Contents

Capital Relief Trades

Excess spread harmonised

EBA's SRT recommendations released

The EBA’s long-awaited final report on significant risk transfer details a set of recommendations to the European Commission regarding the harmonisation of practices and processes applicable to the assessment of SRT transactions (SCI 23 November). Most notably, the report harmonises the regulatory treatment of excess spread, ending a three-year uncertainty over the use of the structural feature in synthetic securitisations.

The final report builds on the EBA’s 2017 discussion paper (SCI 20 September 2017) and the lessons learned since then; most notably, the divergent regulatory practices in connection with SRT, which was particularly pertinent in the case of the treatment of excess spread. Some supervisors believed that on day one of a transaction, banks should quantify excess spread and sell a portfolio below or above par. However, others thought that lenders should sell the portfolio at par, with any remaining income flowing back to the originator over time.

The key question from the EBA’s perspective was how to ensure that excess spread was not too high for the purposes of meeting the commensurate risk transfer tests.

SRT tests are typically divided into sets of tests. The first, dubbed the mechanistic tests, require banks to demonstrate that they have transferred 80% of the first loss tranche and at least 50% of the mezzanine tranche. The commensurate risk transfer tests form the second set are used to gauge whether the capital relief is proportional to the transferred risk.

The issue is not that puzzling in the case of full-stack transactions, since banks achieve market pricing by selling the whole stack and therefore prevent any situation where excess spread could be artificially inflated to support the junior tranches. However, what happens if an originator retains the senior tranche - as in the case of a synthetic securitisation - and how banks ensure that the coupon is correct in that situation was unclear.

If it is too low, it implies that excess spread is being used to support the mezzanine and junior tranches. Banks therefore need to prove that the coupon is market priced and proving that is where the EBA’s latest SRT report offers a helping hand.

Pablo Sinausía, policy expert at the EBA, notes: “In cash deals, you can achieve market pricing - which is why the report recommends that the risk-absorbing effect of excess spread is recognised by netting the lifetime risk of the securitised exposures for the SRT assessment, without recommending any capital charge on it. However, in the case of synthetics, excess spread is a commitment of the originator and a P&L item that provides credit enhancement to investors. Risk-weighting synthetic excess spread has been discussed at the EBA before and because of these discussions, our report has put this in black and white terms.”

He continues: “We are proposing a methodology for calculating excess spread as a first loss tranche for credit enhancement purposes; so, in this case, the equivalent exposure value of synthetic excess spread could limit the transfer of risk. If synthetic excess spread though were finally risk weighted under a future CRR amendment, banks would be able to offset the exposure value of excess spread through provisions and increase the attachment of the retained senior tranche, thus mitigating the capital impact.”

Consequently, the report treats synthetic excess spread as a retained first loss tranche. However, the novelty of the report is in fact the specification of the role of synthetic excess spread in the SRT tests and particularly the commensurate risk transfer tests.

The SRT report notes that both first‐loss and mezzanine tests implicitly rely on the assumption that the thickness of the tranches subject to the tests is sufficient to cover the corresponding share of expected (first‐loss test) and unexpected losses (mezzanine test).

Nevertheless, the tests do not include clear safeguards to ensure that securitisations with relatively thin tranches - which cannot cover the corresponding share of expected and unexpected losses - may not pass the tests. Hence, the EBA recommends defining a minimum thickness for the first‐loss tranche, which would be applicable to securitisation transactions subject to the first‐loss test. This is where synthetic excess spread enters the picture.

Indeed, for these purposes, “the nominal value of the respective first‐loss tranche and equivalent exposure value of excess spread in synthetic transactions should at least cover the sum of lifetime expected losses and two‐thirds of regulatory unexpected losses,” states the report.

Hence, “banks looking to pass the commensurate risk transfer tests should be paying attention to the thickness of the first loss tranche, the quantification of synthetic excess spread and think about what portfolio risk you should transfer to pass the test,” says Sinausía.

The supervisor dubs the resulting commensurate risk transfer test as a “principle-based approach”. Carlos Echave, policy officer at the EBA, explains: “It basically implies that at least 50% of the regulatory UL of the underlying portfolio should be transferred to third parties and thus tackle the minimum thickness issue of the relevant tranches.”

Looking ahead, Slavka Eley, head of banking markets, innovation and products at the EBA, concludes: “EU law gave us a mandate to develop this report to standardise the SRT process and make it faster and more predictable. The report can now end up as a delegated act, but this is something that remains to be discussed. It is now up to the Commission to take this forward.”

Stelios Papadopoulos

ABS

Restructuring boost

Project Galaxy portfolio acquired

Alpha Bank has selected US investment fund Davidson Kempner as its preferred bidder over PIMCO for its Project Galaxy portfolio. The €10.8bn pool includes the disposal of the bank’s servicing unit Cepal and is expected to clear the way for further non-performing loan restructurings (SCI 3 June).

The Greek lender launched the bidding process this year, drawing interest from several bidders before narrowing the offers down to Davidson Kempner and PIMCO earlier this month (SCI 2 November). According to well-placed sources, Davidson Kempner tried to enter the Greek NPL market via several bids over the last three years without success, so one explanation is that the firm was willing to pay a premium for the Galaxy deal in order to access the market.

Market sources suggest that Eurobank’s Cairo and now Alpha’s Galaxy should allow single name NPL transactions to proceed faster. “So far, NPLs have been worked out internally at a slow pace across all banks. There are lots of intercreditor issues on business NPLs and no strong incentives for executives to push through solutions. Now that marginal economic risk and servicing passes to private investors, we expect to see some more real restructurings,” says one.

The binding offer comes on the back of the finalisation of the first HAPS deal by Eurobank and a growing NPL ABS pipeline. The €7.5bn Project Cairo transaction closed in June and was sealed alongside Project Europe, the sale of the bulk of the firm’s servicing unit to DoValue. More recently Piraeus signed an agreement for its own HAPS NPL ABS - dubbed Project Phoenix - with Intrum in September and is readying another one called Vega.

Stelios Papadopoulos

ABS

Bridge financing inked

Hertz set to re-fleet under bankruptcy emergence plan

Hertz Corporation, in conjunction with affiliates of Apollo Capital Management, has established an interim fleet financing programme to provide up to US$4bn of ABS bridge financing. Dubbed Hertz Vehicle Interim Financing Series 2020-1, the delayed draw note issuance will allow Hertz to ‘re-fleet’ as part of its bankruptcy emergence plan, prior to establishing a longer-term ABS financing programme next year.

Under the transaction, the lessor Hertz Vehicle Interim Financing (HVIF) will purchase cars, vans and light-duty trucks from Hertz General Interest (HGI) according to the vehicle purchase agreement. HVIF will lease the vehicles to Hertz and its subsidiary DTG Operations for use in their rental car business.

HVIF 2020-1 comprises two tranches: the class A and class B notes have a maximum principal amount of up to US$3.5bn and US$500m respectively. The former are rated A/ Baa1 by KBRA and Moody’s and have a coupon of 3%, while the latter are rated BB/ Ba3 and pay 3.75% plus supplemental interest. The notes have an expected maturity in 12 months and a legal final maturity in 24 months.

Subject to certain funding conditions during the draw period, the proceeds of each draw may be used to purchase vehicles. The draw period begins at closing and ends the earlier of November 2021 or the commencement of a rapid amortisation period. The aggregate advance rate for the class A and class B notes is equal to 80%, less excess concentration amounts and - following Hertz’s emergence from bankruptcy - market value or disposition adjustments, according to KBRA.

Credit enhancement for the class A and class B notes equals 30% and 20% respectively and will consist of a reserve account, letter of credit post-emergence, overcollateralisation and subordination. The HVIF 2020-1 notes are repaid through ongoing lease payments - as defined in the master operating lease and servicing agreement between HVIF and the lessees - sized to cover interest on the HVIF notes, HVIF carrying charges and vehicle depreciation.

HVIF 2020-1 is a debtor-in-possession (DIP) facility that benefits from a bankruptcy court order, which: authorises Hertz to enter the HVIF facility; specifies that Hertz’s obligations under this facility constitute a superpriority claim, subject to certain carveouts; modified the automatic stay period; and determined that transfers by Hertz under the facility are not property of the Hertz estate (SCI 19 October). Hertz is expected to make capital contributions to HVIF of up to US$1bn in cash or vehicles.

Moody’s notes that unlike prior rental car ABS, the deal also benefits from eligible incentive rebates from the car manufacturers, as the cash from these rebates are now remitted to the trust typically within 60 days after a vehicle purchase. “This is the first rental car securitisation in which eligible incentive rebates are structured as part of the aggregate asset amount,” the agency explains. “Incentive rebate receivables represent an amount required to be paid into the trust, although such payment may be contingent upon achieving certain fleet purchase volumes and mix requirements by a manufacturer as an incentive or rebate. The transaction does not have a required level of incentive rebates; instead, the level of such rebates depends on future market conditions and negotiations with the original equipment manufacturers.”

In its quantitative analysis of the transaction, Moody's applied key assumptions that included a 100% probability of sponsor default and a 100% probability that the fleet will be liquidated while the lessee is in bankruptcy.

Corinne Smith

Structured Finance

SCI Start the Week - 23 November

A review of securitisation activity over the past seven days

SRT seminar TODAY
Join SCI today and tomorrow, 23 and 24 November, for its virtual 6^th Annual Capital Relief Trades Seminar, which will explore a number of recent regulatory developments that underline European policymaker support for balance sheet synthetic securitisation. The event also examines the latest trends and activity across the significant risk transfer sector.
Highlights of this year's seminar include fireside chats with PGGM's Mascha Canio and EBA policy expert Pablo Sinausía. The event will conclude with SCI's CRT Awards presentations. For more information or to register, click here.

Last week's stories
Automated alternative
CLO tax solution getting traction
Capital headache
The finalised GSE capital rules give with one hand whilst the other takes
Democrats and CRT
Banks, GSEs eye Washington for policy clues
Greek synthetics eyed
Alantra targets CRTs, new jurisdictions
Maturity wall eyed
Mall loans face financing difficulties
Positive outlook
DoValue signs NPL MoU
Record print
VW's latest Chinese ABS oversubscribed
Synthetic RMBS priced
Lloyds finalises Syon transaction

Other deal-related news

• Moody's Analytics has formed a new partnership with The Business School (formerly Cass) at City, University of London, to build a database of loan-level commercial real estate information covering the UK and Europe (SCI 17 November).
• Aon has launched an Asia Pacific Capital Advisory unit to deliver a holistic approach to capital optimisation for re/insurers (SCI 18 November).
• PKO Leasing is launching the first liquidity reverse lease offer on the Polish market (SCI 18 November).
• REIT Simon Property Group's (SPG) revised merger agreement to acquire an 80% stake in mall operator Taubman Realty Group would likely weaken SPG's aggregate and secured leverage ratios, according to Moody's (SCI 18 November).
• CRE specialist Sabal Capital Partners has been approved by Freddie Mac as an Optigo Conventional Mortgage lender (SCI 18 November).

Data

BWIC volume

Structured Finance

Generation change?

Investor, issuer ESG engagement surveyed

The vast majority (81%) of ABS issuers polled in a recent Structured Finance Association survey currently incorporate ESG in their overall business operations, with 73% doing so in their asset origination and underwriting practices. The survey assesses the extent ESG principles are incorporated at both the enterprise level and at the structured finance business unit level.

Michael Bright, SFA ceo, says: “We think this report demonstrates our market is poised to set the foundation for large-scale, generational change in how we report and analyse sustainability and ESG factors in securitised lending. It is clear that prioritising ESG principles is a key commitment for consumer and corporate lenders and that capital investing in these sectors are demanding it.”

Conducted during August and September 2020, the survey reveals a significant level of interaction between market participants and ESG principles. There was participation from 49 firms, including institutional investors, securitisation bond issuers, large diversified financial institutions, rating agencies and other service providers. Over half (57%) of respondents participate solely in the US market, 35% participate in the US and international markets and 8% participate exclusively outside the US.

Of the respondents whose organisations have an ESG programme in place, 45% reported that their origanisations have resources and budget dedicated to ESG at the enterprise level, in addition to employees that are responsible for ESG. Seven respondents (16%) indicated that these resources are expected to increase over the next five years.

‘Client demand’ was reported as the number one factor motivating ESG for institutional investors in the securitisation market. The survey found that 95% of investor respondents apply an ESG framework to at least some of their investment decisions, with 60% apply an ESG framework to all investments and 35% applying it selectively to managed funds, portfolios or client-directed funds. The main barrier to ESG integration was reported as the cost of technology and operational integration.

Of the metrics polled, ‘structure and oversight’ was the primary consideration for 93% of respondents within governance factors. Within social factors, 53% look at ‘workforce and diversity’ and ‘inclusion of all communities’, while ‘greenhouse gas emissions’ is the top consideration for 67% of respondents within the environmental category.

Meanwhile, the top three motivations for issuers are ‘alignment with corporate values’, ‘reputation and brand’ and ‘investor demand’. Over 50% of issuers also noted ‘improved long-term returns’ and ‘board directive’ as drivers for ESG implementation. However, while only 13% of issuer respondents currently sponsor an ESG-focused securitisation programme, 43% indicated that they are developing one.

The SFA survey found that the majority (75%) of issuers polled are either currently providing parent company-level ESG information to the public (44%) or are evaluating/developing plans to do so (31%). Such information is typically disseminated via corporate sustainability reports or investor presentations and engagement.

In terms of ESG reporting for securitisation transactions, only 6% of issuers currently provide related data. However, 38% indicated that they are evaluating or developing a plan to do so.

Looking ahead, the SFA polled market participants on their preferences for the direction and scope of a disclosure framework for ESG in the securitisation market. The majority (59%) indicated an interest in a general disclosure framework, while the remainder indicated a preference for an asset-class specific framework.

Corinne Smith & Jasleen Mann

Capital Relief Trades

Risk transfer round-up - 23 November

CRT sector developments and deal news

BNP Paribas is believed to be arranging a synthetic RMBS for AXA Bank Belgium. The transaction would represent the fourth synthetic RMBS issued this year and is expected to close this quarter (see SCI’s capital relief trades database).

BNP Paribas’ last significant risk transfer transaction closed in September. Dubbed Resonance Five, the landmark deal remains the most tightly priced corporate capital relief trade of the year.  

Capital Relief Trades

SCI CRT Awards 2020

Innovation of the Year: Vale Securities Finance 2019-1

Unfunded protection has historically been focused on capital relief trade senior mezzanine exposures, but Bank of Ireland Group (BOIG) debuted a pari passu unfunded tranche alongside a funded junior mezzanine tranche in its €265m Vale 2019-1 deal from December 2019. The transaction also facilitated the refinancing of 2016’s Grattan Securities, which had reached the end of its replenishment period. As such, this ground-breaking transaction is awarded SCI’s CRT Innovation of the Year.

Vale 2019-1 references a €2bn portfolio of predominantly Irish and UK corporate banking loans. Bank of Ireland and Mizuho were joint arrangers on the deal, with Mizuho acting as sole lead manager.

Risk-sharing was achieved through the placement of class A senior mezzanine (9%-13.75%) and class B junior mezzanine (0.5%-9%) protection, the CLNs on which priced at three-month Euribor plus 4.75% and plus 9.75% respectively. The class A credit protection comprises €95m of CLNs placed with four investors. The €170m class B credit protection comprises €130m of CLNs placed with seven investors and a €40m bilateral unfunded credit protection deed (CPD) between Renaissance Re and BOIG.

The transaction is ground-breaking in that both funded and unfunded investors participate side-by-side in precisely the same risk, based on Clifford Chance’s drafting of the unfunded credit protection deed to reference one core CPD. This was achieved by including a condition in the core CPD that provides for a ‘multiplier’ that determines the size of the funded portion of the class B tranche.

This unique structure allowed Mizuho, in turn, to leverage competitive tensions between both funded and unfunded investors to optimise the efficiency of the deal for BOIG. Oversubscription of the class A and B tranches at circa 1.5x and circa 1.3x respectively at final terms were representative of market support for the deal. A diverse investor base - comprising a mix of new names and some of those involved in BOIG’s previous deals - participated in the transaction, with interest from across Asia, Europe, the UK and the US.

BOIG offered credit enhancement to the deal through both a retained synthetic excess spread layer, which resets annually, and a junior tranche. BOIG may replenish the portfolio during the first two years and the transaction features an optional call exercisable after five years.

Alan McNamara, head of financial solutions and markets execution for BOIG, notes that the bank initially focused the marketing of Vale on a group of traditional funded investors, given that the unfunded market is not as developed as the funded market. “We developed the transaction as a funded deal, based on existing documentation, then tried to bring the unfunded investor on board in a way that didn’t impact upon the funded side,” he explains. “We achieved this by creating a side agreement with RenaissanceRe, which meant we could run both sides of the deal in parallel until the last minute, when the split of funded and unfunded was decided. We had the deal fully allocated as a funded deal as a fall-back position while we completed the regulatory engagement, but ultimately including an unfunded portion was the most economically attractive option.”

One additional complication that the arrangers addressed was switching some exposures from a granular and undisclosed portfolio (Grattan) to a less granular and semi-disclosed portfolio (Vale). “The Vale structure wasn’t only about creating pricing tension; the primary benefit was expanding the investor base and achieving a de-risked execution. Having a deeper investor base helps, especially in regards to the included undisclosed names in the corporate loan asset class,” McNamara concludes.

Honourable mention: Elvetia Protection Facility
Credit Suisse closed in 2Q20 an unfunded dynamic hedge facility that enables it to draw down protection on an undisclosed portfolio of income-producing real estate when needed. Protection is in the form of a financial guarantee provided by RenaissanceRe.

Under the facility, the bank has a recurring option to purchase protection, such that the size of the portfolio and the protection can be adjusted to meet its capital requirements every quarter. This is achieved by pro-rata amortisation, with a trigger to sequential amortisation in the case of a default.

The portfolio can be ramped up to a maximum of Sfr2bn, at which point it will provide roughly Sfr87m of protection. The risk premium payable by Credit Suisse is based on the prevailing tranche size in the respective quarter, subject to a minimum facility commitment fee.

For complete coverage of SCI’s 2020 CRT Awards, click here.

Capital Relief Trades

SCI CRT Awards 2020

Investor of the Year: Alecta-PGGM

The coming together of Alecta and PGGM to focus on credit risk sharing transactions (CRS), as they term capital relief trades, is undoubtedly a major event for the sector. However, it is the sizeable voice they have created with the intention of influencing the adoption of high quality transaction standards and thereby stimulate the healthy growth of the market that makes the partnership SCI’s Investor of the Year.

On 20 April 2020, Swedish occupational pension manager Alecta and Dutch pension fund service provider PGGM entered into a co-investment agreement to invest in CRS. The move is believed to be the first time that two of the largest European pension schemes have co-operated in such a close and direct manner.

Martijn van der Molen, senior director, credit and insurance linked investments at PGGM, explains: “The main rationale for the partnership is all about helping the CRS market to grow in a sound and standard way, while supporting its long-term viability. It helps to have a like-minded large investor with the same principles and standards. By joining forces with Alecta, it allows us to grow in the space and increase diversification, all at a faster pace than we would otherwise be able to.”

Tony Persson, head of fixed income and strategy at Alecta, adds: “For some years we’ve been looking into the alternative investment space and to diversify out of our equity portfolio, but still with the need to generate equity like returns. To do so, we have been looking at a number of possibilities, but see CRS as a very important part of the fixed income space and a great fit with our requirements, including the ability to deploy in size.”

He continues: “However, the sector requires intense and detailed due diligence, which is challenging. As a result, it gives us a great deal of comfort to be allied with such a major and experienced investor in the space as PGGM and to be able to tap into its expertise and network.”

Both firms believe that collaborations such as theirs can be particularly beneficial in illiquid asset categories such as CRS, where the ability to leverage off each other’s knowledge, skills and networks can be a considerable advantage. In addition, the economies of scale allow for more flexibility in portfolio construction for both parties, all of which ultimately benefits the pension scheme members they serve.

Consequently, Alecta and PGGM hope that their initiative sparks more collaboration efforts in the pension fund industry. However, its reach could extend beyond that.

“CRS is important for society as a whole. It enables banks to increase their lending capacity, at a time when countries need it most due to the economic fallout from the Covid-19 pandemic,” says Persson.

“Our initiative substantially increases the amount of available capital to share in banks’ credit risks,” van der Molen concurs. “In a period where governments and central banks try to find ways to engage the private sector to help cushion the economic consequences from the pandemic, the Alecta-PGGM partnership offers a concrete opportunity to do this.”

The agreement signed between Alecta and PGGM is long term in nature. As part of the agreement, PGGM will purchase 70% of each new CRS co-investment and Alecta 30%.

PGGM remains responsible for the sourcing and proposing of new transactions. The relevant originating bank needs to confirm that it is comfortable for Alecta to participate before the firm can be involved.

Alecta has the right but not the obligation to participate in any CRS transactions proposed by PGGM. Alecta will not source CRS transactions itself and will only enter into a CRS transaction if PGGM invests.

Honourable mention: ArrowMark Partners
ArrowMark has been a consistent and respected investor presence in the capital relief trades market since 2010, when it began deploying capital in the sector. That consistency and acceleration of capital deployment in the face of pandemic-driven volatility is what has earned the firm this year’s honourable mention in the Investor of the Year category.

ArrowMark has been seen to be very active in all asset classes and markets throughout the awards year. Notably, the firm was able to quickly increase its focus in the secondary market, helping to bolster liquidity there as many stepped away from CRT primary and markets in general as the coronavirus crisis hit.

For complete coverage of SCI’s 2020 CRT Awards, click here.

Capital Relief Trades

SCI CRT Awards 2020

Credit Insurer of the Year: RenaissanceRe

RenaissanceRe (RenRe) has won the Credit Insurer of the Year category in SCI’s Capital Relief Trades Awards for breaking new ground on several fronts. The firm was the first reinsurer to execute an SRT guarantee over two years ago and has been pushing the frontier as an investor ever since.

Fiona Walden, svp and global head of credit at RenRe, notes: “As architects of unfunded protection by reinsurance companies for SRT transactions, we are proud to be the only unfunded market participant executing SRT trades in multiple formats – guarantee, insurance policy and reinsurance policy – across multiple asset classes and jurisdictions. We look forward to continuing to grow our book of business in the years to come, offering best-in-class, nimble service and innovative products to our clients.”

The firm is responsible for a number of SRT firsts during the awards period: it is the first reinsurer to have executed an SRT transaction through Lloyd’s of London and the first to participate in a side-by-side syndicated SRT transaction with funded investors. It also provided a financial guarantee for Credit Suisse’s innovative Elvetia Protection Facility, which enables the bank to draw down protection on an undisclosed portfolio of income-producing real estate when needed.

Consequently, as one of the first insurer investors in the SRT market, RenRe has played a pivotal role in making unfunded protection through reinsurance companies a reality and to that end the firm has deployed approximately US$500m of limit in SRT transactions to date.

Indeed, the firm continued breaking new ground well into the depths of the Covid crisis. Having reviewed circumstances in the second quarter of the year, RenRe completed its post-Covid significant risk transfer transaction in June 2020 and has continued to remain active in the space.

The firm can boast of 27 years of industry leadership in reinsurance solutions across global platforms, matching well-structured risk with efficient capital. The focus is on delivering value-added service in a rapidly evolving market, with a capital strength that has been tested through market cycles.

Since 2003, RenRe has structured customised financial and credit risk transfer solutions, assuming the risk on an unfunded basis as an alternative to other market participants. The firm offers best-in-class service and products, targeting clients who are considering new and innovative risk transfer programmes. The credit business includes trade and financial credit, surety bonding, political risk, project finance, mortgage, financial guarantee and bank capital solutions.

RenRe works primarily with insurance companies - both credit and monoline - and seeks to do business on portfolios of risk ceded from banks and government agencies. The team includes former tax attorneys, investment bankers, software developers, actuaries and reinsurance and claims experts. The multi-faceted expertise of this team brings different perspectives to the table when collaborating to solve risk challenges.

Honourable mention: AmTrust International
AmTrust International is one of a handful of insurers that has pushed boundaries with the unfunded format in the capital relief trade market. The firm’s most notable transaction is Project Woodbridge, which was completed in October 2019.

The deal references an approximately €1bn portfolio of Italian performing residential mortgages purchased from Barclays by Intesa Sanpaolo. Intesa subsequently hedged the credit risk under the GARC programme via unfunded first loss protection, structured as an insurance policy provided by AmTrust.    

For complete coverage of SCI’s 2020 CRT Awards, click here.

Capital Relief Trades

Double trouble

Two - not one - JP Morgan corporate loan CRT trades have been in the market

A CRT transaction between JP Morgan and a club of investors referencing corporate loans, believed to be chiefly SME-related assets, is poised to close imminently, say well-placed market sources.

This trade is in addition to the bilateral corporate loan CRT deal involving Dutch asset manager PGGM and co-investor Alecta, a Swedish pension provider, which also closed recently. The details of the latter trade were announced last week.

So, when the club deal concludes, JP Morgan will have executed two CRT deals referencing corporate loans in the space of no more than a week or two.

As rumours of these transactions have been circulating for the past few weeks, it had been thought by some that they referred to the same deal but, in fact, two different and separate deals have been in the market.

The relevant desks at JP Morgan in London and New York have declined to comment.

The PGGM trade involves a corporate loan portfolio worth around $2.5bn, and, according to the announcement, is a multi-year programme in which JP Morgan shares the risk of both existing and new loan origination.

The details of the additional corporate loan club deal are as yet less concrete, but it was originally rumoured in late September, and, two weeks ago, was said to be in the final stages. No other particulars have emerged subsequently.

The existence of two separate corporate trades means that JP Morgan will have concluded two MBS-backed deals, two auto loan-backed deals and two corporate loan-backed deals in the CRT market in the last thirteen months.

Moreover, the bulk of this issuance has been concluded in the last half of 2020. This is powerful evidence that the pace is quickening in the US CRT market, and more well-rated US banks are slated to dip their toes into the water in 2021.

Simon Boughey

Capital Relief Trades

SCI CRT Awards 2020

Transaction of the Year: Resonance 5

The winners and honourable mentions of the 2020 SCI Capital Relief Trades Awards were unveiled during a virtual ceremony yesterday. We will be publishing write-ups for each category over the coming days.

Top of the bill is Transaction of the Year, which was won by BNP Paribas’ Resonance Five. The significant risk transfer (SRT) trade stands out for its highly competitive pricing, innovative structuring and successful execution in the midst of the Covid crisis. Indeed, the deal’s execution process at the early stages of the SRT market’s rebound in May offers a blueprint for other SRT issuers eyeing post-Covid transactions.    

According to Bruno Bancal, deputy head of ABS markets at BNP Paribas: “The programme has performed well over time and the structure of the portfolio was conservative; it was a static pool and we excluded Covid hit industries from it, so pricing benefited accordingly. Pricing further benefited from the choice of anchor and through-the-cycle investors, as well as execution timing and the bidding process.”

The €8bn capital relief trade achieved north of €3bn RWA reduction for BNP Paribas and was shareholder value accretive. However, from a structuring perspective, the most salient feature was the splitting of the mezzanine piece into a funded €324m CLN and an unfunded €100m insurance policy.

BNP Paribas engaged long-time partners as anchor investors to secure the best possible execution. As lockdowns neared their end in May, discussions were equally approaching the finish line on several issues, most notably on the status of the portfolio and rating thresholds. In the end, the bank reassured investors by agreeing on a static pool with strict and minimum ratings for non-food retail, autos, transportation and the leisure industries.

During the execution stages, the deal was anchored and structured around two large strategic investors, before a free-floating amount was offered in a competitive bid with counterparties who had expressed a long-term interest in BNP Paribas’ capital management programmes.

The execution process, along with the scarcity of offers in the first half of the year proved to be the secret sauce pricing wise, as evidenced by a distinctly tight 7.49% coupon. The pricing is not only in line with pre-Covid levels for Resonance transactions, but is in fact the most tightly priced corporate capital relief trade of the year.

Innovation though was not limited to the funded tranche. The €100m unfunded policy references a €1.9bn portfolio and is governed by French law. It is BNP Paribas’ first such trade and was reinsured by RenaissanceRe.

However, it took two years of extensive discussions to conclude it, due to a few challenges. One of the main ones was the identification of an entity that would offer the protection in a manner that complies with French banking monopoly regulations and both parties also had to cope with legal constraints linked to insurance policies under French law.

The structure involves a Lloyds insurance entity incorporated in Belgium and 100% owned by Lloyds of London. RenaissanceRe Syndicate 1458 - a Lloyd’s syndicate - is the entity bearing the credit risk as the reinsurer of the Lloyd’s Insurer.

As the insured party, BNP Paribas benefits from Lloyd’s chain of security with a final recourse on the Lloyd’s central fund, rendering the credit protection particularly robust. The latter is a crucial point, considering that an insurance policy is unfunded by nature and, therefore, the insured party remains exposed to the default risk of the insurer.

Another challenge was obviously the Covid-induced lockdowns. During the structuring phase, the market was practically closed and the spread widening observed in spring was a deal stopper for the lender. Hence, it decided to delay closing until 3Q20.

Additionally, during the summer some structuring adjustments had to be made to achieve that competitive pricing. Besides keeping the pool static and reducing exposure to Covid affected industries, the due diligence was organised in such a manner that would allow RenaissanceRe to make a thorough assessment of the BNPP loan origination process.

Overall, according to the French lender: “This achievement has been made possible due to the perseverance of both parties throughout this process, their willingness to reach the same objective and ultimately in the final phase, their capacity to adapt to a totally different market environment. We think this sets an important precedent for future market activity.”

Honourable mention: Project Meno
Santander’s Project Meno was finalised in December 2019 and is the bank’s first unfunded capital relief transaction. The synthetic securitisation – which was syndicated to three re/insurers - references a €1.3bn portfolio of largely undrawn revolving credit facilities (RCFs) to large corporations and financial institutions.

The structure references the day one exposure at default (EAD) of each RCF instead of the notional. Any increase in the EAD associated with an RCF - such as drawings under the RCF - will occur outside of this securitisation transaction.

For complete coverage of SCI’s 2020 CRT Awards, click here.

Capital Relief Trades

SCI CRT Awards 2020

North American Transaction of the Year: Chase 2019-CL1

It would take a brave man, or woman, to argue that JPMorgan’s Chase Mortgage Reference Notes 2019-CL1 was not the most eye-catching CRT deal of the last 12 months in North America. As such, it is a worthy winner of the SCI North American Transaction of the Year award.

Of course, it was by no means certain after the deal was launched that it would win any awards, or indeed if it would remain a deal at all for very long. The US$84m transaction was offered to investors in October 2019 and it was not clear whether it would attain the green light of approval from the OCC, ensuring favourable capital treatment.

The bank had attempted to issue a CRT about three years earlier and had not received the thumbs-up from the regulator, so the augurs were not all that promising. Indeed, JPMorgan retained the right to collapse the deal if it did not receive this regulatory backing.

Consequently, when the OCC gave its blessing – an event believed to occur in February 2020 – it was a red-letter day, not only for this deal but the entire North American CRT market. Since that day, JPMorgan has followed with another mortgage CRT, its first auto loan CRT and is at time of writing (late October 2020) believed to be marketing a CRT referencing corporate and SME loans.

The CRT market in the US has been dominated by the GSEs, but Chase 2019-CL1 shows that any US bank with credit exposure on its books can, in theory, make use of the mechanism to reduce capital obligations. It was hailed at the time as the first rated synthetic mortgage risk transfer deal from a US bank.

Principal payments are based on payments received from a reference portfolio of 979 prime quality residential mortgages with a total balance of US$757.23m.

What is thought to have won round the regulators is the fact that the deal is a direct obligation upon JPMorgan, rather than a trust or SPV. This means that the risk is unambiguously owned by the bank, but it does also mean that issuers following the same route and using the same mechanism are likely to be well-rated large banks, rather than smaller, regional institutions.

Though this landmark deal has been followed by a trickle of similar transactions rather than a waterfall, it does appear that its creation and acceptance by the regulators marks a sea change in the US CRT world. The US CRT market might never rival that of Europe, but it seems that Chase 2019-CL1 has lighted a path that others might follow.

Honourable mention: CAS 2020-SBT1
In February 2020, Fannie Mae carved out another fresh frontier when it brought its first Connecticut Avenue Securities (CAS) Seasoned B-Tranche transaction, designated CAS 2020-SBT1. The deal, worth US$966m, transfers a portion of subordinate risk from Fannie Mae to investors on 11 B classes from eight CAS deals issued from late 2015 through 2016.

The reference pool for the deal consisted of over 700,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately US$152bn, the largest-ever reference pool for a GSE CRT transaction.

It was the second transaction in a new programme to transfer risk on the seasoned loan book and, as such, offers investors a different type of exposure to the usual CAS REMIC deals. There was strong demand for all tranches, with each over-subscribed, according to Fannie Mae.

For complete coverage of SCI’s 2020 CRT Awards, click here.

Capital Relief Trades

SCI CRT Awards 2020

Impact Deal of the Year: Project Grasshopper

NatWest has raised the bar for impact investment capital relief trades with December 2019’s Project Grasshopper. A number of sector firsts - from its collateral to structural features - combined with a close fit to the bank’s broader strategy make the deal a new benchmark.

Project Grasshopper is the only 100% green significant risk transfer transaction executed in the market to date, referencing a portfolio entirely consisting of 36 UK power projects across a range of green technologies, and was carried out for both capital relief and credit risk management purposes. Macquarie Infrastructure Debt Investment Solutions, in conjunction with BAE Systems Pension Funds Investment Management, invested in the securitisation.

Grasshopper’s around £78m of capital relief was achieved in two distinct ways, utilising funded and unfunded structural features. First, through a fully funded financial guarantee on the junior tranche of the reference portfolio via a CLN. Second, through an unfunded second loss insurance policy on the mezzanine tranche, which in itself served to open up the SRT sector to the European insurance market – a new and highly liquid investor base.

The deal is the UK’s first fully ESG-compliant synthetic securitisation that provides credit protection against a reference portfolio of sustainable energy project finance loans. The £1.1bn portfolio includes loans to onshore and offshore wind, solar, smart meters, energy from waste and biomass power projects. The reference portfolio’s annual electricity generation is anticipated to power the equivalent of 4.6 million households, with the CO2e avoided equivalent to taking 2.3 million cars off the road.

Given the global importance in transitioning to a low carbon economy, clean energy projects are a core area of targeted growth for NatWest. Benedetto Fiorillo, head of portfolio risk mitigation at the bank, explains: “The attractiveness of the deal is evident in that it facilitates capital relief and provides ESG assets for investors. However, as importantly, Grasshopper also enabled us to recycle the capital to support investment in the renewables sector.”

Fiorillo continues: “At the same time, it allows the bank to move towards carbon neutrality as per the United Nations Environment Programme Finance Initiative Principles for Responsible Banking, of which we are a signatory, and align our business to the UN Sustainable Development Goals and the 2015 Paris Agreement. Ultimately, the deal provided us with an ideal combination of a stand-alone business opportunity with the means of achieving a future goal to reach standards our management have set for the whole business.”

In addition, Grasshopper featured a number of structural highlights, including: a three-year replenishment period to support new origination; a 10% clean-up call; and a regulatory call option. But most notable is that at 20 years, the transaction is the longest tenor synthetic risk transfer deal in the UK market, with a WAL of 13 years. The resultant long-term capital relief such a tenor allows was implemented to enable NatWest to achieve greater flexibility in further originating long-dated green projects.

Honourable mention: CITAH 2019
The US$946m CITAH (Citi Affordable Housing) 2019 securitised 96 affordable housing loans that finance more than 11,500 Low Income Housing Tax Credit (LIHTC) programme rental units. The dual-tranche deal, issued by Citi and structured in conjunction with Newmarket Capital, innovatively engaged municipal bond buyers in a socially responsible investment structure.

With Newmarket’s impact-focused IIFC strategy as the junior investor, CITAH 2019 enabled Citi to achieve funding and capital relief to maximise future resources for financing affordable housing. The senior notes were oversubscribed, offering investors tranched exposure to US affordable housing for the first time. Additionally, the transaction was structured to ensure that the tax advantages of the underlying loans were passed along to each investor tranche.

The US LIHTC programme has provided housing for approximately 6.7 million families since inception in 1986, but even after 35 years of funding affordable housing, there continues to be a shortfall of around 7.4 million units. Newmarket and Citi sought to help fill this gap with the CITAH transaction and in doing so exemplified the ways in which capital markets can innovate to address urgent social needs.

For complete coverage of SCI’s 2020 CRT Awards, click here.

RMBS

Emergency exit

Taking the GSEs back to private hands in two months is the tallest of tall orders

The difficulties in pulling the Fannie Mae and Freddie Mac out of conservatorship and into private hands before the new administration assumes the reins of office are close to insuperable, say sources in the agency MBS market.

There are a large number of moving parts to such a process, and to tick every box in less than two months, with Thanksgiving, Christmas , New Year holidays and Covid 19 thrown into the mix, would be extremely difficult, they agree.

It was reported over the weekend that the Federal Housing Finance Authority (FHFA) is considering an accelerated exit from conservatorship before the new regime takes over. Giving the GSEs back to the private market has been an ambition of the current administration, while President Biden is likely to be far less keen.

No one expected a move of such breath-taking celerity, however.

“From an execution standpoint, you have to think about it like IPO-ing a company. There’s no precedent for doing something this large in two months,” say an experienced GSE-watcher.

There is a vast amount of due diligence and documentation to be accomplished, plus marketing to investors and the recruitment of the ratings agencies.

Moreover, the GSEs would be leaving conservatorship a long way short of the $283bn in capital they have been asked to accumulate according to the finalized capital rules released last week. Currently, the GSEs hold around $40bn in capital so they are a very long way short of the designated target, which is likely to prove a deterrent to potentially interested investors as well.

To allow an exit before the requisite levels of capitalization, a consent order between the FHFA and the GSEs would be required, where the regulator retains heightened oversight authority until certain requirements are met. But the Treasury Secretary Steve Mnuchin would need to sign off on the consent order, which adds a further layer of complication.

The fate of current shareholders, many of whom were small investors and retired people who lost significant sums when the GSEs collapsed in the credit crisis, is far from clear if a hasty end to conservatorship is rushed through.

Even the proposed objective of relieving the burden that the GSEs place on the taxpayer is only partially accomplished as once in private hands then the Treasury is unable to sweep up earnings into state coffers as reimbursement for the massive injection of capital post-crisis.

Finally, a very rapid exit from conservatorship would inevitably introduce volatility to the housing market. The GSEs backed almost half all US mortgages in the first quarter of 2020, according to figures from the Urban Institute, so their role in the national housing market can hardly be overstated.

“Why would you threaten the housing market during a pandemic? It makes no sense. It’s not like saying ‘let’s go sell some bonds,’” says another market source.

In a letter to the Treasury dated yesterday (November 23), the Structured Finance Authority (SFA) implored Steve Mnuchin “to take responsible steps to avoid the potentially destructive effects of releasing the GSEs prematurely.” The letter was sent in response to reports that “steps are being contemplated to put Fannie Mae and Freddie Mac…on a calendar-driven accelerated path out of their current status in conservatorship.”

The letter concludes that a change of such magnitude to the legal status of the GSEs put into action without proper preparation constitutes a “dangerous experiment” and “a hastily thrown together exit from conservatorship based on the political calendar risks undoing the positive work that has been accomplished and is currently underway.”

Fannie Mae and Freddie Mac declined to comment on the reported plans, Fannie Mae referring SCI to the FHFA.

“Taking the GSEs out of conservatorship is hard, very hard, otherwise they would have done it 11 years ago,” concludes another market source.

Simon Boughey

Structured Finance

EBA SRT report released

Sector developments and company hires

EBA SRT report released
The EBA has published its long-awaited report on significant risk transfer in securitisations, which includes a set of detailed recommendations to the European Commission on the harmonisation of practices and processes applicable to the SRT assessment. The EBA proposals aim to enhance the efficiency, consistency and predictability of the supervisory SRT assessment within the current securitisation framework.

The SRT report makes recommendations in three key areas where greater harmonisation of supervisory practices would enhance the efficiency and improve convergence outcomes of the supervisory SRT assessments: the assessment of structural features of securitisation transactions; the application of the SRT quantitative tests; and the supervisory process for assessing SRT in individual transactions.

The recommendations on supervisory process are designed to facilitate and speed up supervisory decision-making on SRT, without compromising the quality and thoroughness of the assessment. The clear classification of complex structural features between those ineligible for SRT and those that need to comply with a set of safeguards for a fast-track assessment should provide clarity to market participants and support an effective supervisory assessment.

In addition, the EBA has identified shortcomings in certain CRR provisions currently in force that are significantly detrimental to the effectiveness of the supervisory assessment of SRT. Accordingly, the report sets out several recommendations on desirable amendments to the CRR that could correct those shortcomings and improve the SRT framework.

In other news…

Combo concerns
Kamakura Corporation has highlighted concerns over the assessment of CLO combo notes in a new research report from its North American client team.

“Through creative structuring and the legerdemain of agency rating models, combo notes are consistently awarded a higher rating than their underlying CLOs,” the report states. “The underlying loan collateral is identical, but combo notes restructure the tranches so that monthly interest payments are applied to pay down principal rather than disbursed as coupon payments to combo noteholders.”

It continues: “This permits insurance investors to buy and hold lower-rated CLO collateral at ratings grades that avoid higher corresponding capital charges... It seems there’s a certain amount of wilful visual impairment going on here [or] at the least, ratings agency attitudes toward CLOs and combo notes have been quixotic and are sometimes inexplicable.”

Consequently, Kamakura argues that while the idea of pooling and securitising loan debt has considerable appeal from an investor perspective, the true risk of correlated default must be accurately evaluated. Further, risk analysis must proceed from the individual loan level and loan obligor default probabilities, rather than from reliance on the estimation of conditional default rates or credit ratings assigned to the senior tranches of CLOs.

EMEA
BNP Paribas Asset Management (BNPP AM) has strengthened its private debt and real assets (PDRA) investment division, headed by David Bouchoucha, with four appointments that are based in Paris. Mohamed El Jani has joined the firm’s structured finance team as an investment manager, reporting to Michel Fryszman, head of structured finance. El Jani was previously a quantitative analyst within BNP Paribas CIB’s securitised products group and before that, worked in Societe Generale’s model risk management department.

Additionally, Stéphanie Passet has been appointed cio for infrastructure debt, reporting to Karen Azoulay, head of infrastructure debt at BNPP AM. Passet was previously executive director, infrastructure capital markets at Credit Agricole, and has also worked at ABN AMRO and Coface.

Romain Linot has been appointed cio for real estate debt, reporting to Christophe Montcerisier, BNPP AM’s head of real estate debt. Linot was previously head of real estate finance, Continental Europe, at Aviva Investors and has also worked at AXA and RBS.

Finally, Irene Bárcena has joined BNPP AM’s SME lending team as an analyst, reporting to Christophe Carrasco, head of SME lending. Bárcena was formerly an associate in BNP Paribas CIB’s EMEA corporate coverage team.

Euro CLO switch first
Penta CLO 2 has become the first European CLO to trigger its payment frequency switch to semi-annual, with the manager Partners Group (UK) Management doing so at its discretion, according to Fitch. This change will be applicable until the legal maturity of the deal, as its documentation does not allow a reversal to quarterly payments.

“The switch is in line with our observation of many corporates, in response to the coronavirus pandemic, switching their payment frequency of loans to semi-annual,” the rating agency says. “The proportion of such loans currently represents 32% by notional of the portfolio, compared with 18% before the outbreak of the pandemic in February 2020.”

The switch is credit-neutral for Fitch’s analysis of the deal as the basis risk is mitigated by the current negative interest-rate environment and the notes’ interest index being floored at zero.

Moratoria usage assessed
The EBA has published its first assessment of the use of Covid-19 moratoria and public guarantees across the EU banking sector, based on data disclosed by banks as of 30 June 2020. The report shows that a nominal loan volume of €871bn was granted moratoria on loan repayments, comprising about 6% of banks’ total loans and close to 7.5% of total loans to households (HHs) and NFCs. In total, 16% of SME loans were granted moratoria, followed by 12% of commercial real estate (CRE) loans and 7% of residential mortgage loans.

The use of moratoria was widely dispersed across countries and banks, with a few banks reporting that almost 50% of their total loans to NFCs and HHs were subject to moratoria. Cypriot, Hungarian and Portuguese banks reported the highest share of loans subject to moratoria. French, Spanish and Italian banks reported the highest volumes of loans subject to moratoria.

As of June 2020, around 50% of the loans under moratoria were due to expire before September 2020, while 85% of the loans were due to expire before December 2020. However, due to the second wave of Covid-19, some countries have already announced an automatic extension of the moratoria beyond year-end.

While the non-performing loan ratio for loans subject to moratoria was 2.5%, around 17% of loans under moratoria were classified as stage 2, which the EBA notes is more than double the share for total loans.

Meanwhile, newly originated loans subject to public guarantees amounted to €181bn, representing 1.2% of the total loans. These loans were granted predominantly to NFCs.

Banks in Spain had the highest share of new loans subject to guarantees relative to total loans, while banks in France, Italy and Portugal also reported material volumes. Banks in other European countries reported low volumes and some countries had none.

The reducing effect of public guarantees on RWAs varied significantly across banks and countries. On average, banks reported RWAs to be 18% of the exposure value for loans subject to guarantees. This compares with an average risk weight of 54% for banks’ overall loans to NFCs, according to the EBA.

North America
Fitch has appointed md Michael Paladino to the position of head of North America structured finance. He will report to Rui Pereira, who is analytical global group head of structured finance. Paladino joined the structured finance leadership team from the rating agency’s US leveraged finance platform.

Structured Finance

UK STS notification portal launched

Sector developments and company hires

UK STS notification portal launched
The UK FCA has launched its new STS notification platform, with the aim of allowing UK securitisation originators and sponsors to ‘pre-populate’ the STS list in anticipation of the end of the Brexit transition period on 31 December. The FCA states that during the transition period, UK firms should continue to notify ESMA where a securitisation meets the STS requirements. From the end of the transition period, the FCA will maintain a list of securitisations notified as meeting UK STS criteria.

To qualify as UK STS, the originators/sponsor of a securitisation must be established in the UK and must notify the FCA via onshored UK STS notification templates for: new securitisations that meet the UK STS criteria under the onshored regulation; and UK securitisations previously notified to ESMA as EU STS that meet the UK STS criteria and want to be considered as such. All STS notifications must be submitted through the FCA’s Connect portal.

To maintain an accessible pool of STS product for UK institutional investors, EU securitisations notified to ESMA as meeting EU STS criteria before and up to two years after the end of the transition period, and which remain on ESMA’s list, will also qualify as UK STS for the life of the transaction.

The EU Securitisation Regulation will continue to apply in the UK during the transition period. At the end of the transition period, this regulation will be retained in UK law by operation of the European Union (Withdrawal) Act 2018. At this point, onshoring changes to the regulation will take effect under the Securitisation (Amendment) (EU Exit) Regulations 2019.

During the transition period, originators, sponsors or SSPEs will be required to report their public securitisations to a securitisation repository (SR) registered by ESMA. At the end of the transition period, the onshored Securitisation Regulation will transfer the powers to register and supervise UK SRs from ESMA to the FCA. From that point onwards, public securitisations within the scope of the onshored Securitisation Regulation must be reported to a UK SR, once a UK SR is available.

To become a UK SR, firms need to submit an application for registration with the FCA.

In other news…

North America
Dorsey & Whitney has recruited Steven Smith as a partner in its Dallas office. Smith’s real estate practice includes representation of conduit and other lenders and borrowers involved in the financing of commercial real estate. He handles assumptions, defeasance transactions, loan modifications and other servicing issues for CMBS master servicers, as well as PSA compliance and review, real estate workouts and litigation for various types of commercial lenders and parties to non-real estate securitisations. Smith was previously a member with Frost Brown Todd in the Dallas office and was also managing partner of the Perkins Coie Dallas office.

Strategic Risk Solutions (SRS) has named Matthew Charleson as coo of fund services and ILS, effective as of 7 December 2020. Based in Bermuda, Charleson will be responsible for further developing and implementing SRS’s services within the ILS sector, including in Bermuda, Cayman, Europe and the US. He will report to md Jonathan Reiss and joins from Apex, where he was md and head of insurance fund services. Previously, he held senior fund administration and insurance management roles at Kane LPI Solutions and Prime Management.

Structured Finance

Jumbo BDC merger agreed

Sector developments and company hires

Jumbo BDC merger agreed
FS/KKR Advisor, a partnership between FS Investments and KKR Credit Advisors (US), has announced that FS KKR Capital Corp and FS KKR Capital Corp II - two publicly traded BDCs advised by FS/KKR - have entered into a definitive merger agreement. The merger will create one of the largest BDCs in the US, with US$14.9bn in assets under management, US$7.2bn in net asset value and over US$3bn of committed capital available to new investment opportunities.

The combined company will have a well-diversified investment portfolio and enhanced access to the investment grade debt markets. The combination will also result in reduced overall expenses and a stronger dividend profile. 

The transaction is expected to close during the second or third quarter of 2021, subject to shareholder approval and other customary closing conditions. Upon the closing, the combined company will permanently reduce its income incentive fee to 17.5% from the existing level of 20%.

In other news…

EMEA
Zenith Service has named SolideaBarbara Maccioni head of arrangement, based in Milan. Maccioni has over 15 years of experience in structured finance and will focus on complex projects in her new role. She was previously vp - trade finance sales manager at Deutsche Bank and has also worked at BNP Paribas Securities Services.

North America
400 Capital Management has hired Quinn Barton as a senior portfolio manager, focusing on CRE and CMBS origination, structuring and trading. Formerly a managing partner at Carmel Partners, Barton is tasked with expanding 400CM’s investments in commercial real estate finance. Prior to joining Carmel, he was an md and head of CMBS trading for Bank of America Securities in New York.

South African ratings hit
Moody's has downgraded the global scale ratings (GSRs) of 49 classes of notes from 10 South African RMBS and auto loan ABS, and affirmed the GSRs of 16 classes of notes. In addition, the agency has affirmed the national scale ratings (NSRs) of 53 classes of notes, upgraded the NSRs of three tranches and downgraded the NSRs of nine tranches, due to revisions to the NSR map following the downgrade of the sovereign debt rating of the Government of South Africa.

The rating actions are prompted by the lowering of South Africa's local-currency country ceiling to Baa1 from A3. This follows the weakening of the South African government's credit profile, with Moody's downgrading the sovereign rating to Ba2 from Ba1 on 20 November.

Structured Finance

NPL ABS capital treatment amended

Sector developments and company hires

NPL ABS capital treatment amended
The Basel Committee has published a technical amendment in connection with the capital treatment of non-performing loan securitisations. The rule aims to close a gap in the Basel framework by setting out prudent and risk-sensitive capital requirements for NPL ABS.

The Committee consulted publicly on the technical amendment during the summer (SCI 24 June). But in contrast to the consultative proposal, the final rule permits banks to apply the external ratings-based approach to NPL securitisation exposures, without the 100% risk weight floor. In addition, the final rule includes discounts on tranche sales in the definition of discount incurred by the originating bank that factors in capital requirements.

Committee jurisdictions agreed to implement the technical amendment by no later than January 2023.

In other news…

Global promotions
White & Case has promoted 24 lawyers to counsel and 15 lawyers to local partner, across 22 offices and nine global practices, effective from 1 January 2021. Among the counsel are four lawyers with securitisation-related experience, comprising two in the firm’s global capital markets practice (Nathaniel Crowley and Eric Quiles, based in Hong Kong and Mexico City respectively) and two in its global debt finance practice (Julio Peralta and Nicole Rodger, based in Madrid and Los Angeles respectively).

Sustainable label for ILS fund
Plenum Investments’ catastrophe bond fund, Plenum CAT Bond Fund, has been awarded an FNG Label by the German Forum Nachhaltige Geldanlagen. A key goal of the FNG Label is quality assurance for sustainable mutual funds by establishing and continuously improving quality standards for sustainable investment products. The label concept itself is constantly refined in collaboration with an independent committee.  Plenum says its goal is to help transform the ILS market into a fully ESG-compliant investment universe.