Contents

Structured Finance

Finish line

ESMA designates securitisation repositories

ESMA has announced the European DataWarehouse (EDW) and SecRep as the EU’s official securitisation repositories. The decision addresses an important element of the disclosure framework under the Securitisation Regulation that was long left open. More saliently, originators of synthetic securitisations will now have to submit data to the repositories as part of the new ESMA rules, albeit there is a private option that addresses confidentiality concerns.

According to Christian Thun, ceo of the European DataWarehouse: ‘’The securitisation repository chapter has finally ended with this decision. It is an important step towards phasing out the dual reporting scheme for European issuers, who have been submitting both the ECB and the ESMA data templates in parallel.’’ 

Since its inception in 2012, the EDW has spearheaded the infrastructure and framework required for securitisation repositories. Indeed, it complied with regulatory requirements early on through the provision of core repository and ancillary services, and its work was crucial for the Eurosystem collateral framework.

ESMA has approved both the EDW in Germany and SecRep in the Netherlands as the EU’s official securitisation repositories. Following this registration, reporting entities of EU securitisations will – as of 30 June 2021 – mandatorily report their data through one of these repositories.

The move means that the last piece of the securitisation regime that came into force on 1 January 2019 is now in place, at least in the EU. In the UK, the FCA is expected to follow soon and SecRep has applied to establish a sister repository in the jurisdiction.

The Securitisation Regulation creates a framework for securitisation and a specific framework for STS securitisations, both of which are essential in the EU’s efforts to create a Capital Markets Union, by designing a single market for investment services and ensuring a high level of harmonised protection for financial investors.

Reporting entities will have to submit data and documents, along with a written confirmation that all provided documents are accurate. Thun explains: ‘’ESMA prefers the XML format for its data templates, but these can be challenging, since the size of the XML files can become large very quickly. We addressed this by providing a data conversion tool from a user-friendly format to the ESMA XML compliant format. The written confirmations are needed as there are no ways for the repository to verify the content of the documents submitted.’’

According to a May 2021 ESMA consultation paper on draft technical standards for STS on-balance sheet securitisations, the regulator considers it appropriate to restrict published information concerning the STS notifications of private synthetic securitisations to non-sensitive commercial information. Private securitisations are defined in the Securitisation Regulation as those where no prospectus must be drawn up in compliance with Regulation (EU) 2017/1129.

Originators of synthetic securitisations have for a long time been concerned about the possible violation of confidentiality provisions associated with the public registration of what are effectively private transactions. In fact, according to ESMA’s securitisation disclosure requirements, banks will have to provide loan-by-loan data in transactions.

Thun notes: ‘‘In response to issuers’ needs to share their loan-level data and documentation in a controlled manner, EDW has - for many years now - offered a private reporting solution within its platform, which allows for bespoke dissemination of data.’’ 

ESMA further clarifies that originators should provide two STS templates for private synthetic securitisations: a fully completed STS notification and an anonymised STS notification suitable for publication on ESMA’s website. As for non-anonymised STS notifications, they would not be published on ESMA’s website but instead included in a register available and accessible only to the relevant competent authorities.

Additionally, to maintain sufficient anonymity, ESMA proposes that STS notifications should be limited to the CLN’s ISIN number, issuance date, whether the deal is funded or unfunded, whether it uses credit derivatives or financial guarantees and the type of the underlying exposure. However, given the private nature of these transactions and the illiquidity premium associated with synthetic ABS, it remains to be seen how many banks are willing to acquire the STS label for their transactions.

Stelios Papadopoulos

ABS

Innovative NPL ABS inked

CF opts for ReoCo rather than GACS

Credito Fondiario has finalised an unusual Italian non-performing loan securitisation that falls outside the GACS scheme. Dubbed Palatino SPV, the transaction features a ReoCo with much larger firepower compared to previous non-GACS deals.

According to Monica Curti, vp and senior credit officer at Moody’s: ‘’It’s an unusual transaction, given that it’s a non-GACS deal - although these sorts of trades have been picking up over the years, as we have seen with leasing. As is typical with non-GACS trades, there is a ReoCo. However, unlike previous deals, the ReoCo in the case of Palatino can intervene over the life of the transaction for a substantial amount that totals €40m.’’

ReoCos are SPVs that legally can intervene only for the benefit of the securitisation by bidding for properties in the auction process, keeping the property on its balance sheet and then selling it to the open market. However, they typically step in only when the value of the property is uncertain or if there are not enough buyers at the auction.

Additionally, Palatino is the first mainly secured NPL ABS to use the ESMA templates - which Curti says is positive for the standardisation and transparency of the European NPL securitisation market.

The transaction represents a restructuring of a static cash securitisation of NPLs extended to borrowers in Italy that closed in December 2020. It references a €2.4bn secured and unsecured NPL pool, although the bulk of the portfolio consists of secured exposures, given that the issuer sold most of the unsecured portion in May. The exposures were initially acquired by Credito Fondiario from Banca Carige and Credito Valtellinese.

The assets supporting the notes are NPLs with a gross book value (GBV) of €865.271m, as of August 2020, of which €52m is related to borrowers for which the recovery process has been completed. The loans were extended to 2,188 defaulted borrowers, with loans to corporates making up 73% of the portfolio and the top 20 borrowers representing 29% of the total GBV.

The secured portion of the pool comprises loans mainly backed by residential (59%) and commercial (12.5%) properties located in Italy, as well as land (10.6%), with a GBV of around €852.86m on a borrower basis. Unsecured loans account for a GBV of around €12.35m on a borrower basis.

Properties are located for the most part in Northern Italy (53.7%). Finally, 45% of the total property valuation concerns properties with ongoing legal proceedings or are undergoing or are expected to undergo a bankruptcy process, which usually takes significantly longer than a foreclosure.

Rated by Scope and Moody’s, the transaction consists of €135m BBB/Baa2 rated class A notes, €11m unrated class B1 notes, €12.4m unrated class B2 notes and €6.28m unrated class J notes.

Stelios Papadopoulos

CMBS

Litmus test

European CMBS momentum set to last

Nine European CMBS have been issued so far this year and two are currently marketing, pointing to growing confidence in the sector amid a post-coronavirus recovery. Indeed, current momentum in the market - exemplified by the volume of activity and investor interest in a variety of assets and jurisdictions - appears set to last.

“2021 was unsurprisingly looking like it would be pretty challenging [for the European CMBS market], but these woes were fortunately short-lived and today we are witnessing a surge in activity. Deals are being brought to market backed by a variety of assets across a broad range of jurisdictions, which CMBS ultimately needs, but also there are a number of active arrangers in the market,” says Iain Balkwill, a partner in Reed Smith’s structured finance team.

He adds: “A lot of uncertainty has been put to bed. The level of activity is also promising, something which CMBS suffered from before.”

Indeed, European CMBS issuance has been somewhat sporadic post-financial crisis, with many banks exiting the market (SCI 30 March). Although last year began positively with two important transactions - River Green Finance 2020 (SCI 8 January 2020) and Magenta 2020 (SCI 13 February 2020) – among other deals, Covid-19 disruption paused momentum in the market.

Against this backdrop, two CMBS that priced earlier this month are noteworthy for being secured, in part or entirely, by retail portfolios – a segment that was hit particularly hard by Covid disruption. Agora Securities UK 2021 is backed by a £211.5m loan, originated by Morgan Stanley and Bank of America, to facilitate Brookfield Asset Management's acquisition of nine retail parks located throughout the UK. Similarly, Bruegel 2021 – a €220.15m securitisation originated by Goldman Sachs - is secured by seven office buildings, one mixed-use property (office and hotel) and one retail property in the Netherlands.

“Retail is problematic, having gone through quite a stressful period, even prior to the pandemic. Having said that, there are retail units that have strong anchor tenants and are well managed. But this asset type is going through a seismic shift at the moment, which will always be challenging for a CMBS,” observes Balkwill. 

Another encouraging factor is the pan-European nature of some of this year’s deals. Barclays and Goldman Sachs are currently in the market with the latest such issuance – the €497m Last Mile Logistics Pan Euro Finance – backed by two loans to Blackstone to finance its Mileway logistics platform. The transaction is secured by 113 assets across Denmark, Finland, France, Germany, Ireland, the Netherlands and Spain.

The deal follows Berg Finance 2021 from May and Last Mile Securities - PE 2021 from March.

Balkwill indicates that one reason for investor appetite for pan-European CMBS is the value derived from the classic diversification of risks. “The best collateral involves loans secured by different asset types located in a number of jurisdictions. Currently, we are seeing single-loan deals backed by this collateral, which is just perfect for CMBS.”

Meanwhile, the other CMBS that is currently marketing is set to test appetite for London office assets – another sector affected by Covid disruption. The £150m Viridis (ELoC 38) is secured by a loan advanced by Morgan Stanley to Brookfield and China Life, as part of the refinancing of Aldgate Tower.

Clearly, the pandemic has had a profound impact on the European CMBS market, but Balkwill remains optimistic that the current momentum - exemplified by the volume of activity and investor interest in a variety of assets and jurisdictions - is set to last. He concludes: “The last year has been a real litmus test for CMBS, which ultimately demonstrated that many of the lessons learnt in the wake of the global financial crisis has manifested itself in a truly resilient CMBS product with structures that do work. I genuinely believe CMBS is a positive and transparent tool for financing commercial real estate and I take solace in the fact that if there is to be another shock, the market has already demonstrated that it is capable of evolving and adapting to whatever is thrown at it.”

Vincent Nadeau

ABS

Pick a card, any card

Covid credit card usage soared, but ABS issuance is strangled

US credit card usage increased dramatically due to the pandemic, but, as yet, this is not expected to result in elevated credit card-backed ABS issuance, agree analysts.

Credit card balances have declined significantly in the last year while the major banks all enjoy richer reserves of capital than has been the case for some time.

‘’The big credit card banks simply don’t have much need for ABS funding these days.  They all have plenty of capital and cheap deposits. Issuance was already decreasing even before COVID,’’ says Amy Sze, md in ABS research at JP Morgan in New York.’

Credit card balances totalled $770bn in Q1 2021, down 13.8% compared to the Q1 2020, the Federal Reserve Bank of New York reported recently. This is attributed to the impact of stimulus payments and higher unemployment benefits, both of which helped debtors to pay down balances. Moreover, there have been simply less opportunities to run up higher balances with, for example, the huge decline in travel, the closure of restaurants and so on.

According to Bank of America data, the national savings rate peaked at 33% in April 2020, compared to the 20-year pre-pandemic average of 6%. Deposits, meanwhile, increased 10.1% YoY and 33.7% on a two-year basis by the middle of June.

Credit card ABS issuance is up 39.5% this year compared to the first half of 2020, totalling $3.9bn, but issuance remains lower than every other six-month period since the end of the Financial Crisis.

JP Morgan predicts full year issuance of $8bn for 2021, but with the caveat that even this modest forecast might be optimistic as banks have shown so little need or interest in ABS funding.

“The combination of lower credit card receivable balances and higher deposits has reduced the funding needs of credit card lenders, particularly large US banks,” says Elana Lipchak, ABS research analyst at Bank of America.

Benchmark triple-A three year credit card ABS is currently dealing at a post-crisis record tight of swaps plus 5bp, beating the previous record low achieved in H2 2012. Given the scarcity of paper, it is expected to trend even tighter to swaps plus 4bp by yearend.

However, this has occurred against a backdrop of much increased credit card use. It has been estimated that the pandemic has speeded up what was already a systemic shift to paperless payments by one or two years. According to data from DBRS, credit, debit and prepaid card payments now account for 63% of all payments compared to 55% in 2016, while cash and checks account for only 25% of all payments compared to 35% in 2016.

The significant growth of online purchasing since the pandemic began has been a particular boost to credit card payments rather than debit card payments as buyers prefer credit cards for remote shopping.

Mobile and contactless payments have also surged in the last year, and this represents another fillip to credit card usage as the great bulk of such payments are backed by an underlying credit card. Just over 20% of consumers used their mobile phone for payments in 2016, but over 45% had done so by the end of 2020, according to data from the Federal Reserve Bank of Atlanta.

These trends are expected to persist. A Visa Back to Business study published in early 2021 reported that 54% of consumers are likely to prefer to use contactless payments with the same or increased frequency even after vaccination.

However, as consumption increases, credit card balances should increase once more. “As we go back to normalcy, people start travelling and going out for dinner again, balances should come back gradually to pre-pandemic levels,” says Yanni Koulouriotis, a vice president in the Global Financial Institutions Group, at DBRS Morningstar.

 As capital levels are unlikely to remain as elevated as they are currently, credit card ABS issuance could well recover from the current trough. But this remains to be seen. At the moment, there is no relief in sight for investors eager to hold credit card-backed ABS.

Simon Boughey

ABS

Crazy collateral

ABS yields sink as collateral surges, driving investors to look elsewhere

The bounce-back from the pandemic has been overwhelmingly positive for collateral in US ABS deals, according to a new report from Moody’s.

Indeed, such is the strength of the recovery that investors have been forced to look for attractive opportunities outside the usual avenues.

“We do see across all securitizations, not just consumer ABS, that investors are looking widely to see where there might be value, such as new asset classes and esoteric asset classes. There are issuers exploring all sorts of things,” says Jody Shenn, senior analyst at Moody’s.

According to the report, the credit-positive story is a result of three broad trends. Firstly, employment is picking up sharply, with obvious benefits for debt repayments and collateral performance. Secondly, the extensive government aid packages and the accommodation provided by debt servicers have helped borrowers through the worst of the pandemic. Finally, deleveraging has boosted the credit quality of those tranches that remain.

This is not to say, however, that the return to rude health for the ABS market has not come as a surprise to many. “We’re certainly not where we expected to have ended up in terms of household wealth at the start of a recession that was as severe as it was,” says Shenn.

The non-farm payroll surged by 850,000 in June, bringing the unemployment rate in the US down to 5.9%, it was reported this morning (July 2). Moody’s expects the jobless rate to continue to fall over the next few quarters before hitting 4% - back to where it was before the pandemic.

Even as unemployment peaked at 12% in Q1 2020, household wealth across the US  - including in the lowest income homes - increased due to the government stimulus programmes, various payment holiday plus forbearance schemes introduced by debt servicers and lack of spending opportunities.

The upshot has been that when unemployment climbed, bank consumer loan charge-offs decreased. This pattern constitutes a dramatic break with historical precedent. Securitization pools have thus suffered very low losses. In credit card trusts, for example, charge-offs dipped materially after a short spike in April 2020 and are now in the region of 6%. This compares to over 11% during and after the financial crisis of 2008/2009.

The 2020 vintage of prime auto loan ABS is showing losses, so far, of under 0.15%, substantially less than the 2017, 2018 and 2019 vintages.

In fact, some tranches of ABS deals have paid down completely, and this deleveraging has enhanced the credit enhancement in those tranches that remain in the market. This will help mitigate any weakening performance by borrowers that continue to be strained, notes Moody’s.

Pretty much everything in the ABS garden is lovely, though some blooms are particularly striking. The auto market has been a very strong performer.

“Auto loan deals have done especially well, supported by low default rates and historically high used vehicle values. This is materially helping performance,” says Nick Monzillo, an analyst with Moody’s in New York.

Credit card deals have also been buoyed by unprecedentedly high payment rates, largely as a result of the government stimulus and the lack of spending opportunities.

One area of slight concern is in the student loan market, where there has been a significant increase forbearance both in private and government plans. “There is some risk of slow repayment in FFELP bonds and that is reflected in our ratings. Some of these bonds were already vulnerable to maturity risks,” adds Monzillo.

The student loan market is also affected by policy manoeuvring in Washington, DC. There has been greater use of IBR plans and a consequent lengthening of repayment terms.

But this is a relatively minor caveat in the ABS world. Overall, collateral is a lot more solid than would have been predicted 15 months ago.

This means, of course, that a hunt for yield among the traditional ABS asset classes is likely to be frustrated. Investors - and sellers - must look to untraditional classes.

Simon Boughey

ABS

Tight summer

European ABS/MBS market update

Following a busy quarter that saw every new deal being met with heavy investor demand, there is no sign of the appetite for paper diminishing. Secondary has picked up too over the last week and is showing a similar trend.

Even with the summer holidays quickly approaching, primary spreads still appear to be tightening, matching levels not seen since before the financial crisis. “It will be an ongoing trend,” says one trader. “Inevitably the only concern will be if central banks begin to withdraw their support, but it certainly does not look like an imminent matter.”

He continues: “Essentially, the ABS/MBS market still feels very positive. Even on the technical side, there is still a lot of cash available, with no particular pressure for issuers to come to market for funding. As things stand, the context is even more favourable to non-bank issuers.”

Standing out amongst the herd this week is UK credit card ABS issuer NewDay. Returning to the market following a January outing, NewDay Funding 2021-2 priced yesterday and saw strong demand across the board, including its dollar tranche. See SCI’s Euro ABS/MBS Deal Tracker for more.

“NewDay has had dollar tranches before, essentially because the way credit card ABS are structured, dollar tranches tend to go down well with investors,” notes the trader. “Also they benefit from being the only credit card issuer at the moment, so are able to get very tight pricing, particularly compared to last year. It has been a good and positive turnaround for them, with healthy levels of over-subscription across the entire book – which yet is another sign of the strength and appetite for paper.”

At the same time, the Euro ABS/MBS secondary market has finally got some attention over the past couple of weeks, after a long period of almost exclusive primary focus. The past week has seen BWICs from across a variety of sectors and jurisdictions.

For example, yesterday saw six lists totalling 17 line items involving UK and European ABS, CMBS and RMBS bonds in a mix of seniors and mezz, all of which saw decent execution. “Secondary tone remains constructive and demand is particularly strong, so spreads keep moving tighter across the board,” the trader reports.

Vincent Nadeau

Structured Finance

SCI Start the Week - 28 June

A review of SCI's latest content

CLO seminar tomorrow
SCI’s 1st Annual CLO Special Opportunities Seminar is taking place virtually tomorrow, 29 June. The event examines the key areas in which investors and managers can enhance returns, from deal structures and pricing to unusual asset classes.

Last week's news and analysis
Adopting change
Class A loan note attracts attention
Back into the fold
CRT returns to centre stage with FHFA changing of the guard
Calabria exits
FHFA director removed, GSE stocks nosedive; Fannie comeback?
Ever tighter?
European ABS/MBS market update
Riding a wave
BNP Paribas executes capital call SRT
SRT debut
LBBW prints first capital relief trade
US is coming
Stand by for more US regional bank deals
Volatility hedge
NNIP explains why securitisation and private credit currently represent sweet spots

For all of last week’s stories including ‘Market moves’ and ‘Risk transfer round-up’ click here.

Recent research to download
Synthetic Excess Spread - May 2021
The requirement to fully capitalise synthetic excess spread is expected to result in SRT issuers dropping the feature from their transactions. This CRT Premium Content article weighs the relative benefits of synthetic securitisations versus those of full-stack cash deals, in which originators can use excess spread.

TCBI Deal Profile - May 2021
It took Texas Capital Bank nine months to finalise its landmark capital relief trade, becoming the first US regional bank to tap the risk transfer market. This CRT Premium Content article tracks the deal’s progress from inception to launch.

CLO Case Study - Spring 2021
In this latest in the series of SCI CLO Case Studies, we examine the double-B pricing patterns in CLO primary and secondary markets amid November to January’s textbook new issue boom and rally. Read this free report to discover the shifting relationship between new issue and BWIC DMs supported by an intuitive visualisation of market activity and tone.

Upcoming events
SCI's 1st Annual CLO Special Opportunities Seminar
29 June 2021, Virtual Event
CLOs are now a mainstream market and set to cross the US$1trn threshold this year globally, bolstered by the search for yield and strong performance through the Covid-19 crisis. Positive news though this is, it means that investors can no longer look to the vanilla market for the relative value opportunities they used to enjoy. SCI’s CLO Special Opportunities Seminar examines the key areas for investors and managers to enhance returns from market and deal structures, to pricing and unusual asset classes.

SCI's 3rd Annual NPL Securitisation Seminar
September 2021, Virtual Event
The volume of non-performing loans on European bank balance sheets is expected to increase due to Covid-19 stress and securitisation is recognised by policymakers as key to enabling these assets to be disposed of. SCI’s NPL Securitisation Seminar explores the impact of the coronavirus fallout on performance and issuance, as well as on pricing assumptions, servicing and workout trends across the European market. Together with recent regulatory developments, the event examines the establishment of an asset protection scheme in Greece and the emergence of synthetic NPL ABS.

SCI's 7th Capital Relief Trades Seminar
13 October 2021, In Person Event
Last year saw significant regulatory developments in connection with capital relief trades, including the publication of the EBA’s final SRT report and the introduction of an STS synthetics regime. SCI’s Capital Relief Trades Seminar will explore the impact of these developments, as well as the latest trends and activity across the sector.

Capital Relief Trades

Risk transfer round-up - 1 July

CRT sector developments and deal news

MeDirect is believed to have cancelled a synthetic securitisation backed by mid-market corporate loans that was expected to close in 2Q21. Deutsche Bank was acting as the arranger on the deal.

RMBS

Advantageous returns

Australian RMBS market update

With deals paying juicy yields, investors are turning to the Australian RMBS market for advantageous returns. Meanwhile, Bluestone is testing market appetite for a potential debut prime transaction.

“A clear trend is yield chasing,” says one trader. “New prime triple-A RMBS bonds currently price at around 60bp, even into the high 50s. Non-conforming and non-resident RMBS paper is in 80bp-90bp ballpark. That is why we are seeing significant European interest in non-resident deals - where else is it possible to get yields like that?”

This certain evidence of excess liquidity, as seen on a global level, can be linked to central bank support. “Well, it certainly goes back to the central bank story – particularly in the US and Europe, where there is nothing stopping the money printing. People are flowing in, trying to get an extra 5bp overnight,” notes the trader. “There is so much money sloshing around.”

However, new issuance has been at best sporadic of late, with only two RMBS pricing in June - albeit there are signs of activity beginning to pick up a little. This week saw two deals enter the pipeline, for example.

Bluestone has mandated CBA, Macquarie and NAB to engage with investors in relation to its potential debut prime RMBS issuance. Meanwhile, Macquarie Securitisation has mandated ANZ, BOC, CBA, Macquarie, NAB, SMBC Nikko and Westpac to test market appetite for a potential Australian dollar-denominated funding-only transaction under the Puma RMBS programme.

“People are quickly turning to the securitisation market, with RMBS looking extremely attractive. Triple-A rated short-dated RMBS looks fantastic to me right now,” concludes the trader.

Vincent Nadeau

Structured Finance

UK to review Securitisation Regulation

Sector developments and company hires

UK to review Securitisation Regulation
The UK government has issued a call for evidence in connection with the Securitisation Regulation. Under the consultation, the government is seeking views on updating the regulation to ensure that it “best delivers” for the UK’s financial sector and real economy.

Responses to this call for evidence will inform the government’s review of the Securitisation Regulation, on which a report will be laid before Parliament by 1 January 2022. The overarching aims of the review are to: bolster securitisation standards in the UK, in order to enhance investor protection and promote market transparency; and support and develop securitisation markets in the UK, including through the increased issuance of STS securitisations, in order to ultimately increase their contribution to the real economy. As such, the government is seeking views on how the securitisation market is performing and how the Securitisation Regulation can be tailored to the UK.

The consultation ends on 2 September 2021.

In other news…

APAC anchor investment disclosed
DBS Group Holdings is set to become an anchor investor in Muzinich Asia Pacific Private Debt I fund, which is focused on private debt solutions targeted at lower middle-market companies. The move is in line with the group’s strategy of investing in new revenue and growth opportunities arising from special situations opportunities created by the pandemic.

Under the agreement, DBS is expected to anchor up to US$200m or 40% of the total fund size, whichever is lower. Alongside this commitment, DBS will have representation on the fund’s investment committee and advisory committee.

The investment rationale includes extending and diversifying credit risk participation beyond DBS’ traditional debt portfolio, as well as increasing the group’s involvement in fund activities to build up product know-how in the special situations space.

North America
Amherst Pierpont has appointed Adam Schwartz as md and head of the firm's structured credit business. He will lead the firm's existing structured credit team in both primary issuance and secondary trading, as it continues to expand upon its fixed-income and structured product offerings.

Schwartz brings more than 15 years of industry experience originating, structuring, marketing and executing a range of transactions across CLOs and other structured credit products. Prior to joining Amherst Pierpont, he held senior banking, structuring and origination roles in credit structuring at Morgan Stanley and BNP Paribas.

Alison Coen has joined Greystone as a senior md in its CMBS lending group, based in New York. In this role, Coen will focus on CMBS loan production.

With 25 years of relevant CRE industry experience, she joins Greystone from Barclays, where she was an md and closed over US$2.6bn of conduit loans. Prior to that, Coen worked at Natixis Real Estate Finance and Citi.

RFC issued on synthetic Libor
The UK FCA has published a consultation on whether to use its powers under the Benchmarks Regulation (BMR) (SCI 21 May) to require Libor administrator IBA to publish synthetic Libor settings beyond 2021, as part of an orderly wind down of Libor. For the one-month, three-month and six-month Japanese yen Libor settings, the FCA intends to compel their publication on a synthetic basis for one year until end-2022, after which they will cease. Additionally, it is proposing to use the Article 23D(2) BMR powers to require a synthetic Libor to be calculated using a forward-looking term version of the relevant risk-free rate (SONIA for sterling and TONA for yen) and the fixed ISDA spread adjustment published for the purposes of the ISDA IBOR Fallbacks Supplement and Protocol for the respective Libor setting.

Of the two term SONIA reference rates (TSRRs) for sterling provided by Refinitiv and IBA, the FCA has selected the latter as a component for a potential synthetic sterling Libor. For yen, it has selected the Tokyo Term Risk Free Rate (TORF) provided by QUICK Benchmarks (QBS) as a component for a potential synthetic yen Libor.

The consultation is open for nine weeks, after which the FCA will finalise its decision based on the feedback received. Where a synthetic Libor is implemented, it will also determine who will be permitted to use it.

Structured Finance

Energy-efficiency tax credit ABS debuts

Sector developments and company hires

Energy-efficiency tax credit ABS debuts
UniCredit has executed the first securitisation of tax credits arising from the Italian ‘Eco-Sisma-SuperEcosisma Bonus’ scheme. Under one of Italy's Covid-recovery laws (the Decreto Rilancio), tax credits accrued in the context of energy-efficiency and/or seismic risk reduction works are allows to be transferred to other entities, such as banks and other financial intermediaries.

The UniCredit transaction enables its corporate clients to enter into a transfer agreement with a securitisation vehicle and then use an innovative platform to finance their assets, by assigning tax credits deriving from their value chain at a pre-agreed price. The structure benefits from the new amendments recently introduced by Law 130/99, which allow investors to participate in securitisations by granting loans to the SPV, with no issuance of ABS.

The first such issuance - totalling €500m - was carried out via EBS Finance, an SPV incorporated under Law 130/99, which will raise the funds needed to pay for the tax credits through loans advanced by UniCredit. The assignors include companies that manufacture products for energy efficiency, such as high-efficiency boilers, heat pumps, photovoltaic systems and thermal coats.

UniCredit Bank acted as arranger on the transaction and Centotrenta Servicing as servicer.

In other news…

EMEA
Raj Shourie has joined Lockton’s political and credit risks division, with responsibility for leading the engagement with financial institutions internationally out of London, for both credit mitigation and country risk protection. Shourie joins Lockton from Aon, where he was the financial institutions advisory lead for credit solutions.

He brings with him over 30 years of experience across capital markets origination, underwriting, risk distribution and loan portfolio management at banks including Barclays, Credit Suisse and Deutsche Bank. Previously, he qualified and practised as a corporate lawyer with Clifford Chance in London and Hong Kong.

At Lockton, Shourie’s primary focus will be on delivering credit mitigation tools for banks seeking to use insurance as a credit risk distribution and capital efficiency tool. These tools range from bilateral and syndicated insurance contracts on unsecured, asset or project-backed loans to bespoke securitisation structures combining insurance with capital markets investors. In addition, Shourie will engage with funds seeking to insure traditional and non-standard risks.

New loan-level data rules activated
The ECB has announced that the ‘ESMA reporting activation date’ occurred on 25 June – after the designation of European DataWarehouse and SecRep as Securitisation Repositories (SCI 29 June) - when all conditions related to the disclosure requirements specified in the Securitisation Regulation were fulfilled. Consequently, the new loan-level data rules will enter into effect after a transitional period of three months from the ESMA reporting activation date.

As of 1 October 2021, ABS under the scope of the Securitisation Regulation will only be assessed for compliance against Eurosystem collateral eligibility criteria if loan-level data is submitted to an ESMA-registered securitisation repository and according to the templates developed by ESMA. All ABS seeking eligibility as Eurosystem collateral are subject to the same loan-level data requirements, regardless of any exemption from the disclosure requirements under the Securitisation Regulation.

For eligible ABS transactions issued prior to 1 January 2019 that are not subject to the Securitisation Regulation, the Eurosystem’s current loan-level data reporting requirements will be maintained for a period of three years until 31 September 2024. After that date, ECB ABS loan-level data templates are phased out and those ABS will be subject to the same procedures, as a Eurosystem eligibility requirement.

Finally, to ensure that non-marketable debt instruments backed by eligible credit claims (DECCs) can comply with their respective loan-level data requirements, the ECB has created a specific ECB SME DECC template. This decision takes the fact that DECCs do not fall under the scope of the Securitisation Regulation into account.

Synthetic STS authorisation for SVI
BaFin has approved STS Verification International’s (SVI) application to expand its authorisation to include the STS verification of synthetic on-balance sheet securitisations. SVI is a third-party verifier, authorised under Article 28 of the Securitisation Regulation since 7 March 2019 to verify securitisation transactions for compliance with the STS) criteria.

Since then, SVI has verified more than 90 transactions in more than 15 countries and is currently working on an additional 20 transactions across all asset classes that are potentially eligible for STS across the EU. Since early 2021, SVI has also been able to perform additional services, including CRR and LCR assessments of STS-compliant transactions.

Structured Finance

Italian SME ABS first finalised

Sector developments and company hires

Italian SME ABS first finalised
Banca Carige and Banca del Monte di Lucca have completed Lanterna Finance 2021, the first Italian SME ABS backed by loans fully guaranteed by the Italian government. The up to €30,000 unsecured loans have been originated based on the ‘Liquidity decree’, converted into law on 5 June 2020, and are fully guaranteed by the Central Guarantee Fund for SMEs managed by Mediocredito Centrale.

As of 31 March, the pool of underlying assets is composed of a portfolio of contracts amounting to €383.73m. The average loan ticket is €19,700 and all loans benefit from a pre-amortisation period lasting on average two years.

The top two industry sectors in the pool, in terms of Moody's industry classification, are construction and building (21.4%) and hotel, gaming and leisure (20%). The top borrower represents 0.01% of the portfolio and the effective number of obligors is above 16,000.

Geographically, the pool is concentrated mostly in Liguria (41.0%) and Toscana (15.3%). The assets were originated mainly between 2020 and 2021 and have a weighted average seasoning of 0.87 years and a weighted average remaining term of 5.5 years.

Moody’s assigned an A3 rating to the €320m class A notes, which benefit from 17.4% credit enhancement on top of the government guarantee.

In other news…

Dutch fintech JV launched
Bishopsfield Capital Partners and ABN AMRO have launched Aymz, a digital platform that connects institutional investors to medium-sized Dutch corporates seeking loan finance. Loans of between €5m-€30m are available via the platform and ABN AMRO will co-lend alongside participating institutional investors. When a lending opportunity arises, the platform will invite participating investors to evaluate and decide whether they are interested.

North America
Jefferies Financial Group has elected Matrice Ellis Kirk and Melissa Weiler to its board. Ellis Kirk is ceo of Ellis Kirk Group, a full-service executive search firm, focusing on governance, succession and leadership team development. Prior to her career in executive recruiting, she was a vp of Apex Securities, an investment banking firm.

Weiler was an md and a member of the management committee of Crescent Capital Group, where she served from January 2011 until she retired in December 2020. During that time, she oversaw Crescent’s CLO management business from July 2017 through December 2020 and managed several multi-strategy credit funds from January 2011 through June 2017. Before that, Weiler worked at TCW.

She currently serves as a Class II director of Owl Rock Capital Corporation and concurrently serves on the boards of several Owl Rock funds. Weiler is also a member of the nominating and corporate governance and audit committees for certain Owl Rock boards, as well as a member of the compensation committee.

RFC issued on risk retention RTS
The EBA has launched a public consultation on draft regulatory technical standards specifying the requirements for originators, sponsors, original lenders and servicers related to risk retention, in line with the Securitisation Regulation. The RTS aim to clarify requirements relating to risk retention, thus reducing the risk of moral hazard and aligning interests. The RTS also provide clarity on new topics, including risk retention in traditional securitisation of non-performing exposures (NPE).

The RTS carry over a substantial amount of provisions from the EBA RTS on risk retention submitted to the European Commission in July 2018. The RTS also include a number of new provisions, such as specifying modalities of risk retention in traditional NPE securitisations and specifying requirements for the expertise of servicers acting as retainers in NPE securitisations.

In addition, the RTS address some specific issues, related, for instance, to the impact of fees payable to the retainer on risk retention, risk retention in re-securitisations or in securitisations of own issued debt instruments. They also provide clarification on the treatment of synthetic excess spread.

Comments on this consultation should be submitted by 30 September. A public hearing will take place online on 2 September.

Structured Finance

RMBS issuer sues Hussain

Sector developments and company hires

RMBS issuer sues Hussain
Clavis Securities has begun High Court proceedings against Rizwan Hussain, who issued letters in April - purportedly for and on behalf of the issuer - which described the purported termination of the appointments of HSBC as trustee and Bluestone Mortgages as treasurer and special servicer, in relation to the note programme. The issuer considers the purported terminations to be entirely invalid and of no effect, and Bluestone continues to act as the treasurer and special servicer.

The proceedings have been brought by the issuer, Clavis Options, Paivi Helena Whitaker, Intertrust Directors 1 and Intertrust Directors 2, Intertrust Management and Intertrust Corporate Services, against Hussain, Annabel Watson, Amanda Watson, Digital Asset Partners and Highbury Investments.

The proceedings are seeking relief, including: rectification of the register at Companies House in respect of the Clavis companies; declarations that the defendants do not have the statuses or positions that they purport to have in relation to the Clavis companies; declarations that the actions of the defendants are invalid and of no effect and declarations as to the current valid position; and injunctions preventing the defendants from taking any further actions in respect of the Clavis companies. The hearing for the claim has been listed in a three-day window commencing on 14 July.

In other news…

CLO platform buyout confirmed
Medalist Partners has accelerated a buyout option with JMP Group for its remaining stake in Medalist Partners Corporate Finance, a CLO platform with approximately US$1.2bn in assets under management. Medalist has further announced the formal incorporation of ESG criteria into its future CLO investment mandates on the platform. While largely consistent with an approach already being followed by the team, as part of the formal ESG initiative, Medalist has adopted specific guidelines that will be factored into the investment process. Medalist’s CLO platform will continue to be led by Craig Kitchin, Jeremy Phipps and Shawn O’Leary.

EMEA
KKR has opened a new office in Stockholm, Sweden, building on its investment track record in the Nordics and reflecting its growth ambitions for the region. The office will represent all KKR investment platforms - including private rquity, infrastructure, impact, real estate and credit - across the Nordic region.

Hans Arstad, director at KKR, will lead the Stockholm office. Carl Lithander, md at KKR in the client and partner group, will also be based in Stockholm and continue to lead fundraising activities and engagement with Nordic investors for the global KKR platform.

Michael Huertas has joined PwC as partner, head of financial institutions regulatory Europe, based in Frankfurt. His role involves helping clients navigate and realise opportunities arising across the EU’s regulatory framework and in relation to their capital markets transactions.

Huertas was previously partner and co-head of the European financial institutions regulatory practice group at Dentons. Before that, he worked at Baker McKenzie, Allen & Overy, Latham & Watkins and Lloyds.

North America
Joanna Suna has rejoined Cadwalader’s capital markets group as counsel in New York. Her practice focuses on advising issuers, underwriters, portfolio managers and monoline insurers on CLOs, securities repackagings and other types of complex structured products. Suna was a senior associate earlier in her career at Cadwalader and joins from Perkins Coie, where she was a senior counsel. Previously, she worked at Lowenstein Sandler and KPMG.

Two Harbors Investment Corp has given William Greenberg, the company’s president and ceo, the additional role of cio. The company entered into a mutually agreeable separation and release agreement with Matthew Koeppen, pursuant to which Koeppen will cease to serve as cio.

Greenberg has served as president and ceo of Two Harbors since June 2020 and as a director since September 2020. He previously served as co-cio from January 2020 to June 2020 and as co-deputy cio from June 2018 to January 2020.

Greenberg has over 25 years of experience managing portfolios of structured finance assets. Prior to serving as an investment professional for Two Harbors beginning in 2012, he was an md at UBS and Natixis.