Contents

ABS

Utility tool

Cat bonds tipped for 'pre-financing' fiscal risks

Catastrophe bonds could offer tangible financial benefits to jurisdictions most vulnerable to catastrophe events, as insurance penetration levels increase across low- and middle-income countries (SCI 22 February). Although significant growth in the public cat bond market is needed before governments across the world can realise its potential, new research from DBRS Morningstar highlights the utility of the instrument as a tool for financial planning in lower-income countries with greater exposure to natural disasters.

For low- and middle-income countries vulnerable to natural disasters, cat bonds can serve as a tool for policymakers to partially ‘pre-finance’ fiscal risks, preventing general economic damage and reducing the need to rely on financial support from external governments and international institutions. Public and government-related entities already tapping the capital markets for such disaster insurance includes the Turkish Catastrophe Insurance Pool (TCIP), the California Earthquake Authority (CEA) and the Caribbean Catastrophe Risk Insurance Facility (CCRIF) (SCI 25 April 2019).

Government responses vary, but they are likely to increase spending to finance post-disaster economic recovery and reconstructions while tax revenues may be reduced, as they can temporarily or even permanently impair a nation’s tax bases. Indeed, the fiscal implications of earthquakes, hurricanes, wildfires and floods can be significant – with the IMF predicting the annual fiscal cost of natural disasters to average between 1.6% and 6% of GDP, according to a study of 80 countries between 1990 and 2014. While these figures may be significantly lower than the IMF’s predicted cost of financial disasters of 9.7% to 56.8% of GDP, the frequency and overall impact of natural disasters is likely to be much higher in smaller countries and those exposed to natural disaster.

In the wake of these catastrophic events, lower-income nations with less advanced economies face heightened pressure from capital markets as they typically have weaker credit fundamentals. Although relatively expensive to execute, cat bonds could boost the credit profiles of low- and middle-income countries that tend to have high current investment needs, by making more funds and resources available. Many of the nations within the low- and middle-income bracket include those facing higher disaster risks, including smaller countries and islands in the Caribbean.

As a pre-financing tool, the use of cat bonds can reduce the immediate fiscal pressures of natural disasters by, in effect, triggering a ‘contingent asset’ for the insured entity. This, in certain conditions, would see the insured government receive a partial or full sum paid by investors in the triggered cat bonds.

Nevertheless, cat bonds have an unusual legal structure, in that if a natural disaster doesn’t occur, the government or public-sector entity would not be able to receive or repurpose any funds tied up by the SPV. Although structurally an SPV won’t increase the public sector entity’s debt numbers, periodic premiums paid to the SPV will impact the fiscal deficit.

“From a credit ratings perspective,” notes DBRS, “the SPV is isolated from the insured public-sector entity and, therefore, each entity's credit rating/credit quality could differ.”

So far, several governments across South America - including Chile, Colombia, Mexico and Peru - as well as Jamaica and the Philippines, have all sought catastrophe bond products for the purpose of mitigating the major fiscal costs of natural disasters.

The IBRD (the World Bank) has played a crucial role as an intermediary for public-sector cat bonds. Under its Capital at Risk Notes programme, the World Bank has mediated the transfer of risk from a sovereign to the capital markets, simplifying the procurement process by eliminating the need to establish an offshore SPV (which may not be financially or legally viable).

Responsible for issuing a cat bond, investing the proceeds and managing payments, the World Bank has intermediated on several sovereign cat bonds since 2016, including for the Republic of Colombia and the Republic of Peru, with the latest being the Republic of Chile. Presently, the World Bank is finalising preparations for a US$150m cat bond transaction as part of Chile’s wider catastrophic risk management strategy.

However, high costs continue to limit access to the cat bond market for low- and middle-income countries. Growth is also constrained by the complexity of the underlying catastrophe models and a narrow investor base.

DBRS believes there is significant scope for development in the public-sector cat bond market in the coming years, although its size is likely to remain relatively small in the near term. Consequently, until significant market growth can support a reduction in general government debt refinancing risk in the wake of natural disasters, international aid and support mechanisms are likely to continue to be the most important forms of support.

Claudia Lewis

Structured Finance

SCI Start the Week - 13 March

A review of SCI's latest content

Last week's news and analysis
Climate call
Calls for ESG synthetics framework grow
'Conflict of interest' undermines CRT
Lawyers ring alarm bells about possible impact of SEC ruling on CRT market
Corporate SRT launched
Nordea said to have finalized corporate SRT
No good news
Powell's testimony suggests higher cap requirements not ruled out
Talking Point
SEC-SA and the death of public securitisation

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

Recent premium research to download
Digitisation and securitisation - February 2023
Blockchain and digitisation are increasingly being incorporated into the securitisation process. This Premium Content article explores the benefits and challenges that these new technologies represent.

Alternative credit scores - January 2023
The GSEs are under considerable political pressure to extend credit to the underserved. But what does this mean for CRT investors, issuers and rating agencies? This Premium Content article investigates.

CEE CRT activity - January 2023
Polish SRT issuance boosted synthetic securitisation volumes last year. This Premium Content article assesses the prospects for increased activity across the CEE region.

SCI In Conversation podcast
In the latest episode, Waterfall Asset Management partner Keerthi Raghavan discusses the headwinds and tailwinds currently facing the US ABS market. In a bonus feature marking International Women’s Day on 8 March, we also chat to Linklaters managing associate Ruhi Patil about what this year’s campaign theme - ‘embrace equity’ - means to her.
The podcast can be accessed wherever you usually get your podcasts, including Apple Podcasts and Spotify (just search for ‘SCI In Conversation’), or by clicking here.

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

SRTx benchmark
SCI has launched SRTx (Significant Risk Transfer Index), a new benchmark that measures the estimated prevailing new-issue price spread for generic private market risk transfer transactions. Calculated and rebalanced on a monthly basis by Mark Fontanilla & Co, the index provides market participants with a benchmark reference point for pricing in the private risk transfer market by aggregating issuer and investor views on pricing. For more information on SRTx or to register your interest as a contributor, click here.

Upcoming SCI events
SCI’s 2nd Annual ESG Securitisation Seminar
25 April 2023, London

SCI’s Transport ABS Seminar
May 2023, New York

SCI's 9th Annual Capital Relief Trades Seminar
19 October 2023, London

Structured Finance

SVB failure liquidity-driven

Outsized, unhedged MBS holdings behind bank run

Securitisation analysts have been quick to emphasise that the collapse on 10 March of Silicon Valley Bank (SVB), which marks the largest bank failure since the financial crisis, is not a credit story and that the broad US banking system remains well-capitalised. Indeed, there are some very specific circumstances surrounding SVB’s demise, with rising interest rates – and the impact they had on its MBS and Treasury holdings – playing a key role.

On 8 March, SVB – which held US$209bn in assets – released a mid-quarter update stating that it had sold US$21bn in available-for-sale investment securities for a loss of US$1.8bn (after tax) and was attempting to raise additional capital as an offset. On 9 March, an eye-watering US$42bn of deposits were withdrawn from the bank - representing about 25% of total deposits - with the pressure of this ensuing liquidity crunch leading to its collapse.

Unlike most banks, SVB had a very large fixed income securities portfolio (reportedly with a 44% allocation to MBS) - representing over half of its total assets – which it appears to have failed to hedge against rising interest rates.

DBRS Morningstar, for one, believes the issues surrounding SVB reflect its differentiated and concentrated operating model that focused on banking for the tech and life sciences industries and their sponsors. Historically, this operating model had led to strong returns, fast growth and robust levels of deposit funding.

However, following a virtuous tech cycle that included low interest rates, ample venture capital funding and exit opportunities that saw valuations soar, the US Fed’s tightening cycle has led to lower valuations, less funding from sponsors and a heightened cash burn at start-ups - which all contributed to deposit outflows at SVB. Deposits are understood to have fallen by 13% during the final three quarters of 2022 and continued dropping in January and February.

After another bank failure – that of Signature Bank, which had US$110.4bn in assets at year-end 2022 – occurred over the weekend, US regulators announced yesterday that all depositors of both SVB and Signature Bank would be made whole and able to access their deposits today (13 March), following resolutions undertaken by the FDIC. Meanwhile, the Bank of England facilitated the sale of SVBUK to HSBC for £1, using its resolution powers under the Banking Act 2009 to stabilise the failing bank.

The Fed subsequently announced the creation of a new Bank Term Funding Program (BTFP), under which eligible depository institutions can pledge high-quality securities (including agency MBS) at par to access loans of up to one year in length. This will prevent depository institutions from having to sell these securities at a loss to meet potential liquidity demands.

The Treasury Department will make available up to US$25bn from the Exchange Stabilization Fund as a backstop for the BTFP. The Fed does not anticipate that it will be necessary to draw on these backstop funds, however.

The Fed also noted that it is prepared to address any further liquidity pressures that may arise. “In our view, this should support calmer markets and provide additional liquidity to the banking system, while helping to reduce the likelihood of contagion,” DBRS Morningstar observes.

BofA Global Research analysts suggest that cracks in the system may continue to emerge as individual banks and other sectors adjust to a higher rate environment and economic fundamentals deteriorate. However, once the end of the Fed’s hiking cycle becomes more apparent, they anticipate bank demand for agency MBS to increase.

“Jumbo originations could be affected marginally, particularly among the regional banks, if deposit outflows accelerate. All this points to less credit creation as a whole. Although it’s a net negative for the broader economy, it remains slightly positive for mortgages in terms of supply technicals,” the BofA analysts note.

In terms of the impact of SVB’s failure on outstanding securitisation transactions, KBRA reports that it has not identified direct exposure in any of its rated deals. But the rating agency points to the likelihood of secondary exposure, as certain ABS constituents that are SVB clients may have used the bank for deposits, capital, credit lines, revolvers and other commercial banking activities. Where that is the case, there is potential for disruption to the ABS constituent, which could lead to credit and liquidity risks that may impact transaction performance.

“ABS issuers, sponsors and servicers with exposure to SVB through credit lines, revolvers and warehouse facilities may experience increased liquidity risk if the borrower is unable to obtain additional financing through these closed lending facilities. The severity of these risks may vary if these lending facilities are syndicated across banking groups and the sponsor has alternative sources of capital available,” KBRA notes.

In particular, the rating agency is evaluating SVB’s exposure across 13 recurring revenue loan securitisations from four issuers (ABPCI, Golub Capital, Monroe Capital and VCP), which it says have significant exposure to the technology and software space that was a heavy focus of the bank’s operations.

Elsewhere, JPMorgan CLO research analysts note that while they aren’t concerned with risks of broader contagion to the GSIBs from SVB’s receivership, they see risk of CLO spread softening on poor market sentiment. “In our perspective, the key point is tightening financial conditions (as a function of QT/rate hikes) raising economic risks. To the extent recession risk becomes more imminent, the alternate case for US CLO new issue supply is closer to the US$80bn-US$100bn mark than our US$115bn-US$125bn base case, as rising credit stress slows transaction flow. Further, with heightened focus on 'things breaking', CLO spread dispersion is likely to increase," the JPMorgan analysts conclude.

Corinne Smith

Capital Relief Trades

Austrian SRT debuts

BAWAG said to have launched first synthetic ABS

SCI understands that Austrian lender BAWAG has finalized a synthetic securitisation of auto loans. The transaction is the bank’s first synthetic risk transfer trade.

According to market sources, the transaction features a thick unfunded mezzanine tranche and synthetic excess spread. The deal is part of a rising trend in synthetic consumer and auto ABS trades (SCI 11 November 2022).

Higher interest and swap rates as result of central bank action have rendered it harder to place the senior tranche of full stack securitisations-which are typically used to securitise consumer and auto loan portfolios-and raised hedging costs. 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.

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.

Nevertheless, the EBA’s proposals on this are still just guidance and arrangers have noted that if the synthetic excess spread equals the amount of the expected loss of the portfolio there wouldn’t necessarily be an issue. Full deduction would only have to occur if the excess spread was higher than the portfolio expected loss.

Erste group is said to have acted as the arranger in the trade

Stelios Papadopoulos

Capital Relief Trades

CRE CRT prepped

Societe Generale said to be readying CRE CRT

Societe Generale is believed to be readying a synthetic securitisation of commercial real estate loans that is a repeat trade of a deal that the French lender executed in 2021 and called Greendom. Dubbed Greendom two, the said transaction is expected to close this year.

According to market sources, the latest deal is said to feature a 0%-7% tranche thickness and a €1.5bn portfolio. The thickness for the first Greendom is believed to had been sized at a similar range but for a smaller €1bn disclosed pool.

The first Greendom deal complied with STS synthetic criteria and consisted of fifty commercial real estate facilities. The €1bn underlying portfolio was originated by the bank across multiple jurisdictions and with a 4.5-year weighted average life and weighted average loan-to-value of just over 50%. AXA IM acted as in the investor in Greendom.

Significant risk transfer transactions backed by commercial real estate loans picked up last year given the clarification of post-Covid trends-which proved decisive in terms of informing investor approaches to due diligence-coupled with a search for an inflation hedge amid a rising inflationary environment (SCI 10 June 2022).

Stelios Papadopoulos

Capital Relief Trades

Risk transfer round up-16 March

CRT sector developments and deal news

German landesbank OLB is believed to be readying a synthetic securitisation. The transaction would be riding a wave of Landesbank CRTs following trades from LBBW, Helaba and Bayern LB (see SCI’s capital relief trades database).  

Stelios Papadopoulos

RMBS

Seeking standardisation

Call for consistent EPC ratings as demand for green RMBS grows

A lack of standardisation in EPC ratings across Europe could prove detrimental to the continued growth of the green RMBS market. As efforts are made across Europe to reach lofty net neutrality targets laid out in the European Green Deal for 2050, EPC ratings are set to play an increasingly important role in credit ratings analysis as more environmentally sustainable RMBS transactions hit the market.

A new DBRS Morningstar report argues that while EPC ratings can inform market participants of the potential improvements in energy performance of buildings, they vary widely in respect to quality, credibility, implementation and usefulness across Europe. With still no mandatory reporting requirements to disclose or collect data relating to energy efficiency, this lack of consistency could present a major challenge for issuers keen to develop marketable green securitisation products and leave the space vulnerable to greenwashing.

Demand for green and sustainable homes is set to grow even greater than that for buildings that don’t meet ESG standards going forward, according to DBRS - resulting in a ‘green premium’, driven by participants seeking the benefits of lower operating costs and improved housing stock offered by more sustainable buildings. However, the Royal Institute of Chartered Surveyors expects the reduction of non-compliant property value (or ‘brown discount’) to trump the increased market and rental value of sustainable residential properties (or ‘green premium’), in the overall rise in demand for more energy efficient and sustainable residential properties. 

At present, more than 28 frameworks exist across Europe and the UK created by regional governments. But the lack of granularity in the EU’s EPC statistics makes comparison between different member states virtually impossible, thanks to little data collection, compliance or standardisation in EPC definitions and calculation techniques.

Different countries all have different energy band distinctions, different numbers of bands or introduce subcategories into each energy band. For instance, the Netherlands introduces a new subcategory within band A each time newbuild energy standards are tightened, making it even harder to compare between jurisdictions.

The Netherlands has rated more than 50% of homes as being A, A+, A++, A+++ and A++++. Elsewhere, the UK, Spain and Greece have the smallest proportion of EPC grade A rated buildings, accounting for 0.21%, 0.33% and 0.36% of EPC graded buildings respectively.

Nevertheless, the UK has issued the most EPCs - at a total of 24 million - and is followed closely by France, Spain and the Netherlands. The UK also holds the highest number of EPCs issued per capita (at 0.4), tailed by Greece, Ireland and the Netherlands.

Italy and Greece appear to have much higher percentages of residential buildings with EPC bands below E, especially versus France, the Netherlands and Ireland. However, this is partially due to the differing thresholds for these lower bands between the far stricter thresholds – with band F onwards defined as being greater than 145 kWh/m² per year for Italy and 273 kWh/m² for Greece, versus around 400kWh/m² for France, the Netherlands and Ireland.

Central to legislative efforts aimed at reducing the energy demand from buildings across the EU – and particularly the Energy Performance of Buildings Directive - is the creation of a system of EPCs with autonomous mechanisms for implementing and controlling national approaches. Implementation of the EU Taxonomy classification system targeting greenwashing in 2020 revived attention to EPCs in a bid to reduce energy consumption and greenhouse gas emissions from buildings across the EU, which presently account for approximately 40% of overall energy consumption and 36% of greenhouse gas emissions.

Home to some of the oldest residential structures to be found, DBRS suggests that Europe needs a system to compare existing residential properties to identify appropriate upgrades to cut carbon emissions and energy costs, in order to meet the Paris Agreement objectives by 2050. However, as these older residential properties not built with energy efficiency in mind represent so much embodied carbon and cannot simply be torn down and rebuilt, EPCs can offer a system to compare them and advise on upgrades to make them greener.

Consumers in the UK are likely to pay more for a better EPC-rated property, according to a buyer and seller survey from Savills. These borrowers could be rewarded for making energy-saving upgrades, by cutting interest or offering cash-back rewards on their mortgages. This could have a beneficial impact on credit analysis - although instances of failure to comply with EPC requirements, or covering higher costs of more energy efficient homes through higher sale prices or capital investment, if capitalised onto loan balances, could decrease affordability and increase loss due to default.

Overall, improved energy efficiency could have a positive impact on affordability, like in the Netherlands, where interest rates on certain mortgage products decrease in instances where a property’s energy efficiency is raised.

However, lacking data from originators makes it difficult to determine whether loans backed by better-rated EPC properties would lead to lower default risk or result in better recoveries. The issue of data quality also remains a serious concern, despite ongoing efforts from market players and policymakers to improve the availability of data and the tools necessary to support the financing of building repairs across the EU.

Ultimately, efforts to reach net zero in the building sector across the EU and the UK is likely to be an extremely costly process. To reach net zero, it is predicted to cost the EU a total of €8.4trn between 2021 and 2050, a total of €280bn per year. Estimates for improving all UK homes to an energy performance rating of C from 2021 to 2030 stand at around £73bn.

Since 2016, nine green RMBS deals have been issued across the UK and Europe – with only the Netherlands’ six Green Storm transactions being backed entirely by portfolios of energy-efficient mortgages. Nevertheless, there continues to be strong and growing demand from investors – with all Green Storm transactions being highly oversubscribed.

However, according to the European DataWarehouse, just 48 deals out of a possible 143 European RMBS transactions included EPC information in the loan level data reporting.

Claudia Lewis

Structured Finance

EU authorities call for improved climate data

Sector developments and company hires

EU authorities call for improved climate data
ESMA, in collaboration with the EBA, EIOPA and the ECB, has disclosed that it is working towards enhancing disclosure standards for securitised assets by including new, proportionate and targeted climate change-related information. At the same time, the ESAs and the ECB are also calling on issuers, sponsors and originators of such assets at the EU level to proactively collect high-quality and comprehensive information on climate-related risks during the origination process.

Securitisations are often backed by assets that could be directly exposed to physical or transition climate-related risks, such as mortgages and auto loans. Since the value of these underlying assets could be affected by climate-related events, the ESAs and the ECB believe that the reporting on existing climate-related metrics needs to improve and that additional metrics are necessary.

The lack of climate-related data on the assets underlying structured finance products not only poses a problem for properly assessing and addressing climate-related risks, but also impedes the classification of products and services as sustainable under the EU Taxonomy Regulation and SFDR, according to the authorities. The ESAs and the ECB are currently reviewing the SFDR Delegated Regulation to enhance ESG disclosures by financial market participants, including to require additional disclosures on decarbonisation targets.

In this context, the ECB says it is committed to acting as a catalyst, engaging closely with the relevant EU authorities to support better and harmonised disclosure of climate-related data for assets mobilised as collateral. Additionally, ESMA is reviewing loan-level securitisation disclosure templates, with the aim of simplifying reporting where possible and considering the opportunity of introducing new, proportionate and targeted climate change-related metrics that will be useful for investors and supervisors.

Easy and seamless access to climate-related data should also be available through registered securitisation repositories to further enhance transparency and clarity for investors. This would avoid fragmented information across different access points and would result in lower costs and risks for originators, investors and supervisors, according to the ESAs.

In other news…

‘Challenging’ outlook for pub WBS
The UK pub whole business securitisation (WBS) market is struggling to return to pre-pandemic levels of profitability, according to Fitch. The agency cites persistently high inflation as the key driver behind pubs' struggles. This has had a direct impact on margins, due to elevated costs and a wider macro impact on consumer confidence and disposable income.

Fitch data reveals that managed estate EBITDA figures at Greene King, Marston's and Mitchell & Butlers each remained below 82% of 2019 levels in the 12 months to July 2022. Green King's earnings were the lowest of the three, at 71.9% of 2019 EBITDA.

In comparison, annual revenue at each group recovered to more than 92% of 2019 levels, with Mitchell & Butlers reaching 97.1%.

Fitch says inflationary pressures may have peaked and that many pubs have taken cost-saving measures to soften the impact of rising costs. However, it anticipates trading conditions will remain challenging for the sector in the short term.

The agency has assigned negative outlooks to all junior tranches of its rated pub WBS issues.

EMEA
Hayfin Capital Management has appointed Golding Capital Partners' Marco Sedlmayr as md and head of DACH in its partner solutions team, based in Munich. Sedlmayr leaves his role as md at Golding and head of institutional clients in Germany and Austria, after four and a half years with the firm.

Prior to joining Golding, he spent four years working with insurance and corporate pension clients at Allianz Global Investors. Sedlmayr has also had spells at Crédit Agricole Group, JPMorgan and KPMG Deutschland.

Structured Finance

Regional bank CLNs on watch amid SVB fallout

Sector developments and company hires

Regional bank CLNs on watch amid SVB fallout
KBRA has placed on watch developing 78 ratings from three CLN transactions issued by Western Alliance Bank (WAB) and one issued by Pacific Western Bank (PWB), following the rating agency’s placement of each institution’s senior unsecured rating on watch developing. The move comes amid a period of stress for WAB and PWB, as well as other similarly-situated regional banks, including high levels of deposit withdrawals in the wake of the Silicon Valley Bank and Signature Bank failures (SCI 13 March).

The affected transactions are WAL 2021-CL2, PWB 2022-1, WAL 2022-CL1, WAL 2022-CL2 and WAL 2022-CL4. The issuers’ obligations in WAL 2021-CL2 and PWB 2022-1 are unsecured and are based on the lower of the underlying credit quality of the reference asset and the unsecured debt rating of the applicable issuer. KBRA notes that ratings downgrades of the respective issuers will therefore result in rating changes to the respective transactions.

However, the remaining transactions are secured by a cash collateral account sufficient to repay the issued notes, as well as a line of credit expected to cover interest due during any potential FDIC conservatorship or receivership action. The latter mechanisms - which are still subject to broad FDIC discretionary powers - will be considered in determining any future rating action, according to KBRA.

The offered notes in all of the transactions are general obligations of WAB and PWB, which have senior unsecured ratings of single-A and single-A minus respectively. KBRA says it will monitor ongoing developments and expects to resolve or update the watch placements within 90 days.

In other news…

MAPFRE consolidates private debt assets 
The asset management arm of Madrid-headquartered insurance business MAPFRE has launched a new fund to house all private credit investments made by its subsidiaries. The firm says the move will enable it to diversify its portfolio, adding that it intends to have exposure to 15 fund managers primarily based in Europe and with euro-denominated vehicles.

Including future private credit investments, the size of the fund will not exceed €350m. Since it first began investing in alternative assets in 2018, MAPFRE has made commitments of €1.35bn to strategies spanning real estate, private equity, private debt and renewables.

Structured Finance

ACC servicing transferred post default

Sector developments and company hires

ACC servicing transferred post default
RAC Asset Holdings – the transferor and undivided trust interest beneficiary of the collateral underlying the ACC Trust 2019-2, ACC Trust 2021-1 and ACC Trust 2022-1 auto ABS (SCI 8 March) – has filed for Chapter 7 bankruptcy in the US Bankruptcy Court for the District of Delaware. The servicer for the securitisations, RAC Servicer, is also listed as a debtor in the bankruptcy filing.

However, servicing for the three affected deals was transferred to Westlake Portfolio Management (WPM) on 10 March, following a servicer default under each securitisation’s servicing agreement. WPM has accepted its appointment as successor servicer for a term of 30 days, which it may extend at its discretion.

WPM is now servicing all American Car Center (ACC) leases. KBRA notes that according to the February distribution reports, there were 23,805 securitised accounts with a value totaling approximately US$285m across the three outstanding ACC Trust transactions. The March payment date certificate was received by the back-up servicer, Computershare, but it remains unclear whether the RAC Asset Holdings bankruptcy will impact noteholder distributions on the 20 March payment date.

In other news…

EMEA
Banco Sabadell has named Ramon Llorente as assistant director-general and head of investment banking, based in Madrid. Llorente previously led the structured finance team at Banca March, which he joined in April 2018. Before that, he headed asset rotation and capital optimisation, structured finance at Santander.

FirstKey first to exercise ECR feature
FirstKey Homes 2021-SFR1 has become the first KBRA-rated single-family rental (SFR) transaction to exercise the excess collateral release (ECR) feature, which permits the borrower to obtain releases of properties without prepaying the loan or paying yield maintenance or additional release premium to the trust, subject to the satisfaction of certain conditions. Under the ECR, the issuer has requested the release of 729 properties from the collateral pool of 9,218 properties (equating to 7.9% of the pool by count and 7.5% by BPO value). Post release, the remaining 8,489 properties will collateralise the same debt of US$2.06bn.

KBRA analysed the post-release value and cashflow, which resulted in a KLTV of 83.4%, KDSC of 2.02x and a KDY of 3.8% for the remaining pool. The rating agency notes that these compare favourably to the issuance KLTV of 94.7%, KDSC of 1.93x and KDY of 3.6%.

The analysis indicated that the ECR, in and of itself, would not result in a downgrade or qualification of KBRA’s current certificate ratings. As such, the agency has issued a no downgrade confirmation to the servicer in connection with the ECR.

First STACR of 2023 prints
Freddie Mac has settled its first STACR transaction of the year, designated STACR 2023-DNA1, via joint bookrunners Bank of America and Nomura. It is highly unusual for the GSE to have waited this long into a new year before printing a CRT transaction and it stands in stark contrast to last year, in which record-breaking issuance was recorded.

The US$282m class M1A notes printed at SOFR plus 210bp, the US$99m class M1Bs at SOFR plus 310bp, the US$148m class M2s at SOFR plus 550bp and the US$82m class B1s at SOFR plus 850bp. Co-managers on the deal were Citi, Morgan Stanley, StoneX and Wells Fargo.

Italian CMBS hit by spending squeeze
Challenging macroeconomic conditions are having a negative impact on some Italian CMBS secured by retail properties, according to Fitch. The agency has taken negative actions on three of the four Italian retail CMBS it rates, reflecting weak consumer spending, subdued or negative real wage growth and rising interest rates.

Fitch highlights Pietro Nera Uno and Deco 2019 Vivaldi as securitisations that are exposed to Italian fashion outlets, which have been disproportionately hit by a fall in discretionary spending in the country. The agency downgraded at least part of the capital structures in both, after an increase in highly negotiated leasing arrangements with a greater incidence of turnover-only income.

Other CMBS that have been less impacted include Taurus 2018-IT and Emerald Italy 2019, neither of which have exposure to fashion outlets.

North America
New York-headquartered mortgage REIT manager Annaly Capital Management has appointed Warburg Pincus senior advisor Martin Laguerre to its board as an independent member. Laguerre will serve as a member of Annaly's audit and corporate responsibility committees.

He joined Warburg Pincus in February, after leaving his role as evp and global head of private equity at pension fund Caisse de Dépôt et Placement du Québec in November 2022. He was also recently appointed as an independent board member at brokerage and financial technology company BGC Partners.

Structured Finance

Gryphon acquired in APAC expansion move

Sector developments and company hires

Gryphon acquired in APAC expansion move
Barings has agreed to wholly acquire Australian structured finance manager Gryphon Capital Investments, in order to accelerate its expansion into the Asia Pacific region. The deal will also enable Gryphon to grow its investment platform by increasing its access to capital, Barings says.

Gryphon will be integrated into Barings' structured finance team, though it will continue to be led by portfolio managers Steven Fleming and Ashley Burtenshaw. There will be no changes to the team as a result of the deal.

Barings' structured finance platform currently has US$8.2bn of assets under management. After completion of the deal, Gryphon's AUM will add a further A$2.6bn to this total, currently equivalent to around US$1.7bn.

Gryphon invests across structured credit, but has a particular focus on the RMBS space. It manages SMAs on behalf of institutional clients ⁠- most of which are insurance and superannuation funds ⁠- as well as listed trust Gryphon Capital Income Trust.

Barings' global structured credit investment team is led by Melissa Ricco and Taryn Leonard, based in Charlotte and Boston respectively.

In other news…

TruPS CDOs disclose Silvergate exposure
EJF Investments has released a portfolio update, clarifying that it has no underlying exposure to SVB Financial Group or Signature Bank. However, the company has a small underlying exposure to Silvergate Capital Corporation, which announced its intention to wind down operations and voluntarily liquidate Silvergate Bank in an orderly manner on 8 March. This exposure is to a trust preferred security that resides in the collateral pools backing the TruPS Financials Note Securitization 2019-1 and TruPS Financials Note Securitization 2019-2 transactions.

The combined exposure is equivalent to less than 2.5% of the company's most recently published NAV on a look-through basis, prior to any recoveries. Due to the mechanics of the securitisations, the size of exposure does not automatically translate into a write-down in NAV of an equal amount.