Contents

Capital Relief Trades

Backward trigger dropped

EBA amends initial STS SRT consultation

The European Banking Authority’s final regulatory technical standards (RTS) on the performance triggers for STS synthetic securitisations with non-sequential amortization (SCI 21 September) have been welcomed by market participants. Indeed, a controversial backward-looking trigger has been dropped, but the cumbersome time limited grandfathering remains.

The initial consultation stipulated a backward-looking trigger which targeted the thickness of the protected tranche. Specifically, the document stated that if at any point in time, loss claims against the protected tranches consume more than 25%-50% of the nominal amount of the protected tranche, the amortisation structure automatically switches from pro-rata to sequential (SCI 28 January).

The rationale was to ensure that the tranches providing credit protection are thick enough to absorb losses that occur at the end of the transaction’s life. The proposal was too prescriptive from an originator’s perspective and failed to consider the peculiarities of specific portfolios, depending on whether they are IRB or standardized and granular versus non-granular. However, time limited grandfathering persists.

According to Jo Goulbourne Ranero, consultant at Allen and Overy, ‘’the proposed regulatory calibration of trigger thresholds has - helpfully - been dropped. However, new criteria are imposed in relation to the setting of thresholds by transaction parties. For backward-looking triggers, these include a requirement to test the triggers in back-loaded loss distribution scenarios-with originators subject to the CRR being required to apply relevant SRT/CRT test assumptions.’’

She continues: ‘’The main challenge in relation to the RTS is the time limited nature of the grandfathering for existing transactions, expiring Jan 2025. This is part of a wider problem affecting current regulatory initiatives-including the homogeneity RTS and potential implementation of the SRT report-as they relate to on balance sheet securitisations. We could see a wave of regulatory calls if this grandfathering issue is not addressed pragmatically.’’ 

Similarly, David Saunders, executive director at Santander corporate and Investment Bank concludes: ‘’the lack of grandfathering is the greatest challenge with the final RTS since there’s a transition but no grandfathering. If you close a securitisation before the new rules are finalized, you risk losing your STS status. We understand the EBA believed that they legally cannot include grandfathering. However, leading law firms have disputed this.’’

Stelios Papadopoulos

Structured Finance

SCI Start the Week - 17 October

A review of SCI's latest content

Last few days to register!
SCI’s 8th Annual Capital Relief Trades Seminar is taking place this Thursday, 20 October in London. For more information on the event or to register, click here.

New free report
SCI has published a Global Risk Transfer Report, which traces the recent regulatory and structural evolution of the capital relief trades market, examines the development of both the issuer base and the investor base, and looks at the sector’s prospects for the future. Sponsored by Arch MI, ArrowMark Partners, Credit Benchmark and Guy Carpenter, this special report can be downloaded, for free, here.

Last week's news and analysis
Climate boost
Sabadell completes project finance SRT
Corporate SRT priced
Natixis executes capital relief trade
CRT Seminar line-up finalised
Women in risk sharing breakfast to debut
Custom-built capital relief
Customers Bank perhaps side-steps regulators with true sale deal
Keeping it competitive
Greystone answers SCI’s questions
Non-calls to continue?
Extension risk on the rise, particularly for non-bank issuers
Opening access
Demand for CLO ETFs set to rise
Regional bank CRT pipeline builds
New SCI Global Risk Transfer Report published
Stormy weather
Increased default and downgrade risk for CLOs

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

Podcast
SCI has launched a new podcast series covering all things securitisation and engaging with some of the best minds in the industry! To access the podcast, search for ‘SCI In Conversation’ wherever you usually get your podcasts (including Spotify and iTunes), or click here.

SCI CLO Markets
CLO Markets provides deal-focused information on the global primary and secondary CLO markets. It offers intra-day updates and searchable deal databases alongside BWIC pricing and commentary. Please email David McGuinness at SCI for more information or to set up a free trial here.

Recent premium research to download
US CLO ETFs - October 2022
The popularity of CLO ETFs is set to increase, given the current rising interest rate environment. This Premium Content article investigates how the product has opened up the CLO asset class to a broader set of investors.
STS synthetic securitisation - September 2022
The adoption of STS synthetic securitisation has helped legitimise the capital relief trades market. However, this Premium Content article outlines how the EBA’s most recent consultations could prove challenging.

SCI events calendar: 2022
SCI’s 8th Annual Capital Relief Trades Seminar
20 October 2022, London
SCI’s 3rd Annual Middle Market CLO Seminar
15 November 2022, New York

Capital Relief Trades

Ramping up

Bank of Montreal prices synthetic ABS

Bank of Montreal has priced a synthetic securitisation of US and Canadian senior secured and senior unsecured corporate loans from the Muskoka programme. The latest transaction brings the total number of deals from BMO this year to a sizable seven, as the bank seeks to boost its capital position for its ongoing acquisition of Californian based lender Bank of the West.  

The transaction features a 7.3% tranche thickness and was priced at approximately SOFR plus 10%. The deal follows the closing of another synthetic securitisation of capital calls from the Canadian originator that was finalized last month (SCI 29 September).

BMO declined to comment on the details of the transaction and the motivations behind this year’s record issuance, but well-placed sources note that the record issuance is driven by the bank’s ongoing acquisition of Californian based lender Bank of the West.

The acquisition was announced in December last year. Under the terms of the agreement, BMO acquires Bank of the West for a cash purchase price of US$16.3bn. BMO funds the transaction primarily with excess capital given its strong capital position and anticipated capital generation.

Bank of the West has traditionally served retail, small business, commercial and wealth clients and was previously owned by BNP Paribas. On closing, the acquisition will bring nearly 1.8m customers to BMO and will further extend its banking presence through 514 additional branches and commercial and wealth offices in key U.S. growth markets. 

Stelios Papadopoulos

Capital Relief Trades

Risk transfer round up-17 October

CRT sector developments and deal news

HSBC France is believed to be readying a synthetic securitisation of corporate loans for 4Q22. The transaction would be the first from the lender’s French subsidiary as the bank is readying another capital relief trade backed by UK corporate loans (SCI 5 October).

Stelios Papadopoulos

Capital Relief Trades

Swell spreads

Risk pricing means bonds stay costly for GSEs, say speakers at Miami

The GSEs will be obliged to offer “pricing concessions to increased risk” in 2023, meaning, among other things, that the shift to reinsurance will continue, says a speaker at the ABS East conference in Miami today.

Spreads in STACR and CAS securities have widened sharply this year due to increased supply and worsening macro-economic conditions, which has pushed a larger share of GSE credit risk into the reinsurance market.

Over 40% of CRT liabilities offered by the GSEs has been sunk into the reinsurance market this year, while the historical mean is in the region of 25%. Far from being a short-lived trend it looks as if this has become an established feature of the sector.

Capital market spreads have widened by 100% or more this year but no relief is in sight for the GSEs. The US looks set to enter recession next year so delinquency risk will increase. Moreover, although supply will attenuate there will be no appreciable reduction until 2024 due to the time lag between when mortgages are signed and when they enter CRT transactions.

The last four quarters have seen bumper issuance of GSE CRT product of around $28bn, peaking in May 2022, notes another speaker at the “Market Outlook for GSEs” panel. However, issuance is predicted to slip by just 15% in 2023 to $24bn and it is not until 2024 that a significant decline to $15bn is predicted as MBS sales tail off by perhaps 70% from the highs of this year and last.

Another feature of deteriorating economic conditions will be greater tiering between low LTV and high LTV CAS and STACR deals, say panellists. At the moment, the spread differential is around 75bp, but this is expected to swell to between 100bp-125bp.

The oversupply of the past year has also made investors more choosy. They now do not feel that they have to participate in every deal, knowing that another one will be coming along very soon. Clearly, this has underpinned the dramatic spread widening in CRT seen this year.

The MILN market has manifested the effects of increased costs in the capital markets as well. Only four deals have been priced this year, and in the latest Bellemeade deal almost 44% of risk was placed with the reinsurance market – underlying what appears at the moment a long-term shift to reinsurance.  

Simon Boughey

Capital Relief Trades

Through a glass darkly

Regulatory transparency would kickstart US CRT, say Miami speakers

Greater “clarity from regulators” is the key catalyst required to increase US bank usage of the CRT market, according to a speaker today at the ABS East conference in Miami.

Currently, there is an “opaque environment” and that is holding up the market, he elaborated. Another panellist admitted that the US market is currently “curiously undersized.”

Although there have been offerings by regional players Western Alliance Bank and Pacific West, the US market is still very small compared to Europe. It has been predicted to be at take-off point for several years, but as yet that hasn’t really happened.

However, speakers did not confirm the imputation, made by well-placed market sources, that Federal Reserve Bank of New York has become ill-disposed to the mechanism this year and this has stopped the market in its tracks.

The New York Fed is “certainly inquisitive”, said one, but stressed that in recent weeks deals have been brought by Morgan Stanley and Goldman Sachs, both of which report to the New York Fed. Ultimately, said speakers, they have “no real clarity’ about the machinations of regulators.

Another speaker on the panel, entitled Bank and ILS Risk Transfer, suggested that what would move the needle in the US market is not increased regulatory support but a “credit event” that would underline the importance of offloading capital requirements.

He added that some banks are often currently unsure what they would do with the capital unleashed by CRT trades. “The credit risk is not something that the banks, or regulators, are worried about but they do ask ‘what would you do with the excess capital?’”

Despite these caveats, he believes that the market in the US will “evolve in the next 12 to 24 months.” Investors are interested in this market, he added.

Deals in the US commonly use a credit-linked note (CLN) structure for CRT deals as an SPV, generally used in Europe, runs foul of the sponsorship aspects of Dodd-Frank regulation, explained a speaker. Moreover, the credit default swaps executed between the bank and the SPV would be regulated by the Commodity Futures Trading Commission (CFTC).

Issuing CLNs is also less costly than setting up an SPV. However, CLNs contain far less bankruptcy protection than an SPV so investors have to be comfortable with the credit risk. Moreover, it is more difficult to calculate investor returns without the CDS trade, so most CLNs in use in the US CRT market incorporate a hypothetical CDS to determine payout.

“We say, ‘This is how the portfolio would have worked if there were a CDS here,’” said a speaker.

A plus of the CLN structure is that documentation remains the same whatever the asset being securitized; it doesn’t matter if it’s mortgage warehouse loans, leveraged loans or capital call facilities.

Simon Boughey

Capital Relief Trades

SRT debut

First Bulgarian synthetic ABS finalized

Unicredit Bulbank and the European Investment Bank (EIB) group have finalized a synthetic securitisation that references a €1bn portfolio of Bulgarian SME and Midcap loans. The transaction is the first synthetic securitisation in Bulgaria.

The financial guarantee features a €90m first loss tranche and a portfolio weighted average life equal to approximately two years. The trade is one of the last significant risk transfer trades under the European Guarantee Fund. Indeed, given that it’s an EGF transaction, there’s no replenishment or synthetic excess spread.

The guarantee is the first synthetic ABS in Bulgaria and according to EIF sources it may be considered the first pure securitisation in the country since precedents-such as securitisations from Procredit-used a double SPV structure whereby the issuer of the securitised notes was a Dutch SPV rather than a Bulgarian one.

The EIB Group’s guarantee will allow UniCredit Bulbank to finance new eligible projects undertaken by Bulgarian SMEs. The operation is expected to unlock 630m of new loans at more favourable conditions to small and medium size businesses suffering from the economic consequences of the COVID-19 pandemic and exposed to instability due to events in Ukraine.

Stelios Papadopoulos

Capital Relief Trades

SCI CRT Awards: Transaction of the Year

Winner: Project Triton

Piraeus Bank’s Project Triton has won the Transaction of the Year category in SCI’s Capital Relief Trades Awards for being for the first synthetic STS securitisation of performing shipping loans in Europe. The US$700m deal – which was arranged by Alantra – paves the way for banks to manage the risks and capital requirements of ship lending more effectively going forward.

Shipping finance has had a volatile performance history in the past, with the bail-out post-financial crisis of various large lenders in the sector. In a sector where the downside appears to outweigh the upside, the value for a bank of being able to transfer risk and manage its capital position efficiently is even greater, according to Alantra md Holger Beyer.

Triton represents the second-ever shipping CRT, following a Citi transaction from 2013. As such, opening up a new asset class was a further challenge.

“Specialist knowledge is required to lend in the shipping space; therefore, successfully executing an SRT is an exciting development. But it did not start as an easy proposition, given that there is little overlap between shipping industry experts and SRT investors,” observes Beyer.

Fortunately, the investor in Triton – Christofferson, Robb & Company - combines an understanding of shipping finance with a considerable track record in the SRT market. “CRC has in-house shipping expertise and we were able to demonstrate that within the firm’s macro view on the industry, Piraeus runs a solid lending business which is risk-managed properly,” Beyer explains.

He acknowledges that Triton would have been a much harder sell if the investor hadn’t had expertise in shipping. On the other hand, for regular shipping investors, SRT is a strange proposition – they typically either lend directly or buy non-performing loans and are not used to relying on banks’ underwriting processes. Furthermore, if defaults occur, they are used to controlling the recovery process.

“When assessing SRT applications for the asset class, regulators are keen to understand the underlying risk - with an emphasis on correlation, given that senior retained tranches have much lower risk weights,” notes Beyer. “As more deals are completed in the space, we’d like to see investors strengthen their expertise in shipping. By building on this momentum, shipping will hopefully become more relevant and we can create a new sector in the SRT market.”

Any single sector portfolio is affected by correlation between loans in respect of PDs and LGDs, which are an amplified function of global economic conditions. Although there is some diversification across bulk, container and tanker vessels, compared to SME or corporate portfolios, shipping deals are less diversified.

The transaction involved Piraeus entering into a financial guarantee, with an SPV acting as the protection seller, buying protection from losses on a mezzanine tranche (from 2.5% to 10%). The risk on the other tranches was retained by the bank, together with 5% of the total portfolio to comply with regulatory risk retention requirements.

The protection seller issued CLNs to the investor and used the proceeds to purchase eligible collateral to secure its obligations under the guarantee and the notes. The deal features a two-year revolving period, allowing Piraeus to replenish amortised loans, and a time call option after 4.8 years. The transaction uses pro rata amortisation that switches to sequential if certain performance triggers are breached.

The originator has received approval that the transaction transfers significant risk and meets the STS criteria, resulting in a reduction of circa €400m in risk weighted exposure amounts. The deal was completed within eight months and settled in June 2022.

Auld Partners, a boutique shipping finance firm based in London, acted as Alantra’s expert advisor on the transaction.

Honourable mention: Project K2 (mBank, PGGM, UniCredit)
In recognition of the deal being the largest-ever securitised portfolio in Central and Eastern Europe (at PLN9bn); the first-ever STS synthetic securitisation from Poland; the first Polish SRT trade with a credit-linked note issued directly by a bank; and the first transaction in the Polish market executed entirely with a private sector investor.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.

Capital Relief Trades

SCI CRT Awards: North American Transaction of the Year

Winner: Algonquin 2022-1

Bank of Montreal’s (BMO) footprint in the CRT market is both extensive and well-established. But of the four programmes it operates, it would not be unfair to call Algonquin the jewel in the crown.

First unveiled in 2020, the platform recorded the largest US dollar-denominated CRT transaction in 2022. It was not a difficult choice to recognise Algonquin 2022-1 as North American Transaction of the Year.

Algonquin securitises US and Canadian SME corporate loans. The bank has a strong foothold in six Midwest American states - Illinois, Indiana, Wisconsin, Minnesota, Missouri and Kansas, and most of the US borrowers are to be found in these states.

The reference pool for the inaugural Algonquin offering of 2022, which was brought to market in April, comprised US$7.5bn in commercial credit facilities. The guarantee linked notes had a face value of US$532m, making it the biggest deal that BMO’s risk and capital solutions arm - which is responsible for regulatory capital relief trades - has ever brought to the market. Despite the traumatic macroeconomic and geopolitical climate, headlined by the war in Ukraine, the strong response to this deal allowed it to be upsized by another US$2.5bn within only a couple of weeks.

In August, Algonquin 2022-03 - which securitised another US$4.4bn - was brought to the market. This makes US$14.4bn in total for the year to date. Bank of Montreal’s other three CRT platforms contributed only US$4bn in total in 2022, underlining the importance of Algonquin to the issuer.

Not only is the dimension of the programme striking, the pricing that the initial offering in April was able to achieve is equally eye-catching. The unrated E tranche, with an attachment point of 0.0%, was priced at SOFR plus 850bp. Given the differential between SOFR and Libor, this tranche offered a slightly thinner yield to investors than the initial Algonquin offering brought to the market in 2020, despite this year’s market turmoil and the spread widening that had affected all fixed income assets.

“The pricing of this deal reflects what investors like about our platform. It’s a North American portfolio, with a very good track record, which allows BMO to outperform its peers from a credit standpoint. That’s what created the high demand for the transaction,” explains Jean-Francois Leclerc, head of risk and capital solutions at BMO.

The E tranche attached at 0.0% and detached at 6.50% and, with a notional tranche size of US$487.5m, comprised 6.5% of the portfolio. Elsewhere in the capital stack, the low triple-B rated D tranche had an attachment point of 6.5%, a notional tranche size of US$187.5m and was sold at SOFR plus 355bp.

Further up the stack, the single-A rated C tranche attached at 9%, was worth 2% of the portfolio and yielded SOFR plus 225bp. The double-A rated B tranche attached at 11%, had a notional of 1.3% of the portfolio and offered SOFR plus 130bp.

While the issuer was not able to divulge how much capital this trade has freed up, it comments that it “is an efficient tool to manage RWA and support capital planning. However, while the initial forays into the market this year were able to shrug off the general softening of prices seen throughout asset classes, the most recent 2022-03 was not as fortunate and levels were about 100bp wider than the April deal, according to reports.

“In H1 we saw no widening. Since then, we have - but in line with the overall market, or a bit better. This reflects that fact that our portfolio is focused on North America, compared to some of our peers that have more of a European focus,” says Leclerc.

A mix of investors, from pension funds to specialist CRT buyers, is drawn to the Algonquin programme. BMO now has regular participation from a pool of investors numbered in the mid-teens, says Leclerc.

“Ultimately, what attracts investors is BMO’s risk culture and performance from a credit standpoint. This explains the strength of our programme. Investors are supportive because they see our track record through the cycle,” he concludes.

Honourable mention: Western Alliance Bank capital call deal
In recognition of the deal being the first of its kind in the US and, given the growing popularity of the asset class in Europe, likely to be the forerunner of many more of its kind.

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.

Structured Finance

CRE CLOs: time to zig when others zag

When it comes to structured commercial real estate (CRE) credit, the European market is at a pivotal juncture, explains Iain Balkwill, partner at Reed Smith.

Last year proved to be a ground-breaking year for the asset class; we saw a record volume of CMBS issuance and in an industry first, Starz Real Estate brought Europe’s first ever CRE CLO to the market. In stark contrast 2022 has been the antithesis of this, with less than a handful of CMBS issuances and the Starz CRE CLO continues to be the one and only transaction to grace European shores.

To add salt to the wound, as we enter the final stretch of the year, there is little sign of a shift to the status quo, a fact exacerbated by a deterioration in market fundamentals, chief of which is that capital market volatility has made it extremely challenging to price primary deals. Securitisation has once again demonstrated that (unsurprisingly) it is not immune to the ebbs and flows that plague the capital markets. Indeed, although parallels in some quarters are being drawn against the global financial crisis, in reality this is a very different crisis against a very different CRE lending landscape.

In time, the markets will stabilise and when they do securitisation will demonstrate that it has an integral role to play for financing CRE for the greater benefit of the economy as a whole. The reality is that today’s securitisation product is much improved and more than capable of weathering an economic storm, thanks to the strides made in not only embracing new regulation but also taking on board lessons of the past and adherence to investor guidelines and best practice principles.

The underlying collateral is also of a very different calibre, thanks to the implementation of more robust underwriting standards and the deployment of new and improved loan structures. The importance of this technology cannot be underestimated as all economies (other than Turkey….) embark on an escalator of rising interest rates forcing borrowers and alternate lenders alike to embrace more racier forms of finance to remain competitive and boost returns.

Given its myriad of positive characteristics, now is the time for CMBS and CRE CLOs to assume an integral role as a financing tool for CRE. After all, on a macroeconomic level, these structures are a great way of spreading and diversifying CRE risk whilst at the same time promoting much needed openness and transparency to the CRE lending market.

From an investor's perspective, the resultant product not only enables investment in a (relatively) liquid instrument that satisfies their risk/reward appetite, but is also an investment that offers a return that is pegged to fluctuations in interest rates. From a borrower’s perspective, debt that is ultimately financed through a securitisation will enable them to obtain a cheaper form of credit than compared to traditional sources of finance.

It is inevitable that the role of securitisation will receive a major boost as market participants grapple with the emergence of a macroeconomic environment of sustained and increasing interest rates. In terms of the specific CRE products themselves, then CMBS will continue to have a role to play as an arbitrage tool for those banks operating an originate-to-distribute model - although given that few banks have such a platform, then levels of issuance will remain muted. The real hero of the hour though is likely to be the newcomer, the CRE CLO.

In recent years, this product has enjoyed an immense level of unprecedented success in the US, thanks to its positive attributes and the fact that it is ideal for financing transitional CRE. Either way, the one inescapable fact is that both forms of structured product have an important role to play for financing CRE and accordingly now is the time for this technology to be embraced at scale.

CMBS

Conservative approach

Aeon Investments ceo Oumar Diallo and coo Ben Churchill answer SCI's questions

Q: Aeon recently announced the closing of its first commercial real estate CLO warehouse (SCI 12 October) with Credit Suisse. Could you provide some background to the decision to become a CRE CLO issuer?
OD: We’re active across the real estate spectrum and seek relative value opportunities in the UK and Europe.

The European CRE CLO market has been stagnant post-financial crisis. But the pandemic created opportunities, including in the office sector, for example. With less competition in the space, it has enabled us to stand out, thanks to our robust underwriting processes.

We focus on mid-market loans, so CRE CLO vehicles make more sense than CMBS for us to term out our investments.

BC: Cost of capital was an additional driver on why we focused on a CRE CLO platform. Our cost of funding is significantly cheaper than many of our peers, so we are not constrained by target returns. This allows us to focus on less competitive areas of the market, unlocking the relative value.

Q: Aeon envisages launching three CRE CLOs over the next two to three years. What gives you confidence that investor appetite exists for such product?
BC: We’re confident that there will be demand for CRE CLOs, subject to the prevailing market conditions. There is investor appetite across our book for this risk and our portfolio is generally of a higher quality than recent comparable transactions which have priced well.

We’re continuing to underwrite CRE assets, with a portfolio target of £375m. We project that we need a critical mass of around £220m to issue, which we should reach in February. However, we have flexibility in terms of the investment period and there is no pressure to issue from our stakeholders, so we can wait for the optimal time to issue.

OD: We’re targeting 1Q23 for our first CRE CLO, which will be sterling-denominated and backed by assets domiciled in England and Wales. We anticipate exploring an additional core Europe facility sometime next year, which would be secured by assets domiciled in France, Germany, Ireland and the Netherlands.

Q: CRE loans will be screened using Aeon’s proprietary ESG methodology. What does this entail?
OD: Our underwriting approach incorporates an ESG screening methodology, which includes 16 KPIs. For example, on the green side, we take into account the degree of flood risk and energy efficiency of a property; on the social side, we consider whether a property offers amenities, such as provisions for cycling to work.

Each factor is assigned a rating and the aim is to end up with a global score between a range of zero (representing the best asset) and five (representing the worst asset). The current score across our portfolio is 3.5, with a score of 1.8 for our strongest asset and a score of three for the weakest asset.

Q: How do you expect the European CRE market to evolve going forward?
OD: Banks are currently retrenching for a number of reasons, including cost and lack of resources. In the CRE space, it’s generally for the latter reason.

We operate in the mid-market segment, which requires manual underwriting because the loans typically are too large and bespoke to use AI-driven underwriting systems. This trend is likely to continue, whereby banks will focus on loans sized at £20m-£40m and above. Consequently, we believe we can add value with tailored loans and financing solutions of between £2m and £20m, with LTV ratios of up to 75% for acquisitions, refinancings and asset upgrades.

BC: The structured credit sector is generally depressed at present, but the floating-rate nature of CRE means that such assets are a natural hedge against rising interest rates and inflation. The weighted average LTV of our portfolio stands at around 58%. Our conservative underwriting process means that even given current concerns, the portfolio remains well protected, with significant headroom.

Corinne Smith

Structured Finance

Aviation ABS industry eyes AerCap suit

Sector developments and company hires

Aviation ABS industry eyes AerCap suit

The outcome of AerCap’s filing with the High Court in London could serve as a blueprint for other aircraft lessors with lease exposure in Russia. KBRA notes that in its discussions with the 14 lessors that act as servicers on the 30 aviation ABS it rates with exposure to Russian carriers, all have indicated they believe their leased assets that are currently trapped in Russia are covered by possessed/contingent insurance policies and all have filed claims with respect to these assets. However, many of the lessors concede that any recoveries from insurance claims will likely be the result of litigation and could take years to resolve.

AerCap’s lawsuit, which was launched in June, asserts that it has a valid insurance claim under policies written by AIG and Lloyd’s of London for the loss of 116 aircraft and 23 spare aircraft engines leased to Russian airlines. “Given that AerCap is the world’s largest aircraft leasing company and has an outsized lease exposure in Russia, the outcome of this pending litigation will be closely followed by other aircraft lessors, as they may decide to file similar legal claims against their insurers,” KBRA suggests.

As a result of a law allowing Russian carriers to register Western-built assets with the Russian national regulator, in response to Western sanctions, an estimated 500-plus aircraft leased to Russian carriers by non-Russian leasing firms are now trapped in Russian territory. Even if these aircraft could be recovered in the near term, valuations may be significantly impaired due to a lack of spare parts and components over the past eight months, as well uncertainty over the quality, documentation and timing of maintenance performed by Russian carriers (SCI 22 April).

KBRA reports that many aviation ABS servicers have deemed a total loss on assets located in Russia. “Funds obtained from the forfeiture of security deposits and maintenance reserves have helped to soften the blow, but any further recoveries will likely come from insurance proceeds, assuming lessors are successful in the many court battles that loom on the horizon,” the rating agency suggests.

In other news…..

EMEA

Matthew Cahill has been recruited by Dentons to join its quickly expanding Dublin office. Cahill marks the second banking and finance partner to join the firm’s Dublin office in the last few weeks, having opened just two years ago. Cahill joins the firm in Ireland from William Fry, where he currently serves as head of Structured Finance & Securitisation and Debt Capital Markets. Cahill brings extensive experience to the firm, having also previously served as a partner at Clifford Chance in London, and brings expertise in advising on securitisation, capital markets and derivatives transactions, as well as other general banking and finance matters.

New Jersey inks ‘toxic’ RMBS settlement

The New Jersey Bureau of Securities has reached a US$495m agreement in principle with Credit Suisse Securities (USA), Credit Suisse First Boston Mortgage Securities Corp and DLJ Mortgage Capital that would resolve a lawsuit arising from the offer and sale of RMBS from 2006 to 2007. Once final, the deal will be one of New Jersey’s largest civil monetary recoveries in the state’s history and will include approximately US$300m in restitution for investors nationwide.

The State of New Jersey alleged that Credit Suisse made material misrepresentations in the offering documents about the risks of the RMBS, including by failing to disclose material defects of the underlying mortgages, in violation of New Jersey’s securities laws. As alleged, Credit Suisse perpetrated much of the fraud from its office in Princeton, New Jersey. The firm will neither admit nor deny these allegations as part of the anticipated settlement.

Under the agreement in principle, Credit Suisse will also pay a civil monetary penalty of US$100m - with a claims administrator appointed to help distribute the restitution to investors - and permanently enjoin the firm from future violations of New Jersey’s securities laws.

North America

Greystone has appointed AJ Walker as md to its office in Chicago, as it continues the expansion of its CMBS platform. Walker joins the firm from Wells Fargo where he operated as director, leading the firm’s real estate capital markets origination efforts for the Midwest. In his new role, Walker will report to head of CMBS at Greystone, Rich Highfield, and will focus primarily on the origination of commercial real estate loans across the US.

Structured Finance

GSE social disclosures readied

Sector developments and company hires

GSE social disclosures readied

Fannie Mae and Freddie Mac are set to begin publishing pool-level Social Index disclosures for their single-family MBS. The move follows the release of Fannie’s proposed methodology for single-family social disclosure that aims to provide investors with insights into socially-oriented lending activities (SCI 18 August).

The attributes are at-issuance measures and will not be updated monthly. As such, the GSEs will each post a one-time historical file to provide the Social Criteria Share (SCS) and Social Density Score (SDS) for all active and inactive MBS pools issued since January 2010.

Both GSEs intend to post their historical files in 4Q22 and to begin publishing the Social Index attributes for new issuances shortly thereafter. Additional details - including the final methodology and the file formats and definitions for these attributes - will be available in the coming months.

In other news….

APAC

Bankim Kapur has joined DBS Bank as executive director, based in Singapore. He was previously a director within Commerzbank’s lending division, overseeing the firm’s structured and specialised finance activities across its corporate client loan book. Before that, Kapur worked at Barclays and Deloitte.

EMEA

CFE Finance is set to acquire 60% of alternative investment boutique, RiverRock. The deal, subject to regulatory approval from the UK FCA, will diversify CFE’s investment portfolio and thus strengthen its investment offering in Europe. As part of the deal’s terms, RiverRock will remain a specialist in offering alternative solutions to global investors and customised solutions to SMEs across Europe. CFE hopes the majority acquisition of RiverRock will help to both further the strategic development of its business in Europe as well as mark a significant expansion of RiverRock’s investment platform.