Contents

Structured Finance

Big bang?

Tokenisation touted as a replacement for securitisation

Tokenisation is being touted as a potential replacement for securitisation, given its many applications and benefits. However, a number of challenges remain before the technology can be fully adopted by the market.

“Tokenisation could replace securitisation – but it won’t be a big bang. However, when you see the speed of digitisation in some areas, you see it has the potential to come around quicker than one may think,” says Sharon Lewis, partner at Hogan Lovells.

She continues: “Tokenisation is already being used to create shared ownership of assets within real estate and income streams. Once you start to tranche the rights and you give tokens, then you are not very far from securitisation.”

Tokenisation is the process where a typically illiquid asset retained by an issuer could be transformed into a fixed number of liquid tokens, which could then be acquired by investors.

Tokenisation could be used at the level of the notes, so instead of issuing notes, it would be tokens. However, beyond that, it may be possible to structure tokens so that they have a direct interest in the underlying stream. 

Lewis anticipates that market participants will try different things working alongside the existing transactions to begin with. “Blockchain can be used at lots of different levels of the process – at a notes level and how the notes are constituted, the cash flow, the payment processes, the reporting and also for the ratings agencies – having a secure place where people can view different information along the whole securitisation chain could make a huge difference.”

Nevertheless, prior to getting to the stage where tokenisation is widely used, a number of hurdles need to be overcome. Lewis notes: “There are massive challenges – the law is not there in terms of the rules around the holding and transfer of assets, or the infrastructure built around clearing systems and listing processes. Data law and regulation is not there either yet.”

There are also operational issues with IT and security – and the data and cyber issues need to be tackled before moving forward in this space.

Among the benefits of tokenisation is a simplification of the process, which would result in more efficient execution. The costs that come with securitisation could also be reduced, as the need for some of the intermediaries is removed.

Additionally, tokenisation could help facilitate more transparency in the market – which, in turn, would attract more originators and investors to the space. Lewis concludes that there is a strong resemblance between ESG and tokenisation and says it is a space to watch going forwards. “Tokenisation is a bit like ESG; no one was talking about it three of four years ago and now everyone is talking about it.”

Angela Sharda

ABS

Challenging valuations

Covid-19 aftermath dogs NPL exposures

The aftermath of the coronavirus crisis is hindering the valuation of properties that back European non-performing loan transactions. Nevertheless, collections have picked up and more NPL ABS issuance is expected.

According to Moody’s, the deterioration in the quality of the valuation of properties underlying securitised exposures in new trades can be ‘’explained by the increased difficulty in carrying out drive-by valuations in the post-coronavirus environment, with many players resorting to less expensive and less complex ‘desktop’ or automated valuations.’’

Indeed, while more logistically friendly, such types of valuations are potentially less accurate than drive-by ones. Some REO portfolios in Spain, for instance, have exposure to properties with characteristics that are not fully reflected in the desktop valuations.

Hence, on the outskirts of small towns and villages, many developments are half-finished, abandoned, vandalised and unable to find a buyer. The assessment of these properties and their timing to recovery are therefore difficult to determine.

The trend coincides with persistent performance issues. Of the 36 NPL transactions Moody’s rates, 14 are still underperforming their original business plans, with performance deteriorating further in the past six months for many of those.

The agency notes: “Profitability has also weakened, particularly for more seasoned transactions. Partly as a result of this deterioration, we downgraded the ratings on five tranches in four deals and placed on review the rating of one tranche in one deal. However, we also upgraded the rating on two tranches in one deal.’’

Nevertheless, the pace of gross collections has partially recovered from the drop in 2020. The average of monthly variations in gross collections in a sample of 18 Italian NPL transactions that closed in 2019 or earlier shows an improvement of 74% in the first six months of 2021 compared with the same period in 2020.

Yet the same computation comparing the first six months of 2021 with 1H19 still results in a variation of negative 14%. Note sales, which keep being employed extensively in selected transactions, allow for a speedier recovery process but risk depleting securitised pool values.

Overall, NPL deal volume is expected to increase for the remainder of the year and into next. Moody’s concludes: ‘’Although we just rated three new NPL deals in 1H21, issuance volumes will likely grow even if not in the immediate future, as the pandemic continues to weigh on businesses. Regulators' focus on securitisation as a major tool to clean up banks' balance sheets and Italy's recent extension of the state sponsored GACS guarantee scheme will also drive an increase in NPL volumes.’’

Stelios Papadopoulos

Structured Finance

SCI Start the Week - 11 October

A review of SCI's latest content

CRT seminar in person THIS WEEK
SCI’s 7th Annual Capital Relief Trades Seminar is taking place in-person on 13 October at the London offices of Allen & Overy. The event will explore the introduction of the STS synthetics regime and publication of the EBA’s final SRT report, as well as examine the latest trends and activity across the market.

Last week's news and analysis
Capitalising Mobility-as-a-Service
The opportunity for impact investors in asset-based financing of MaaS providers
Chopra on the march
CFPB to expand its role and come down harder on securitisation
Credit recovery
Rating upgrades outpace downgrades
CRT crush
Mayer Brown working with 'many' imminent issuers
Forbearances plunge
Fresh data reveals biggest drop in forbearances in a year
Green light
Record second-hand car prices fuel RV opportunities
Landmark guarantee inked
ThinCats and BBB seal agreement
Libor warnings
Senior Fed governor spells things out for the SFA
Provisioning relief
Second Stage 2 SRT finalised
Untapped markets
French NPLs gaining attention
What is the future for US office space?
The impact of Covid-19 on the US office property sector

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

Recent research to download
GACS, HAPS and more? - September 2021
Given the success of both GACS and HAPS in facilitating the development of a market for non-performing loans, and consequently bank deleveraging, could similar government-backed measures emerge in other European jurisdictions? This Euro ABS/MBS Premium Content article examines the prospects for the introduction of further national guarantee schemes.

SOFR and equity - September 2021
Term SOFR is expected to be the main replacement for US Libor. This SCI Premium content article explores the challenges the new benchmark presents to US CLO equity investors.

Fannie Mae and CRT – August 2021
Fannie Mae has not issued a CRT deal since 1Q20. This SCI CRT Premium Content article investigates the circumstances behind the GSE’s disappearance from the market and what might make it come back

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.

Upcoming events
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 - 15 October

CRT sector developments and deal news

Credit Agricole is believed to be readying a capital relief trade backed by corporate loans. The transaction would be the bank’s third significant risk transfer trade this year, following the completion of a corporate and capital call trade in 1H21.

Meanwhile, HSBC is rumoured to be coming to market with its first synthetic securitisation since the closing of Metrix six years ago (see SCI’s capital relief trades database).

Capital Relief Trades

SCI CRT Awards: Transaction of the Year

Winner: Siena 2021 - RegCap-1

Banca Monte dei Paschi di Siena’s Siena 2021 - RegCap-1 has won the Transaction of the Year category in SCI’s Capital Relief Trades Awards. The synthetic securitisation is noteworthy for referencing a riskier asset class - a portfolio of mainly Italian Stage 2 loans - and for representing the bank’s efforts to address Covid-19 related impacts within its book.

Structured with the support of Intesa Sanpaolo - through the IMI Corporate & Investment Banking Division - in the role of arranger and placement agent, the transaction references a circa €800m portfolio of corporate and SME loans. The deal is structured in a tranched cover format, whereby the junior and senior tranches are retained by the originator, while the mezzanine tranche is guaranteed by the investor (Christofferson, Robb & Company).

In the Covid-19 context, European banks have experienced a widespread increase in Stage 2 loans within their books - with an average of 9% of the loan book, as of 31 March 2021. This increase follows also a conservative accounting classification of the economic sectors most affected by the pandemic. In this context, the deal completed by Banca Monte dei Paschi and CRC assumes relevance also for potential future issuers.

According to Aleardo Adotti, head of finance, treasury and capital management, through the execution of a CRT focused on Stage 2 assets, the bank sought to protect a meaningful part of its credit risk in the asset class, as well as to help navigate the bank through its de-risking effort. Notably, the deal is part of the bank’s ‘Plan on CRT transactions’, started in 2020, through which four transactions have so far been carried out.

Adotti says there were a few hurdles that needed to be overcome in order to close the deal. “The greatest effort was put into first selecting a perimeter envisaging satisfying features for both the investor and the originator, and second carefully determining the capital structure. In particular, the first loss retained by the originator needed to be calibrated correctly, in order to allow the bank to achieve adequate protection and a satisfactory capital release.”

The criteria used for classifying the underlying assets as ‘Stage 2’ follow the IFRS 9 accounting standard definition, in that the creditworthiness of the assets has deteriorated to a significant extent since initial recognition - although they remain performing. Should any of the assets in the portfolio move to Stage 3, the transaction covers for losses arising from the classification of a securitised exposure as ‘defaulted’.

“This is in line with prudential regulation in terms of the events being ‘past due’, ‘unlikely to pay’ and ‘bad loan’. When a loan is classified as a ‘Stage 3’ asset - once the retained junior tranche is fully exhausted - an initial loss equal to the IFRS 9 provisioning recorded on a loan is enforced from the cash collateral and adjusted from time to time until the final loss is determined,” explains Adotti.

Meanwhile, the investor is able to monitor the deal thanks to quarterly performance reports prepared by the bank. In addition, a loss verification agent may act in order to verify that losses are determined in compliance with the accounting policies.

The transaction’s WAL is about 4.7 years and it doesn’t envisage a replenishment or substitution period. However, Riccardo Gallina, head of loan management & advisory at Intesa Sanpaolo - IMI CIB Division, notes: “In order to maintain the deal’s efficiency in the case of high levels of prepayments, the transaction features a pro-rata amortisation of prepayments that exceed a pre-defined threshold.”

Honourable mention: Fontwell II Securities 2020

Fontwell II is a synthetic securitisation referencing a £1.83bn portfolio of UK agricultural mortgages secured on a first-charge basis over farmland and property originated by the Agricultural Mortgage Corporation plc (AMC), a subsidiary of Lloyds Bank plc. The non-replenishing transaction - structured by Lloyds Bank Corporate Markets as sole arranger and lead manager - provides credit protection for eight years and is motivated by regulatory capital relief at a beneficial cost of capital, as well as prudent risk management within the context of providing support to the UK agricultural industry in line with Lloyds Bank's Helping Britain Prosper ethos.

The portfolio comprises around 6,700 exposures to in excess of 4,000 borrowers operating across a range of farming sectors. The deal stands out due to the unique underlying asset class and the fact that it was executed amid challenging market circumstances for agriculture, given the uncertainty over Brexit, changes to the UK’s agricultural subsidy regime and the ongoing impact of Covid-19. As such and to maximise efficiency, the time between pricing and settlement was extended from the usual five days to 10, allowing for signing prior to the end of the Brexit transition period in 2020 and settlement in 2021.

Fontwell II achieved first and second loss and mezzanine protection on a 33% larger pool than the first Fontwell trade in December 2016, at a lower blended coupon rate, catering to investor risk/return preferences.

In aggregate, circa £157m of notes were placed with a small syndicate of international investors. The original note issuance of £129m priced in December, with an additional £28m of notes issued in March 2021 as a result of investor reverse enquiries. The note upsize enabled the retained tranche to be reduced from 22% to 5%.

Fontwell II was rated by Fitch and KBRA, which were required to consider how their standard methodologies should apply, given the unusually low loss history in the AMC book and specialist nature of the security for valuation purposes.

Capital Relief Trades

SCI CRT Awards: North American Transaction of the Year

Winner: TCB CRT 2021-1

The arrival of the first US regional bank in the capital relief trades sector had been anticipated and talked of for many months, so when Texas Capital Bank - a Dallas-based US$40bn lender founded in 1998 - arrived in the market in March 2021 the interest it elicited can hardly be overstated.

Now, finally, with this deal the US CRT market had arrived. It was a landmark event, and one that made a compelling and ultimately unignorable case to be SCI’s North American Transaction of the Year.

Texas Capital had been looking at ways to improve the capital efficiency of its mortgage warehouse lending book since about 2016, but all the options it explored had at least one critical flaw. But, in May 2020, it began to examine the capital relief trade mechanism and how it operated in Europe. Here, at last, was a structure that seemed to fit the bill from all possible perspectives.

It was in the course of these investigations that it was introduced to Citi, the bank which would go on to be its arranger, and Clifford Chance, which would be its legal counsel. Both of these firms had unrivalled technical experience of the CRT market.

Texas Capital now had powerful allies by its side, but there was much work to be done. Perhaps the most delicate part of the operation was to convince the regulators that they should grant the desired regulatory capital relief to the structure. The process was not made any easier by the fact that it had to deal with three different regulators - the OCC, the FDIC and the Federal Reserve.

“We have a very positive relationship with our regulators, and part of that is that we are transparent and proactive. So very early on we brought this project to their attention and kept them fully informed as we continued to improve our knowledge and preparation,” explains Madison Simm, president of mortgage finance at Texas Capital.

The OCC led the negotiations and shared its findings with the Fed and the FDIC. The regulators were most keen to see that Texas Capital had built the infrastructure and had the operational procedures to support the transaction on a dynamic basis after it had been priced.

Moreover, they wanted to know that this trade was not a one-off and that the issuer would not face a capital cliff once this three-year trade matures. But, for Texas Capital, the trade priced in March is only the first of what will be an ongoing programme.

The US$275m credit-linked note, which paid Libor plus 450bp and referenced a US$2.2bn mortgage warehouse loan portfolio, was sold to two investors. One was a large Street fund and the other an insurance company. Both had experience of CRT investment, but only in bonds sold by the GSEs.

“We intentionally sought diversification of our investors, including having large-scale investors, to accommodate potential future expansion. This was achieved in our transaction. The buyers had technical knowledge of the resi market, but we educated them on how our warehouse programme operates,” says Simm.

2Q21 represented the period in which the capital relief was realised and, given the enormous scale of residential mortgage lending in the first half of this year, the trade was immediately beneficial.

The US$275m first loss position carried a risk weighting of zero, while the remaining US$1.925bn of warehouse loans in the portfolio was risk weighted at 20%. Thus, the risk weighting on the entire pool of loans fell from 100% to 17.5%, reducing overall RWA by US$1.81bn.

This, in combination with two perpetual preferred offerings also sold in 1Q21, is estimated to have boosted the Tier One capital ratio by 73bp from 10.92% to 11.66% and the total risk-based capital ratio by 85bp from 12.76% to 13.61%.

“We were very happy with the result,” confirms Simm.

Texas Capital is now closely monitoring interest rate projections and the impact upon mortgage lending. Next time it is in the market, it is likely to seek longer duration.  

Honourable mention: Boreal 2021-1

The C$1.2bn Boreal 2021-1 synthetic securitisation executed in June 2021 was the first deal from BMO’s commercial real estate-focused Boreal platform. Strong investor demand meant the deal was upsized from an initial portfolio of C$700m.

It was a transaction of many firsts: the first Canadian commercial real estate synthetic transaction; the first Canadian dollar-denominated significant risk transfer deal; the first synthetic transaction to include construction loans; and the first externally rated transaction to include construction loans. In addition, it was the first hybrid transaction, with the unfunded guarantee from an insurer structured and executed by BMO.

While BMO is an old hand at significant risk transfer deals more broadly, Boreal 2021-1 was a first for its Canadian real estate finance group. Michael Beg, svp and head, real estate finance at BMO, comments: “This deal was something that was new for us, but we’re very pleased that we were able to reference both income property finance and construction in pretty much the exact same proportions to what we are doing in the physical market, which allows us to maintain portfolio diversification.”

He continues: “We now see synthetic securitisation as a tool in our tool kit on a go-forward basis. Future intentions are to use it when and as needed; when opportunity permits and the economics are favourable.”

RMBS

Beyond Covid-19: What effect has the pandemic had on the European RMBS and mortgage markets?

Andrew South, md, structured finance and Alastair Bigley, senior director, sector lead European RMBS at S&P Global Ratings, explore whether the European RMBS markets have weathered the Covid-19 storm

The Covid-19 pandemic has provided a novel test of European RMBS credit performance, which the sector looks set to pass with flying colors. As virus-related social restrictions led to an economic shutdown and mortgage lenders introduced unprecedented borrower forbearance schemes, RMBS investors seemed to be at risk of taking a hit.

Mortgage payment holidays posed a potential liquidity risk in RMBS, as they would temporarily reduce cash inflows to the transactions. However, structural mechanisms designed to deal with short-term cashflow disruptions generally proved ample to prevent any interruption to coupon payments for rated noteholders.

Government-backed short-time work schemes have also supported borrowers, limiting any rise in mortgage arrears. As a result, our RMBS ratings have held up well through the pandemic: we lowered only about 1% since March 2020 and upgrades have strongly outnumbered downgrades over that period.

Looking forward, RMBS credit performance will hinge on how borrowers respond to the wind-down of support schemes, which could unmask some underlying credit distress. This is likely to be greatest in pools of older-vintage, nonconforming loans, which were underwritten to looser standards than current originations. However, we expect the schemes' removal to be well-synchronised with the counteracting economic rebound, which has so far been strong.

Unemployment rates across Europe will likely be only slightly higher than pre-pandemic levels this year and will decline through 2022. Even where there are performance issues, we believe that servicers are typically better equipped to cope with the intensity of managing borrowers facing economic stress than they were in the wake of the 2008 global financial crisis, for example.

The European RMBS sector was not immune to wider capital market disruption at the onset of the pandemic, and investor-placed issuance in 2020 was almost 40% down on the previous year. However, RMBS volumes have bounced back strongly and look set to return to the recent pre-pandemic annual norm of more than €35bn by year-end.

The pandemic's short-lived effect on RMBS issuance broadly mirrored its effect on underlying mortgage originations. While lockdowns in early 2020 inevitably led to a hiatus in property transactions and associated mortgage lending, the subsequent recovery has been rapid, in some countries aided by policy measures to stimulate the housing market, such as the UK’s temporary reduction in property transaction tax. As a result, the UK’s mortgage loan book growth has recently been running at more than 5% per year, compared to normal levels of just over 3%. The lending trend is similar in the eurozone and has helped support RMBS issuance.

However, aspects of the policy response to the pandemic have also been negative for RMBS issuance. In particular, the expansion or relaunch of central banks' cheap funding schemes for financial institutions has exacerbated the multi-year trend of bank originators shying away from RMBS as a funding source, given the alternatives on offer. In fact, so far this year, more than three-quarters of European RMBS issuance has been from non-bank originators, compared with less than 5% a decade ago.

The longer-term effects of the pandemic on the structure of European mortgage markets are not yet clear. For example, more prospective mortgage borrowers could now have an adverse credit history or complex income record, potentially leading to greater activity among specialist lenders, who have historically been avid users of RMBS funding.

Conversely, traditional bank lenders could also have sufficient incentives to take on a wider customer base, given the continued low-yield environment for prime, vanilla lending, and an acquisition-led approach could remove specialist securitisers from the market. The end effect on the European RMBS market remains to be seen.

Structured Finance

Transitional financing

Adam Zausmer, chief credit officer at Ready Capital, answers SCI's questions

Q: Why do you feel the US CRE CLO sector is booming?
A: The bridge lending market is certainly red hot at the moment. We tend to focus on less volatile assets, like multifamily, and clear trends we see across the US are tired properties in need of capital expenditure as well as a shortage of quality affordable housing. Non-bank lenders are providing properties with larger amounts of leverage. 

Q: How did the Covid fallout affect the need for transitional property financing?
A: What we saw in the early days of the Covid-19 crisis is businesses shut down across the country. Obviously, this is still a concern and an uncertainty today.

However, we truly thought things would fare much worse than they did. Our portfolio held up extremely well, partly because we do not focus extensively on hospitality and big-box retail. 

The crisis brought many significant opportunities. Our original concern was to delay our substantial pipeline, which in retrospect was a good decision, as it allowed us to pause lending at the right time.

Having overcome this initial hurdle, we quickly got into asset management mode and then managed to grab market share when we restarted. From a buyer’s perspective, assets which were underperforming created an opportunity to purchase distressed assets at an attractive basis.

Q: Looking at the archetypal “victims” of the pandemic - retail, office and hospitality - is it still challenging to include these property types in multi-loan offerings?
A: Multifamily and industrial assets are clearly the ones we are most optimistic about - 90% plus of our current activity is in the multifamily space. Although government stimulus was helpful to tenants, the office sector was naturally impacted by the crisis.

What we are seeing now are lease expirations with tenants not renewing or downsizing, which will have a clear material impact. The outlook for office is generally concerning and you are seeing it in the numbers with higher delinquencies.

Retail was already struggling prior to the pandemic. However, as life is getting back to normal - particularly in the smaller-scale, local community centre space - it is actually holding up extremely well. 

Q: Are there any challenges that your firm or the broader market face?
A: Competition is certainly heating back up! Lenders that had shut down as the pandemic unfolded are steadily getting back in the game and with that comes elevated pricing competition. Lenders are generally also slightly more aggressive. 

Another trend is actually about retaining strong staff - but that comes across all sectors actually. It has become much tougher to fill niche positions as the pandemic instituted lifestyle changes. It is something companies will definitely have to take into account. 

Q: In terms of your outlook for the CRE CLO market, do you expect it to become a mainstream asset class?
A: For sure. Bridge financing is a product that we are very bullish about; one in which we built an extremely strong and specialised team, providing tailored loans.

What is interesting about this, and perhaps why I personally enjoy the bridge space, is that over 75% of what we are lending on is acquisition financing. It is fresh equity, committed to a project and what is interesting is that, depending on the property locations, you can clearly see the upside profile - compared to a stabilised CMBS transaction. From a credit risk perspective, it can be a product which makes a lot of sense.

Vincent Nadeau

Structured Finance

Affordable housing UMBS planned

Sector developments and company hires

Affordable housing UMBS planned
Freddie Mac plans to offer at least US$3bn in single-family affordable housing bonds, including approximately US$285m in Uniform Mortgage-Backed Securities backed by loans purchased through its Home Possible programme. The Home Possible mortgage offers a 3% down payment solution, which helps very low- to low-income potential homebuyers overcome the leading barrier to homeownership: affording a down payment. Other benefits of the programme include: lower mortgage insurance coverage requirements; reduced credit fees; and flexible sources of down payments.

Home Possible mortgages are only available to families with income at or below 80% of area median income. Freddie Mac purchased over 81,000 Home Possible mortgages in the first six months of 2021 and has made homeownership possible for more than 623,000 families through US$121bn in Home Possible mortgages since 2015.

Electric bike ABS debuts
Scope Ratings has published a final rating of triple-B minus to the lessee payment contingent fixed rate notes issued by Debt Marketplace - Compartment B, a cash securitisation of an up to €105.55m portfolio of electric bike lease receivables originated by Hofmann Leasing, with a corresponding total issuance amount of up to €100m. The receivables comprise German and Austrian lease instalments and the associated assets’ residual value.

The underlying assets will be pooled and allocated to a note over an issuance period of up to nine months with periodic taps by Debt Marketplace, acting through its compartment B. The lessee pays monthly installments, based on a lease factor on the net purchase price, plus the mandatory insurance fees and any additional optional insurance payments. The transfer value of receivables is based on an initial discount rate, which shall be adjusted downwards by 75bp if the operational servicer receives an issuer credit rating of at least satisfactory credit quality from Scope.

The transaction features an amortisation schedule for the fixed rate notes and adjusts for the level of cumulative observed defaults and remaining length of the amortisation period. These principal payments on the note are payable after the end of the issue period in April 2022. The fixed coupon rate on the notes is 1.25% per annum.

KKR transition underway
KKR has appointed Joe Bae and Scott Nuttall as co-ceos, with co-founders Henry Kravis and George Roberts remaining actively involved as executive co-chairmen of the firm’s board. The leadership transition is effective immediately.

Bae and Nuttall are the KKR’s second pair of co-ceos. They both joined the firm in 1996 and have served as co-presidents and co-coos since July 2017.

Bae was the architect of KKR’s expansion in Asia, building one of the largest and most successful platforms in the market. In addition, he has presided over business building in the firm’s private markets businesses.

Nuttall was the architect of KKR’s major strategic development initiatives, including developing the firm’s balance sheet strategy, overseeing the development its public markets businesses in the credit and hedge fund space, as well as the creation of the firm’s capital markets, capital raising and insurance businesses.

Concurrent with the elevation of Bae and Nuttall, KKR has unveiled a series of what it describes as “transformative structural and governance changes”. First, in a transaction expected to be completed in 2022, KKR will combine with KKR Holdings. Second, on 31 December 2026 - subject to exceptions that would accelerate this date - KKR will eliminate its controlling Series I preferred stock and also acquire control of KKR Associates Holdings.

Nordic trustee acquired
Ocorian has acquired Nordic Trustee, a provider of trustee and agency services for bonds and direct lending in the Nordic region. Nordic Trustee will continue to be led by ceo Cato Holmsen and an experienced management team, with offices in Oslo, Stockholm, Copenhagen and Helsinki.

Since it was founded in 1993, Nordic Trustee has helped develop the Nordic bond market, facilitating issuer access to capital, as well as monitoring and securing bondholders’ rights. It is also the largest independent loan agent in the growing Nordic private credit market and supports various stakeholders in the bond and private loan markets with digital solutions.

The company has over 3,000 running assignments in the non-bank lending sector for more than 850 issuers and borrowers from 30 countries. Furthermore, the company provides bond reference data, pricing information and indexes to institutional investors through its proprietary platforms Stamdata, Nordic Bond Pricing and eFIRDS.

Structured Finance

Antares succession revealed

Sector developments and company hires

Antares succession revealed
Timothy Lyne, founding partner and current coo of Antares Capital, is set to succeed David Brackett as ceo. Brackett will be retiring from his role as ceo on 31 December 2021 and will remain with Antares in an advisory capacity.

Lyne brings to the role more than three decades of leadership experience in the financial services, investment and private credit spaces. As part of a planned transition, he assumed the role of coo in April 2020, overseeing the firm’s sponsor coverage, capital markets activities, operations and technology functions, as well as marketing and enterprise risk. He is also a member of Antares’ investment committee.

EMEA
Crestbridge has appointed Conor O’Brien as head of accounting and transfer agency, based in Dublin. In his new role, O’Brien is responsible for establishing, leading and promoting the accounting, valuations and transfer agency functions of the fund administration business of Crestbridge Ireland.

He brings over 25 years of experience working in the funds industry, with particular expertise in developing services for clients in private equity, real estate funds and structured credit. Most recently, O’Brien was head of operations, fund valuation services at Societe Generale Securities Services, which he joined in July 2014.

Triparty collateral service extended
BNP Paribas Securities Services has extended its triparty collateral management service to synthetic securitisation and collateralised notes programmes. Launched in 2017, the service connects financial market participants, facilitating the circulation of assets and expanding the range of securities that can be used to back up securities financing and derivatives trades. This innovative use of triparty collateral management is already being used to manage the collateral aspects of the repo associated with BNP Paribas’ Resonance 5 synthetic transaction.

As a neutral triparty collateral agent, BNP Paribas Securities Services can manage the collateral management process on behalf of the two parties to a transaction and protect the interests of SPVs throughout the collateral management process. Services include selecting collateral in accordance with eligibility rules, transferring collateral on a near real-time basis and valuing collateral assets. The bank can also manage margin calls, substitution in the case of a recall of the securities and corporate actions.

Structured Finance

Renovation tax credit ABS closed

Sector developments and company hires

Renovation tax credit ABS closed
Banca Finint has completed an innovative securitisation backed by tax credits originating from energy efficient renovations of building stock under the Italian Ecobonus and Bonus Casa programmes, in collaboration with Easy Transfer, the platform that deals with transfers of credit deriving from tax deductions. The operation involves as transferors over 1,300 window and door companies participating in the platform.

The Easy Bonus SPV securitisation will become the transferee of these receivables as part of a monthly purchase programme. The platform currently manages monthly volumes of credit transfers of over €15m.

The Easy Transfer platform – which is a collaboration between Law & Tax Consulting and Ambrosi Partner - allows users to manage the accreditation process, as well as the collection and verification of documents necessary to obtain the discount on invoices and the assignment of the tax credits. In addition to structuring and servicing the transaction, Banca Finint has subscribed to a portion of the senior securities issued by the SPV. Banca Valsabbina participated as underwriter of the senior securities and as collection account bank.

ESG analytics acquisition
Sustainalytics is further investing in its digital innovation and enhancing its real-time ESG data analytics capabilities through an agreement with Toronto-based Act Analytics, whereby the Act Analytics team of portfolio management, machine learning and market data experts will join Sustainalytics. Founded by Zachary Dan in 2019, Act Analytics’ algorithms and natural language processing techniques use real-time news coverage and AI to identify ESG risk and opportunity signals for clients. Dan will assume the role of director of digital innovation at Sustainalytics.

ESG fund debuts
The TCW Group has launched the MetWest ESG Securitized Fund, which it describes as a first-of-its-kind dedicated ESG securitised fund in the US. The MetWest ESG Securitized Fund seeks to maximise current income and achieve above average total return while strategically investing across structured products that include RMBS, CMBS and ABS. Concurrently, the fund will opportunistically select securities with positive ESG factors based on TCW’s proprietary research and screening.

The firm says this flexible strategy leverages a well-diversified and broad opportunity set with access to multiple sources of return in seeking to achieve its performance goals and also support environmental and/or social initiatives. TCW is bringing this fund to market shortly after appointing Olivia Albrecht as global head of ESG, responsible for leading its ESG integration across the firm’s investment platform and business strategy.

The MetWest ESG Securitized Fund management team includes: Stephen Kane, generalist portfolio manager for TCW’s fixed income group; Mitch Flack, head of agency MBS; Harrison Choi, head of securitised trading; and Elizabeth Crawford, head of securitised research.

STS notification standards submitted
ESMA has submitted to the European Commission for endorsement its final report on technical standards specifying the content and format of the STS notification for on-balance sheet securitisations. The final report on draft RTS and ITS largely reflects the original proposals included in May’s consultation paper, considering the feedback received. It aims to ensure consistency between the STS notification frameworks for traditional and synthetic securitisations.