Contents

Structured Finance

Supply issues

STS volumes concentrated in auto loans

Of the securitisation asset classes that qualify for STS status, auto loan ABS is where the label has been applied most frequently. In contrast, mortgage collateral is often diverted to support covered bond issuance or STS RMBS are retained.

Consumer and auto loan ABS, as well as prime and buy-to-let RMBS are eligible for the STS label. However, most prime residential mortgage originators typically use covered bonds for funding purposes, rather than RMBS. Meanwhile, BTL RMBS does not qualify for the LCR, meaning that STS securitisations tend to be concentrated in auto loans.

“When you look at the 2020 numbers, we are talking about a small volume. We are missing a lot of STS RMBS deals on the public market because of mortgage collateral not being available, as a lot of it has been diverted to support covered bond issuance, and a lot of RMBS deals have been retained. We do not expect a material change in 2021,” says Alexander Batchvarov, international structured finance strategist at BofA.

Of the UK STS-designated RMBS issued in 2020, €3.8bn was placed and €7bn was retained, according to BofA figures. In the EU, €6.2bn of RMBS was placed and €18.6bn retained. For STS-designated ABS, €2.9bn was placed and €3.7bn retained in the UK, while in the EU €14.2bn was placed and €20bn retained.

The advantages of STS designation include the attractiveness of LCR eligibility to banks, as well as the fact that STS deals attract lower regulatory capital. However, Batchvarov notes that the disadvantages of STS eligibility depend on the region. UK STS advantages apply only to UK investors and not to European investors, whereas the opposite remains true at the moment.

Batchvarov adds: “In terms of pricing, high quality, highly granular LCR-eligible transactions will naturally have lower spreads. We did have differentiation before, based on information about the quality of the pool, originator status, its frequency of issuance and so on.”

€194.7bn of securitised product was issued in Europe last year, a decrease of 11.9% from the €220.9bn issued in 2019, according to AFME data. Of this, €81.4bn was placed (representing 41.8% of the total), compared to €119.2bn placed in 2019 (representing 54% of the total). For full-year 2020, STS deals represented 39.7% of total annual issuance, compared to 33.3% of issuance in 2019.

Issuance volume is expected to be somewhat better this year, with a 10% increase in placed supply broadly forecast. Nevertheless, Batchvarov notes that many of the policies that reduced the need for banks to issue are still in place.

“Retained issuance is used for liquidity with the central bank. Consumer lending continues to be depressed. Banks’ need for funding is limited. Lower asset origination and funding needs will weigh on the supply of ABS,” he observes.

The first STS designated European and UK auto ABS of the year are currently marketing. Volkswagen Leasing has opened books for VCL 32, with IPTs for the €705.8m class A and €16.1m B notes released at one-month Euribor plus 20bp area and plus 90bp area respectively. Meanwhile, LeasePlan has mandated Bumper UK 2021-1, backed by a £55 0m provisional pool of 34,036 lease contracts to 20,649 lessees.

Jasleen Mann

US CLOs stay strong

Resets active as participants also address other issues

Reset activity continues apace in the US CLO primary market. At the same time, other aspects of the market are regaining focus.

Yesterday saw another US reset price – Dryden 75, with its triple-As coming in at 104bp over three-month Libor – alongside one new issue and a partial refinancing. This brings the total number of primary deals over the previous five sessions to 20 – comprising eight resets, four refinancings and eight new issues – with plenty more expected to price in the next four.

“Today, every aspect of the CLO market is busy,” says Daniel Wohlberg, director at Eagle Point Credit Management. “Senior CLO debt liabilities levels have tightened significantly since the beginning of this year, making more and more refinancing actions possible.”

He continues: “Even at today’s triple-A levels, the drive for resets and refinancings will continue. Bandwidth of investors, rating agencies and CLO dealers may delay some deals in getting done, but that will not halt the desire for the increased flow.”

Nevertheless, the triple-A curve is now relatively flat, with the shortest-dated paper at 98bp and five-year paper at 106bp. This is leading many to question where levels will go next.

“My belief is that we will trend towards further tightening at the top of the CLO capital structure,” Wohlberg says. “That’s partially because of the expectation of continued government support, at least over the short to medium term, and because of the increased levels of demand we’re seeing for floating rate products in general.”

He continues: “CLOs acquitted themselves well over the past year’s volatility and continue to offer AAA investors relative value over other securitisation asset classes. Consequently, we’re seeing more and more investor participation from all over the world.”

At the same time, Wohlberg reports an increasing focus on other elements of the CLO business. “We’re having a lot of very productive document discussions, mainly concentrated around workout language, and finding a lot of consensus, which is healthy for the market going forward.”

Meanwhile, ESG is also likely draw greater US CLO attention this year, according to research from Bank of America. “Currently, ESG considerations are likely driven by EU based investors, where adoption and compliance with ESG-related norms have been more wide spread versus the US,” it says. “However, we expect domestic focus on ESG to increase, in part due to the new administration's focus on compliance with the Paris Accord and potential regulatory changes.”

The BofA analysts continue: “Other changes that could drive increased investor demand include a potential review and revision of a Department of Labor rule that could prompt increased investments into ESG focused funds. ESG focused funds have also outperformed the broader market through COVID, which could spur further investor demand.”

Nevertheless, the research notes that the US CLO market is still in a nascent stage regarding ESG investments. Currently, CLOs with an ESG focus have 'negative screening criteria' excluding certain sectors from portfolios – BofA estimates at least 33 deals issued in 2020 had this criteria.

However, the BofA analysts conclude: “We think the market is ripe for a change. We estimate at least 73 managers (64 US and nine Europe-only CLO managers) have become signatories of UN's Principles for Responsible Investment. With TCFD reporting guidelines becoming mandatory in 2020, we think there will be a greater focus on finalising climate and social related reporting standards across companies.”

Mark Pelham

Capital Relief Trades

Morgan mulled

Latest JP Morgan CRT trade cited as fresh evidence of US take-off

The new JP Morgan Chase capital relief trade, for which Moody’s released the pre-sale report at the end of last week, continues to attract market comment. While the US CRT market is still some way behind the European CRT market, this latest trade has been cited as further evidence that the US market is at take-off stage.

"This latest deal shows that the innovation and usage of credit risk transfer structured finance techniques in the mortgage credit space are still expanding. Whether it be for capital relief, risk management, or risk-adjusted return optimization, the JP Morgan Wealth Management Reference Notes 2021-CL1 deal highlights the flexibility that credit risk transfer issuers can incorporate in tailoring structures to their respective risk capital needs," says Mark Fontanilla, of Mark Fontanilla and Co, a Charlotte, NC-based consultancy and index provider with special expertise in the CRT market.

Others note that the standardized approach to the calculation of RWA provides an incentive to banks to securitize the best quality loans and mortgages on their books as all, irrespective of credit quality, receive the same weighting. Even banks which produce their own internal risk-based models are subject to the strictures of the standardized approach thanks to the Collins Amendment.

The JPMorgan Wealth Management Reference Notes 2021-CL1 is based on the performance of 2,471 amortizing non-conforming mortgages which comprise the reference pool. The total balance is $2.36bn. The mortgages are owned by HNWIs and the possibility of default is considered very low.  The weighted average FICO score for the mortgage-holders in the pool is a toppy 773.

Another feature of the trade which has attracted comment is the thinness of the tranches and the tightness of the price talk. The second loss tranche, for example, covers losses from only 0.40% to 0.80% and the price talk last week was SOFR plus mid-400bps. As onlookers noted last week, this type of aggressive pricing is more akin to what one would see in the GSE market - and the GSEs are government-backed borrowers.

This leads sources to conclude that the buyers have put on a significant degree of leverage to make the tranches more of an economic investment.

“People who buy this put on a fair amount of leverage. When I talk to investors that have been active in ABS or CLO market and you think would want to be active in CRT, I would ask them about GSE CRT and they say ‘it might be an appealing asset class but the structuring is so aggressive,’” says a source at a New York investment advisor.

Moody’s and JP Morgan have been unavailable for comment.

Simon Boughey

Capital Relief Trades

Record fundraising

Chorus exceeds SRT fund targets

Chorus Capital has concluded fundraising for Chorus Capital Credit Fund IV, its latest dedicated significant risk transfer fund. The firm has amassed US$1.4bn of capital commitments, well above the initial target of US$1bn. The fund represents Chorus Capital’s largest commingled investment vehicle to date and one of the largest private credit funds raised in Europe since the start of the Coronavirus crisis.

Fundraising was concluded in just over 12 months, with approximately 80% of the fund’s capital raised since the start of the pandemic. New investors represent around 70% of capital commitments, further diversifying Chorus Capital’s institutional investor base of pension funds, insurers and family offices across Europe, North America and Asia. Almost all of the new investors are pension funds, barring a couple of life insurers and one family office.

According to Gilles Marchesin, founder and ceo at Chorus Capital: “Our conservative positioning on large corporate loans resonated with many investors. Additionally, when the crisis started, we stepped up our efforts to alleviate potential investor concerns through the production of stress tests and ad-hoc Covid-19 reports, as well as switch from quarterly to monthly reporting. The endorsement from some of the largest pension fund consultants further helped.”

He continues: “The portfolios that we invest in consist predominantly of investment grade revolving credit facilities (RCFs). RCFs tend to have higher recoveries than term loans, they are rarely fully-drawn and when there is a restructuring, they are often protected and may end up senior to term loans in the capital structure.”

Chorus notes that it has limited tolerance for single-B exposures in the current environment. Nevertheless, there are exceptions that fit within the parameters of the company’s cautious approach.

Marchesin explains: “All of the new issue investments we made in 2020 are backed by high grade large corporate loans and we have limited exposure to Covid-sensitive sectors. However, we insist on name disclosure and transparency to perform a thorough loan-by-loan analysis. This means that, depending on their credit quality, we may actually consider firms in Covid-sensitive sectors.”

Last year the company completed two transactions in North America. However, it expects Europe to remain the dominant SRT market for some time, given lower ROEs and overcapacity issues within the European banking sector.

“In terms of issuance, we expect 2021 to be a record year, due to a backlog of deals from last year, a wave of deal refinancing and further RWA inflation, thanks to rating migrations and the ECB’s TRIM exercise, among other factors. Covid-related losses - especially for consumer loans and the lower end of SMEs - may also fuel activity, since it’s going to be harder for banks to generate organic capital,” Marchesin concludes.

Stelios Papadopoulos

ABS

Galaxy securitisation finalised

Alpha and Davidson Kempner sign deal

Alpha Bank has signed a definitive agreement with Davidson Kempner with respect to its €10.8bn Galaxy portfolio (SCI 24 November 2020). The deal is the second largest rated non-performing loan securitisation in Europe and will reduce the lender’s NPE and NPL ratio in Greece by 24% and 13% respectively.

According to the terms of the transaction, Alpha Bank will sell 51% of the mezzanine and junior tranches to an entity managed by Davidson Kempner for a consideration payable in cash. The total proceeds for Alpha Bank - including the senior notes and the sale price of the mezzanine and junior tranches - correspond to approximately 35% of the total gross book value of the portfolio.

The Greek lender will retain 5% of the mezzanine and junior notes - in line with risk retention rules - and intends to distribute 44% of the remaining notes to shareholders, subject to regulatory and corporate approvals.

The agreement also stipulates the sale of 80% of Alpha’s loan servicing subsidiary Cepal Holdings. The bank will then enter into an exclusive long-term servicing agreement with the newly acquired entity for the management of its existing €8.9bn retail and wholesale non-performing exposures in Greece, as well as any future flows of similar assets and early collections. The practice of selling servicing platforms to third-party investors is common in the European NPL market, since investors can provide expertise and permits them to maximise recoveries.  

The servicing agreement will last for 13 years, with a right to extend. The new entity will manage €10.8bn of exposures from the Galaxy portfolio and a €4.6bn portfolio from third-party investors. The enterprise value of the new Cepal is valued at €267m, with the bank benefiting from a further upside through an earn-out of up to €68m linked to the achievement of certain targets.

The consideration includes a contingent element of up to €17m if the transaction is on a levered basis. The bank, acting as an arranger of a financing syndicate, has agreed with Davidson Kemper on the key terms of a long-term funding facility of up to €120m, which may be drawn at the sole discretion of Davidson Kempner. 

The transaction is expected to close in 2Q21, subject to all applicable corporate, regulatory and governmental approvals. Deutsche Bank and Alantra acted as joint lead arrangers on the deal.   

Stelios Papadopoulos

ABS

Democratising access

Debut Indian wealth-tech bond repaid

The debut bond structured by Indian wealth-tech platform GrowFix has been fully repaid, with investors earning a 10% yearly return on the asset. The firm seeks to democratise investor access to fixed income assets yielding returns of 200bp-400bp over fixed deposits and intends to eventually launch multiple bonds on a monthly basis, depending on the demand.

Secured by gold loans, GrowFix’s debut bond – which was launched in August 2020 with a six-month maturity – represented the firm’s beta launch to test investor appetite for the platform’s proposition. Ajinkya Kulkarni, co-founder of GrowFix, reports that the firm received an encouraging response to the issuance and the lessons learned contributed to creating its second bond that was launched in December.

The GrowFix proposition is to provide retail investors with access to bankruptcy-remote bonds – structured as covered bonds or ABS – secured by high-quality assets. “The vast majority of structured products are aimed at institutional investors, but we thought why shouldn’t retail investors have access to them as well? Once we were comfortable that the bonds would be economically feasible and that there were no regulatory issues, we were able to sell them through the Growfix platform. Investors can simply visit our website and invest in these instruments and the units directly come in their demat accounts,” Kulkarni explains.

The firm partners with non-bank financial companies (NBFCs) to create bonds backed by diversified portfolios. In turn, the NBFCs benefit from diversifying their sources of capital.

“The underlying loans are assigned to an SPV, which issues a guarantee on the bonds. Investors thus have a recourse to the issuer and the underlying pool of assets,” explains Anshul Gupta, co-founder of GrowFix.

The firm has informal agreements with 15 NBFCs, which are onboarded to the platform following a stringent due diligence process. Portfolios are selected using proprietary asset eligibility criteria, as well as various checks and balances to mitigate the possibility for fraud.

The August bond was issued via IIFL and the December bond - which is already 95% subscribed – was issued via Kanakadurga Finance. The December bond is backed by 2,093 gold loans and is rated single-A by CARE Ratings. It matures in June 2022 and targets an 11% return per annum.

GrowFix is currently marketing a bond backed by a portfolio of vehicle loans, with a 24-month term and a targeted return of 10.25%.

Corinne Smith

ABS

Pandemic uplift

Covid-19 boosts NPL note sales

Non-performing loan note sales have increased by 70% since the start of the coronavirus pandemic and now account for an average of 12% of total collections. Servicers have increased note sales to compensate for lower judicial proceeds, given limited court activity during lockdowns, and a decline in collateral liquidity. However, uncertainties pertaining to NPL trading platforms and the EU’s secondary market action plan persist.

Scope Ratings estimates that average monthly note sales could reach 2.4x pre-pandemic volumes by December 2021. Servicers have on average sold €87m in gross book value via their NPL platforms, equating to 7.7% of total platform volumes.

Servicers typically sell unsecured portfolios and large secured single names through their platforms. Investors buy specific clusters of loans based on their investment targets or their degree of expertise, so mixed portfolios are of less interest.

Scope notes that single names partly explain the historical volatility of note sale amounts. The agency expects that the sale of mixed portfolios will grow at a later stage when the secondary market is more mature and platform volumes are materially higher.

Among the major drivers of the trend are the recent development of digital NPL trading platforms and the EU’s action plan for the development of a secondary market for non-performing loans. NPL trading platforms can improve secondary market liquidity via the simultaneous display of all loans, standardised data and a faster and larger bidding process.

However, uncertainties remain. First, advertised NPL volumes on platforms remain modest, so market participants may adhere to traditional channels. The sales process is also not yet fully automated across platforms and legal documents are typically negotiated and finalised outside them. The latter is particularly problematic for foreign investors or non-regular buyers, which typically require more protracted legal negotiations than regular investors.

Additional concerns pertain to the EU’s action plan. The plan aims to enhance the secondary market through the establishment of a central NPL data hub, the adoption of mandatory and revised EBA templates for NPL sales, as well as guidance for NPL sales.

The first two initiatives are intended to improve market transparency, with the goal of collecting and disclosing NPL sales data on a large scale. Scope believes this will align the interests of sellers and buyers and help close the bid-ask gap. A centralised data hub, as proposed by regulators, could further narrow the gap since better data would support the entry of investors into the NPL market.

However, Scope concludes that neither initiative is part of a short-term plan. They require a significant effort from market counterparties and an adequate IT infrastructure for data storage.

Stelios Papadopoulos

Structured Finance

SCI Start the Week - 22 February

A review of securitisation activity over the past seven days

MM CLO seminar this week
Join SCI on Thursday 25 February for our second Middle Market CLO seminar for the opportunity to meet and discuss performance patterns and expectations, new structuring trends, relative value opportunities and what the post-new normal future is for the sector. Book now or find a full conference overview here.

Last week's stories
Consumer SRT prints
Santander finalises capital relief trade
Faster Fannie, faster
GSEs grew appreciably in 2020 and can now retain earnings
Forgive and forget
Student loan forgiveness heralds widespread prepayment in student loan ABS, but is credit positive
Growing trend
Third-party CRT arrangers gaining traction
NDBI risk eyed
Economic resilience bonds in the works
Refi surge
Spread compression drives wave of CLO refinancings
Seasonal effects
Servicer boost for Italian NPL collections
Private role?
Benefits of tokenisation weighed
As investment trends shift more towards private financings, tokenisation could play an important role in facilitating transactions. However, obstacles remain to a more widespread adoption of blockchain technology.
"A small revolution is going on that could significantly improve the investment process in the private industry, in particular. As the focus is shifting from public financing to private financing, tokenisation could facilitate transactions in currently highly illiquid assets," says Stéphane Blanchoz, head of SME alternative financing at BNP Paribas Asset Management.

He continues: "The tokens - digital assets - could represent loans that are complimentary to bank financing, providing additional financing possibilities for borrowers and transparent opportunities for investors. The process would also save time for investors involved in direct lending, where lots of private information needs to be digested before making an investment case."

Indeed, blockchain technology has a number of advantages. For example, if standardised, there would be cost benefits for borrowers.

"It is faster, cheaper, better integrity of data and a shared system of records. There are some small steps that can be taken with some underlying information managed using DLT, culminating with the actual assets being truly digital, not just a pdf, which is the real opportunity for innovation," says Charlie Moore, ceo of Acorn Labs.

He adds: "There is a degree of confidence when able to look at the same updates across all deal parties. It is a simple way of using DLT as a database as an initial entry point. Parties should not care about the exact underlying database technology."

There are various challenges involved in the utilisation of tokenisation, however. For example, the need to modify all of the components in the blockchain is likely to be time consuming and standardised formats would be required.

"Loans are, for instance, complex instruments, often requiring different covenants to closely monitor and mitigate risks. It would probably be a challenge to track all these tailor-made features in a blockchain," notes Blanchoz.

In any given transaction, multiple parties are involved and part of the challenge is to get all of them comfortable with change. "It is not about an individual company; it is about the industry adopting it. I do not think much of the traditional structured credit market will move into this space any time soon," says Moore.

He concludes: "There are some new Silicon Valley players which help to access capital in emerging asset classes using private markets. They may demonstrate the full potential of digital receivables and start to look at tokenisation of these asset in the next 12 to 18 months. Legacy companies in the securitisation ecosystem will need to think about how to avoid being cut out of that equation and stay competitive."

Jasleen Mann

Other deal-related news

• MBIA Insurance Corporation has entered into an agreement to settle the litigation it filed in 2009 against Credit Suisse and certain affiliated entities (SCI 15 February).
• A new Bank of England Staff Working Paper, entitled 'Banks, shadow banks and business cycles', presents a theory that links investor sentiment to credit spreads via the non-bank financial sector (SCI 16 February).
• JPMorgan Chase Bank is prepping the debut CLN issuance from the JPMorgan Wealth Management Mortgage platform to transfer credit risk to noteholders through a hypothetical tranched CDS on a reference pool of mortgages (SCI 17 February).
• The US SEC has filed a civil action alleging that Morningstar Credit Ratings violated disclosure and internal controls provisions of the federal securities laws in rating CMBS (SCI 17 February).
• Starwood Capital is in the market with its first single-family rental securitisation (SCI 17 February).
• Together Commercial Financial Services is marketing an unusual securitisation backed by small balance commercial assets (SCI 19 February).

Company and people moves

• DLA Piper has hired Jay Williams as a partner in its structured finance practice, based in New York (SCI 15 February).
• Maritime and offshore alternative capital provider Fleetscape Capital has entered into an innovative financing structure with Macquarie that provides a more efficient offer to vessel owners seeking higher leverage situations (SCI 16 February).
• SCOR has promoted Peter Nowell from global head of structuring - financial solutions to global head of financial solutions (SCI 16 February).
• Michel Büker has joined Willis Re in a dual role as head of Lloyd's capital, Willis Re Specialty and head of production, customised solutions, EMEA (SCI 16 February).
• Allen & Overy has appointed Jake Mincemoyer as partner and head of its US leveraged finance practice, based in New York (SCI 16 February).
• Richard Barrent has joined Compass Mortgage as svp - special projects (SCI 16 February).
• Eagle Point Credit Management has recruited Seth Weinstein as director of business development, a newly created position where he'll be responsible for strengthening the firm's existing relationships in the institutional investment community (SCI 16 February).
• Nuveen is set to acquire Greenworks Lending, a C-PACE financing provider (SCI 17 February).
• NPL Markets has strengthened its advisory board and management team, as the company embraces new opportunities in the burgeoning illiquid and distressed loan market (SCI 17 February).
• Jeff Pirhalla has joined Greystone as a director for the firm's agency lending platform, focusing on bank correspondent and lending relationships intended to drive volume for Greystone's small loans and overall agency lending platforms (SCI 17 February).
• Sabal Capital Partners has added 14 new hires to support its strategic growth as a provider of a comprehensive range of multifamily and commercial real estate debt solutions (SCI 17 February).
• The EBRD is providing US$100m in new funds to Denizbank to finance Turkish companies' investments in green technologies and support women-led businesses (SCI 19 February).
• American Equity Investment Life Holding Company and Adams Street Partners are forming a joint venture for co-developing insurer capital-efficient products in middle market credit, with American Equity initially committing up to US$2bn to the investment strategy (SCI 19 February).

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
21 -22 April 2021, Virtual Event
SCI's 3rd Annual NPL Securitisation Seminar
26 May 2021, Virtual Event

Structured Finance

Strong pipeline

European ABS market update

Bank of America’s Taurus 2021-1 UK has priced at tight levels for UK CMBS transactions on the back of significant demand (SCI 10 February). Against this backdrop, the European securitisation pipeline appears to be gaining strength.

“Generally, the market feels pretty busy. The pipeline is quite full, including new issuance and refinancings,” says one trader.

He continues: “Prints are at tight levels. There continues to be support among investors, despite the volumes coming through.”

The senior notes of Taurus 2021-1 UK priced at SONIA plus 85bp, inside the IPTs of low 100s, and were 4.2x covered. The class B-E notes priced at plus 130bp, 165bp, 260bp and 365bp respectively at coverage levels of 4.5x, 6.1x, 9.3x and 4.5x.

Elsewhere, the £2bn UK legacy RMBS Durham Mortgages A was refinanced. The senior notes priced at SONIA plus 80bp.

Meanwhile, a pair of UK buy-to-let RMBS are marketing. The class A to D notes of Paratus AMC’s Twin Bridges 2021-1 are fully covered at 1.1x, 1x, 2x and 2x respectively, with pricing expected tomorrow. Additionally, Citi has announced the £244.6m Canada Square Funding 2021-1, backed by recently originated BTL mortgage loans extended to 1,012 borrowers.

In the auto ABS sector, a second book update for Volkswagen Leasing’s VCL 32 has been released. IPTs for the triple-A seniors were set at one-month Euribor plus 20bp area, with coverage levels standing at 2.8x, based on a deal size of €750m.

IPTs for the class B notes were set at plus 90bp area, with coverage levels of 3.3x. Pricing is also expected tomorrow and the deal may be upsized to €1bn.

Finally, LeasePlan is in the market with the £500m Bumper UK 2021-1, another auto lease ABS. The transaction has a one-year revolving period and corporate lessees comprises 30.3% of the receivables, SME/retail comprises 68.5% and 1.1% are government. The deal could print as early as the end of this week.

“The market is quite positive; there is liquidity. A key factor is the capacity to do the analysis and work through the deals. There has been no pause in the momentum,” the trader concludes.

Jasleen Mann

Capital Relief Trades

Risk transfer round-up - 22 February

CRT sector developments and deal news

Standard Chartered is expected to call the first transaction from its Chakra programme in 1H21, following an end to the deal’s scheduled non-call period. More generally, banks are expected to call capital relief trades this year, as planned call dates approach their end.

The first Chakra deal was finalised in April 2018. The US$80m CLN references a US$1bn portfolio of European and US corporate loans (see SCI’s capital relief trades database).   

Capital Relief Trades

Risk transfer round-up - 25 February

CRT sector developments and deal news

Eurobank is rumoured to be readying a capital relief trade. The transaction would be the Greek lender’s first significant risk transfer transaction and the second to ever come out of Greece, following Piraeus Bank’s pending deal.

Greek banks are eyeing synthetics as part of their non-performing loan deleveraging plans. The rationale is to use synthetic technology in order to generate enough capital to offload NPL portfolios (SCI 14 January).   

CLOs

MM CLO seminar line-up finalised

AI networking opportunities offered

The line-up for SCI’s 2nd Annual Middle Market CLO Seminar has been finalised. The event takes place virtually tomorrow (25 February).

A panel on measuring performance will assess how the middle market CLO sector fared during the Covid-19 crisis, while another panel will explore structural innovation across the market. The trading opportunities panel will focus on secondary market relative value and the private debt panel will examine how private financings are driving the development of the sector.

The final panel looks to the future of middle market CLOs and how the market can build for growth in the months and years ahead. The event will conclude with networking opportunities via an AI matchmaking platform.

The seminar is sponsored by Allen & Overy and Schulte Roth & Zabel. Speakers also include representatives from AIG, Audax Private Debt, BofA Securities, Capital One, Churchill Asset Management, DBRS Morningstar, Goldman Sachs BDC, GreensLedge Capital Markets, LSTA, Mark Fontanilla & Co, PGGM, Natixis, Owl Rock Capital Partners and Wells Fargo.

For more information on the event or to register, click here.

Structured Finance

Irish NPE portfolio offloaded

Sector developments and company hires

Irish NPE portfolio offloaded
AIB Group is set to sell a non-performing loan portfolio in long-term default to Mars Capital Finance Ireland as part of a consortium arrangement with Mars and affiliates of Apollo Global Management. At completion, AIB will receive a cash consideration of approximately €400m.

As at September 2020, the loan portfolio had a gross NPE value of circa €600m and a fully loaded RWA position of circa €400m. In the year ended 31 December 2019, the loan portfolio incurred a loss before tax and post-provisions of circa €62m.

The portfolio consists of approximately 4,000 non-performing customer connections across circa 3,500 assets, with an average time since first default of around 10 years and about 90% of the portfolio first entering default over seven years ago. The assets comprise 92% private dwelling homes, 5% buy-to-let properties and 3% mixed-use properties. The average balance per customer connection is circa €300,000, with an average arrears amount of circa €95,000.

The sale proceeds will be used for general corporate purposes, including the continuation of support for customer restructuring. The sale is expected to be capital accretive due to the reduction in associated RWAs, in addition to alleviating the negative impact of calendar provisioning for this long-term NPE portfolio.

North America
Churchill Asset Management has announced a swathe of promotions across its senior lending and junior capital and private equity solutions investment teams, as well as its investor relations and operations departments, effective from 1 March. Notably, Randy Schwimmer (senior md, head of origination and capital markets) and Mathew Linett (senior md, head of underwriting and portfolio management) have been named co-heads of senior lending. Christopher Cox, formerly cro for the senior lending strategy, has also been appointed cro for the entire Churchill organisation.

Schroders has expanded its securitised credit team with the appointment of a senior portfolio manager in a newly created role, bolstering its management of assets in the CLO market and underlying syndicated corporate loans. Alyse Kelly, who has more than two decades of investment experience, will be based in New York and report to Michelle Russell-Dowe, Schroders’ head of securitised credit. Kelly was previously a director at Pretium, focused on leveraged loans in the media, telecom, lodging, gaming, leisure, and consumer products sectors. She previously held director roles at Valcour Capital and Aladdin Capital, having begun her career as a credit analyst at S&P.

Structured Finance

Fintech lender hires SRT pro

Sector developments and company hires

Fintech lender hires SRT pro
European consumer credit platform auxmoney has appointed Boudewijn Dierick md of auxmoney Investments, a newly established investment arm of the company based in Dublin. Reporting to auxmoney cfo Daniel Drummer, Dierick will lead the local operations and drive the expansion of auxmoney’s international capital markets footprint.

He joins from BNP Paribas, where he was md and head of ABS and covered bond structuring. Before that, he worked at UBS and Moody’s.

In other recruitment news…

EMEA
AlbaCore Capital Group has strengthened its team with a number of new appointments to support the growth of the firm and new investment strategies. The most recent addition to the team is Jaime Echevarria from Marathon Asset Management. Echevarria has joined as director on the investment team and is a specialist in European corporate credit.

Alex Walkey also recently joined the investment team as vp from Canyon Capital Advisors, along with associates Anastasia Ashcheulova from The Carlyle Group and Erwan Pincet from EQT Partners. These hires will work directly with founding partner and portfolio manager Bill Ammons and md and deputy portfolio manager Deborah Cohen Malka.

Tikehau Capital has recruited Christoph Zens as head of its CLO business, based in London. Zens will assume the role from Debra Anderson, who will retire in 2Q21. He joins from Commerzbank, where he spent more than a decade, most recently as an investment director within the debt fund management team. Since launching its CLO strategy in 2014, Tikehau Capital has completed circa €2bn in new issuances across five CLOs and launched its sixth CLO warehouse.

North America
Strategic Risk Solutions has appointed Anna Pereira to the newly-created position of svp, ILS, based in its Bermuda office. Effective from 1 March, she will join the ILS and fund administration team led by md Jonathan Reiss. Pereira is currently a director and co-founder of MANA Consulting, having previously worked at Horseshoe Group, HSBC, Chubb Financial Solutions, Quanta Re and Everest Re.

Structured Finance

QM final rules revisit mulled

Sector developments and company hires

QM final rules revisit mulled
The CFPB is considering whether to initiate a rulemaking to revisit the Seasoned QM Final Rule. If the bureau decides to do so, it expects that it will consider in that rulemaking whether any potential final rule revoking or amending the Seasoned QM Final Rule should affect covered transactions for which an application was received during the period from 1 March 2021, until the effective date of such a final rule.

The bureau also expects to issue shortly a proposed rule that would delay the 1 July 2021 mandatory compliance date of the General QM Final Rule. If such a proposed rule were finalised, creditors would be able to use either the current General QM loan definition or the revised General QM loan definition for applications received during the period from 1 March 2021, until the delayed mandatory compliance date.

Furthermore, the bureau anticipates that the Temporary GSE QM loan definition will remain in effect until the new mandatory compliance date, in accordance with the 20 October 2020 final rule, except that the Temporary GSE QM loan definition would expire with respect to a GSE, if that GSE ceases to operate under conservatorship prior to the new mandatory compliance date.

In other news…

Global
Aon has hired Marcus Foley to the Bermuda operations of Reinsurance Solutions, subject to Bermuda immigration approval, and Tim Radford to its London capital advisory team within Reinsurance Solutions. Foley will join the firm as head of capital management, reporting to Tony Fox, chairman and ceo, Bermuda, and Eric Paire, head of London capital advisory of Reinsurance Solutions. Foley joins from Aspen, where he was most recently group chief capital management and strategy officer.

Radford will support the team’s capabilities in Lloyd’s capital optimisation and funds at Lloyd’s (FAL) provision, reporting to James Mackay, head of Lloyd’s relationships within London Capital Advisory. Radford joins from Securis Investment Partners, where he was involved in the origination, analysis and structuring of all forms of non-life investments, as well as capital raising – focusing in particular on the provision of FAL to Lloyd’s syndicates.

North America
Teresa Bryce Bazemore, an independent member of the Chimera Investment Corporation board, has notified the company that she will resign effective as of 28 February. The move is in consideration of her additional duties in connection with her recent appointment as the president and ceo of the Federal Home Loan Bank of San Francisco.

NPL ABS fund launched
Polis Fondi has launched an Italian multi-compartment closed-end mutual fund, with the aim of investing €2.5bn GBV in non-performing and unlikely-to-pay loans. Dubbed Taurus, the fund will subscribe to notes issued by NPE securitisations.

Cerved Credit Management (CCM) will act as master and special servicer in the context of securitisation. The fund will have two compartments: the first will invest in notes with underlying NPL exposures and the second in notes with underlying UTP exposures, mainly of SMEs.

Repack JV inked
OptiAssets and Privatam have formed a joint venture designed to allow asset and wealth managers better access to securitisation services and securitised assets. The new partnership aims to leverage the combination of OptiAssets’ securitisation and asset repack platform and Privatam’s technology and expertise to unlock scale, as well as provide greater flexibility and cost-efficient investment vehicles to investors.

Spanish CMBS preplaced
Bank of America has preplaced another European CMBS, following significant demand for its UK last-mile logistics transaction (SCI 23 February). The latest deal - dubbed Taurus 2021-2 SP and sponsored by Starwood Capital - is backed by a €139.9m portion of a €269.9m limited recourse, first lien mortgage financing.

According to KBRA, the loan was first utilised in September 2019 and has a three-year initial term, with two one-year extension options. The loan is secured by the borrower’s interests in eight office assets in Spain, marking the first fully Spanish CMBS since the financial crisis.

Six of the assets - accounting for 83.1% of the allocated loan amount - are located in Madrid and the remaining two assets are located in Barcelona. The properties are leased to 171 individual tenants, of which the largest represents 10.1% of gross rental income and the top 10 represent 49.7%. The tenants comprise a variety of multinational, regional and local firms.

Structured Finance

Injunction sought over Blue Owl combination

Sector developments and company hires

Injunction sought over Blue Owl combination
Golub Capital Partners, one of 17 partner managers in the Dyal Capital Partners IV fund, has brought a lawsuit against the fund, Neuberger Berman Group (NBG) and NB Alternatives Advisers, seeking an injunction against the Blue Owl transaction (SCI 4 December 2020). Sixth Street previously filed a lawsuit against the Dyal Capital Partners III fund and NBG, which was brought on similar - and what Dyal strongly believes to be incorrect - contractual claims.

Dyal says it does not believe that Golub’s suit has merit and that it will defend Fund IV vigorously against the claims. “We believe these lawsuits represent an effort by Sixth Street and Golub to hold the [Blue Owl] transaction hostage, as a way to seek the buyback of the investments at an unfair price, which would be harmful to the applicable Dyal fund,” the firm says.

It adds that, contrary to Golub’s assertions, it has attempted repeatedly over the last three months to address Golub’s stated concerns regarding information security, the business services platform (BSP) and governance of Blue Owl post-transaction. Following productive engagement with other partner managers, Dyal notes that it has crafted a robust information control policy and pre-emptively decided that the BSP will sit separately from the direct lending dedicated personnel. Furthermore, the Dyal team will continue to operate autonomously regarding investments and Dyal’s partner managers.

Dyal also stresses that Fund III and Fund IV will continue to own precisely the same economic interests and remain contractually entitled to the same share of Sixth Street’s and Golub’s profits as they did prior to the transaction.

The firm says it continues to be open to good-faith discussions with Sixth Street and Golub to resolve these matters and continues to believe that the merits of the Blue Owl strategic combination are powerful.

A definitive business combination agreement was signed on 23 December between Owl Rock Capital Group and Dyal and Altimar Acquisition Corporation to form Blue Owl Capital, an alternative asset management firm with over US$45bn in assets under management. The agreement involves Blue Owl entering the public market through a business combination with Altimar, a SPAC sponsored by an affiliate of HPS Investment Partners.

The new firm’s main business will focus on direct lending and GP capital solutions. Doug Ostrover, co-founder of Owl Rock, will serve as ceo of Blue Owl. Dyal founder Michael Rees and Owl Rock co-founder Marc Lipschultz will be co-presidents of the combined firm.

Upon completion of the transaction, Blue Owl will be a stand-alone firm, with Owl Rock and Dyal founders - alongside Neuberger Berman - owning meaningful equity positions in it. Dyal says it believes that the majority of its investors, partner managers and other key stakeholders support the transaction and are moving towards an expected closing in 1H21.

In other news…

Call for change at CIB Marine
Hildene Capital Management has nominated two director candidates for election to the CIB Marine Bancshares board, in connection with the company’s 2021 annual shareholder meeting. Funds managed by Hildene beneficially own 36% of each of the company’s series A and series B preferred stock, in the aggregate, as well as approximately 0.10% of the company’s common stock via its investments in Trups CDOs.

Hildene has also issued an open letter to CIB Marine shareholders outlining why immediate change is required to the company’s board and capital structure in order to maximise shareholder value. The letter highlights persistent underperformance, poor corporate governance and lack of board oversight at the company.

Hildene believes its nominees have the financial acumen and expertise needed to implement a recapitalisation plan in the best interests of all shareholders. The firm says it approached CIB Marine privately in November 2020 with a plan designed to optimise its capital structure for the benefit of all CIB Marine stakeholders, but the proposal was dismissed.

Hildene’s director candidates are John Scannell and Raymond Tellini. Scannell is senior advisor of Hildene, having previously held the positions of coo, chief compliance officer and general counsel during his tenure at the firm.

Tellini is the co-cio of Delta Capital Management Partners and has over seven years of experience investing in litigation finance opportunities that generated recoveries of over US$35m. Prior to joining Delta in 2016, he worked at Brennecke Partners and Palladin Group, among other firms.

CMBS traffic data offered
Geolocation data provider Advan Research Corporation has launched a CMBS foot traffic counts product. Daily visitors, employees, residents and dwell times on every CMBS property are now available on Advan’s FiT terminal and as data feeds. The traffic data is a clear leading indicator of CMBS spreads, which were provided by Solve Advisors for testing. CMBS investors normally have to wait three months or longer to obtain the NOI of the properties in each CMBS deal; Advan’s foot traffic and employee counts are expected to provide the same visibility with a one day lag.

Financing partnership formed
An affiliate of Peak Rock Capital has partnered with Neptune Financial to expand capital access and provide financing solutions to middle market and growth-oriented businesses. Peak Rock's flexible capital base and investment expertise will be combined with NepFin's business intelligence and sourcing capabilities to bring financing solutions to a wide range of businesses.

Placement agency established
Briarcliffe Credit Partners, a placement agency fully dedicated to private credit, has launched. Headquartered in New York, BCP will provide fundraising services to private credit investment firms focusing on niche strategies outside direct lending, fund sizes up to US$1.5bn and Fund II or higher. The BCP model will generally focus on 6-8 non-competing mandates at any given time and through a cost structure based on the realisation and success of the fundraise.

Ex-FIRSTAvenue Americas ceo and partner Jess Larsen will serve as ceo of BCP. He is joined by Kyle John, who will serve as md of sales and was previously director of institutional sales at Regan Capital. The pair formerly worked together at Highland Capital Management.

Structured Finance

UKAR pair preplaced

Sector developments and company hires

UKAR pair preplaced
Citi has preplaced a pair of UK non-conforming RMBS backed by a portfolio it acquired from UKAR. The transactions – the £2.898bn Jupiter Mortgage No. 1 and the £1.559bn Stratton Mortgage Funding 2021-2 - securitise a pool of first-lien owner-occupied and buy-to-let loans originated by NRAM, GMAC-RFC, Mortgage Express, Kensington, Keystone Property Finance, Bradford & Bingley, Legal & General and Close Brothers.

The assets have a weighted-average seasoning of 13.6 years and are primarily concentrated in London and the South-East. The Jupiter Mortgage No. 1 pool has a weighted-average current indexed LTV ratio of 64.3% and a weighted-average original LTV of 82.5%.

The Stratton Mortgage Funding 2021-2 pool has high exposure to interest-only loans (at 92.3%), while 9.2% of the mortgage loans are currently in arrears equal to or greater than one month. Additionally, 2.4% of the mortgage loans by balance are currently granted payment holidays due to Covid-19.

At inception, UKAR’s book had a balance of about £115bn, which is now down by almost 90%, according to S&P.

In other news…

EMEA
HIG Capital has expanded its European WhiteHorse direct lending team with the hiring of Ignacio Blasco as md. Based in Madrid, Blasco joins from Houlihan Lokey, where he was md. He has experience in leveraged finance and direct lending, covering various sectors and investment strategies.

Global
Latham & Watkins has elected 19 counsel to its partnership, effective 1 March. The counsel with structured finance experience that have been promoted include: Cindy Caillavet Sinclair of the Chicago banking practice; Simon Hawkins of the Hong Kong financial regulatory practice; Thomas Cochran and JP Sweny of the London structured finance practice and project development & finance practice respectively; and Suzana Sava-Montanari of the Paris capital markets practice.

Judo Bank hits the market
Judo Bank is in the market with its debut securitisation. Dubbed Judo Securitisation Trust 1R, the A$1.02bn transaction is backed by a portfolio of predominantly term loans, line of credit facilities and equipment leases to Australian SMEs. Of the portfolio balance, 81% benefits from security over real estate.

Judo Bank is an Australian challenger bank, which started originating business loans in late 2018 and has grown its loan book to over A$2.6bn by year-end 2020, according to Moody’s. The firm has a focused relationship-centric business banking model, differentiating it from other Australian business banking lenders. It pursues a multi-channel distribution model using commercial brokers and direct channels.

The AOFM last year invested in a warehouse sponsored by Judo Bank under its Structured Finance Support Fund (SCI 12 May 2020).