Contents

ABS

Strong start

European ABS/MBS market update

European ABS/MBS got fully underway for 2022 over the past week. Both primary and secondary markets saw strong execution and a building pipeline.

The first two new issues of the year are due to price today – Dutch BTL RMBS Jubilee Place 3 and UK non-conforming RMBS Tower Bridge Funding 2022-1. The former saw its class A spread set at a DM of three-month Euribor plus 72bp in from initial price talk of High-70s ahead of pricing in the next hour; while the latter came in earlier this afternoon having tightened 8bp from IPTs to print at SONIA plus 72bp.

While both deal’s seniors saw healthy demand, as was the case towards the end of last year it was the middle of the stack that met with the strongest appetite. Jubilee Place’s class Bs were 4.7x oversubscribed at final guidance and Tower Bridge’s class Cs 6.7x, for example.

There are already four deals in the new issue pipeline scheduled to price next week – UK NC RMBS Elstree Funding No.2; prime Finance Ireland RMBS No. 4; dollar-sterling prime RMBS Silverstone 2022-1 and UK BTL RMBS Twin Bridges 2022-1. While a mandate for Stratton BTL Mortgage Funding 2022-1 was formally announced this afternoon.

They are likely to more additions in the next few days as market tone is expected to remain positive. As Aza Teeuwen, partner, portfolio management, at TwentyFour Asset Management noted in a blog post earlier today: “After a post-2008 record year for European ABS with €105bn of new supply, we don’t expect 2022 to disappoint, and if anything we think this year will keep us even busier than 2021.”

Meanwhile, in the secondary space tone is equally positive with spreads supported by a buying bias despite some macro disturbance earlier in the week. However, the market has seen little BWIC activity over the past five sessions, with only a mixed UK and Australian seniors list on Wednesday to draw major attention and good prints.

The BWIC pipeline is expected to fill out next week and already holds an interesting list next Tuesday, 18 January, at 15:00 UK time. It involves seven decent clips of Harbour No.1 and Glenbeigh 2 mezz paper.

For more on all of the above deals, see SCI’s Euro ABS/MBS Deal Tracker and SCI’s BWIC Calendar.

Mark Pelham

Capital Relief Trades

Freddie breaks new ground

Debut 2022 STACR increases detachment points - CRT volume to boom this year

Freddie Mac is in the market with its first CRT deal of the year, designated STACR 2022 DNA-1, and the format of the new trade marks a significant shift from STACRs seen in the past.

The deal, worth $1.35bn, comprises two M tranches rather than the customary one and the investment grade slice of the capital stack has increased.

There is now a A/A- $478m M-1A, a BBB+/BBB $318m M-1B, a BBB-/BB $239m M-2, a BB/B+ $159m B-1 and a $159m B-/NR B-2.

In contrast to previous STACR deals, the M1 tranche is now split into two investment grade tranche - the M-1A and M-2A - rather than one. The attachment points of these two new tranches encompass more risk. The new M1-A attaches at 3% and detaches at 4.50% while the M1-B attaches at 2% and detaches at 3%.

In all 2021 deals, the M-1 attached at 1.75% and detached at 2.25%.

This change is due to higher capital requirements imposed on the GSEs under the Enterprise Regulatory Capital Framework (ERCF). “That on its own is driving us to obtain more credit risk coverage via the form of higher detachments,” said vice president credit risk transfer Mike Reynolds in In Freddie Mac’s January 5 investor presentation.

The higher detachment points also increase the amount of investment grade buying opportunities, he noted, and believes in addition that this will give buyers in the reinsurance sector and institutional accounts in general to participate more fully.

Freddie expects to increase CRT issuance to increase to around £25bn in 2022 from $19bn in 2021, and with the increased detachment points some 50% of this supply will be investment grade as a result of the increased detachment points.

The GSE plans three STACR deals in Q1 2022, two DNAs and one HQA

The reference pool in STACR DNA 2022-1 comprises 112,796 loans with a balance of $85.5bn which were securitized between July 1 and July 31 2021.

The leads are Nomura and Morgan Stanley, while Amherst Pierpont, Barclays, BofA Securities, and StoneX Financial are the co-managers.

Simon Boughey

Capital Relief Trades

Greek surge continues

Eurobank finalises second SRT

Eurobank and Magnetar Capital have completed an €80m second loss funded synthetic securitisation that references a €1bn portfolio of Greek corporate and SME loans. Dubbed Project Wave, the transaction is the Greek bank’s first significant risk transfer trade with private investors.

According to sources close to the transaction, Project Wave priced in the high single-digits and features a pro-rata amortisation structure - without triggers to sequential - and a portfolio weighted average life equal to nearly four years.

Further features include a 1.5-year replenishment period and a time call that can be exercised once the WAL has run its course. Credit enhancement is present in the form of a synthetic excess spread mechanism that is lower than the one-year expected loss of the portfolio.  

The deal was executed alongside Project Wave Two, in which the EIF acted as the counterparty (SCI 6 January). Both transactions were carried out for balance sheet optimisation purposes. Project Wave provides RWA relief of approximately €600m, contributing around 21bp to Eurobank’s total capital ratio.

Looking ahead, the same sources confirm that the lender intends to tap the market at least once a year. ‘’The goal was to first build a track record by doing the deals with shorter WALs. We can then look at other asset classes, including the longer-dated ones, such as mortgages,’’ conclude the sources.   

Citi acted as arranger on the transaction and Clifford Chance as legal advisor.

Stelios Papadopoulos

Capital Relief Trades

Fannie gets 2022 under way

First CAS deal of the year comes in big at $1.5bn

Fannie Mae is in the market with its first CRT deal of 2022 - a $1.5bn four tranche transaction designated CAS 2022-RO1.

The lead managers are Bank of America and Nomura, while co-managers are Barclays, Citi, Morgan Stanley and StoneX.

While this is a large transaction, it is by no means the largest CAS deal in history, say sources. The CAS 2014-C03 was $2bn, for example and one tranche alone was worth $945m. Nonetheless, in terms of recent transactions, this trade is sizeable.

The $459.5m M-1 has a .90% tranche thickness, a 230bp credit enhancement (CE), the $434m M-2 has a 0.85% thickness and a 145bp CE, the $306m B-1 has a 0.60% thickness and an 85bp CE while the $306m B-2 has a 0.60% thickness and a 25bp CE.

All tranches have a 20-year final maturity.

The reference pool has an outstanding balance of 53.7bn, consisting of 180,002 individual loans. The average loan balance is $298,592. The weighted average (WA) credit score is 758 while WA original LTV is 73.6%.

Over 87% of the loans have a WA age of between six and 12 months.

The reference pool demonstrates more geographic diversity than has been the case in recent deals. California accounts for more loans than any other state, but still possesses only 22.3% of all loans. The remainder is spread very evenly across the USA.

Nonetheless, while the reference pool’s WA LTV and combined LTV represent significant borrower equity, both leverage ratios are somewhat higher than most of the recent non-agency prime RMBS transactions, notes KBRA.

This year is set to be a big one in the CAS/STACR sector, say market experts, with the return of Fannie and a regime at the FHFA that both expects an expansion of the credit box and is prepared to give friendlier capital treatment to the CRT mechanism.

Simon Boughey

Capital Relief Trades

Fannie off to a flyer

Fannie Mae's inaugural 2022 deal CAS 2022-RO1 prices

Fannie Mae today (11 January 2022) priced its $1.5bn CAS 2022-RO1 reported yesterday to be in the market, the GSE confirms.

The $459.5m M-1, rated A/A-, was priced at SOFR plus 100bp, the $434m M-2, rated BBB/BBB, was priced at SOFR plus 190bp, the $306.4m B-1, rated BB/BB+, was priced at SOFR plus 315bp and the $306m unrated B-2 was priced at SOFR plus 600bp.

The reference pool, with an outstanding balance of $54bn, includes collateral with LTV ratios of 60.01% to 80.00% which were acquired January through March 2021.

All other details of the trade are as reported by SCI yesterday.

With this bond offering, Fannie Mae has now brought 45 CAS deals to market, issued over $51bn in notes, and transferred a portion of the credit risk to private investors on just under $1.7trn in single-family mortgage loans.

Simon Boughey

Capital Relief Trades

Corporate SRT priced

HSBC completes US capital relief trade

HSBC has finalised a US$312m CLN that references a US$2.5bn portfolio of US corporate revolvers and term loans. The deal is the UK bank’s first confirmed US synthetic securitisation and one of a handful of US corporate significant risk transfer transactions.

According to sources close to the transaction, the deal features a three-year replenishment period and is backed by a mix of drawn, partially drawn and undrawn corporate revolvers. Credit enhancement is present in the form of first loss protection and there are no time calls.

The bulk of US synthetic securitisations reference highly granular asset classes, such as mortgages and auto loans. Consequently, the HSBC deal and the JPMorgan CRT that was finalised in 2020 are unusual in this respect (SCI 1 December 2020).

The former portfolios allow banks to achieve substantial capital relief, given the use of the standardised approach for calculating capital requirements in the US. Second, the deals are accompanied by a relatively low cost of protection. Hence, one question that arises is why banks would execute US corporate CRTs in the first place.

The rationale behind the HSBC trade appears to be similar to that of the JPMorgan deal. The same sources confirm that the transaction is motivated less by capital relief and more from a ‘’desire to reduce risk and enable the corporate banking business to grow prudently and profitably where other forms of risk distribution are limited, due to lower market liquidity.’’

The synthetic securitisation first emerged in October (SCI 15 October), with further details revealed in early December (SCI 9 December).

Stelios Papadopoulos

RMBS

DTI ratios eyed

Affordability changes could 'increase default risk'

Proposed changes to residential mortgage affordability testing in the UK would increase first-time buyers’ (FTBs) access to mortgage credit and support UK home prices. However, Fitch suggests that the changes could increase default risk for some borrowers through higher debt-to-income ratios, a key attribute considered in its RMBS rating analysis.

The Bank of England’s Financial Policy Committee (FPC) last month agreed to consult on withdrawing its requirement for lenders to apply a stress of 3pp above their reversion interest rate in mortgage affordability testing. The requirement applies to all lending, other than where rates are fixed for five years or longer, in which case affordability can be assessed at the pay rate. The requirement in the UK FCA’s Mortgage Conduct of Business framework that affordability tests incorporate market expectations and a minimum increase of 1pp would continue to apply.

Fitch expects the greatest impact of the changes would be for FTBs, who typically seek higher income multiples and higher LTV products. These borrowers often enter into shorter-term fixed-rate loans, which they plan to refinance once their LTV ratio has fallen through amortisation or property price growth. This reflects lenders’ tiering of mortgage rates by LTV – currently a 0.2pp premium exists for 90% LTV products over 85% LTV products.

For a representative borrower entering a mortgage with a 25-year term and a reversionary interest rate of 4%, the change in assessment results in a 20% increase in initial balance if the FCA’s minimum 1pp increase is used to assess resilience to interest rate rises. The additional borrowing allows either a smaller deposit or a higher purchase price, raising the loan-to-income (LTI) and LTV ratios.

This would increase such borrowers’ exposure to interest rate risk at the end of the initial fixed period, which in many cases is two years after loan advance. A rate shock of more than 1pp would be beyond the affordability test unless it had been within market expectations and its impact could be magnified if it coincided with other household cost increases, according to Fitch. The agency expects UK policy interest rates to rise by 0.75pp to 1.00% by end-2023.

Fitch considers affordability and LTV as key drivers of default probability in its RMBS rating analysis. For the representative mortgage above, if the borrower were an FTB with indebtedness at 4x income and an LTV of 80%, and they used the additional 20% loan balance to purchase a more expensive property, the LTI and LTV ratios increase to 4.8x and 83% respectively. Fitch’s foreclosure frequency for the loan would, on average, increase to 3.7% from 3.1%.

“Weakening the affordability assessment places a greater emphasis on the FPC’s flow limit of 15% of lenders’ advances having a LTI of 4.5x or above to mitigate systemic risks. UK mortgage lenders already manage their exposure as a result of this limit with a significant product offering at an LTI of 4.49x,” the agency notes.

It concludes: “We expect demand to increase for higher income multiple products if lenders fully reflect the proposed regulatory changes in their lending criteria. Lenders will need to manage this demand, potentially through non-credit-related restrictions, to remain within the flow limit.”

Corinne Smith

New moves

Sector developments and company hires

EMEA

Ashurst is set to further expand its European securitisation team with the appointment of new global capital markets partner, Agathe Motte. Motte will join the law firm in Paris from Linklaters, where she advised French and European banks, corporates, and funds on structured finance deals. She brings extensive experience in both domestic and multijurisdictional securitisation transactions, in a variety of asset classes.  Also joining Ashurst alongside Motte will be with counsel Aurélien Fournier and associate Lucien Jarry.

In other news..

North America

Blue Owl Capital has recruited Madeleine Sinclair to spearhead the development of its wealth management business as managing director and head of North American distribution. The former head of iShares Canada at BlackRock will join the alternative asset manager in the newly established role with over twenty years of sales and management experience within private wealth distribution. The company hopes Sinclair will aid the expansion of its private wealth management business across US and Canada as it aims to increase its US$6bn of capital commitments using private wealth clients.

RBC Capital Markets has announced the hire of Alex Frazier as a new vp as the firm continues to expand its US CLO team. Frazier will join the firm from Morgan Stanley, where he worked primarily on warehouse financing. Joining the New York office, Frazier will focus on CLO origination, syndication and warehouse financing, and report to CLO syndication and warehouse financing, Chris Heron.

New partnership

Sector developments and company hires

Morningstar has announced the enhancement of its DealView product with the inclusion of climate risk data through partnership with property climate risk data provider, ClimateCheck. The firm’s subsidiary, Morningstar Credit Information and Analytics, will incorporate the new feature alongside its existing in-depth commercial real estate analytics to enhance existing efforts to inform investors on natural risk factors in their CMBS transactions. Morningstar claims the new feature will enable users to readily access natural risk data for any property in the US CMBS portfolio.

In other news…

EMEA

Benjamin Bouchet has joined Scope as director - structured finance analyst, based in Paris. He was previously a structured products vp at Conning Asset Management in London and before that worked at Moody’s and Credit Agricole in ABS-related roles.

Jake Lindsay has re-joined Mayer Brown as counsel - structured finance and securitisation in the firm’s London banking and finance group. He began his career at Mayer Brown in September 2008 as a trainee solicitor, before moving to Cadwalader as an associate in January 2014.

North America

Lev has recruited Wayne Potters to serve as md and head of CMBS. Potters will join the New-York based real estate financing platform from Société Générale, where he also worked as md and head of commercial mortgages. The new hire follows on from Lev’s announcement of its partnership with the cloud-based solutions provider for real estate investment managers, AppFolio, as the company seeks to modernise its business. In the new role, Potters is set to further the digitisation of Lev’s business, and launch a new CMBS landing planform, as he focuses on digital and automated CMBS.

Loomis Sayles has announced two new senior hires in the launch of its new private credit group. Chris Gudmastad will join as the Loomis Sayles Private Credit Group’s head of private credit, reporting to the firm’s cfo, David Waldman. Gudmastad has over 20-years of industry experience, having most recently served as vp and head of private credit at Securian Asset Management. In the new role he will concentrate on lead sourcing, portfolio management, and underwriting, as the group work to diversify exposure to private fixed income investments to optimise existing income. Additionally, Myles Reinecke, also previously of Securian Asset Management, will join the firm with over a decade of experience and report to Gudmastad as senior private credit analyst.

Waterfall Asset Management has acquired the mezzanine notes of the first securitisation backed by an underlying asset class of car subscriptions. Waterfall were advised by White & Case on the €500m asset-backed debt capital financing transaction from Munich-based carbon-neutral car subscription platform, FINN. Credit Suisse is the senior investor of the deal, and the 2019-founded FINN intend to utilise the deal’s financing to aid the expansion of its fleet.

JBBB ETF launched

Sector developments and company hires

Janus Henderson has launched the Janus Henderson B-BBB CLO ETF for US investors. The ETF is the first to focus on providing exposure to B-BBB rated CLOs and will be managed by portfolio managers John Kerschner and Nick Childs, with Jessica Shill serving as associate portfolio manager. The launch of JBBB follows the launch of the Janus Henderson AAA CLO ETF (SCI 20 October 2020) and provides investors with the potential to access yield while maintaining exposure to floating rates and the structural profile of CLOs.

In other news..

APAC

MUFG has hired new md and head of investment grade credit sales, Jess Sodaski, as the firm continues development of its team. Sodaski joins the firm after spending more than 20 years at Credit Suisse, working in sales alongside co-head of flow products Steve Feinberg. With extensive experience in numerous types of accounts including structured credit, he will maintain responsibility for the firm’s IG sales strategy across the US. Sodaski will be based in New York and will report to head of institutional investor sales for the Americas, John Karabelas.

EMEA

The UK FCA has completed its assessment of applications received from European DataWarehouse and SecRep as securitisation repositories (SRs) under the UK Securitisation Regulation and has registered both entities with effect from 17 January. The obligation to report public securitisations within the scope of the UK Securitisation Regulation to an SR that is registered and supervised by the FCA will consequently apply from 17 January.

RBC Capital Markets has names Ian Devine as its new head of leveraged loan trading in move to expand the firm’s leveraged finance and financial sponsors banking business across Europe. The former head of loan trading for NatWest Markets will undertake responsibility for the insinuation’s investment banking division. Devine previously served as head of loan training at both NatWest for seven years, and prior to that at Credit Agricole. Devine will work to serve and expand the firm’s European client base, supporting and furthering its businesses in the leveraged loan space.

North America

Investcorp continues the expansion of its US business with the opening of its Los Angeles office. The global alternative investment firm has appointed Scott Goldchain to lead efforts in the West Coast region. He will be joining the firm as a senior relationship manager, having served in a similar capacity previously at Patria Investments. Goldchain has extensive experience in financial markets and has specialised in institutional capital formation and investor relations strategies since 2007.

K2 Investors has promoted Michael Rich to become its head of ILS, following departure of Jonathon Malwar. Rich has been at the firm since 2011, most recently serving as a research analyst, where he worked on ILS and cat bond fund strategies for the firm and specialised in analysing asset classes.  As well as taking over as head of ILS, commodities, and environmental strategies, Rich has also been promoted to portfolio manager, and will report to co-head of investment management, Anthony Zanolla.

Napier Park has elected two new partners, Joseph Lane and Julia He, in recognition of their integral contributions to the growth of the global alternative credit investor. Based in New York, Lane has over 40 years of industry experience and has been with the firm since 2015, where he now serves as vice chairman of Napier Park and chairman of its management committee. In the firm’s London office, Julia He has worked as a senior investment capacity at the firm for over 15 years, a founding member of its European credit strategy team and an important contributor in the company’s expansion of the European Henley CLO business.

Greek NPL JV agreed

Sector developments and company hires

Mount Street Group has received regulatory approval from the Bank of Greece to form a strategic partnership with Technical Olympic, a real estate, construction, shipping and investment group. The joint venture is effectuated through Technical Olympic’s subsidiary, PFC Premier Finance Corporation (Cyprus), and will pursue investment and co-investment non-performing loan opportunities in the real estate, shipping, infrastructure, renewable energy, hospitality and broader SME sectors across Greece and Cyprus. Pursuant to the strategic partnership, Mount Street’s regulated Greek servicer - Mount Street Hellas SAMRLC - onboarded its first portfolio under the JV in December 2021, comprising corporate real estate-backed NPL exposures with an aggregate gross book value of over €33m.

In other news…

ILS investment partnerships inked

Alecta has inked two ILS-related investment partnerships: one is with Swiss Re Insurance-Linked Investment Management (SRILIM) and the other is with SCOR. The former partnership involves a US$250m investment in SRILIM’s 1863 fund platform, allowing Alecta to participate in Swiss Re’s natural catastrophe business in a capital-efficient format. The agreement further enables the pension fund to benefit from significant diversification potential, as well as Swiss Re’s risk knowledge and underwriting expertise.

The latter partnership involves a US$200m investment in SCOR’s Atlas Gotland Worldwide Catastrophe Sidecar, a segregated account of the newly created special purpose reinsurer Atlas Re Limited in Bermuda. With this investment, Alecta will benefit from the performance of SCOR Global P&C’s diversified portfolio of property catastrophe reinsurance through a multi-year agreement. 

North America

TwentyFour Asset Management has announced the appointment of a new partner from within its portfolio management team. David Norris, head of US credit at TwentyFour and a member of the Multi-Sector Bond team, will become a partner in early 2022. Norris will be the 16th member of the partnership founded in 2008. He joined the firm in 2018 and is based in New York. The appointment is designed to expand the leadership group at TwentyFour, and to further reinforce the firm’s commitment to the US.

Navient agrees multi-state settlement

Sector developments and company hires

Navient agrees multi-state settlement

Navient has reached agreements with 39 US state attorneys general to provide relief totaling US$1.85bn to resolve their multi-state litigation and investigations in connection with allegations of unfair and deceptive student loan servicing practices and abuses in originating predatory student loans. In the agreements, Navient expressly denies violating any law - including consumer-protection laws - or causing borrower harm.

Under the settlement, Navient also has agreed to conduct reforms that require it to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances. Additionally, the company must train specialists who will advise distressed borrowers concerning alternative repayment options and prohibit customer service agents from being compensated in a manner that incentivises them to minimise time spent counseling borrowers.

Under the agreements, Navient will cancel loan balances of approximately 66,000 borrowers with certain qualifying private education loans that were originated largely between 2002 and 2010 and later defaulted and charged off. In addition, the company will make a one-time payment of approximately US$145m to the states. A portion of that payment will reimburse the states for their costs, with the remaining funds to be distributed to approximately 350,000 federal loan borrowers that were placed in certain types of long-term forbearances.

Navient estimates that these costs are substantially lower than the expected costs of ongoing state-by-state litigation and investigations.

In other news…

EMEA

doValue has announced the addition of Waterwheel Capital Management to its client portfolio following completion of the Project Mexico HAPS securitisation. As part of the €3.2bn Greek HAPS securitisation from Eurobank, doValue will retain the related servicing mandate of the transaction, and US-based Waterwheel will acquire a total 90% stake in the mezzanine and junior notes. doValue, formerly doBank S.pA., is Southern Europe’s leading credit management and real estate services operator for banks and investors with approximately €160bn in assets under management. The securitisation furthers both firm’s efforts in the Greek market, the transaction closely following the €5.7bn Project Frontier with National Bank of Greece, Bain Capital and Fortress.

Man Group has announced two new senior hires as the firm launches its Capital Asset Solutions initiative (CAS). The investment management firm will welcome the London-based recruits Dan Robinson and Stephan Muecke who will both be joining the CAS team as managing partners. Robinson brings more than two decades of experience, as he joins the firm from CIFC where he served as its European cio. Muecke also brings extensive experience to the firm’s new imitative with over 15 years of experience in the field, having worked in senior asset management roles at Oaktree Capital and Merrill Lynch, and most recently at Swiss Re. The pair will lead the new CAS initiative which aims to unify the Man Group’s investment capabilities, offering solutions for clients in complex, regulated markets worldwide.

Pemberton is set to expand into the Middle Eastern market with the launch of a new Dubai office. Anis Ghamgui will serve as head of the new office, joining the firm from BlackRock where he worked as md and head of Middle East and Africa. Ghamgui brings over 20 years of experience in business development in the region to firm. Pemberton hopes his expertise will enable them to better serve the needs of clients and investors in the area as the company seeks to increase its offering in the Middle East in the coming years.