
The BB, JUBIL 2019-23X E, traded at 891dm.
Single Bs are around 1080dm to 1160dm.
The equity piece, JUBIL 2013-10X SUB, traded at 18.26 / -12.11% yield. This is off our early crisis scenario. In terms of loan prices markets have mitigated hugely since then although many commentators do still believe that the eventual out-turn for CDRs will be as severe as originally forecast, which if that turns out to be true then these yields will be realistic. The NAV is zero.
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 usfor a trial direct via SCI.

Structured Finance

Nuanced approach

Call for clarity in defining ESG

A nuanced approach to ESG considerations is emerging within the securitisation market. Nevertheless, the Covid-19 pandemic has put social and governance factors in the spotlight.

Anuj Babber, head of ABS research at M&G Investments, says: “The securitisation industry is at the infancy of incorporating ESG considerations into its credit and investment decisions. What we are seeing is that some data providers have tried to come up with frameworks, which are a blend of qualitative and quantitative factors, in order to assess the materiality of ESG factors on the ratings output.”

Indeed, a nuanced approach is needed, depending on the different sectors, such as commercial property, residential property, CLOs and aviation. “ESG is a very important component in strategy and all the assets that we invest in. It requires a more nuanced approach versus vanilla sectors and it is no surprise that there is no clear definition of what ESG principles in ABS really are,” notes Babber.

Governance, with regards to documentation, is one area that particularly needs to be focused on. Babber cites the cessation of sterling Libor in December 2021 as a recent example of improving documentation disclosure.

Investors such as M&G Investments successfully engaged with issuers for appropriate replacement language directly or through industry forums. Additionally, investors have been encouraging SONIA referenced issuances.

Rating agencies are focused on the way in which ESG impacts credit quality, as well as increasing transparency regarding the identification of risks within analytical approaches that may be ESG factors (SCI passim). In the case of elevated risk with regards to ESG, structured finance benefits from structural mitigants, such as credit enhancement levels and performance/replacement triggers.

An example of a direct consideration is S&P classifying the coronavirus as a health and safety-related social credit factor. Nevertheless, only a small percentage of ratings actions are driven by ESG factors.

Health concerns or social distancing measures that have impacted an entity or cashflows are most likely to be seen in the rental car sector within auto ABS and retail/hotel properties within CMBS.

Jasleen Mann

Capital Relief Trades

Freddie STACRs them up

New STACR deal was upsized and printed at the tight end across the capital structure

Freddie Mac has confirmed that the B1 and B2 tranches of its $835m STACR REMIC 2020-HQA3 deal, printed at the end of the week of July 20-24, were upsized from $150m to $225m and $75m to $100m respectively.

Each tranche of the four-tranche offering, underwritten by Citi and BNP Paribas, also priced at the tight end of guidance. In addition, Freddie upsized and closed the related ACIS 2020-HQA3 insurance policy.

“The CRT market’s quick recovery demonstrates its resilience and appeal to investors. Once again, strong interest in our offerings led us to upsize both the STACR notes and the ACIS policy,” says Mike Reynolds, vice president, single-family CRT at the GSE.

The deal included single-family loans with high loan-to-value (LTV) ratios between 81% and 97%. The loans were securitized between October 1, 2019 and December 31, 2019 and originated on or after January 1, 2015.

It included a M1 tranche priced at one-month Libor plus 155bp, an M2 tranche at plus 360bp, a B1 tranche at plus 575bp and a M2 tranche at plus 1000bp. The borrower retains a portion of the risk in all four tranches, and, in addition, holds the entirety of the senior loss A-H reference tranche and the first loss B-3H reference tranche.

The ACIS 2020-HQA3 insurance policy covers the same pool of loans, and provides up to approximately $246m of losses on a $31.3bn reference pool.

This is Freddie Mac’s second STACR deal since the closure of the market due to Covid 19 dislocation. Fannie Mae, its GSE cousin, has in the same period eschewed the CRT market and, according to well-placed sources, will continue to do so until there is greater clarity surrounding the imposition of new and more onerous capital rules.

Simon Boughey

CMBS

CMBS perturbation

Fitch report shows July US delinquency surge, especially in hotels and retail

Despite the stronger than expected non-farm payroll released today, certain sectors of the US ABS market continue to give grave cause for concern, and top of that list is the CMBS sector, as figures reported by Fitch today (August 7) underline.

The loan delinquency rate hit 4.98% at the end of July, a 1.39% increase over the month, and the highest level seen since August 2014. New delinquencies climbed to $8.4bn, easily overshadowing resolutions of $1.7bn.

Neither is the outlook particularly hopeful. “CMBS delinquencies will be volatile for a while longer, especially if a second wave of the coronavirus induces another shutdown that hurts property performance further,” says Mary MacNeill, an md at Fitch Ratings.

Meanwhile, SCI reported today that the European CMBS delinquency rate fell last month.

The US retail, hotel and mixed use property sectors are the worst affected. The hotel delinquency rate surged to 16.64%, compared to 11.49% in June, while retail delinquency increased from 7.86% in June to 11.58% in July. Delinquency among office, industrial and multi-family properties remains modest, however.

Regional malls are particularly hard hit. The delinquency rate almost doubled in this subsection, from 10.31% to 19.90% in July, as 32 regional mall loans totalling $31.1bn became delinquent . The largest single delinquency last month was the $257m Gurnee Mills loan which secures 1.7m square feet of a 1.9m square feet mall in Gurnee, Illinois.

This loan is represented in four different CMBS deals, the largest portion of which ($74.6m) went into the WFCM 2016-C36 transaction. It became 60 days delinquent in July, and was transferred to special servicing at the request of its sponsor, the Simon Group, in June due to “coronavirus-related performance concerns,” says the report.

Around $26.1bn (1,131) loans are now in special servicing, affecting 5.4% of Fitch-rated US CMBS deals. This is an increase of $5.9bn from the $21bn, or 904 loans, which were in special servicing at the end of June. Hotel and retail loans comprised by far the largest chunk of CRE loans in this category. There are 370 retail loans ($11.8bn) and 455 hotel loans ($9.1bn) in special servicing.

Some 24% of all regional/outlet loan malls affecting Fitch-rated CMBS bonds are in special servicing.

This data is clearly disquieting, particularly as the CMBS market has not so far been favoured with specific stimulus or bailout measures. Indeed, the healthier than expected non-farm payroll of 1.8m, taking unemployment down to 10.2%, could well make it harder for any new measure to pass Congress, say analysts.

At the moment, it is not clear if any new stimulus packages will be introduced. “While we applaud any motion to stimulate the economy, this uncertainty in unemployment benefits is likely to weigh heavily on consumer spending and the outlook for the multifamily sector,” says Wells Fargo senior CMBS analyst Lea Overby in her note on the market today.

If there is considerable doubt about the implementation of such measures as the extension of unemployment benefits or deferral of taxes, it also means that any action tailored specially to give the CMBS sector a helping hand is even more doubtful.

Simon Boughey

NPLs

NPL trade inked

Bank of Cyprus finalises Helix Two

Bank of Cyprus has sold a €916m - in gross book value terms - non-performing loan portfolio of retail and SME assets to PIMCO. Dubbed Project Helix Two, the pool is smaller than initially expected due to the Coronavirus fallout – although, following the execution of this trade, further NPL transactions by Bank of Cyprus are anticipated.

According to Jonas Scorza Floriani, director of equity research at Axia: “The initial expectation before Covid hit was for a larger portfolio. Still, judged by reported numbers, [Bank of Cyprus] managed to execute a capital accretive deal - despite market conditions - and judging by the increase in impairments, more NPL deals this year are possible. The change in the portfolio size, compared to the previous expectation, could be explained by investor interest in specific types of exposures.”

The portfolio has a contractual balance of €1.46bn and comprises 22,224 retail and SME loans, secured by 5,616 real estate collaterals. The net book value of the sold assets amounts to €440m. The consideration totals 46% of the GBV and 29% of the contractual balance payable in cash, of which 35% is payable at completion and the remaining 65% is deferred without any conditions attached.

The deferred component is payable in three broadly equal instalments over 48 months and can be increased through an earnout arrangement, depending on the performance of the pool. The mechanism renders the transaction more attractive for PIMCO, since it does not have to pay all the cash up front. Yet, at the same time, the earnout feature permits the lender to recoup any future recoveries as compensation.

The deal reduces Bank of Cyprus’s NPE stock by 24% and its NPE ratio by five percentage points. At completion, the transaction is expected to have a -34bp impact on the Group’s CET 1 ratio. Upon the full repayment of the deferred consideration and without considering any positive impact from the earnout, the trade is expected to have a 9bp capital impact on the Group’s CET 1 ratio.

At the same time, the accounting loss attributable to the transaction is estimated at €68m, as of 2Q20. The bank estimates additional IFRS 9 loan losses of €21m in 2Q20 as a result of future NPE sales, which compare with €75m loan losses in 4Q19.

Helix Two is expected to settle in 1H21. The transaction follows Project Velocity, an unsecured NPL trade that was executed in February 2019 (SCI 15 February 2019) and the first Helix deal, which closed in August 2018 (31 August 2018).

The combined de-risking actions, including Helix Two, have reduced NPEs in the first six months of 2020 by €1.3bn. Overall, since a peak in 2014, the Cypriot lender has now reduced its stock of NPEs by 83%.

Stelios Papadopoulos

NPLs

Greek momentum

Alpha applies for HAPS guarantee

Alpha Bank has applied for a guarantee from the Hercules Asset Protection Scheme (HAPS) for two non-performing loan securitisations from its Project Galaxy programme (SCI 29 May). As such, it has become the second Greek bank to utilise the HAPS guarantee as momentum in the Greek NPL ABS market builds.

The Greek lender revealed the project in November 2019 it consists of three NPL securitisations dubbed Orion, Galaxy II and Galaxy IV, totalling a gross book value equal to €10.8bn. Both the €1.9bn Orion NPL ABS and the €5.7bn Galaxy II trade are backed by retail secured loans. The application pertains to the provision of a Greek state guarantee for the senior notes, which has been sized at €3.04bn.

Eurobank was the first Greek bank to apply for the HAPS and its transaction, dubbed Cairo, closed in June (SCI 8 June). Alpha relaunched Galaxy in 2Q20, following a delay in 1Q20 due to the Covid-19 pandemic.

Greek banks intend to sell over €30bn of NPLs in 2020 via the HAPS guarantee. However, S&P notes that measures to curtail the spread of Covid-19 could make this ambitious task even more difficult. HAPS is expected to last until April 2021 and any extension is subject to an SSM agreement.

Stelios Papadopoulos

Structured Finance

Euro CLO equity edges ahead

Sector developments and company hires

Euro CLO equity edges ahead
European CLO equity cashflow returns average 9.3% year-to-date and - as all CLOs in reinvestment are currently paying - the full-year 2020 cashflow return is likely to be low-teens, according to a new report from JPMorgan CLO research analysts. As such, European equity pieces have edged ahead of their US counterparts, currently returning 8% year-to-date with 89% paying (SCI 27 July).

“The relative difference isn’t huge,” the JPMorgan analysts concede. “Though we have observed less credit deterioration in Europe, perhaps also emblematic of the ‘inverse exceptionalism’ our macro colleagues view in relative pandemic responses (e.g. decline in the US dollar).”

Further, the report notes that cashflow returns have been dropping from 2.0 average returns (18%) to more resembling pre-crisis returns (11%). Meanwhile, there are five managers – BlackRock, Spire Partners, Carlyle, Cairn and HPS – in the top 25th percentile in both 2020 year-to-date and annualised average equity cashflow return longer term.

Overall, the analysts conclude: “There appears little relationship between US and European equity performance for global managers with both platforms.”

Italian investments upsized
Apeiron Management and Apollo Global Management have purchased a portfolio of claims owned by Grandi Lavori Fincosit for a value of over €1.3bn. The transaction was funded by the issuance of ABS notes issued in a single class by Armonia SPV, which was fully subscribed by investment funds run by Apollo. The move comes after Apollo upsized by €100m and extended its investment partnership with Apeiron last month. Through its strategic partnership with Apeiron - launched in early 2018 (SCI 2 March 2018) - Apollo funds to date have deployed nearly €300m in Italy across investments in corporate debt, receivables, special situations, insolvency compositions and other stressed and distressed assets.

NPL performance eyed
Two transactions - BPBNP 2016-1 and BCCNP 2018-1 - have failed their cumulative collection ratio triggers in the June 2020 reporting period, according to JPMorgan’s latest Italian NPL ABS Performance Tracker, with corresponding values of 75% and 80.6% relative to trigger levels of 90% apiece. As a result, class B interest subordination events have occurred for both deals and outstanding interest shortfalls have accumulated on their class B notes. Meanwhile, the cumulative collection ratio for BRISC 2017-1 is reported at 105.1% for the June 2020 remittance period, which exceeds the 90% subordination trigger but is down from 120.2% in the previous reporting period (December 2019). JPMorgan international ABS analysts suggest that such deterioration in performance provides the first indication of the detrimental impact of the Covid-19 crisis on servicers’ ability to execute non-performing loan collections.

North America
Angel Oak Companies hired Shayan Salahuddin as md, lending capital markets. Salahuddin is based in Washington, DC. Previously, he was head of mortgage and capital markets at SimpleFinance.

Deer Park Road hired Mary Hickok as an analyst, based in Colorado. Previously, Hickok was an associate in the new issue CLO unit at Morgan Stanley.

Daniel Parisi has joined Rothesay Asset Management in New York. In Parisi’s previous role, he focused on private fixed income and alternatives (residential mortgages) at MetLife Investment Management.

Structured Finance

MM CLO test failures rise

Sector developments and company hires

MM CLO test failures rise
The continued deterioration in credit quality of issuers due to the coronavirus pandemic resulted in a large number of US middle market CLOs failing a variety of tests for the first time in 2Q20, according to Fitch’s latest report on the sector. Of the 58 MM CLOs covered in the report, 23 failed at least one collateral quality test (CQT), compared to seven in the previous quarter.

The CQT with the most failures was the minimum Fitch weighted average recovery rate (WARR) test. In addition to CQTs, 20 MM CLOs are failing at least one triple-C concentration limitation, compared to only three deals in 1Q20. Over 50% of MM CLOs included in this report are failing at least one CQT or triple-C test.

The overall level of defaulted issuers ticked up but still remained historically low at 1.6% across all Fitch rated MM CLOs, compared to 0.9% last quarter. The report notes that in the early months of lockdowns in the US, many obligors were able to draw down revolvers or defer a portion of their scheduled interest payments to obtain additional liquidity.

North America
Ken Shinoda, a founding member of DoubleLine Capital and the director of its residential mortgage credit investment activities, has been appointed co-portfolio manager of the DoubleLine Total Return Bond Fund. The fund's prospectus-named co-portfolio managers are now ceo and cio Jeffrey Gundlach, Andrew Hsu and Shinoda. The fund invests primarily in agency and non-agency RMBS, CMBS, CLOs and ABS. Shinoda is a permanent member of DoubleLine's fixed income asset allocation committee and the chair of the structured products committee. Prior to DoubleLine, he was vp at TCW, where he worked in portfolio management and trading in the MBS group headed by Gundlach.

Structured Finance

Middle market JV agreed

Sector developments and company hires

Middle market JV agreed
PennantPark Investment Corporation (PNNT) has formed a joint venture with the private credit investment business of Pantheon to create PennantPark Senior Loan Fund I (PSLF). The strategic transaction seeks to enable PennantPark to leverage its middle-market lending capabilities and capitalise on compelling senior loan opportunities amid historic market volatility. Pantheon has invested US$35m in capital to acquire a 28% stake from PNNT in an SPV that currently holds US$356m of senior loans at fair value. Pantheon has the opportunity to contribute an additional US$30m of capital in PSLF over time. After giving effect to the formation of PSLF, PNNT’s leverage will decrease by approximately US$245m.

SPI deal inked
Exor and Covéa Coopérations have agreed to invest €1.5bn in special purpose insurance vehicles managed by PartnerRe. Under the transaction, €750m will be allocated for investment opportunities alongside Exor. A further €750m, with a three- to five-year lock-up period, will be allocated in a number of special purpose insurance vehicles managed by PartnerRe, investing in property catastrophe and other short-tail reinsurance contracts. A €500m investment will be made on 1 January 2021, with an additional €250m investment to be made prior to or on 1 January 2024.

Structured Finance

Alternative CLO ETF announced

Sector developments and company hires

Alternative CLO ETF announced
Alternative Access Funds (AAF) has announced the registration of its new AAF First Priority CLO Bond ETF, which is scheduled to become effective on 14 August and - if all approvals and launch objectives are met - begin trading in early September under the ticker ‘AAA’. The new ETF will focus its investments in US dollar-denominated first-priority triple-A rated CLO tranches, with the aim of delivering returns consistent with the general triple-A rated BSL CLO universe. The ETF's investment objective is to seek capital preservation and income, and it will be managed by AAF founder Peter Coppa alongside partners Todd Themistocles and Steve Kim.

In other news…

Acquisition
Intercontinental Exchange is set to acquire Ellie Mae, the cloud-based platform provider for the mortgage finance industry. The transaction values Ellie Mae at approximately US$11bn. The deal - following ICE’s acquisition of a majority stake in MERS in 2016, purchasing the remainder in 2018 and acquiring Simplifile in 2019 – aims to establish ICE, through its growing ICE Mortgage Services network, as the leading provider of end-to-end electronic workflow solutions serving the US residential mortgage industry. The transaction is expected to close in Q3 or early Q4 of 2020, following the receipt of regulatory approvals and the satisfaction of customary closing conditions.

Hotel SASB CMBS ratings ‘unlikely’
Significant hotel sector performance deterioration as a result of the coronavirus pandemic and recession make the assignment of ratings to new US CMBS single-asset/single-borrower (SASB) hotel transactions unlikely at this time, Fitch says. The agency says that the duration of the pandemic is uncertain, which limits the visibility of short-term performance and precludes the assignment of stable outlooks. Fitch currently maintains rating watch negatives (RWNs) on all classes of rated SASB hotel transactions.

Through June 2020, US hotel RevPAR, on a TTM basis for hotels that are open, is down 22.1% since February and 21.7% for the same time last year. This exceeds the peak-to-trough RevPAR decline observed of approximately 18.7% from May 2008 to May 2010 during the great recession.

Fitch anticipates that US RevPAR will drop by more than 45% in 2020 and then partially recover in 2021 to 80% of prior cycle peak levels, assuming economic conditions are consistent with its global economic outlook. From there, it assumes a 7% per annum recovery pace, which is slightly lower than the average of the prior two downturns.

Negative outlook for FFELP SLABS
Fitch has revised its rating outlook to negative from stable on 362 US FFELP student loan ABS tranches rated triple-A. The move follows its revision of the outlook on the US sovereign rating to negative on 31 July, due to the ongoing deterioration of US public finances and the absence of a credible fiscal consolidation plan. The affected classes represent approximately US$57bn in outstanding bonds.

North America
Figure Technologies has named former Morgan Stanley securitised lending global head Bob Hershy as head of Figure debt capital markets, part of the merchant banking effort the firm launched last year. Hershy retired from Morgan Stanley in January 2019. Figure has originated, closed and funded more than US$1bn in HELOCs, student loan refinances and mortgages on its Provenance blockchain platform.

CMBS

CMBS DQ rate declined

Sector developments and company hires

CMBS DQ rate declined
The overall US CMBS delinquency rate dropped to 8.53% last month, while 25.78% of balances previously in grace became delinquent, according to S&P’s monthly tracker. All five sectors – industrial, office, multifamily, retail and lodging – saw declines month-on-month in their overall DQ rates. There were 290 newly delinquent loans (totaling US$6.4bn) in July, including 139 lodging loans (US$2.92bn), 96 retail loans (US$2.41bn), 11 office loans (US$272.03m), 18 multifamily loans (US$235.13m) and three industrial loans (US$11.4m).

Even though 25% of 30-day delinquent loans were resolved, a growing share (60%) of those that were 30-day delinquent last month have transitioned to becoming seriously delinquent in July. The July 2020 special servicing rate stands at 8.7% - 126bp higher than the June 2020 number of 7.44%.

North America
Natixis has appointed Michael Magner and Andy Taylor as the co-heads of real estate and hospitality Americas, based in New York. They will report locally to investment banking Americas co-heads Michael Moravec and Yoan Quere, and globally to real estate and hospitality global head Emmanuel Verhoosel.

Magner has over 30 years of experience in commercial real estate finance and most recently served as head of US origination for Natixis, responsible for the origination, structuring and underwriting of fixed and floating rate commercial loans for securitisation and syndication. Prior to joining Natixis in 2000, he held positions at Prime Capital Funding, CIBC, Smith Barney and Travelers Insurance.

Taylor has over 20 years of experience in CMBS trading and joined Natixis in 2019 as head of CMBS Americas. Prior to this, he was md and CMBS desk head at JPMorgan and in mortgage securities sales at Citi.