Contents

Capital Relief Trades

Shifting gear

Synthetic auto and consumer ABS eyed

Banks have been targeting the synthetic format for their consumer and auto loan portfolios as higher hedging costs and pricier senior tranches reduce the viability of the full stack option (SCI 16 September). However, originators must consider the issue of the full capitalization of synthetic excess spread that usually accompanies these types of trades.  

Banks have been finding it harder to execute full stack significant risk transfer trades for their consumer and auto loan portfolios given higher interest and swap rates. This means harder to place senior tranches and increased hedging costs respectively. Increased hedging costs reduce the amount of available excess spread and thus the level of investor protection, while rendering the sold tranches more expensive from the bank’s perspective.

Lenders have tried to compensate for reduced levels of excess spread in full stack SRTs by boosting the liquidity reserves in these transactions. However, liquidity reserves offer limited credit enhancement compared to excess spread.

Synthetic securitisations allow banks to address the problem involving the sale of the senior tranches since they retain them. However, synthetic securitisations would involve the full capitalization of a retained synthetic excess spread position should originators decide to incorporate the feature in their transactions.   

The retained synthetic excess spread position would be risk weighted at 1250% or a full capital charge plus deduction from capital. This clearly renders the trade uneconomical which is why originators such as Santander have excluded it from their synthetic auto ABS deals.  

David Saunders, executive director at Santander Corporate and Investment Banking notes: ‘’synthetic securitisations backed by consumer or auto loans don’t generally feature synthetic excess spread and because of that they tend to be mezzanine trades. Moreover, if you do a non-STS deal it doesn’t have to be technically capped at the one-year expected loss, although this is the guidance from the regulator.’’

However, some arrangers have taken a different approach to synthetic excess spread. According to an arranger, ‘’we would still do a deal with synthetic excess spread if the overall cost of the transaction makes sense. We work with standardized banks and look at the overall lifetime cost for a trade including funding for the senior tranche, set up costs and ratings to decide between synthetic or true sale.’’

If the issuer is aiming for capital relief and funding and has a covered bond programme and needs funding, the same arranger advises covered bonds along with a synthetic securitisation since the cost of funding is just more economical relative to the current spreads of full stack securitisations.

However, if the aim is just capital relief, synthetic securitisations become a one-way street. The arranger notes: ‘’you know that the tranching will be better under the supervisory formula compared to the rating process under true sale while the set-up costs are much lower. Furthermore, and especially for IRB banks, the tranches would be effectively thinner and therefore come with lower absolute cost of premia. IRB banks can also benefit from better tranching given the use of the IRB formula.’’

Nevertheless, this doesn’t change the fact that the full capitalization of synthetic excess spread is still uneconomical and unfair from an originator perspective since true sale securitisations aren’t subjected to the same punitive treatment.

The pipeline of synthetic auto ABS trades is currently picking up with two transactions that are expected to close in 4Q22 and early next year respectively, while more are anticipated going forward. However, market participants point to a temporary trend given the adjustments in central bank policies.

 Stelios Papadopoulos 

Structured Finance

SCI Start the Week - 7 November

A review of SCI's latest content

Webinar free to view
Leading capital relief trade practitioners from Arch MI, ArrowMark Partners, Credit Benchmark and Guy Carpenter discussed current risk transfer trends yesterday, during a webinar hosted by SCI. Watch a replay here for more on the outlook for the synthetic securitisation sector, in light of today’s macroeconomic headwinds.

Last week's news and analysis
Existential challenge
Activist agency, 'originalist' Court clash
Global Risk Transfer Report: Chapter one
In the first of six chapters surveying the synthetic securitisation market
Risk transfer launch
Deutsche Bank executes corporate CRT
Risk transfer boost
Bank of Montreal continues ramp up
SRT hedge persists
Getin Noble collapse leaves SRT unscathed
Stress-testing resilience
Climate-change risk assessment approach debuts

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

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.

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
CFPB judgment implications - November 2022
The US Court of Appeals for the Fifth Circuit last month ruled that the CFPB is unconstitutionally funded. This Premium Content article investigates what this landmark judgment means for the securitisation industry.

Euro 'regulation tsar' - October 2022
The sustainable recovery of the European securitisation market is widely believed to lie in the hands of policymakers. This Premium Content article investigates whether a ‘regulation tsar’ could serve as a unifying authority for the industry to facilitate this process.

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.

SCI events calendar: 2022
SCI’s 3rd Annual Middle Market CLO Seminar
15 November 2022, New York

Structured Finance

SCI In Conversation podcast is now live!

We discuss the hottest topics in securitisation today...

In the latest episode of the SCI In Conversation podcast, SCI Deputy Editor Angela Sharda chats to MidOcean Partners md and ESG/compliance officer Candice Richards about the firm’s Women’s Awareness Initiative, a programme that is committed to bridging the gender diversity gap in the asset management industry. She is joined by MidOcean senior portfolio manager Joseph Rotando, who discusses the outlook for the CLO market.

We also highlight a new SCI Premium Content article, which explores whether a so-called ‘regulation tsar’ could serve as a unifying authority to facilitate the rehabilitation of the European securitisation market.

This podcast can be accessed here, as well as wherever you usually get your podcasts, including Apple Podcasts and Spotify (just search for ‘SCI In Conversation’).

Capital Relief Trades

Risk transfer round up-10 November

CRT sector developments and deal news

BNP Paribas is believed to be arranging a synthetic securitisation for a Canadian bank. Dubbed project Waterloo, the transaction is expected to close in 4Q22. The transaction would add to the Canadian deal flow this year with record issuance from BMO (SCI 2 November) and a pending leveraged loan CRT from RBC (SCI 21 September).

Stelios Papadopoulos

Capital Relief Trades

Risk transfer round up- 7 November

CRT sector developments and deal news

Credit Agricole is believed to be readying another synthetic securitisation of corporate loans from the CEDAR programme. The last CEDAR deal closed in June. The €258m ticket referenced a €4.3bn global corporate portfolio (SCI 22 June).

Stelios Papadopoulos

Capital Relief Trades

Risk transfer round up- 8 November

CRT sector developments and deal news

Further details have been revealed of a synthetic ABS deal from Commerzbank that was first unearthed in July (SCI 6 July). The transaction is expected to close this quarter and it’s allegedly backed by a corporate portfolio. Barclays is believed to be the arranger in the trade. 

Stelios Papadopoulos

CLOs

MM CLO Seminar line-up finalised

Awards ceremony to debut

SCI’s 3rd Annual Middle Market CLO Seminar is taking place in-person on 15 November at the offices of Clifford Chance in New York. The event will cover the sector’s continuing evolution and its future potential, and marks the debut of SCI’s MM CLO Awards.

The seminar begins with a keynote address by Christopher Gilbert, head of US CLO banking at Natixis, and a Q&A session. Next, there is a panel focusing on the outlook for the primary MM CLO market.

After that, a manager/investor roundtable will explore the key topics impacting both issuers and investors, including trends in underwriting/acquisition and risk/portfolio management in the current volatile environment. A further pair of panels will examine middle market CLO credit metrics and how performance compares to that of broadly syndicated loan CLOs, as well as how macro-driven challenges facing the private debt market have impacted the MM CLO sector.

Rounding off the event is SCI’s inaugural MM CLO Awards ceremony, hosted by SCI US Editor Simon Boughey. This will be followed by a cocktail reception.

SCI’s 3rd Annual Middle Market CLO Seminar is sponsored by Schulte Roth & Zabel. Panelists also include representatives from Audax Private Debt, BofA Securities, Blue Owl, Brown Brothers Harriman, Capital One, Churchill Asset Management, DBRS Morningstar, First Eagle Alternative Credit, GreensLedge, Mark Fontanilla & Co, SMBC and Wells Fargo.

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

Capital Relief Trades

Global Risk Transfer Report: Chapter two

In the second of six chapters surveying the synthetic securitisation market, SCI explores the impact of the STS revolution

Synthetic securitisation, once tarnished by association with the global financial crisis, has long since come in from the cold. The regulatory framework has developed significantly in Europe since the introduction of the new European Securitisation Regulation in January 2019, culminating in the inclusion of significant risk transfer transactions in the STS regime in April 2021. This label has provided CRT deal flow with additional momentum, broadened the issuer base and helped to legitimise the market.

So, how has the landscape evolved since then? While Europe has historically been the centre of CRT activity, what are the prospects in the US and beyond? SCI’s Global Risk Transfer Report 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 its prospects for the future.

Chapter two: the STS revolution
Another key regulatory development for the CRT market was the inclusion of synthetic securitisation in the STS regime in April 2021. The framework has brought welcome standardisation to what has traditionally been a very bespoke asset class.

Andrew Feachem, md at Guy Carpenter, says: “STS has allowed banks to improve the capital efficiency of transactions, which enables them to include exposures that would traditionally have been marginal with respect to capital relief efficiency via SRT.”

Robert Bradbury, head of structured credit execution and advisory at Alvarez & Marsal, concurs that the STS rules have increased efficiency. “It’s somewhat more complicated to achieve, but you can now get better results. Adhering to certain well-defined criteria for certain types of transaction which are simple, transparent and standardised, you are able to achieve a better result from an economic and capital perspective, which means that it is much more economical for the bank. It changes the way tranches work and so changes what investors are offered.”

In 2017-2018, SRTs were largely restricted to tier one banks, such as Santander, Barclays or Deutsche Bank. But that has now changed.

“We are starting to see the tier two, tier three and tier four banks starting to use [SRT],” confirms David Saunders, executive director of Santander’s European securitised products group. “The STS framework will only help. I think we’ll now see a similar rapid growth in the use of SRTs by smaller banks.”

Olivier Renault, md, head of risk sharing strategy at Pemberton Asset Management, agrees that the STS framework has been extremely positive. “A bank that goes through the pain of getting the STS label benefits from more capital relief for the same amount of tranche base and therefore cheaper cost of relief. We were seeing a lot of banks that were sitting on the sidelines, looking at this market, and thinking the cost of capital is marginal.”

He continues: “Suddenly, for the same trade, they are getting more capital relief and therefore it is becoming more attractive. We see, in particular, medium-sized banks under the standardised approach have started issuing on the back of this EU regulation.”

The numbers remain small, but are still growing. Renault says: “There were 55 banks that had issued by the end of 2021. I wouldn't be surprised if, at the end of 2022, we had 65 banks doing deals. [Such an] increase is to a large extent driven by this change in the STS framework.”

Although some standardised banks are still expected to execute CRTs with supranationals, such as the EIF, market participants agree that they now have much more choice.

Insurer exclusion
Nevertheless, Seamus Fearon, Arch MI evp, CRT and European markets, identifies one key outstanding issue – the exclusion of insurers from the STS label. “It was disappointing that effectively an insurer couldn't be a participant on STS structures. Given the capital needs that the European banking system will require, as we see the introduction of Basel 4, insurance will be an important tool. Having insurance play a role in the STS structures will be crucial. We're hopeful that that will be looked at again, as discussions continue.”

Feachem agrees, but notes that the current lack of unfunded STS synthetics is not preventing insurers from joining the market. “STS still accounts for a minority of synthetic issuance and there are funding solutions available if needed in the near term. However, we do not view the current rage of funding solutions as an efficient use of (re)insurers’ balance sheets. As we also see in a couple of major jurisdictions, there is scope for this rule to change, allowing unfunded STS with (re)insurers.”

Feachem believes that enabling the participation of (re)insurers, in addition to the already qualifying supranational entities, in STS synthetics will increase liquidity. He suggests that it could also level the playing field between private and public sector financial institutions participating in SRT.

EBA consultations
Other outstanding issues include latest proposals under the EBA’s consultations regarding the homogeneity criteria and the determination of the exposure value of synthetic excess spread (SES) in STS synthetic securitisations.  

As part of the Capital Markets Recovery Package, adopted by the European Commission in 2020, the EBA is mandated to develop draft regulatory technical standards (RTS) that specify which underlying exposures are deemed to be homogeneous as part of the simplicity requirements for STS. In particular, the proposals adjust the homogeneity factors for on-balance sheet securitisations and more specifically the ‘type of obligor’ related to corporate and SME exposures.

According to the consultation, banks treat large corporate exposures differently from the rest of their corporate book. Consequently, to ensure a consistent and harmonised application of the requirements, it was decided that the ‘large corporate’ definition would be used from the European Commission’s CRR 3 proposals.

The CRR 3 proposals define the term as ‘’any corporate undertaking having consolidated annual sales of more than €500m or belonging to a group where the total annual sales for the consolidated group is more than €500m.’’

Nevertheless, the larger issue with the homogeneity consultation is the inability to mix corporate and SME loans, with seemingly no clear rationale. If left as they stand, the EBA proposals run the risk of encouraging less granular portfolios and less financing to SMEs.

Meanwhile, the 2020 EBA report on SRTs had attempted to tackle divergent regulatory practices for SES. The STS framework, in turn, brought in new capital rules for the treatment of SES in 2021.

This year, in August, the EBA produced a further consultation paper on the treatment of SES – with the aim of contributing to a more risk-sensitive prudential framework. Bradbury says: “They want the market’s feedback on different options. That’s a pretty sizeable uncertainty because they acknowledge that the implementation of the rules has historically differed. They want to try to standardise that.”

But Renault describes the EBA’s proposal as “very disappointing - frankly, not surprising - but very disappointing.” He explains: “At a high level, the EBA’s proposal is to calculate the lifetime loss that the bank expects to be borne by SES and to deduct that from capital, while until now European banks were able to deduct only one year of SES.”

The EBA paper highlights that just one supervisor has so far treated SES on a one-year rolling basis - a different approach to the maximally conservative line taken by others. Renault adds: “If it's a five-year transaction and the investor is not covering the first 1% of losses each year, the bank needs to provision five years of SES. That’s a big capital penalty for the bank. It effectively means that a tool that has been used on dozens of transactions is no longer going to be used by banks and that will reduce the number of transactions in asset classes that tend to have high losses; e.g., consumer or some middle market loans.”

Feachem agrees that under the proposals, the originator will have to hold more capital for transactions incorporating SES. “We can potentially see originating banks rebalancing towards using retained equity tranches compared to the SES feature, which had been a big trend in the past few years, given its asymmetric capital treatment. The relevant RTS that is going through the EU legislative process is attempting to harmonise the treatment of these two features,” he observes.

While there has been a wave of regulatory change over the past few years, the new rules appear to have largely bedded down. Feachem says: “The rules and guidelines for issuers to follow are clear and this gives confidence to new entrants to build out their SRT programmes.”

He adds: “There are still challenges for new issuers to overcome, such as ensuring compliance with reporting requirements, managing portfolio replenishment in practice, and understanding the requirements and constraints of new risk takers, such as the (re)insurers, noting that (re)insurers tend to be constructive and are drawing upon approaches used more broadly in the US CRT market.”

Market standard
At the same time, regulators appear to have a greater understanding and appreciation of synthetic securitisation. Renault says: “There is a market standard now arising in terms of how to design the deal, certainly in Europe. Now regulators understand that this product potentially helps banks reduce risk and lend to the real economy.”

Saunders concurs: “What you’ve seen is a convergence in structures. Of course, each deal has its own bespoke elements, but you’ve seen a lot more standardisation of structures in the past few years. The greater the clarity and certainty for issuers, the more likely they are to do these transactions and the less likely they are to be rejected.”

The appetite for SRT is expected to continue to grow among both issuers, investors and (re)insurers. “Other than a blip in relation to Covid, there has been consistent growth. We are about half where we were in 2021 already, but the market is skewed to Q3/Q4; many more deals are happening towards the end of the year,” says Saunders.

He adds: “We see more and more investors coming into the space and we are starting to see newer, smaller issuers coming in. Everything points to continued growth.”

Nevertheless, Bradbury suggests that the European CRT sector remains a “two-speed market”. The larger banks know exactly how it works and which levers to pull, have regular contact with the regulators and know the most relevant investors.

He says it’s a different world for non-IRB banks. “The smaller banks are generally less familiar with how the technology works. There are fewer investors able to focus on and execute the relevant kinds of transactions.”

SCI’s Global Risk Transfer Report is sponsored by Arch MI, ArrowMark Partners, Credit Benchmark and Guy Carpenter. The report can be downloaded, for free, here.

*For more on the outlook for global risk transfer activity, watch a replay of our complimentary webinarheld on 2 November.*

RMBS

British buffer

UK RMBS set to weather recession

The outlook for UK RMBS remains uncertain - despite optimism over borrower wealth buffers - as the country enters into its third government in three months. Amid such a rapidly changing policy environment, monetary policy and inflation rates – which continue to rise – are expected to be the two chief trends determining prospects for the housing market as the country heads into recession.

Panellists at a Moody’s housing conference held last month - following the announcement of former Prime Minister Liz Truss’ mini-budget - agreed that despite a gloomy global and internal macroeconomic picture, the UK housing sector is likely to be far from the worst hit market by any upcoming financial strife. Although the UK securitisation market could be vulnerable to the broader impacts of the macroeconomic environment, given that the UK is at more risk in terms of low supply of housing, it is set to also benefit from having a larger servicer industry than other jurisdictions.

Expectations for the rest of Europe - and specifically the euro area - were not so positive, as high energy prices continue to cast a bleak picture for the region, with many panellists predicting to see a ‘real recession’ for those countries reliant on Russian gas supply. The primary factors in determining the impacts of the somewhat nuanced economic recession are unsurprisingly the continuing war in Ukraine, the energy crisis and the lasting effects of Covid-19.

Panellists shared an outlook of close to zero real GDP growth overall – and just 0.3% for the UK over 2023-2024, which is not due to return to its potential level of 1.5% until 2026. Unpredictable consumer habits following pandemic lockdowns are due to set this recession apart from previous recessions heading into next year, with the pandemic housing boom expected to slow down and the supply of housing as well as first-time buyers to decrease.

Indeed, the risk of a housing downturn across Europe grows as interest rates continue to rise. Those most exposed to the housing downturn are likely to be Nordic banks, although banks across Europe all share substantial exposure to residential mortgage loans, as they account for approximately half of their domestic exposure.

Denmark, Ireland and the Netherlands are the most exposed – with Moody’s finding that residential mortgages represent close to 55% of each country’s banks’ total loans. In the UK, housing loans account for just over 30% of banks’ total loans. Nevertheless, banks are expected to be well supported by robust capital across these regions.

Overall, no significant collapse is expected for the housing market - although uncertainty remains around house prices, as negative pressures from inflation and rising interest rates are likely to persist. Although a 100bp rise in mortgage rates is expected, the UK’s mortgage market is likely to remain sturdy, as borrowers have access to greater disposable income and benefit from protection in the form of a larger wealth buffer.

As housing prices decline, risks rise for RMBS transactions, especially for those with greater exposure to recent-vintage mortgages. RMBS with greater exposure to housing boom-originated mortgages are expected to incur greater loss severities.

France stands as the most exposed European market to recent mortgage vintages, with 48.53% of its 2021 originated loans and 23.97% of its 2020 originated loans in outstanding RMBS portfolios having negative equity in the case of home prices dropping by 15%. Meanwhile, percentages for UK RMBS in negative equity in that scenario would be 0.39% for 2021 originated loans and 0.05% for 2020 originated loans, and for UK buy-to-let RMBS it would be 0.18% for 2021 originated loans and 0.05% for 2020 originated loans.

Borrowers in UK BTL RMBS are also likely to be exposed to greater refinancing risk, especially for loans approaching reset dates, due to rising interest rates. A Moody’s study found in a sample of 52,141 buy-to-let loans backing 34 UK BTL RMBS that 33% have reset dates falling before end-2023, when interest rates are set to peak.

For refinancing, buy-to-let borrowers have to meet certain affordability criteria – including meeting a minimum ICR – which can be destroyed by rising interest rates. Moody’s does, however, expect low indexed current LTVs to bolster the impact of plummeting ICRs, with panellists at the conference expecting to see landlords increase rents to boost their ICRs. Rents in the UK have already reached a level of 20% above pre-pandemic prices.

The buy-to-let industry is also due to see some major changes across multiple jurisdictions in Europe, as policymakers determine minimum EPC ratings for borrowers to let the properties.

Claudia Lewis

Structured Finance

Policymakers urged to address securitisation 'strategic loss'

Sector developments and company hires

Policymakers urged to address securitisation ‘strategic loss’ 
A group of nine organisations representing key participants in the European securitisation market have written a public letter to EU policymakers, calling on them to take urgent targeted measures to ensure that securitisation can support the European economy during a testing period marked by macroeconomic uncertainty. The letter highlights how securitisation volumes in Europe have continued to decline in 2022, in sharp contrast to the growth seen in other markets in recent years, and that it is currently a critical moment for European securitisation as key regulatory workstreams are underway that could contribute to the recovery of the market or exacerbate current regulatory imbalances.

For example, targeted measures in the prudential requirements for banks under CRR3 and insurers under Solvency 2, together with a well-designed EU Green Bond Standard would be important steps towards a better functioning securitisation market. The organisations are therefore calling on EU legislators to use these discussions to introduce immediate adjustments to securitisation-related calibrations and concrete mandates for more risk-sensitive revisions to be undertaken as a subsequent step. There are also critical technical standards under preparation that could negatively impact the market if further disproportionate requirements are introduced.

“The absence of a well-functioning securitisation market represents a strategic loss to the European financial system. It is undermining the competitiveness of European financial institutions and limiting their ability to recycle capital to support new financing. It has encouraged institutional investors to shift towards other products that do not offer the same advantages in terms of protection, transparency and liquidity,” the letter states.

It continues: “At the heart of the problem is a disconnect between the Commission’s vision for securitisation in Europe – a tool making a significant contribution to a well-functioning financial system that efficiently finances the real economy – and aspects of the regulatory framework which remain miscalibrated and, in practice, disincentivise issuance and investment in securitisations, thus holding back the tool’s potential to support the economy.”

The group includes AFME, the Dutch Securitisation Association, the European Banking Federation (EBF), the International Association of Credit Portfolio Managers (IACPM), Leaseurope, Eurofinas, Paris EUROPLACE, PCS and True Sale International.

In other news…

Acquisitions
Alantra has taken a further step into the advanced analytics and AI space with the acquisition of a majority stake in Deko Data. The move follows the firm’s earlier acquisition of urbanData Analytics in 2019.

Alantra hopes the new addition to its investment banking and asset management services will further enhance its offering to mid-sized companies seeking to accelerate growth, better efficiency and boost overall value. Led by Pedro Agudo, Deko Data managing partner and ceo, Alantra will work to grow the newly founded firm from its existing 10 senior professionals to a team of 60 professionals by the end of 2023.

CSC has finalised its acquisition of global administration services provider Intertrust Group. The acquisition will see Intertrust Group offering global business administration and compliance solutions to clients across more than 140 jurisdictions.

The combining of the two solutions providers through the acquisition will see the pair working as one company to support clients through the ever-evolving compliance and regulatory environment. The joint organisation will be led by Rod Ward, who has served as president and ceo of CSC for almost 13 years, and he will be supported by the firm’s enterprise leadership team – including Intertrust Group ceo Shankar Iyer.

EMEA
BNP Paribas has named Michael Htun head of CLO trading, Europe, based in London. Htun was previously a senior CLO trader at the bank, which he joined in May 2021. Before that, he worked at Cairn Capital, NatWest, RBC, Fitch and Halcyon Capital Management.

New name
Following the strategic combination between Cairn Capital and Bybrook Capital last year (SCI 3 February 2021), the two firms have rebranded as Polus Capital Management. The new name reflects the coming together of two successful European credit managers to create “a cohesive firm with a shared vision and unified goals”. With teams in London and New York, the firm invests across the capital structure and liquidity spectrum, using a relative value framework grounded in intensive fundamental credit analysis with a strong emphasis on capital preservation.

North America
Octaura has appointed Jason Cohen as its new coo and cfo, as the firm continues to scale up its business in the leveraged finance and structured credit markets. Cohen’s dual role will see him maintain responsibility for the implementation of the electronic trading, data and analytics solutions platform’s operational aspects and determine its financial strategy. He brings almost 30 years of leadership and financial technology knowledge to Octaura, having most recently served as md for product management and market operations at the CME Group.

Structured Finance

Irish, UK NPE disposals inked

Sector developments and company hires

Irish, UK NPE disposals inked

The Bank of Ireland has reached agreements to dispose of portfolios of Irish and UK non-performing exposures, through two separate transactions. On completion, the transactions will result in a pro-forma reduction in the Group’s 30 June 2022 NPE ratio from 5.4% to circa 3.7% and a modest positive impact (of around 5bp) on its CET1 ratio. The gross interest income on the portfolios was about €30m on an annualised basis.

In respect of the UK NPE portfolio, Bank of Ireland will dispose of - by way of securitisation - a portfolio of non-performing UK mortgages with a gross carrying value of circa €600m, secured by owner-occupied and buy-to-let investment properties. The transaction is expected to complete on 15 November, subject to customary closing conditions.

The mortgages and related customer relationships that form part of the securitisation will continue to be serviced by the Group, but the assets will be derecognised from its balance sheet.

The second disposal agreement concerns an Irish non-performing loan portfolio with a gross carrying value of circa €800m, comprising primarily of private dwelling house (PDH) and BTL NPEs, together with a smaller portfolio of non-mortgage NPEs, in a transaction financed by funds managed by AB CarVal. The transaction is expected to complete later in 2022, subject to customary closing conditions.

The group will be appointed as interim servicer for a period prior to legal title transfer and credit servicing migration. Post migration, Mars Capital Finance Ireland will manage the loans as legal title holder.

In other news…

Costs cut via Q-Series CMBS

Serial CRE CLO issuer ACRE has finalised a US$424m CMBS backed by 11 multifamily mortgage loans, its first through Freddie Mac’s Q-Series securitisation programme. Issued via the ACRE Credit I debt fund, the floating rate bridge loans are secured by 11 transitional multifamily properties located across Georgia, Texas, Colorado, North Carolina and Arizona.

ACRE notes that given CRE CLO pricing has widened significantly this year, the Q programme represents significant economic advantages for issuers. The guaranteed tranche of ACRE’s deal – dubbed Q18 - sold at 87bp over SOFR, compared to around 275bp over SOFR for triple-A CRE CLO tranches currently. In fact, with Freddie Mac’s guarantee fee of circa 98bp on the class A bond, the WACC on a Q deal is about half the cost of a CRE CLO.

The securitisation was led by JPMorgan and Barclays, with JLL Capital Markets serving as advisors and sub-servicers for the deal.

EMEA

CIFC Asset Management has appointed Conor Daly md and head of European credit, based in London. He was previously md, head of European credit at Onex Credit and worked at BlackRock and Morgan Stanley before that.

Alessandro Maurelli has re-joined Nomura as an executive director in its real estate and structured finance team, based in London. He was previously a vp in GIC’s real estate team, which he joined in September 2019. Prior to that, Maurelli was a vp – ABS solutions at Nomura.

North America

Greystone has entered into a joint venture with the floating rate capital solutions provider for commercial real estate owners, Inlet Real Estate Capital. The joint venture, Greystone Inlet Real Estate Capital, will target complex or potentially distressed situations. It will work to provide debt and equity recapitalisation solutions for multifamily, industrial, office, mixed use and other property types in need of further time and capital to properly execute the business plan and stabilise the property. The partnership between Inlet Real Estate Capital and the Greystone affiliate, Greystone Commercial Mortgage Capital, will also offer flexible structured capital solutions – including first mortgages, mezzanine loans, preferred equity investment and multiple structure hybrids. Down the line, Greystone Inlet Real Estate Capital hopes to provide sponsors with direct access to long-term, fixed rate financing through Greystone’s CMBS and agency financing platforms. It will focus on US-located transactions between US$5m and US$50m.

Ontario Teachers’ Pension Plan has promoted Ted Xiao Guo to md, head of structured and thematic credit, based in Toronto. He was previously portfolio manager and md, credit.

SMBC Nikko Securities America has recruited Raffi Dawson to lead its structured finance group. Dawson, who joins the firm as md and head of the structured finance group, will be based in New York and report to head of capital markets and investment banking, Scott Ashby. In the new role, Raffi will oversee the firm’s securitisation business, including conduits, ABS and CLOs. He brings extensive experience across multiple sectors for securitisation - including telecom, media and technology, fintech, energy, sponsors and IDI – while serving previously as md and co-head of origination in securitised products origination for Mizuho. SMBC hopes Raffi’s addition to the team will help support the growth of the securitisation business, leading the ever-expanding team to strengthen strategy execution and offerings to global corporate clients.

Structured Finance

Alternatives ESG disclosure template launched

Sector developments and company hires

Alternatives ESG disclosure template launched

A group of leading alternative asset managers and industry bodies in the private and broadly syndicated credit markets has released an ESG Integrated Disclosure Project (ESG IDP) template, with the aim of enhancing transparency and consistency for both private companies and credit investors by providing a standard format for ESG-related disclosures. The template is designed to offer private companies a baseline from which to develop their ESG reporting capacity and facilitate investors’ ability to identify industry-specific ESG risks in their credit portfolios, as well as compare data across alternative asset managers more consistently.

The template is the creation of the ESG IDP, an industry initiative bringing together leading lenders in the private and syndicated credit markets to improve transparency and accountability. The ESG IDP is led by the Alternative Credit Council (ACC), the private credit affiliate of the Alternative Investment Management Association (AIMA), the LSTA and the UN-supported Principles for Responsible Investment (PRI). Founding partners of this new initiative include Apollo Global Management and Oak Hill Advisors, which - along with the ESG IDP’s executive committee - will now spearhead efforts to promote the adoption of the ESG IDP template across the market.

The ESG IDP is also supported by a coalition of market stakeholders, including CDP, the ESG Data Convergence Initiative and the LMA.

In other news…

EMEA

Chimera Capital and Alpha Wave Global have announced the launch of joint open-ended credit fund, Alpha Wave Private Credit. With initial commitments of US$2bn, the perpetual fund will be jointly managed by Chimera Capital and Alpha Wave Global, and will work to establish a diversified portfolio of credit investments of attractive risk-reward characteristics. The fund will invest in primarily private loans, although opportunities will be taken in other credit instruments too. It will focus on the US, Canada, the UK, the EU and Australia, although will operate on a global mandate. The news follows the creation of Chimera’s credit strategies department and marks a key stage in growth for both firms as they work to strengthen Abu-Dhabi’s capital solutions offerings.

North America

Fitch has promoted Lyle Margolis to head of private credit, overseeing its private credit ratings business. Based in New York, he was previously a senior director at the rating agency, which he joined in March 2019. Before that, Margolis was a portfolio manager at APG Asset Management US, having previously worked at BNP Paribas Investment Partners, StoneCastle Partners and Forest Investment Management.

Second ETF for Angel Oak

Angel Oak Capital Advisors has launched the Angel Oak Income ETF, marking the firm’s second actively managed ETF (SCI 28 October). The latest fund provides investors with the opportunity to invest primarily across US structured credit with a strong bias towards residential mortgage credit. The objective is to achieve significant yield at a moderate duration, compared to other similarly-rated corporate bond indices.