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Asset-Backed Finance

Fasten your safety belts

Aircraft ABS set for further turbulence

The fallout from the Ukraine crisis is likely to affect the entire aircraft ABS market, rather than simply those deals with exposure to Russian assets. This Premium Content article outlines why the sector is bracing for a bumpy ride.

The Russia-Ukraine conflict has exposed fault lines in the aircraft ABS market that participants had hitherto tended to discount. Future aircraft lease securitisations are now expected to be not only priced more generously than in the past, but also incorporate structural changes.

“These types of events highlight concerns about transactions, and there will be a spill-over to the wider market. In the next round of deals, we could see not only wider spreads, but more importantly structural differences,” says Theresa O’Neill, head of ABS strategy at Bank of America in New York.

Generic five-year single-A rated aircraft ABS notes without significant Russian exposure were trading at the time of writing in the region of plus 500bp. They have widened some 110bp since the start of the year and 50bp month-on-month, thus demonstrating that the damage is not limited to those with Russian exposure.

Those deals with Russian exposure see no trading, but have dollar prices quoted in heavy discounts to par, say dealers. No new aircraft securitisations have been issued since the start of the year.

The structural changes envisaged may incorporate such features as enhanced credit enhancements, different insurance provisions, reserve accounts and different triggers. Some jurisdictions and lessors could also be excluded from deals in favour of stronger lessors.

The limitations of current insurance documentation have been demonstrated by the crisis. Sanctions imposed by the EU at the end of February prevent EU-based insurers from providing coverage to Russian airlines.

“They are obliged to terminate the policy, which impacted our analysis of exposure,” says Inga Smolyar, senior credit officer at Moody’s in New York.

Coverage from other insurers is also far from certain. It is possible that assets sequestered in Russia may be covered by insurance policies as ‘an act of theft’ rather than ‘an act of war’, as Russia never formally declared war. This gives insurers a way out.

Pursuing the insurers through the courts will be an arduous and time-consuming procedure. As Michael Husemann, senior analyst for Prytania Asset Management, noted in a recent briefing: “This path is far from certain and will definitely lead to long, complex and expensive litigation. This last point is important for aircraft securitisation noteholders, as litigation costs would come out of a deal’s cashflow, ahead of even senior note interest.” Neither is it clear where such cases would be heard.

There is a trade-off between wider spreads and structural changes, notes O’Neill. Enhanced structural protections, possibly alongside better quality underlying collateral, will be required in order to minimise prohibitively costly spread widening.

Some 5.7% of total aircraft ABS issuance incorporates exposure to Russian or Ukrainian lessors in terms of dollar value and 6.4% (or 80) by number of aircraft. The exposure varies considerably, with some of these transactions having only one Russian asset, while one (AASET 2019-1, sponsored by Carlyle Aviation Management) comprises almost one-third Russian and Ukrainian aircraft leases.

AASET 2018-1 has 24% of its value tied to Russian and Ukrainian assets, while Castlelake Aircraft Structured Trust 2021-1 and Castlelake Aircraft Structured Trust 2017-1 both have 21% of their value exposed to Russian assets.

On 13 April, Moody’s downgraded three notes from one deal - Castlelake Aircraft Structured Trust 2021-1 - which it had placed on negative watch on 7 March, and says the notes remain on negative watch.  The three classes were the A, B and C tranches, rated A2, Baa2 and B2 respectively. 

In its original negative watch action of 7 March, Moody’s also cited the C tranche of MAPS 2021-2. Fitch took similar action against 27 classes of aircraft ABS on the same day, citing “the presence of collateral assets in Russia and Ukraine, the impact of military actions and sanctions, and the uncertainty of enforcement and recovery timing.” This represents about 30% of the aircraft ABS deals Fitch rates.

Moody’s states that the aircraft lessors it rates have reported that their exposure to Russia-based airlines is about 1.6%- 7% of net book value of their overall fleet.

Though present conditions are very concerning for aircraft ABS deals with Russian exposure, the future could be a lot worse, as it is highly dubious that lessors will get their planes back. Even if they do manage to secure aircraft, it is unlikely that they will be worth much, say analysts.

Lessors face two major problems. First, according to the widespread sanctions imposed by western governments at the end of February, lessors must terminate leases with Russian airlines and deregister the aircraft. This will cause an immediate disruption of payments and interrupt the cashflow of ABS deals.

In normal conditions, lessors would attempt to repossess aircraft upon termination of a lease to maintain capital value in ABS trades. But these are not normal conditions.

Getting to the aircraft in the middle of a war presents unique challenges, and Russian airlines are unlikely to be fully co-operative. So, for the time being, the planes stay on the tarmac in Russia.

Out of the 80 aircraft on lease to Russian or Ukrainian airlines, 83% by value have last known locations in Russia or Ukraine and 17% have last known locations outside of Russia or Ukraine, according to Bank of America research.

Even if the lessors are able to get their hands on the aircraft at some date in the not too distant future, their condition is unlikely to be pristine. Analysts suggest that there is a good chance they will have been cannibalised for spare parts, and will not be airworthy.

"Even if you do get your planes back, who knows what you're going to get? It is unlikely that reliable records will have been kept and without those, it is hard to predict whether an airplane would be deemed airworthy," says Mark Hirshorn, svp, US ABS at DBRS Morningstar.

According to a presidential decree of 14 March, Russian airlines can now re-register aircraft domestically, rather than in Bermuda or Ireland. So, even if the lessors are able to get their planes back and they are still in one piece, the required paperwork to say they are air-worthy will not be intact.

Lessors might also attempt to sell the aircraft to states which have taken no part in the sanctions, like China. But their bargaining position is not strong and only knock-down prices will be on the table.

In the rationale for its downgrade of 12 April, Moody’s was quite specific about the dangers to ABS transactions with Russian exposure. The notes were placed on review on 7 March “as a result of expected reduction in cashflow, due to foregone lease income tied to early termination of leasing activities,” it explains.

Since then, the adoption of the re-registration ruling has made the situation more complicated, “effectively creating uncertainty about their upkeep and therefore the ability of the foreign lessor to release the aircraft, should they be able to repossess them - thereby forcing them to resort to insurance coverage to recoup aircraft losses,” says Moody’s. According to transaction documents, there are lessor contingency insurance policies and the servicer has already submitted claims in connection with these aircraft.

“However, currently, there is a high degree of uncertainty around potential recoveries from insurance claims and the process will likely take an extended period of time,” the agency concludes.

The damage could also extend well beyond aircraft currently on lease to Russian and Ukrainian airlines. Airlines which have routes into Russia or fly over Russian airspace could be affected as well. Aircraft operating these routes will be grounded and lessors unable to receive payments for as long as sanctions prevail.

Events in Ukraine follow a very testing time for the aircraft ABS industry, as air traffic diminished sharply during the pandemic. Only North American traffic has recovered to pre-pandemic levels, while, at the end of February, passenger numbers in Europe, the Middle East and Asia Pacific were respectively 25%, 36% and 19% below 2019 numbers. 

The aircraft ABS market currently has a value of US$32bn in terms of outstanding principal. This puts it broadly alongside the equipment leasing market, which is worth US$31bn, and the franchise ABS market, which is worth US$40bn.

Collateral is formed by the lease agreements and the aircraft. The leases are generally for five to seven years, so do not cover the useful life of an aircraft, which is generally 25-30 years.

Consequently, upon expiry of the lease and the ABS deal, it is customary for the lessor to refinance the debt or sell the aircraft. The proceeds are then used to pay down the principal on the old deal.  Clearly, in the case of lessors with aircraft in Russia, neither of these options is open.

Another problem besetting aircraft lessors and one unconnected to the Russian crisis is that older widebody aircraft have lost value lately. This is partly as a result of the Covid-related reduction of air travel, but also due to the increasing popularity of smaller, more fuel-efficient airliners. As such, widebody aircraft are likely to be sold at reduced prices, also affecting the value of ABS deals which feature such planes.

Leasing aircraft by airlines has become increasingly popular over the last two or three decades. A little over 50% of aircraft in the skies are now leased rather than owned outright by airlines, according to Statista.

Investors vary according to what portion of the capital stack is on offer. Insurance companies, banks and hedge funds are typically drawn to the equity tranches of aircraft ABS, while senior notes tend to attract a wider investor base, says O’Neill.

The two largest lessors are Irish-American GECAS, which has a fleet of 1074 planes, and Irish Aercap, which has a fleet of 1024 planes. The popular Airbus 330 family of aircraft cost between US$230m and US$270m, depending on model, while the new Airbus 350-1000 comes in at US$355m.

Simon Boughey

Capital Relief Trades

Basel challenges highlighted

SRT market calls for transitional relief

The European Commission incorporated the December 2017 Basel three rules into EU law last year including the famous output floors (SCI 29 October 2021). Banks have long accepted the reality of the floors but the implementation and transition to the new regime has proven to be a challenge that remains unresolved. Market participants note that the alleged proposal for a halving of the p-factors is a step forward but remains far from the solution.

The key feature of the Basel rules is the output floor. It’s a measure that sets a lower limit on the capital requirements that banks calculate when using their internal models. The main aim of the output floor is to address model risk and unwarranted variability, thereby enhancing the comparability of capital ratios.

Banks using internal models will now have to calculate RWAs using whichever model they’re permitted to use. Lenders must then calculate RWAs using the standardised approach and then multiply the amount obtained by 72.5%. They must then compare the results from the last and first step and whichever figure is higher will then be used to calculate the various capital requirements.

However, assessing the impact of the output floor isn’t so straightforward because it’s different for every bank and it’s applied at an institutional and not at a portfolio level.

According to a legal expert: ‘’if a bank’s IRB total RWA isn’t close to the floor then the securitisation isn’t going to have an impact, but it will have an impact if it is close to the floor. Following the execution of a securitisation, other changes in the bank’s balance sheet that happen subsequently and that move the floor around-such as M&A activity-could mean that the capital benefit that the bank was originally getting from the capital relief trade is now lost since they’ve gone below the floor.’’

Nevertheless, it’s the implementation and transition to the new regime that has proven to be the thorny issue for banks. Last year the Commission decided to opt for the single stack approach to the implementation of the floor. Under this approach, there would be one capital stack with all the requirements in the stack expressed in terms of the risk-weighted assets. The concern here from the originator side is the potential duplication of capital requirements.

The choice of the single stack approach further complicates an already complicated situation. Jo Goulbourne Ranero, consultant at Allen and Overy explains: “The increase in conservatism resulting from the application of the IRB output floor to securitisations is relatively greater than the increase in conservatism resulting from the application of the IRB output floor to other exposure classes.’’

She continues: ‘’under the SEC-SA, for example, there is an increase in conservatism at two levels. Firstly, an increase in the underlying asset risk weights as an input to the calculation which must be calculated under the standardised approach. Secondly, an increase in the non-neutrality at the level of the securitisation, where the SEC-SA imposes higher p-factors and an uplift for defaulted assets. Industry lobbying is ongoing and is seeking transitional relief under CRR3 to mitigate the impact of the floor.’’

The transitional relief that Ranero is referring to is the halving of the p-factors under the SEC-SA for the purpose of calculating the output floor. The p factors are a capital surcharge on the tranches relative to the underlying pool capital and govern the non-neutrality for the securitisations. As a result, capital retained for the tranches is higher than for the underlying loans.

However, although the halving of the p factors is described as a step in the right direction, it’s still not enough for lenders. Steve Gandy, head of private debt mobilization, notes and structuring at Santander concludes: ‘’if you are close to the output floor at a consolidated level then SRT deals will no longer make sense, but there’s a proposal from regulators to halve the p factor which is a step in the right direction but it’s like putting a patch on a sore that needs antibiotics.’’

Stelios Papadopoulos 

ABS

New name

Dutch auto lease ABS debuts

Hiltermann Lease is in the market with a rare Dutch auto ABS. The lender’s inaugural transaction, dubbed Hill FL 2022-1, is backed by a €500m pool comprising 33,744 financial lease contracts to 30,896 lessees (see SCI's Euro ABS/MBS Deal Tracker).

The assets were distributed through dealers to self-employed and commercial borrowers to finance the purchase of new (accounting for 14% of the portfolio) and used (86%) cars. The contracts have a weighted average seasoning of 12.4 months and are repaid in equal instalments during their life, with a larger balloon payment at maturity for 15.5% of the pool. The pool has some concentration in the construction industry, which accounts for 31.2% of the balance.

Rabobank credit analysts note that the transaction has an STS label and no exposure to residual value risk. As such, the senior notes are also Eurosystem-eligible. Additionally, the full capital stack is being offered to investors.

The transaction benefits from various credit strengths, such as a granular portfolio and an amortising liquidity reserve sized at 0.5% of the class A to D note balance. Total credit enhancement for the class A notes will be 10.5%.

However, Moody's notes that the transaction features some credit weaknesses, such as an unrated servicer and a structure that allows for periods of pro-rata payments under certain scenarios. Mitigants include a back-up servicer facilitator, as well as a performance trigger that will switch back the principal payment waterfall to sequential if the cumulative net loss ratio surpasses 0.75% after 10 months and 2% after 23 months.

Angela Sharda

ABS

Full steam ahead

European ABS/MBS market update

With seven deals marketing, the European and UK primary ABS/MBS markets are set for bustling days ahead. While the market remained relatively unmoved either side of the Easter break, this strong surge in deals all scheduled for next week will certainly test investors’ appetite.

“With so many deals being announced, the doors are clearly open,” notes one European ABS/MBS trader. “Seven is an enormous number and unsurprisingly next week will be one of the busiest in a very long while.”

RMBS transactions will dominate the scene over the next five sessions – predominantly UK mandates. Lendco announced the full cap stack deal Atlas Funding 2022-1. In this BTL transaction, the A-E tranches are fully marketed, while the X1 and X2 notes are offered on a call desk basis.

Also in the UK pipeline is Bluestone Mortgages with a fresh deal from its Genesis Mortgage Funding programme that has a £219m provisional pool; and LendInvest with a new Mortimer transaction, offering the full capital stack, ranging from triple-A seniors down to the double-B E tranche. Finally, Clydesdale Bank is in the market with Lanark 2022-1, a maximum £390.67m prime RMBS.

Meanwhile, in the auto ABS space, RCI Banque is bringing a new transaction from its Cars Alliance programme. The STS deal currently offers both A and B notes to investors, although RCI has stated in the marketing documents it “reserves the right to not sell some or all of the B notes.”

Additionally, Hiltermann Lease announced its inaugural auto ABS deal Hill FL 2022-1. The transaction securitises a nine-month revolving pool of financial auto lease receivables and the full capital stack is being offered to investors, down to the triple-B rated D tranche.

Topping off the flurry of deals is Spanish consumer ABS, Pepper Iberia Unsecured 2022. The €212.3m of notes across five tranches are being offered to investors - from the 2.7-year triple-As down to the 3.6-year sub-investment grade E tranche.

Although such large volumes of paper should be welcome news, the trader cautions against such timing. “In my view, it is a lot for the market to absorb in terms of timing, particularly given that Monday and Wednesday will be bank holidays in Italy and Holland respectively,” he concludes. “However, the market has been stable and spreads have not moved recently. It will certainly be an interesting week.”

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

Vincent Nadeau

Capital Relief Trades

Risk transfer return

BMO finalizes Canadian CRE SRT

Bank of Montreal has finalized a five-year financial guarantee backed by a revolving C$2.1bn portfolio of Canadian commercial real estate loans (SCI 28 February). The transaction is the second synthetic ABS from the Boreal programme. Both transactions are the only confirmed post-Covid synthetic securitisations to be backed entirely by commercial real estate assets (SCI 23 December 2020).

The latest transaction features a C$115.5m first loss piece along with the mezzanine notes. The tranches amortize on a pro-rata basis but with triggers to sequential amortization. SPF investment management acted as the investor in the junior tranche.

Historically, BMO’s real estate business had always been funded internally. Yet last year the bank looked at market-based options to accelerate growth and this is where the Boreal programme enters the picture. Boreal enhances the lender’s flexibility in managing its CRE exposures (SCI 20 October 2021).

The launch of Boreal in 2021 coincided with the inauguration of the Sauble programme (SCI 12 July 2021). The latter focusses exclusively on new leveraged loan originations and the bank has already printed three deals out of the programme.  

Stelios Papadopoulos 

Capital Relief Trades

Dead CIRT

Fannie Mae places 4th CIRT of 2022

Fannie Mae has placed its fourth CIRT deal of 2022, a little over a week after its fourth CAS transaction of the year, the GSE announced today (April 19).

The transaction, designated CIRT 2022-4, transferred $844.8m of mortgage credit risk to 22 insurance and reinsurance firms.

The reference pool for CIRT 2022-4 is comprised by 76,600 mortgages with an unpaid principal balance (UPB) of $23.1bn. The collateral is a low LTV pool, with LTVs of between 60% and 80%, all of which were acquired between June and August 2021.

Fannie Mae retains the first 45bp of loss of the $23.1bn pool. If this retention layer of $104.2m is exhausted, the insurers will cover the next 365bp of loss to a maximum of $844.8m.

Since the inception of the CIRT programme, which was unveiled in 2013 alongside the CAS capital markets risk transfer mechanism, Fannie Mae has acquired a total of $18.4bn of insurance coverage on $635.6bn of single family loans.

Both GSEs will release 1Q results in the near future.

Capital Relief Trades

Risk transfer line-up finalised

North American CRT in focus

SCI’s 6^th Annual Risk Transfer & Synthetics Seminar is taking place in-person on 27 April at the New York offices of Clifford Chance. The event focuses on the growing North American synthetic securitisation market, which is undergoing a period of significant change and innovation.

The seminar begins with an overview of the most recent trends and banner events in the North American CRT market, followed by a panel focusing on the mortgage risk transfer space, including discussions on the Enterprise Regulatory Capital Framework and the mortgage insurance-linked note space. Next is a panel providing an overview of the North American regulatory framework for risk transfer transactions, while another explores the new asset classes and trends emerging in the US CRT market.

The issuer perspective panel examines the prospects for both incumbent issuers and new entrants to the North American CRT market, including Canadian banks and US regional banks. Meanwhile, an investor perspective panel looks at how the buyer base for CRTs is developing.

The event also includes a fireside chat featuring David Moffitt, co-head of US credit management at Investcorp.

SCI’s 6^th Annual Risk Transfer & Synthetics Seminar is sponsored by Arch MI, ArrowMark Partners, Guy Carpenter and Mark Fontanilla & Co. Credit Benchmark will be exhibiting at the event.

Panelists also include representatives from Barclays, BofA Securities, Chorus Capital, Freddie Mac, IACPM, JPMorgan, Man Group, Newmarket, PGGM and Seer Capital.

For more information on the event or to register, click here.

Capital Relief Trades

SRT expansion

Chorus to broaden focus with new hire

Chorus Capital has hired former ArrowMark portfolio manager Juan Grana. Grana will be joining the firm as Managing Director and Senior Portfolio Manager as well as a member of the executive committee. Although Chorus will continue to focus on large corporate loans for the next twelve months given current economic uncertainties, Grana’s extensive network and skillset will help bolster its position on the buy side via an expansion of focus towards other credit intensive asset classes such as commercial real estate and leveraged loans.

According to Gilles Marchesin, ceo at Chorus capital, ‘’in the current environment we will continue to focus heavily on large corporates and loan by loan analysis. This is due to the economic fallout of the war in Ukraine and the phasing out of Covid support programmes.’’

He continues: ‘’Large corporates are generally in a better position to pass higher costs to their customers and have more financial flexibility thanks to their access to capital markets. This does mean that we will be considering all sectors but subject to a thorough analysis of the individual names.’’

The fallout of the Ukrainian crisis will be manageable for banks, but it will put further pressure on capital ratios and profitability due to rating migrations, additional provisioning, and other headwinds.

Marchesin notes: ‘’We expect this year to be a record one for issuance. We are already working with several first-time issuers on top of the usual suspects. The main benefit of large corporates in this setting is that they offer the best risk-adjusted returns and proper downside protection.’’

Nevertheless, given Grana’s experience of sourcing deals from a broad range of issuers, Chorus will look at other asset classes when the ‘’time is right, but with a continued priority given to those that fit with our approach of assessing credit from a fundamental standpoint’’ says Marchesin.

Nevertheless, for Chorus the focus remains large corporates and SMEs on a selective basis, along with the ability to source deals in an environment of fast-growing supply. This is where Grana’s skills and experience will prove crucial.

Juan Grana brings over twenty years’ experience in the credit markets and will enhance Chorus Capital’s deal making capabilities. Prior to joining Chorus, Grana spent over ten years at Credit Suisse where he co-ran capital and credit risk modelling before being appointed as Managing Director in Credit Structuring. This was followed by six years at Nomura where he was managing director in the Structured Solutions Group. He spent the last 3.5 years at ArrowMark Partners where he set up their European office.

Stelios Papadopoulos 

CLOs

Transatlantic hurdles

CLO managers aim to overcome infrastructure issues

CLO managers are increasingly tapping transatlantic opportunities. However, risk retention financing and transparency requirements can be challenging.

 “It tends to be firms that have experience in one market or the other, because they already have some of the structuring expertise and infrastructure necessary to undertake a CLO transaction,” explains Alex Martin, finance partner at Latham & Watkins.

For firms that already have some of the necessary infrastructure and experience managing CLOs, it’s generally not “a huge leap” to enter into another market, according to Martin. From a commercial perspective, there might be different investors that a firm has not worked with before in the US, or vice versa in Europe. Consequently, by broadening their offering, a firm can expand their investor base.

However, Martin cautions that there are always threshold questions regarding the regulatory authorisation status of existing group entities, how a firm will structure the collateral management function from a legal and tax perspective and, for Europe, how the risk retention will be held. “The challenge for US managers coming to Europe is the risk retention and transparency requirements,” he observes.

The European market demands far more stringent transparency, reporting and regulatory requirements, whereas “most US CLOs are no longer subject to risk retention and are also not mandatorily subject to detailed transparency requirements,” states Martin. He notes that the risk retention capital needed for a European deal needs to either come from an internal source or a strategic third-party investor.

The latter is often difficult to attract until a firm is considered to be a regular issuer in the CLO market. “Many new entrants will seek to rely on retention financing, but such financing needs to be considered against the requirements of the risk retention rules,” Martin explains.

Over the past month alone, Barrow Hanley, Nuveen and Post Advisory Group have completed capital raises for CLO equity funds, with Perpetual, TIAA and Mercer respectively acting as strategic partners in their associated expansion into CLO management (SCI passim).

Regarding the prospects for further new US manager entrants into the European CLO market going forward, Martin states: “Several new entrants came into the European market last year and we are working with a number who are looking to enter this year.” Most recently, First Eagle announced its intention to expand into European CLO management, following its acquisition of Napier Park (SCI 31 March).

Claudia Lewis

Structured Finance

17Capital closes largest debut private credit fund

Sector developments and company hires

17Capital has closed its inaugural NAV lending fund with €2.6bn in capital raised, exceeding its €1.5bn target. The 17Capital Credit Fund marks one of the largest debut private credit funds to be raised, and comes as demand for NAV financing continues to rise and is expected to grow from a US$100bn market today to become a US$700bn market by 2030.  €1bn of the fund’s capital has already been spread across seven loans, and an additional €800m syndicated deployed to co-investors. The remaining capital from the fund will be used to offer loans to high-performing private equity managers across Europe and North America.

In other news….

EMEA

Juan Grana is set to join Chorus Capital as md and senior portfolio manager next month. He will also be appointed to the firm’s executive committee. Grana has over 20 years of experience in the credit markets and was most recently md at ArrowMark Partners, where he established the firm’s European office in October 2018. Before that, he worked at Nomura and Credit Suisse within the risk-sharing space.

Dechert has announced the return of Richard Pugh to its finance practice, marking the fifth partner to return in the past four months. Pugh will be based in London and will serve as a commercial real estate and securitisation partner. Pugh re-joins having most recently led Bank of America’s in-house legal team across European commercial real estate finance and securitisation. Pugh holds expertise in CMBS, securitised lending, term ABS issuance and CLOs. The firm hopes Pugh’s expertise will assist the firm in continuing to grow its global finance offering.

Deutsche Bank has named Matthew Williamson European head of ABS capital markets coverage, based in London. Williamson began his career in the firm’s securitised products group in 2000, before moving on to Santander and most recently NAB, where he worked in the European securitisation team.

North America

Brightwood Capital Advisors has announced the further expansion of its team following active investment period with two new senior appointments. Frederick Jelks will join the firm as a director in its risk group, and Chris Halajian returns to the firm to take on the role of director in its underwriting group. Jelks joins from AlixPartners, where he offered turnaround and restructuring services to both debtors and creditors in bankruptcy and out-of-court restructurings as a director. Halajian re-joins the firm having previously been with Brightwood as a vp and member of its investment team, and joins from Geode Health where he served as vp of business development and acquisitions. The firm hopes the new hires will help build upon recent momentum and enhance offerings for investors and borrowers.

Guggenheim Partners has appointed John Calabrese as co-head of fixed income sales, based in Fort Lauderdale. He was previously senior md in the structured products group, having joined the firm in September 2005. Before Guggenheim, Calabrese worked in securitisation sales and trading at Friedman Billings Ramsey, Oppenheimer and Lehman Brothers.

Structured Finance

ESG cat bond fund launched

Sector developments and company hires

Paschal Brooks and Justin Hull have co-founded Sustain ILS Management. Headquartered in New Jersey, the firm is an independent investment manager with a focus on sustainability and ESG within the catastrophe bond and reinsurance sectors. Brooks was previously ceo of AlphaCat Capital, which he joined in December 2011 as a portfolio manager. Before that, he worked at Goldman Sachs and Alleghany. Hull was formerly md at Aspen Capital Advisors, having joined Aspen Re in 2013. Prior to that, he was an ILS trader at PartnerRe and an associate in Citi’s special situations group.

In other news...

EMEA

Alantra has added two new mds to its private debt practice. Alberto Pierotti and Jean-Philippe Lantrade join the team shortly after several other recent appointments, as the firm hopes the pair will offer additional support in the development and global expansion of its private debt team. Pierotti will concentrate on developing the firm’s private debt business in Italy, and joins from Seaport Global, where he served as md in credit, distressed and special situations. Lantrade joins the firm’s Madrid office from the Madrid-based lending platform, Be-Spoke Capital, where he assisted the origination and funding of over 50 family-owned middle-market companies in Spain.

Mount Street has appointed Grant Tough as executive director and head of primary servicing. Based in London, he assumes responsibility for the firm’s primary servicing teams across Europe and Australia. Tough was previously a director at BCM Global.

North America

Northleaf Capital Partners has announced two new hires to its rapidly expanding investment team, including new associate, Thomas Staley. Joining the firm’s Chicago office, Staley will work on Northleaf’s private credit team, assisting in the origination, evaluation and monitoring of its North American private credit investments. Staley joins from JPMorgan, where he concentrated on M&A and financing transactions across the financial institutions industry.

Adrienne Dale-Burns has joined Onex Credit as md, portfolio manager for US CLO. She was previously a CLO portfolio manager at MidOcean Partners, which she joined in August 2019. Prior to that, Dale-Burns worked at Credit Suisse Asset Management and CIBC.

Structured Finance

Ex-employees resurrect Highland

Sector developments and company hires

Ex-employees resurrect Highland
A trio of former senior Highland Capital Management portfolio managers have resurrected the firm under a new moniker, Highland ERA Management. Patrick Daugherty – who was partner, senior CLO portfolio manager and head of distressed/special situations at Highland – is partnering with ex-Highland team members Kevin Rourke and Niles Chura in the venture.

Through a sub-advisory agreement with Glacier Lake Capital Advisors, Daugherty will serve as ceo and cio, Rourke will serve as head of research and senior portfolio manager, and Chura will serve as head of special situations and senior portfolio manager. The three founders bring more than 90 years of experience in credit analysis, trading, restructuring and portfolio construction through multiple credit cycles. They have worked together in managing the assets of over 20 CLOs, hedge funds, private equity funds, RICs and retail funds totaling over US$28bn.

Highland ERA Management was transferred to Daugherty at the beginning of April, pursuant to a bankruptcy court ordered settlement agreement between Daugherty and Highland, which resulted in Daugherty being awarded an ownership interest in the Highland platform, complete ownership of two Highland affiliates and a lump sum payment. Headquartered in Dallas, the firm’s investment expertise includes bank loans, high yield bonds, structured credit, claims trading, post-emergence securities, stressed/distressed and special situations.

Glacier Lake Capital Advisors is an alternative investment advisor that was founded by Daugherty and Rourke in 2015. The firm provides sub-advisory and consulting services.

First-of-its-kind ILS prints
Swiss Re has secured US$1.15bn in alternative capital primarily from JPMorgan through an innovative hybrid transaction. The multi-year stop-loss transaction is the first of its type to combine both bank financing and ILS, and is set to cover the underwriting risks across the Swiss Re Group. The deal will support Swiss Re’s future growth opportunities in the reinsurance market by protecting the firm from large underwriting losses between 2022 and 2026, and is expected to benefit the firm’s ratings and regulatory capital requirements.

The transaction makes use of the new segregated account of the existing Matterhorn Re special purpose insurer vehicle. The proceeds of the fully collateralised transaction will be held in EBRD-issued notes, which have stable ratings of Aaa/AAA/AAA from Moody’s, S&P and Fitch respectively. US$1bn of the total financing has been provided by JPMorgan, with the remaining US$150m of investment secured from other institutional investors.