Contents

ABS

Sponsor momentum

Record-setting quarter for the ILS market

The second quarter of 2021 was record-setting for the ILS market on numerous fronts. With around US$5.6bn across 20 catastrophe bonds issued in Q2 – bringing total issuance to US$8.5bn so far this year - volume already surpasses by US$181 the previous record set in 1H17.

Of the 35 classes of notes issued in Q2, 70% were both upsized and saw their spreads tighten to the low ends of their initial guidance or better, according to Aon figures. "What we are seeing are large numbers of new sponsors - or additional issuances from existing sponsors - driven by a tightening of spreads and an abundant supply of capital to deploy,” notes Paul Schultz, ceo at Aon Securities.

Notably, favourable market conditions brought new sponsors to the market. According to Aon, the level of achievement from first-time issuers in Q2 was highly encouraging and provided momentum for new sponsors to access the ILS market for their risk transfer needs.

Of the 19 corporate, re/insurance and governmental sponsors that came to the market in the second quarter, five were first-time issuers - Ariel Re (with the US$150m Titania Re 2021-1 transaction), Gryphon Mutual Insurance (US$50m Wrigley Re 2021-1), St Johns Insurance Company (US$120m Putnam Re 2021-1), Vantage Risk (US$225m Vista Re 2021-1 A) and Vermont Mutual (US$150m Baldwin Re 2021-1).

Notably, Wrigley Re 2021-1 represents the first cat bond to be sponsored by a private equity firm (Blackstone), pricing 20% below its initial mid-point of guidance. Baldwin Re 2021-1 priced 25% tighter and was also upsized by 50%.

Against this backdrop, optimism prevails across market projections. “I think we are very likely to exceed previous years in what will probably become a historical year for issuances. I also feel that the same fundamentals will carry over in 2022, with a good supply of capital to deploy and strong pricing competitiveness,” states Schultz.

With cat bonds experiencing particularly positive inflows from investors, ESG is expected to become one of the drivers of the ILS market. "I feel we are at the beginning of the journey; however, ESG and catastrophe bonds are intrinsically linked at the hip, so to speak. From Aon’s perspective, we are definitely having those discussions with our sponsors and making meaningful progress. What will inevitably happen is that we will have more ESG-compliant outcomes and raising more capital for ESG securities,” Schultz observes.

He concludes: “Essentially the question is: is there value in ESG-compliant solutions? And yes, there is definitely more capital going that way. It is still early days; however, it is a clear trend.” 

Vincent Nadeau

Structured Finance

SCI Start the Week - 9 August

A review of SCI's latest content

Last week's news and analysis
ABS-lite appetite
Insured trade receivables notes in vogue
Issuance boost
STS synthetic securitisations taking off
Positive results
Stress tests raise SRT prospects
Record Freddie
Freddie Mac churns out STACR and ACIS at highest yet seen volumes
Revival of the fittest
Euro CMBS continues to gain traction
Robust performance
Freddie Mac K-Series defaults, losses tracked
Scalabis strikes
Algebra brings Portuguese NPL ABS
SME SRT return
STS synthetic securitisation debuts

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

Recent research to download
EIF risk-sharing deals - August 2021
Risk-sharing deals involving the EIF and private investors are yet to gain ground. This CRT Premium Content article surveys the likelihood of such collaborations going forward.

Euro ABS/MBS primary pricing – Summer 2021
In this first in a new series of Euro ABS/MBS premium content articles, we examine the demand and consequent pricing dynamics seen across European and UK ABS, CMBS and RMBS new issuance in Q2 and July 2021. Read this free report to discover coverage levels for every widely marketed deal and the impact on price movements broken down sector by sector.

CLO Case Study - Summer 2021
In this latest in the series of SCI CLO Case Studies, we examine the uptake of loss mitigation loan language in European deals since the concept emerged a year ago. Read this free report to find out the background, challenges and deal numbers involved in the necessary significant documentation rewrite required.

Upcoming events
SCI's 3rd Annual NPL Securitisation Seminar
14 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.

Structured Finance

Downward trend

Corporate defaults continue to drop

Corporate default rates continue to fall across the globe, according to the latest data. However, the declining pace will likely slow by end-December and then stabilise in January to July 2022.

According to the latest Moody’s data, the number of corporate defaults globally remains low this year, reflecting the strong economic recovery and abundant liquidity in capital markets. Only four Moody’s-rated corporate issuers defaulted in July, bringing the year-to-date default tally to 33, significantly lower than 144 in the same period in 2020. The trailing 12-month global speculative-grade default rate was 3.3% at the end of July, the same as the pre-pandemic level at the end of February 2020.

July also marked the seventh consecutive month in which the global rate has declined since touching a cyclical peak of 6.8% in December 2020. The Moody’s data follows a June report from S&P that noted that the number of ‘weakest links’ – issuers rated single-B minus or lower, with negative outlooks or ratings on credit watch with negative implications – neared pre-pandemic levels in April (SCI 9 June).

The Moody’s data show that year to date, North America accounted for the most defaults (at 16) - all in the US - while Europe had eight. The remainder were from Asia Pacific (five) and Latin America (four).

By industry, defaults were spread among 17 sectors, led by business services with five. Oil and gas followed with four.

Under the rating agency’s baseline scenario, benign funding conditions will likely remain in place in the coming year and allow many speculative grade companies to refinance debt if needed. The spread of the Delta variant is raising infection rates in many countries. However, ‘’the growing distribution of Covid-19 vaccines underpins the baseline assumption that the type of stringent and widespread lockdowns that restricted economic activity in 2020 are unlikely to be re-imposed,’’ says Moody’s.  

Indeed, these factors should support corporate earnings growth and result in continued low defaults. As the defaults that accumulated in August through December 2020 gradually move out of the trailing 12-month window, the rating agency expects the global speculative-grade default rate to trend down through year-end.

However, Moody’s qualifies that the declining pace will likely slow as the large number of defaults in April through July 2020 have already exited the trailing 12-month window. According to the agency’s credit transition model (CTM), the global default rate will fall from the current rate of 3.3% to 1.7% by the end of December. After that, it will stabilise in the 1.6%-1.9% range during January-July 2022.

The forecasts incorporate assumptions that over the next four quarters, the US high-yield spread will remain below its historical average of about 500bp and that the US unemployment rate will decline to 4.3%-4.9%, compared to 5.4% in July.

Nevertheless, Moody’s recognises that there are economic and financial risks that, if crystallised, could send the default rate higher, given the significant portion of low-rated issuers in the speculative-grade universe.

Under a pessimistic scenario involving protracted lockdowns, tightening liquidity conditions and trade tensions, the US high yield spread widens to 753bp-1.206bp over the next four quarters and the unemployment rate increases to 8%-9.7% over the same period. If these macro assumptions were to occur, the global default rate according to the model would rise to 6.3% in a year’s time. The latter would still be below the pandemic peak of 6.8%.

Moody’s concludes: ‘’On the other hand, our optimistic scenario assumes a stronger recovery than under the baseline scenario, characterised by a rapid waning of the negative economic effects of the pandemic with the help of policy stimulus, greater comfort around virus containment and a robust recovery in business and consumer sentiment. In this scenario, the global default rate could fall to 1.5% by July 2022, which would be well below the pre-pandemic level of 3.3%.’’

Stelios Papadopoulos

Structured Finance

Simulation analysis

Covid-19 boosts capital ratios

UK and EU bank capital ratios have increased over the past year, despite the effect of the pandemic on profits. Nevertheless, the Covid crisis has exacerbated many of the difficulties related to generating returns, so analysts expect the environment to remain challenging for the European banking sector.

According to KPMG, UK banks saw a 150bp improvement in common equity tier 1 (CET1) ratio, while European banks witnessed an approximately 1% boost over the last year. ‘’The regulatory support, in the form of quick fixes adopted by the EBA and PRA, has been a major contributor to the higher overall capital ratios in 2020,’’ notes the accounting firm (SCI 31 July 2020).

The support included IFRS 9 transitional arrangements, a non-deduction of certain software assets from CET1 capital, as well as SME and infrastructure supporting factors - which resulted in a more favourable prudential treatment of certain exposures.

However, KPMG qualifies that the crisis has exacerbated many of the difficulties related to generating returns and it expects the environment to remain challenging for the European banking sector. European banks have been plagued with profitability challenges since the 2008 financial crisis, due to negative interest rates and overcapacity issues, versus their US counterparts (SCI 29 October 2020). The low profitability of European banks is one reason why the European significant risk transfer market has remained much more active compared to that of the US.  

KPMG used its econometric model to conduct a simulation analysis of how European bank profitability could evolve over the next five years. The model features illustrative scenarios that represent the possible paths for bank returns, given the evolution of GDP growth and interest rates, as well as the progress banks make with their stock of non-performing loans, cost cutting and consolidation strategies.

Indeed, there are three main scenarios in this respect. The first, or ‘main’, scenario includes GDP growth following the latest forecasts and interest rates rising only gradually over time, which limits the scope for banks to benefit from higher net interest income.

‘’We assumed that banks’ NPL exposure rises by 1.5% - consistent with the existing empirical evidence on the impact of Covid-19 - while the trend in declining number of branches observed in recent years continues at the same pace. In that scenario, median profitability recovers only temporarily on the back of the bounce-back in GDP this year and falls back to 5% by 2025,’’ KPMG explains.

The second, or ‘aggressive cost-cutting’, scenario models a 3% annual reduction in the efficiency ratio. The coronavirus crisis has amplified structural changes in customer behaviour related to the use of digital services, including for online banking.

KPMG expects this shift to continue, with an increasing share of business conducted online, and requiring less need for high street branches. This will provide an opportunity for banks to further reduce their cost base.

Consequently, the number of branches is expected to decline by nearly 4% a year. The same scenario shows a slightly stronger recovery in GDP growth and profitability - as measured by ROE - reaches 7% by 2025.

The final, or ‘Covid scarring’, scenario models a slightly slower economic recovery, coupled with interest rates staying at their current levels as monetary policy remains accommodative. Bank credit quality starts to deteriorate again as businesses facing liquidity issues become less likely to repay their loans, with the NPL ratio rising by 2.5% - similar to the rise observed during the financial crisis of 2007-2008.

Additionally, banks fail to incorporate branch closures or other major cost-cutting strategies. In this scenario, profitability remains very weak in the coming years, reaching only 3% in 2025.

Despite the strain on profitability because of Covid-19, KPMG does not expect the aggregate capital ratios to fall below the regulatory minimums. The latter is largely due to a stronger starting position and government loan guarantees introduced in response to the pandemic. The aggregate picture would nonetheless mask heterogeneity among individual institutions, with more vulnerable banks facing the risk of a more substantial erosion in capital.

KPMG concludes: ‘’Overall, our scenarios suggest that pressures resulting from the recent crisis will require banks to be more ingenious in pursuing strategies which cut operating costs and improve their income streams. Successful banks will largely be among those which can embrace the shift to online, while keeping a lean cost structure.’’

Stelios Papadopoulos

Capital Relief Trades

Risk transfer round-up - 12 August

CRT sector developments and deal news

Societe Generale is believed to be readying a synthetic CMBS that is expected to close in 2H21. The transaction is the second synthetic CMBS that is allegedly being readied this year, along with a BNP Paribas trade. 

CMBS

CMBS fillip

Hotel sector leads recovery in US CMBS but retail still depressed

Delinquency rates in US CMBS have fallen appreciably in July, led by a robust performance in the hotel sector, reports Fitch Ratings.

But the retail sector, and particularly regional malls, remains a problem area where delinquency rates and volatility are expected to remain elevated.

The overall CMBS delinquency rate fell 22bp from 3.81% in June to 3.59% in July due to a combination of increased loan resolution, fewer new delinquencies and higher new issue volumes.

There was $1.7bn of resolutions in July, up $100m from June, and the hotel sector contributed more than half ($958m) of this total. The overall delinquency rate in hotel CMBS deals dropped from 15.30% to 13.61%.

The largest single resolution last month was also in hotels as the $231m Hammons Hotel Portfolio loan became current. This loan had been delinquent since June 2020 and was modified last May.

“Hotel delinquencies fell by a pretty huge amount and that is largely because properties are operating again. Borrowers are bringing loans current because there is a pick-up in cash flow we didn’t see even a couple of months ago,” says Melissa Che, senior director of CMBS at Fitch in New York.

The retail sector continues to give cause for concern however. Delinquencies ticked up from 9.09% in June to 9.14% in July, while in regional malls - the worst affected area of the retail world - delinquencies improved slightly to 15.98% from 16.42% but the figure remains high.

The mall business had been ailing before the onset of Covid 19 but the pandemic has accelerated its decline. Most mall operators are examining their portfolios and deciding which areas of it are worthy of new investment and which will be left to go to the wall.

“A lot of maturing debt this year and some from next year will not refi. The liquidity in the CMBS market for lower tier malls - the C class and B minus malls -  is scarce. Most lenders are very cautious of new debt, hindering the ability of these loans to refi at maturity,” says Che.

The multi-family sector is one which has done better than was expected in the early days of the pandemic. Rocketing unemployment was thought to spell doom for multi-family CMBS transactions, but delinquency levels have remained low due, it is said, to the balm afforded by various government stimulus packages.

Multi-family CMBS saw delinquencies of 0.49% in July, down from 0.52% in June.

Simon Boughey

CMBS

'Synergistic' CMBS prepped

Hollywood creative campus refinanced

Barclays is in the market with BXHPP 2021-FILM, secured by what is described as a “high barrier-to-entry” real estate portfolio that serves as a hub for the growing digital content industry. The US$1.1bn CMBS securitises a two-year floating-rate loan collateralised by five Class A office buildings (totalling 967,194 square-feet) and three film studio lots (1.26 million square-feet) in Hollywood, Los Angeles.

Owned and operated by a Blackstone Property Partners and Hudson Pacific Properties (HPP) joint venture, the properties form a synergistic creative campus in Hollywood that is attractive for tenants in the content creation space. DBRS notes that a similar dynamic exists in some of the biomedical office portfolios in markets such as Boston and Cambridge, Massachusetts that benefit from their synergistic proximity to research universities.

The portfolio is currently 86% occupied and approximately 88% of the in-place base rent for the office component is attributable to a single tenant. The office assets have no scheduled lease expirations until over five years after loan maturity.

While studio leases are typically six to 12 months, the sponsor has executed longer-term lease agreements with the studio tenants, which currently have a weighted-average lease term of 7.23 years. Four sound stages at the Sunset Gower property recently saw a 30% positive leasing spread on the tenant's right-of-first-offer and the Station 19 renewal at Sunset Las Palmas saw an approximately 13% positive leasing spread, according to DBRS. Further, the sponsor has negotiated must-take minimums with various tenants for grip and light rentals, which reduces the volatility of the grip and light revenue line item.

There have been no substantial deliveries of new studio space to the Los Angeles market in the past 20 years, in part because the high cost of land makes it economically unattractive to construct new studio space. Collections have been 100% across the portfolio over the past 16 months.

However, DBRS points out that the pool of potential buyers either for the studio component or the portfolio as a whole may be more limited than for other more traditional property types, given that the studio component of the transaction requires specialist knowledge and expertise to operate and lease effectively. For example, HPP handles leasing of the studio component through an in-house sales team that specialises in managing relationships with various space users.

The loan was co-originated by Bank of America, Barclays, Societe Generale and Wells Fargo. The majority of the loan proceeds were used to refinance US$900m of existing debt (securitised in GB 2020-FLIX).

DBRS and Fitch have assigned provisional ratings to the deal.

Corinne Smith

CLOs

Equity ownership

Dan Norman, md at Lakemore Partners, discusses his plans to strengthen the firm's US presence and grow its CLO control equity strategy

Q: Tell us about your new role at Lakemore Partners (SCI 4 August)?
A: I joined the team in March this year and I am very happy to be part of Lakemore’s global expansion. We are in the process of building a US business and the primary steps are to build a US and global product distribution system for the Lakemore family of funds.

Q: How do you plan to grow Lakemore's investment platform globally?
A: Lakemore has built an outstanding credit and product management platform that has a great track record across all its funds. We believe that the CLO and loan markets will remain very attractive to global investors over the short to medium term, and we intend to offer our platform of CLO control equity investment funds to investors across the globe. We will grow the product platform based on the existing strategy and style of Lakemore.

Q: What does CLO control equity investing involve?
A: In the CLO world, control typically means more than 50% ownership of the equity tranche. In the Lakemore style, we like to own more than 90% of the equity tranche.

We work closely with a core group of top-tier US CLO managers that have through-cycle experience with outstanding track records. Our objective is to partner with top-tier US CLO collateral managers to secure between 20% and 30% of their annual issuance volumes.

Q: How does this help managers build their CLO business?
A: The top managers in the business appreciate working with Lakemore. If we bring 90% to 100% of the equity tranche, which is typically the most difficult tranche to distribute, then these managers can focus their efforts on building high-quality pools of CLO collateral.

Nearly all of the managers that we work with are repeat managers – they appreciate the diligence of our team. Our team consists of knowledgeable and experienced market professionals, who apply a proven methodical discipline that has delivered attractive returns through several market cycles since 2000.

Q: What do CLO managers typically require from Lakemore?
A: Top CLO managers look for equity partners that are knowledgeable and experienced control equity investors that understand the in-depth details of a CLO management process and the long-term optionality to maximise equity returns afforded by CLO equity rights. These managers seek a true and trusted investment partner that has strong alignment regarding investment strategy and portfolio management. 

They also expect a robust and proven institutional infrastructure, and an efficient and experienced team that can seamlessly execute the deal decision-making, structuring and legal processes involved in the creation and management of a long-term, illiquid structured finance transaction. Finally, managers seek equity investment partners who manage long-term, patient investment capital in order to maximise deal performance.

Q: What is in the pipeline for the rest of 2021?
A: 2021 has been an extremely busy year for CLO new issue, reset and refinance activity. As control equity investors, year-to-date we have completed six new issues, reset and refinance transactions with several more transactions in process. Our goal for the year is to complete CLO transactions that amount to more than US$6bn in aggregate US CLO size.

Angela Sharda

Structured Finance

Insurer appetite for CLO mezz on the rise

Sector developments and company hires

Insurer appetite for CLO mezz on the rise
A new New York Fed Staff Report documents an increasing preference among insurance companies for CLO investments vis-a-vis corporate bond investments, based on data regarding their asset holdings during 2003-2019. The report shows that the preference is particularly strong for investment grade rated mezzanine tranches, which it suggests is driven by a search for yield.

“Conditional on the credit rating of the security, insurance companies tend to purchase a higher fraction of CLO tranches compared to corporate bonds the larger is the difference in the yields carried by the two asset classes. Similarly, we find that the share of new securities in a portfolio represented by CLO tranches grows for increasing levels of the yield differential,” the report states.

It goes on to note that insurance companies have become an important class of investors in CLO securities, representing roughly half of the investor base in CLO mezzanine tranches rated investment grade. The demand for mezzanine tranches is, in turn, critical for the issuance of CLOs as their junior position allows for the creation of senior tranches rated triple-A.

The report also finds that CLOs that benefit from greater insurer investment are characterised by a larger share of mezzanine tranches rated investment grade and are more likely to be refinanced. Overall, this suggests that insurance companies played an important role in the expansion of corporate loan securitisation observed over the last decade.

Finally, the report provides three interrelated economic insights. First is that regulation is able to strongly affect firms’ incentives to take on risk.

Second, the results show that insurance companies have been playing a complementary role to banks in the securitisation of corporate loans and, by extension, in the growth of the shadow banking sector. Third, corporate loan securitisation, together with the differences between bank and insurer capital regulation has contributed to the transfer of a substantial portion of credit risk from the banking sector to the insurance sector.

In other news…

Criteria update to have positive impact
Fitch has published an exposure draft in connection with changes to its CLO and corporate CDO rating criteria, which the agency expects will result in a modestly positive impact on ratings. Notes currently rated double-A may be upgraded by one notch, while single-As and lower may be upgraded by one to two notches. Overall, approximately 4% of US CLO ratings and 30% of EMEA CLO ratings will be affected, but no downgrades are expected from the criteria update.

Key changes being proposed include: an update to Fitch’s base-case probability of default assumptions to reflect additional data and the continued decline in observed default rates and resilient performance over multiple cycles; a shorter risk horizon by up to one year than the maximum permitted WAL that reflects observed performance; and updating default timing and distribution assumptions to better account for observations/performance expectations. Among other changes are updated industry categories and specific scenarios for CLO notes backed by static portfolios.

EMEA
Tyron Eng has joined Standard Chartered’s global credit CLO trading team, based in London. He was previously a member of KNG’s credit sales and trading team, prior to which he was head CLO trader, EMEA at Nomura. Before that, Eng worked at BTG Pactual, Ares, Commerzbank and Deutsche Bank.

North America
Ocorian has expanded its capital markets team with the appointments of Paul Belson and Gennie Bigord as vps in the Cayman Islands. The pair are responsible for a portfolio of Cayman Islands-domiciled structured finance vehicles, as well as supporting the growth of the wider Ocorian capital markets platform.

Belson has experience in the provision of legal and corporate services during his tenure at international banks and global financial services providers. Previously a senior manager at Vistra, he has specialisms in structured and asset finance, trust and corporate administration and project management. 

Bigord has over 15 years of experience in fiduciary and company administration services, specialising in a range of asset and structured products, including securitisations and CLOs. She was previously a vp at Walkers and has also worked at Intertrust and Five Continents Financial.

Prime jumbo benchmark launched
dv01 has launched a prime jumbo benchmark, with the aim of providing investors and issuers with actionable insights into the market. The benchmark consists of prime jumbo RMBS data representing 44,382 loans with a total original balance of over US$36bn. The new offering will track the performance of approximately 65% of the market’s securitised issuance since the beginning of 2019 and, going forward, will onboard all new prime jumbo deals to the platform at the point of issuance in real-time.  

Using the benchmark as a market proxy, dv01 has released a research report illustrating how issuance of prime jumbo loans slowed during the pandemic, but simultaneously increased in credit quality across virtually every collateral attribute - indicating a risk-off sentiment from issuers during uncertain times. In addition, the report finds that unlike the non-QM and CRT markets, total impairments in prime jumbo have virtually returned to pre-pandemic levels. Overall prepayments are also shown to have declined in 2021 from their record pace in 2020, keeping in line with rising mortgage rates. 

Structured Finance

FTB RMBS hits the market

Sector developments and company hires

FTB RMBS hits the market
An unusual UK prime RMBS has hit the market. Blitzen Securities No.1 is backed by a pool of owner-occupied mortgages extended to first-time buyers (FTBs) with original LTVs between 85% and 95%, originated by Santander between 2014 and 2020.

An undisclosed investor acquired the pool from Santander through a bidding process and will sell the assets to the issuer. Santander will retain 5% of a randomly selected portion of the portfolio.

The portfolio amounts to approximately £605m, as of the 30 June 2021 pool cut-off date, and has a weighted average seasoning of 22 months. Self-employed borrowers account for 16.8% of the pool, which is higher than typical prime residential portfolios from high street lenders.

Fitch and Moody’s have assigned provisional ratings to the transaction. Fitch notes that the weighted average current LTV is higher than average for RMBS it rates, at 88.1%. Fitch’s WA sustainable LTV is also high at 115.1%, resulting in a higher-than-average foreclosure frequency and lower recovery rates than transactions with lower LTV metrics.

Further, the agency considers that FTBs are more likely to suffer foreclosure than other borrowers and has considered their concentration in this pool analytically significant. Consequently, in a variation to its criteria, Fitch has applied an upward adjustment of 1.3x to each loan.

At closing, the total credit enhancement for the class A Notes is 16.5%, provided through subordination and an amortising split reserve fund, which will be funded to 1.5% of the mortgage portfolio balance at closing.

BofA Securities is arranger on the deal, as well as joint lead manager with Santander.

In other news…

EMEA
RBC has named John Miles head of European alternatives and private capital solutions, based in London. Miles was formerly an md at Citi for over 15 years, leading a team of structured credit specialists dealing with all aspects of financing and investing across the European securitisation market. He left the bank in December 2019 and had short stints at Imperial Capital and AA Advisors, before joining RBC.

North America
Hilltop Securities has expanded its Southern Region public finance group with the addition of Tom Baurle, who will serve as md, investment banker in debt capital markets in the firm’s Naples, Florida office. Baurle will focus on ABS, private debt originations and structured finance strategies for clients across a wide range of sectors. He has more than 30 years’ experience in the structured finance space and previously served as md of investment banking and structured finance at Oak Ridge Financial.

JPMorgan Asset Management has strengthened its private credit platform with the appointment of Vincent Lu and Brian Van Elslander as co-heads of the newly formed global performing credit group. The pair bring extensive experience in private credit and private equity sponsor coverage to the roles and will report to Meg McClellan, head of private credit at JPMorgan Private Capital. Global performing credit will initially target opportunities in the direct lending segment, with plans to expand into other private credit strategies in the future.

Lu joins JPMorgan Global Alternatives with more than 20 years of private credit experience, most recently serving as co-head of private strategies at Wells Fargo Asset Management. Prior to that, he spent 18 years at Blackstone/GSO Capital Partners in private credit and was involved in the firm's performing credit and stressed/distressed investing funds.

Van Elslander previously served as co-head of private strategies at Wells Fargo Asset Management. Prior to this, he spent more than 10 years as md and head of the financial sponsors group at Wells Fargo Securities. Earlier in his career, he was an md of the financial sponsors group at Credit Suisse and a vp at JPMorgan in the leveraged finance and high yield capital markets groups.

Structured Finance

DSW CMBS exposure gauged

Sector developments and company hires

DSW CMBS exposure gauged
KBRA Credit Profile (KCP) has published a special report on CMBS exposure to footwear retailer Designer Brands, owner of the Designer Shoe Warehouse (DSW) store chain. The company reported EBITDA of negative US$316m in its fiscal year 2020, as sales plummeted in the wake of the Covid-19 pandemic. The company returned to profitability in 1Q21 after adjusting its operational focus, but faces continued operational headwinds amid uncertainty stemming from new virus strains.

KCP identified 126 properties collateralising 115 loans – representing US$9.54bn by allocated loan amount - across 137 CMBS with exposure to a DSW retail location. The company expects to close 65 domestic locations over the next four years as leases expire, which is KCP says is cause for concern as 50 CMBS properties (US$2.98bn) have exposure to a DSW lease scheduled to expire through 2025.

EMEA
Adam Green has joined Goldman Sachs as executive director, CLO structuring, based in London. He was previously a vp at NatWest, involved in primary CLO structuring and credit portfolio financing. Before that, Green worked in both New York and London for JPMorgan, which he joined in 2013.

Latham & Watkins has recruited Alex Martin as a partner in the firm’s London structured finance practice. His practice focuses on advising investment funds, financial institutions and asset managers on a variety of complex structured finance transactions and structured products, with particular focus on CLOs and performing and non-performing debt portfolio acquisitions. Martin joins the firm from Weil Gotshal.

SitusAMC has hired Alfonso Pagano as director, responsible for leading the firm’s expansion of its servicing business in Europe to include corporate direct debt, infrastructure and social housing loans. He will report to Lisa Williams, executive md and head of Europe at SitusAMC.

Pagano brings more than 15 years of experience in servicing debt, including leadership roles at BNP Paribas Securities Services, The Bank of New York Mellon and ABN AMRO. Most recently, he worked as a commercial director in the capital markets services team at TMF Group.

North America
Nathaniel Luker has joined Ocorian as a partner in its Cayman Islands legal arm, Ocorian Law (Cayman). He advises on capital markets (including securitisations), private equity, corporate and finance transactions and will head up the unit’s capital markets and investment funds practices.

Luker previously worked in the Cayman Islands office of Mourant, where he was counsel in the finance, corporate and funds team. Before moving offshore, he worked in the corporate teams of Freshfields in London and Clifford Chance and Allen & Overy in Moscow.