Contents

ABS

Tight deadline

PRA NPE ABS consultation to 'provide momentum'

The UK PRA’s consultation - which ended earlier this month – regarding the implementation of Basel standards in connection with non-performing loan securitisations has been welcomed by the industry. The authority is seeking to introduce a framework for non-performing exposure ABS, following the implementation last year of a revised securitisation capital framework via the CRR and the publication of the Basel Committee’s technical amendment (SCI 11 December 2020).

The technical amendment, published in 4Q20, included bespoke considerations for NPL securitisation. Committee jurisdictions agreed to implement the technical amendment by no later than January 2023.

It is within this context that the PRA consultation aims to implement the amendment in the UK through a threefold approach focusing on: definitions for NPE securitisations and qualifying NPE securitisations; revised rules for calculating capital requirements on exposures to NPE securitisations; and a new risk-weight expectation with regard to NPE securitisations.

The consultation proposes to use the existing CRR definition of a non-performing exposure to define the underlying assets eligible for an NPE securitisation, whereby NPE securitisations are those backed by a pool of NPEs that make up, at a minimum, 90% of the entire pool’s nominal value at origination and at any later stage when assets are added or removed from the underlying pool.

The PRA further updates its supervisory statement to include the expectation that a firm’s senior management function should satisfy themselves that performing loans are not being included in a non-performing exposure securitisation for the purpose of reducing the capital charge on such loans. Finally, it advances a 100% risk weighting floor for all tranches of NPE securitisations, unless a firm’s senior management uses an external ratings-based approach.

The consultation is expected to provide momentum to the NPL ABS market in the UK. As such, Iain Balkwill, partner at Reed Smith, warmly welcomes the PRA’s approach: “In my view, it is all positive stuff really, given the hugely valuable role that securitisation can play in the NPL space. People are increasingly looking to securitisation to address NPL positions, so any development that promotes this asset class should rightfully be embraced.”

In terms of whether the consultation goes far enough to revitalise the asset class, Balkwill notes: “In the NPL space this is all new, bespoke, innovative technology, which wasn’t used before the GFC. Conceptually, taking securitisation to the NPL sector might appear to be a crazy notion, as it involves underlying collateral that is not only distressed but also not specifically designed to be securitised.”

He continues: “However, given the European or the PRA consultation, it is clear that securitisation has an integral role to play. At the present time, the market is giving a lot of thought around properly structuring securitisation to reflect the practical realities of NPL positions.”

Nevertheless, the PRA’s consultation is notable for its tight deadline. With the implementation date set at 1 January 2022, banks will have little time to adjust.

“I think that the implementation - which is four months away - is an ambitious timeline. [But overall, it is] extremely positive, as it demonstrates that there is clear momentum behind securitisation at the moment. NPL securitisation is currently at a relative disadvantage, given the lack of a proper regulatory framework,” concludes Balkwill.

Vincent Nadeau

Structured Finance

SCI Start the Week - 23 August

A review of SCI's latest content

Last week's news and analysis
Bullish sentiment
CLO, loan opportunity set to continue outperforming
Chowa finalised
NatWest executes leveraged loan SRT
Financing boost
EGF extended to synthetics
Pretium steps out
New hires signal new products and added depth to old ones
Robust recovery
Bumper "summer" for Aussie securitisation
The puzzling case of the disappearance of Fannie Mae
FNMA's absence from CRT investigated
There's gold in them thar malls
Retail CMBS notes have bucked the recovery, but rewards are there
Unanswered questions
Mixed outlook for the UK RMBS market

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.

RMBS

Angel MBS

Angel Oak Mortgage completes first sole MBS at new low coupons

Angel Oak Mortgage REIT, the sister company of Angel Oak Capital, has closed a $316m RMBS offering, designated AOMT 2021-4, which represents the first sole securitization by the firm.

It placed notes with a face value of $306.4m at a weighted average cost of funding of 1.12%. This represents a sharp narrowing of pricing compared to recent deals, pointed out chief financial officer Brandon Filson, talking to SCI.

 A year ago, for example, the AAA tranches were selling over 300bp rather than 100bp, he noted.

The offering securitizes 632 individual non-QM mortgages, with an average credit score of 739, and a LTV ratio of 73.8%. Almost 70% of the debtors are small business owners with sufficient funds but without traditional W2 documentation. This sector represents a specific target audience for Angel Oak lending and one that is currently underserved by the established banking channels.

Another 10% are designated cash flow loans in which Angel Oak underwrites the property rather than the borrower. These are typically single family rental homes on long term leases.

The remainder of the pool is filled by those borrowers who would fall outside GSE credit limits, such as those with a slightly tarnished credit record or a higher DTI than the GSEs accept. However, the FICOs remain in the 720-730 range.

California accounts for 33% of the loans, with another 25% being made in Florida, 7% in Georgia and 5% in Texas.

There were 19 total orders and the paper ended up going to 14 separate buyers. The majority of these are buy and hold accounts such as life insurers and investment firms, though a smaller proportion has been taken by hedge funds.

The majority of these buyers are traditional Angel Oak investors. The biggest single ticket was $95m.

AOMT 2021-4 was Angel Oak Mortgage’s sixth securitization and the 25^th resi securitization completed under the affiliate’s AOMT shelf.

“While we note the run-up in some MSAs, we are very bullish in general about the strength of the US housing market. Loans being originated adhere to diligent credit underwriting standards, and this should translates into solid credit performance and growing volume for our business,” says Robert Williams, chief executive officer of Angel Oak Mortgage REIT told SCI.

Simon Boughey

Structured Finance

Solar LDA partnership inked

Sector developments and company hires

Solar LDA partnership inked
dv01 has partnered with GoodLeap with the aim of further promoting data transparency and accountability within the solar ABS market. Through this partnership, dv01 will serve as loan data agent (LDA) for Carbon Level Mitigation Trust (CLMTE) pass-through certificates.

The shelf currently comprises CLMTE 2021-1 and CLMTE 2021-2, with an aggregate notional value of US$53.6m at issuance across 1,252 residential solar loans. As LDA, dv01 handles the monthly deal reporting by cleansing, validating and standardising loan-level data. Qualified platform users, including participating investors, can then leverage fully integrated analytics tools through the dv01 web app to extract actionable insights on loan performance.

In other news…

EMEA
Starling Bank has recruited Damian Thompson as chief asset management officer, based in London. He is tasked with growing the bank’s asset base in line with its deposit growth, while recognising that some of these assets will be originated by Starling and some will be originated externally by third parties. Thompson was most recently head of UK fixed income origination and solutions at NatWest, but has a securitisation background, having previously worked in European ABS at Fitch.

TPD student loan discharges unveiled
The US Department of Education (ED) last week announced US$5.8bn in automatic total and permanent disability (TPD) discharges on federal student loans for over 323,000 borrowers. The forgiveness will apply to borrowers who are identified through an existing data match with the Social Security Administration (SSA) and begin with the September quarterly match with SSA. In addition, the ED will stop asking for income documentation and eliminate the three-year monitoring period for TPD discharge applicants.

The move removes the need for borrowers who are identified through administrative data matching to fill out an application before receiving relief. The ED removed this application barrier in 2019 for borrowers identified as eligible for a TPD discharge through the match with the US Department of Veterans Affairs.

However, it had not yet done so for those identified through the data match with SSA. As a result, only about half of borrowers identified as eligible for TPD through the SSA match have received the discharge.

With this TPD action, the Biden-Harris Administration has now approved approximately US$8.7bn in student loan discharges for roughly 455,000 borrowers. In addition, the ED has extended the pause on student loan repayment, interest and collections to 31 January 2022, which affects 41 million borrowers.

Structured Finance

CLO control equity fund closed

Sector developments and company hires

CLO control equity fund closed
Lakemore Partners has successfully closed Aquatine IV at US$400m, due to strong investor demand. Aquatine IV is Lakemore’s fourth CLO fund within the Aquatine platform, which invests in control equity positions in US CLOs. Investors in the fund comprise a diverse group of institutional investors, representing private banks, fund of funds, insurance companies, family offices and high net-worth individuals, many of whom have invested in previous Lakemore Aquatine funds.

EMEA
Privatam has strengthened its investment solutions team with the recruitment of Jose Carlos Reis as sales director for the Latin American market, based in the firm’s Monaco office. Prior to joining Privatam, Reis was executive director, head of institutional sales at BB Securities Asia (Banco do Brasil group) in Singapore. Before that, he held various positions at Banco BPI in Portugal, leading institutional sales teams, structuring investment solutions and trading derivatives, Latam fixed income and equities.

North America
Tim Groves has joined Dwight Capital as an md, based in New York. He was previously senior md and head of Cantor Commercial Real Estate (CCRE), Cantor’s direct lending and primary CMBS business, which he joined in June 2018. Before that, Groves worked at Citi and RSSM.

Ervin Pilku has joined East West Bank as md, debt capital markets and trading in New York. He will focus on ABS and high yield syndication, alongside setting up the bank’s secondary trading operations targeting CLOs and ABS.

Pilku has extensive CLO trading experience dating back to 2007. Most recently he was svp, CLO trading at Odeon Capital, having previously served as md, CLO trading at Guggenheim Partners and md, CLO trading at Cantor Fitzgerald.

CMBS

Student housing sponsor accused of 'Ponzi-like' scheme

Sector developments and company hires

Student housing sponsor accused of ‘Ponzi-like’ scheme
The US$36m SkyLoft Austin loan - securitised in the UBSCM 2019-C16 CMBS - is over 30 days delinquent in payment, as of the August 2021 remittance period. The loan is sponsored by Patrick Nelson, who is reportedly being sued by dozens of minority investors involved in the acquisition of the property.

Nelson is accused of operating a ‘Ponzi-like’ scheme, whereby investor funds have allegedly been diverted to other projects or to enrich Nelson himself. Nelson Partners Student Housing is understood to have ceased paying cash dividends to private investors in 2Q20, citing pandemic-related financial challenges.

The SkyLoft Austin loan is collateralised by the fee interest in a 674-bed luxury student housing property in Austin, Texas, near the main campus of the University of Texas at Austin.

Nelson formed Nelson Partners in April 2018 to develop, acquire and manage student housing properties. According to the company’s website, Nelson Partners operates 22 student housing properties in 10 US states.

KBRA Credit Profile (KCP) cross-referenced these properties against KBRA’s CMBS coverage universe and researched loans that were sponsored by Nelson, Nelson Partners or a related entity at the time of securitisation. The analysis identified 11 non-defeased loans (accounting for US$262m) across 13 CMBS, the majority of which (US$177m) were current in payment, as of the August 2021 remittance. Three loans (US$85m), including SkyLoft Austin, are delinquent; two of the delinquent loans, along with one current loan are specially serviced (US$53.6m).

Although Nelson’s brother Brian Nelson has not been named in any reports citing allegations of wrongdoing against Nelson and Nelson Partners, KCP included loans sponsored by Brian Nelson in the exposure list. Patrick and Brian Nelson formerly operated Nelson Brothers Professional Real Estate, which also focused on investments in student housing. The pair reportedly disbanded in April 2018.