Contents

Regulation

Big Brother Biden

Democrat control of key committees puts securitized market on alert

The US structured finance industry will feel the hand of the new administration of President Biden most heavily through Democratic control of key financial Congressional committees rather than legislation, says Andrew Olmem, a partner in Mayer Brown’s Washington, DC office.

Olmem was speaking during Mayer Brown’s webinar “Securitization - what to expect in 2021” recorded at the end of last week.

Democrats have only razor-thin majorities in the House of Representatives and the Senate and this will circumscribe the capacity to pass legislation that will materially affect the securitization market. The House is split 222-211 - the narrowest margin of Democratic control since the 1940s - while the Senate it split down the middle 50-50. In theory, this gives the Democrats control as Vice President Harris has the casting vote, but in reality a majority of 60-40 is required to make any bill filibuster proof.

However, through the leadership of the Senate Banking Committee and the House Banking Committee “the progressive wing of the Democratic party will able to exert significant influence over financial services policy,” says Olmem.

Senate Banking is now in the hands of chairman Sherrod Brown, a three-term Ohio Democrat, while House Financial Services’ chairwoman is Maxine Waters, a Representative for the 43^rd district of California since 1991. Both Brown and Waters are “prominent progressives,” adds Olmen. Brown, indeed, has been a close senatorial ally of Bernie Sanders.

The heads of key agencies like the Securities and Exchange Commission (SEC) and the Consumer Financial Protection Board (CFPB) are approved by these committees, making it far more likely that interventionist and progressive candidates will fill the leadership positions.

Things are already moving fast in that regard. Last week CFPB director Kathy Kraninger was asked by Biden to step down while Federal Trade Commissioner Rohit Chopra, a candidate supported by Democrat progressives, has been nominated as her successor.

Meanwhile, Gary Gensler is likely to be appointed as the new chair of the SEC. Gensler was head of the Commodity Futures Trading Commission (CFTC) between 2009 and 2014, during which time he was known as a scourge of Wall Street, implementing far-reaching new rules on derivatives trading and overseeing a series of billion dollar prosecutions. His is a name likely to send a chill wind blowing down Wall Street.

All this means initiatives near and dear to the heart of the new administration will be advanced through the agencies. Olmem believes that new policies to address climate change are likely to be forthcoming in the form of, for example, greater climate risk disclosure rules and the incorporation of climate risk criteria within risk management rules.

New prudential risk rules might also be applied to non-banks like asset managers and mortgage lenders to provide greater consumer protection, while the reversal of Trump era policies regarding the Volcker rule and, perhaps, changes to qualified mortgage rules could be on the cards as well.

Guided by a fresh interventionist spirit, congressional investigation by both committees to make sure banks are aligned with the chief objectives of the administration and generally toeing the line is on the agenda. Brown has already said he intends to take a close look at what the banks are up to through a series of Senate Banking Committee hearings with bank CEOs.

For banks that offer securitized products, the great majority of which incorporate consumer cash flows, all this means that the administrative climate governing their operations is likely to change and change quickly.

Simon Boughey

RMBS

Origination innovation

Fintechs, specialist mortgage lenders gaining traction

The coronavirus fallout appears to be accelerating innovation in mortgage products and origination practices. At the same time, complexity surrounding borrower circumstances is facilitating increased activity by capital markets-funded specialist mortgage lenders.

“There is certainly potential for growth in the non-conforming market, as customers increasingly have complex situations. For example, the self-employed. In times like these, it is important to make sure that they can afford a loan and a customer may have to restructure their business or find an alternative job to secure the same financial ability they had before,” says Alex Maddox, capital markets and digital director at Kensington Mortgages.

Kensington Mortgages, for one, lends to an underserved segment of society. Indeed, the company’s debut social bond – the Gemgarto 2021-1 RMBS, which priced today - is aimed at supporting lending to those underserved communities in a sustainable manner (SCI 27 January).

“There is a clear industry push towards ESG. At Kensington, we have been trying to lead that in the specialist mortgage market, being involved in several trade body discussions around ESG. In this transaction, we also provide EPC level data for each of the loans where available – which gives investors more clarity on the environmental structure of the properties,” notes Maddox.

There are no buy-to-let loans present in the portfolio and it has an STS label. “The label allows us to bring in a slightly different investor base and the revolving feature makes it possible to replenish collateral until the call date,” Maddox adds.

The £422.44m triple-A rated class A notes of the transaction priced at SONIA plus 59bp, with the £21.24m class B, £11.80m class C and £2.36m class D notes printing at plus 110bp, 130bp and 200bp respectively. Final books with trading orders were 2.7x, 3.6x and 4.8x covered for the class A through class C notes.

Markets where an interest in automation has previously been shown may also experience a significant change in mortgage lending practices. “Automated underwriting techniques used by high-street lenders are unable to assess each individual on a case-by-case basis, which is why manual underwriting capability is key. For mainstream lenders, it’s automatic to keep costs down, whereas human underwriters can take the time to understand the granular level detail of each case, so the cost is higher,” Maddox notes.

He adds: “It’s interesting to see what fintechs can do and there is currently a lot going on in the US right now. Open banking can help source information efficiently without burdening the customer and is transforming the mortgage industry.”

Indeed, the accelerating change in mortgage lending practices is expected to benefit fintech companies. JPMorgan’s recent £500m investment in future mortgage originations by LendInvest (SCI 28 January) is one example that demonstrates the strong appetite from financial institutions to collaborate with fintech platforms.

LendInvest is considered the first lender to provide an entirely online buy-to-let mortgage product, which enabled it to continue business throughout all three national lockdowns in the UK. The company was also the first non-bank BTL lender to introduce a desktop valuation product to accommodate the fact that valuers could not physically inspect properties.

S&P expects that, in the long-term, RMBS issuance may be bolstered by such innovation.

Certainly, the UK stamp duty holiday has provided the mortgage market with a boost. Maddox concludes: “Hopefully over the next few months, we’ll see more and more products return to market and when we consider the wider economy, the market is functioning well.”

Jasleen Mann

Structured Finance

SCI Start the Week - 1 February

A review of securitisation activity over the past seven days

Last week's stories
2021 STACR debut
Freddie Mac prints first CRT trade of 2021 inside guidance
Consumer SRT prepped
Santander readies full-stack ABS
Liquidity impact
Post-Brexit divergence highlighted
Mind the gap
Innovative ILS structures creating Asian capacity
NPL pipeline builds
European asset disposals intensify
Positive prospects
Secondary CRT market gains traction
SME SRT debut
Montepio inks first synthetic securitisation
Supply issues
A tale of two markets for Dutch RMBS?
US CLO rally rolls on
Current focus on mezz looks set to move down the stack
ABS at the races
Fundamental and technical factors power US ABS, led by autos
Fuelled by very healthy technicals and fundamentals, the US ABS market has entered 2021 at a gallop, led by the auto loan sector, agree ABS analysts.

Barring an unforeseen and drastic pandemic-related downturn, there is little to derail the market at the moment. Spread levels in many sectors are already at the lowest prints seen for a decade, but the market appears biased towards even narrower spreads.

As an indication of the powerful factors at work, two auto loan deals, one from DriveTime Auto Group and one from American Credit Acceptance, last week each printed at the tightest levels seen for a BBB-rated auto loan deal since the end of the financial crisis, over a decade ago. The $410m ACAR 2021-1, comprising six classes of notes, printed at swaps plus 85bp, as did the DriveTime deal.

In the space of a week, BBB-rated sub-prime auto spreads narrowed from plus 90bp to plus 70bp, the rally reflecting not only these two new issues but also even tighter secondary market prints.

Most deals that have printed since the start of year - including not only prime and sub-prime auto loan securitizations, but also student loan deals, aircraft leases and auto leases - have seen record over-subscriptions.

"Normally, if an ABS deal is described as over-subscribed it means about five times over, but in January we've seen deals ten times, 15 times, even 18 times over. These sorts of numbers are generally only seen in the corporate space," says Amy Sze, md and ABS analyst at JP Morgan in New York.

The reasons for such performances are not difficult to discern. On the one hand, the fundamentals are encouraging and much better than might have been expected a year ago. Consumer credit has held up very well largely thanks to the several layers of stimulus packages introduced by the federal government, but even commercial credit performance gives cause for encouragements as well.

"There are fundamental issues in commercial credit, especially in the travel sector, but we still see demand for product. Several lessors are well-respected and are deemed to be strong. In the credit card space, there are minimal differences between issuers in term of spreads, which is testament to how stable they are seen to be," says Theresa O'Neill, md and senior ABS strategist at Bank of America in New York.

Three year AAA-rated floating rate credit card deals currently yield around Libor plus 20bp, about 3bp narrower over the week and 10bp narrower in the last ten weeks.  Five year AAA-rated floating paper is around Libor plus 40bp.

But perhaps even more importantl,  the technical are also very strong. Treasury yields have dwindled to virtually zero in the face of a hurricane of issuance, so any product which offers spread is popular and ABS products offer more spread than their competitors. For example, three year BBB-rated FIG corporate paper yields around swaps plus 75bp while three year BBB-rated auto loan ABS yields plus 85bp.

The strength of the eight-month rally is revealed by the fact that three year BBB-rated subprime auto paper touched around swaps plus 550bp in 1Q of 2020 during the height of pandemic panic.

Moreover, while a healthy portion of ABS paper is issued in the one-year to three-year window there is often little comparable corporate paper in these maturity buckets. In addition, ABS deals incorporate structural protection that is attractive to buyers. As deals season, the senior notes pay down and this builds the credit enhancement buffer relative to the subordinated tranches.

"The losses have been mitigated by the pandemic relief so deals are paying off faster than losses are coming in," says Sze.

The auto loan sector is also particularly well-liked as the borrowers are seen as stable and car sales have been very buoyant. Investors seek short-dated cash flows that appear strong, and paper is still cheap to corporates. It is also the biggest area of the ABS market. Nonetheless, there isn't much more room for a rally in the most highly rated auto paper.  Two year AAA-rated bonds are trading at swaps plus 8bp in secondary markets.

JP Morgan predicts that 2021 issuance volume will equal that of 2019 - the last full year before Covid 19 hit. This is another indication of how far and fast the market has recovered from the dark days of March 2020.

Of course, not everything in the garden is lovely. Consumer credit is still expected to be moderately weaker in 2021 as unemployment remains at elevated levels.

Moreover, though there have been extensive government and lender-based payment relief programmes which were put in place early in the pandemic, evidence suggests that borrowers that spent some time in forbearance are more likely to default at some stage than those that spent no time in forbearance even if debt payments are current at the moment.

The spectre of Libor replacement also hangs over the market. Even though the day of reckoning is likely to be set back until mid-2023, this is merely a stay of execution rather than a reprieve. All ABS markets will be affected by whatever decisions are made new benchmarks to replace Libor but none more so than the student loan market. Most student deals are long-dated, will be around after 2023 and have no transition language in place.

For example, Federal Family Education Loan Program (FFELP) ABS bonds have not demonstrated the same capacity for recovery as have other sectors of the wider market. Subordinate tranches are 80bp wider year-on-year, 125bp wider than the 24-month lows, and 50bp wider than the post-pandemic 24-month average.   

Simon Boughey

Other deal-related news

• Fitch says it expects to change a significant portion of its CLO outlooks to stable from negative, following the revision of its CLO coronavirus stress scenario to assume half of the corporate exposure on negative outlook is downgraded by one notch instead of 100% (SCI 25 January).
• Hertz auto ABS noteholders and the company have agreed to extend the forbearance arrangement for another nine months through to September 2021 (SCI 25 January).
• Dock Street Capital Management has been appointed as the replacement collateral manager to ABS CDO TABS 2004-1 (SCI 25 January).
• Moody's has published a freely available version of its Multi-Class model, which enables users to evaluate a given capital structure for certain ABS and RMBS asset classes (SCI 25 January).
• Downward pressure on interest rates in the UK auto market is anticipated, due to increased disclosure requirements and a ban on discretionary commission models that come into effect on 28 January (SCI 25 January).
• Fitch reports that a material number of aircraft failed to be novated to two aircraft ABS - START III and Lunar 2020-1 - last year, following closing (26 January).
• dv01 has launched auto benchmark datasets, with the aim of providing investors with loan-level performance transparency on auto ABS (26 January).
• Kensington is prepping its inaugural STS and what is believed to be the UK market's first ESG RMBS (SCI 27 January).
• PHEAA has launched a series of consent solicitations seeking investor approval to amend the terms of indentures related to its outstanding tax-exempt bonds and notes issued by various PHEAA student loan ABS trusts, for which the organisation acts as administrator (SCI 29 January).

Company and people moves

• Golub Capital has made a number of senior-level promotions in its direct lending, structured products and investor partners group teams (26 January).
• Apollo Global Management chair and ceo Leon Black is set to retire as ceo by 31 July and will be succeeded by Marc Rowan as ceo, but continue as Apollo's chair (SCI 27 January).
• Singapore-based direct lender Orion Credit Capital Asia has received an equity investment from OMERS, the pension plan for municipal employees in Ontario, Canada (SCI 28 January).
• Jonathan Graber has joined SC Lowy's distressed debt and special situations trading and investing team in London (SCI 28 January).
• Gildenbrook Group founder and ceo Daniel Brookman has launched Gildenbrook Capital Management, an independent ILS fund manager (SCI 28 January).
• Rebecca Levy has joined CIFC Asset Management as an md in the firm's investor solutions group (SCI 28 January).
• Credit Suisse Asset Management has named Kevin Lawi md, portfolio manager and head of origination - private credit, based in New York (SCI 28 January).
• Matthew Downs has joined Greystone as md on the CMBS lending team, reporting to md Robert Russell (SCI 28 January).
• LendInvest has secured a £500m investment from JPMorgan in future mortgage originations, following the sale of a £125m mortgage portfolio to the bank in September (SCI 28 January).
• KKR has appointed Michael Small as a partner in its European credit and markets team, with origination, execution and fundraising responsibilities for the private credit business (SCI 29 January).
• Hong Kong Mortgage Corporation (HKMC) and MUFG Bank have signed a memorandum of understanding regarding an infrastructure loan sales framework, with the aim of facilitating loan sale cooperation between both parties (SCI 29 January).
• David Hu, managing partner and cio of New York-based investment advisory firm International Investment Group (IIG), has pled guilty before US District Judge Alvin Hellerstein to investment adviser fraud, securities fraud and wire fraud offenses in connection with an over US$100m scheme to defraud IIG's investment advisory fund clients and investors (SCI 29 January).

Data

Recent research to download
Greek CRTs - January 2021
Insurer Involvement in SRT - December 2020
CLO Case Study - Autumn 2020

Upcoming events
SCI's 2nd Annual Middle Market CLO Seminar
25 February 2021, Virtual Event
SCI's 5th Annual Risk Transfer & Synthetics Seminar
March 2021, Virtual Event
SCI's 3rd Annual NPL Securitisation Seminar
May 2021, Virtual Event

RMBS

Beware the ides of March

The end of mortgage forbearance schemes is ominous for MBS

Mortgage-related forbearance has been a lifeline for borrowers and the MBS market, but for many debtors that lifeline will run out at the end of the March.  Without additional action from the new government, over 600,000 seriously delinquent borrowers will reach the end of the forbearance period in less than eight weeks.

This means that even with the current rate of improvement there will be around 1.5m more serious delinquencies than before Covid 19 struck and around 2.5m homeowners will be in forbearance. Other less generous models suggest the number could be as high as 2.8m.

Moreover, while early in the pandemic around 50% of the now 6.7m homeowners in forbearance plans continued to make regular payments, that number has steadily declined to about 12% of the total.

“The vast majority of plans have a 12-month cap on payment forbearance..And the various moratoriums which have kept foreclosure at bay over the past 10 months may be lulling us into a false sense of security about the scope of the post-forbearance problem we will need to confront come the end of March,” says Ben Graboske, president of data and analytics at Black Knight.

The conclusion of over 600,000 active forbearance plans at the end of March represents a “significant unknown” for the mortgage market, he adds.

Overall, some 3.6m 90-day defaults occurred in 2020, making it the worst year for mortgage default since 2009. Around 2.1m homeowners are currently seriously delinquent.

Even at the current rate of improvement, the national delinquency rate would remain elevated for another 17 months, and it would take nearly five more years for serious delinquencies to return to pre-pandemic levels.

Simon Boughey

Structured Finance

Leasing CRT inked

Sector developments and company hires

Leasing CRT inked
The EIB Group has completed its first synthetic securitisation in Romania with a financial services partner. The operation - between the EIB, EIF and Deutsche Leasing Romania - will enable local SMEs across Romania to benefit from €370m of additional leasing finance, predominantly in the agriculture and equipment segments. The majority of borrowers are in rural areas and less developed regions of the country.

The initiative includes €25m targeted support for climate action investment. The EIB Group support is backed by a guarantee from the European Fund for Strategic Investment (EFSI) and is part of a wider €2bn EIB Group ABS financing programme to address the working capital, liquidity needs and investment challenges facing companies across Europe, exacerbated by the Covid-19 pandemic.

In other news…

ABSPP investments tallied
Net purchases by the ECB’s ABSPP totalled only €1.1bn in full-year 2020, the lowest annual tally since the start of the programme in 4Q14, according to JPMorgan international ABS analysts. However, with the addition of €9.1bn of record redemptions during the year, gross purchases reached €10.2bn - comparable to the central bank’s activity in full-year 2017.

Meanwhile, it acquired €28.8bn of covered bonds on a net basis last year, including €3.1bn of purchases via the PEPP. The JPMorgan analysts note that gross purchases were augmented to €62.1bn – the most since full-year 2016 – by record redemption volume of €33.2bn under the CBPP3 over the course of 2020.

Looking ahead, they project €100m of monthly ABS net purchases and €2.5bn of monthly covered bond net purchases in full-year 2021. If realised, this will yield gross purchases of €11.5bn and €59.8bn respectively, driven by corresponding estimated redemption volumes of €10.3bn and €29.8bn during the year.

“As such, the central bank has executed net purchases of -€800m under the ABSPP and -€137m under the CBPP3 since the start of the year through 22 January,” the analysts conclude.

Cross-border SOFR bond placed
NewDay became the first European securitisation issuer to publicly market a US dollar-denominated SOFR-linked bond with its latest UK credit card ABS, Newday Funding Master Issuer – Series 2021-1. The US$135m class A2 notes from NDFT 2021-1 achieved a final coverage ratio of 1.8x and priced at SOFR plus 110bp last week, in comparison with the class A notes from NDFT 2019-2, which were preplaced and came at SOFR plus 94bp in September 2019.

The most recent deal achieved final coverage ratios of 3.1x, 3.6x, 1.5x, 2.8x and 3x for its sterling-denominated tranches across the capital structure, driving DMs 3bp inside the tighter end of guidance for the class A1 and 5bp-15bp inside guidance for the class B to E notes. The master trust securing the transaction includes £1.64bn of credit card receivables, with an average balance of £1,100, according to JPMorgan international ABS analysts.

Separately, Vanquis Bank – the credit card and savings arm of Provident Financial Group – retained another UK credit card ABS last week, dubbed Oban Cards 2021-1. Sized at £453.1m, the deal comprises £233.3m of class A notes (with a coupon of SONIA plus 155bp) and £219.8m of junior notes.

EMEA
DSW Debt Advisory has appointed Lynn Li as manager. Li joins from Deloitte in Manchester, where she was part of the debt advisory team and worked on a wide range of financing deals, including cross-border transactions with a value of over £200m. Based in Cheshire, DSW Debt Advisory was founded in February 2020 by Phil Tarimo, who was joined by Simon Carrier - a former regional md at Shawbrook and Santander – in June.

Natixis has promoted Peter Cui to head of structured credit syndicate, Europe and UK, based in London. He was previously a European and APAC ABS/CLO trader at the bank. Prior to that, Cui worked in ABS/CLO trading roles at Jefferies, Cohen & Company and UBS.

North America
AGL Credit Management has appointed David Preston as head of structured credit research, reporting to ceo and cio Peter Gleysteen and coo Wynne Comer. Preston was previously the head of ABS and CLO research at Wells Fargo, having joined Wachovia Securities in 2005. Prior to 2005, he worked at Raymond James and from 1996-2001 served in the US Army, rising to the rank of Captain.

Bob Sherman has joined Marble Point Credit Management as global director of strategic development, a newly created position. In this role, his mandate will be to expand Marble Point’s existing US$6bn loan investment platform by defining, developing and distributing additional investment products and solutions to the institutional investment community. Sherman brings to Marble Point significant experience in below-investment grade credit markets, having held senior level positions at three investment firms also focused on the asset class. Most recently, he was coo at Shenkman Capital and before that served as head of consultant relations at GoldenTree Asset Management and ceo of Seix Advisors.

SFR JV launched
Canadian pension investment manager Public Sector Pension Investment Board (PSP Investments) and Pretium have launched a joint venture that will initially invest US$700m in single-family rental (SFR) properties across major markets in the southeastern and southwestern US. The venture represents the first partnership between the two firms, in a sector that has presented highly attractive opportunities for large operators with significant existing exposure. Pretium is currently the second-largest owner and operator of SFR properties in the US.

Structured Finance

Biomedical credit opps fund launched

Sector developments and company hires

Biomedical credit opps fund launched
Multi-strategy life sciences investment firm Catalio Capital Management has launched a credit opportunities strategy to meet the growing demand for non-dilutive growth capital within the biomedical sector. The Catalio Credit Opportunities fund seeks to provide senior-secured structured credit to breakthrough biomedical companies, targeting well-capitalised, pre-cashflow businesses with significant support from institutional investors.

The strategy will be led by co-portfolio managers John Henry Iucker and Robert Snyder, who joined the firm from Brown Advisory, where they played an instrumental role in building its credit platform.

In addition, Joshua Samuelson will be joining the investment committee of the credit opportunities strategy. He was previously a co-founder and president of PointState Capital.

Catalio has also appointed Brandon Matz as head of marketing and investor relations. He was previously a vp at York Capital Management.

EMEA
CQS has recruited Bob Paterson as a portfolio manager. He was previously md, head of credit sales at Lloyds, which included covering flow ABS and significant risk transfer products. Before that, he was md and head of ABS syndicate at the bank, having also served as head of US ABS syndicate and head of European ABS research at Morgan Stanley.

Conor Downey has joined Gunnercooke as real estate finance partner, based in London. Downey will focus on the financing and restructuring of real estate and real estate debt. He was previously a partner at Paul Hastings, having joined the firm in 2009 from Cadwalader.

Hayfin Capital Management has appointed Daniel Bird as a portfolio manager in the private credit team. Based in London, he will focus on sourcing and analysing investment opportunities for the firm. Bird was previously an md at Bank of America, where he successfully built its EMEA global credit and special situations group.

North America
AXA XL has promoted Niraj Patel to lead alternative capital activities as head of AXA XL ILS Capital Management. Patel will lead the team responsible for ILS portfolio management and reporting, data analytics and risk management, and investor relationship and communications, in addition to institutional investment management governance. He reports to Peter Martin, head of Reinsurance Capital Management.

Structured Finance

Credit manager merger

Sector developments and company hires

Credit manager merger
Cairn Capital Group is set to acquire and merge with Bybrook Capital, a specialist distressed credit manager based in London. The merger will create a diversified alternative credit manager with approximately US$8bn in assets under management across public, private, performing and distressed investment opportunities. Through the transaction, Mediobanca will reaffirm its position as a majority shareholder in Cairn Capital with a stake of approximately 64%, while the remaining 36% will be held by former Bybrook shareholders and existing Cairn Capital minority shareholders.

Structured Finance

Motor insurer preps ILS strategy

Sector developments and company hires

Motor insurer preps ILS strategy
UK specialist motor insurer ERS Group is set to launch an integrated ILS offering as part of its plans to progress its commercial expansion. Three complementary investment strategies will be offered: an open-ended mandate with a remit to invest across both public, private and non-life ILS, with semi-annual liquidity; a closed-ended, higher risk and higher target return fund; and a liquid catastrophe bond fund.

The offering will be set up and managed by new hires Neil Strong as ceo ILS and Fergus Reynolds as chief underwriting officer ILS, supported by Sandro Kriesch. Strong and Reynolds were previously partners at Securis Investment Partners, based in London, and Kriesch was a founding partner at Twelve Capital in Zurich.

In other news…

GLM II launched
GoldenTree Asset Management has closed US$725m in commitments on a second CLO strategy, dubbed GLM II, under its GoldenTree Loan Management programme. The firm previously raised US$600m for the first vintage of the strategy (SCI 11 January 2017).  

Over 60% of investors in GLM II are returning investors from this first vintage. Many of GLM II's investors increased the size of their commitment relative to the previous vintage, given the attractive return profile.

The aim of the GLM programme is to capture GoldenTree's top decile track record in CLO equity and further enhance returns, given its unique approach to CLO execution. The vehicle's structure enables GLM to take on additional responsibilities that simplifies the role of banks, leveraging their core competencies and driving significant efficiencies in the execution of CLOs.

In addition, GLM CLOs are intended to comply with European risk retention regulations, enabling participation by the broadest universe of investors. The investor base is further diversified by type, with participation from sovereign wealth funds, corporate and public pension funds, insurance companies, foundations and family offices.

GoldenTree's approach has provided an average net IRR in the mid-teens since inception of the GLM programme, as of 31 December. Furthermore, the GLM programme has made distributions of over 15% per annum and has never missed a BSL CLO equity distribution. 

Record cat bond issuance posted
Aon Securities 4Q20 ILS Update notes that US$11bn of property catastrophe bond limit was placed last year, the highest total on record, versus US$5.4bn placed in 2019. In addition, volume of US$3.7bn in 4Q20 was a record issuance quarter.

The total issuance for 2020 is made up of 46 property and casualty transactions completed by 36 sponsors with an average deal size of US$239m, versus 23 transactions completed by 21 sponsors in 2019, with an average deal size of US$234m. The total amount of property cat bonds outstanding is marginally up (by around 2%), compared to 2019 at US$29.5bn.

Last quarter, a total of 14 ILS transactions were issued, with 15 of the 22 classes upsized from their guidance and four new issuers entering the market. Most transactions priced at their mid-to-tight ends of guidance and featured per occurrence rather than aggregate triggers.

Aon expects the busy ILS pipeline to continue in Q1 and Q2, given expected maturities of approximately US$2bn and US$4.3bn respectively.

Structured Finance

Iberian NPL ABS performance eyed

Sector developments and company hires

Iberian NPL ABS performance eyed
The cumulative collection ratio for the DUERO 1 non-performing loan securitisation has consistently breached its trigger level for an interest subordination event – which is set at 90% - since the April 2020 reporting period, according to JPMorgan’s latest Portuguese & Spanish NPL ABS Performance Tracker publication. After dropping to 68.4% in April from 106.1% in January 2020, the deal’s cumulative collection ratio has continued to steadily decline in the subsequent reporting periods and stands at 48.5%, as of the January 2021 reporting period. Consequently, an interest shortfall of €1.7m has accumulated on the transaction’s class B notes.

Meanwhile, the cumulative collection ratios for GNCHO 1 and EVORA 1 have declined to 176% and 118% respectively, as of the November 2020 reporting period, from corresponding levels of 304% and 149% in November 2019. But JPMorgan notes that the deals are still exceeding their triggers for an interest subordination event, which are set at 90%.

Finally, the cumulative collection ratio for ARESL GAIA has risen to 109% in the November 2020 reporting period, versus 93% in May 2020 and 87% in November 2019. As a result, the periodic interest shortfall that had accumulated on the transaction’s class B notes - following the November 2019 breach of the 90% trigger - has now cured.

The JPMorgan publication covers three NPL ABS from Portugal and one from Spain, with a cumulative outstanding volume of €393mm, equating to an aggregate current factor of 0.66, as of the most recent reporting period. This compares to €470m outstanding and an aggregate factor of 0.79, at the time of its last publication in March 2020.

In other news…

Acquisition
Funds managed by Stone Point Capital and Insight Partners are to acquire all outstanding shares of CoreLogic for US$80 per share in cash, representing an equity value of approximately US$6bn and a premium of 51% to CoreLogic’s unaffected share price on 25 June 2020. The transaction is the culmination of the firm’s extensive review of strategic alternatives, which included engaging with numerous potential buyers.

The transaction will be financed through a combination of committed equity financing provided by Stone Point Capital and Insight Partners, as well as committed debt financing provided by JPMorgan. Closing is expected in 2Q21, subject to shareholder approval and other customary closing conditions.

EMEA
Intermediate Capital Group has appointed Lionel Laurant as md, co-head of special situations and co-portfolio manager for its Recovery Fund II. Laurant joins ICG from PIMCO, where he founded and ran its European credit opportunities platform, and was also co-chair of that investment committee. Prior to PIMCO, he worked at Bayside Capital, Barclays, Bank of America and Morgan Stanley in a range of special situations, private equity and investment banking roles.