Contents

Capital Relief Trades

Fair winds

CRT issuance hits all-time record

CRT issuance volumes broke all-time records last year and the pipeline continues to build. The only potential blots on the horizon are the regulatory pause in the US and the fallout from the collapse of Credit Suisse and Silicon Valley Bank, as this Premium Content article suggests.

Capital relief trade issuance broke all-time records last year with the execution of 87 transactions overall, including from new jurisdictions and issuers such as Poland and the German Landesbanks respectively. However, the collapse of Silicon Valley Bank and the subsequent instability that has ensued raises questions about issuance this year - although the pipeline continues to build, as CRTs benefit from several advantages, including the lack of better alternatives for banks seeking to manage their capital.

According to SCI data, the number of transactions issued in 2022 reached 87 in total, representing an all-time record. Calculating tranche notional size remains challenging, given the opacity of the CRT market. But investor estimates for last year cohere around a €17bn- €20bn range, which would again be an all-time record.  

Robert Bradbury, head of structured credit execution at Alvarez & Marsal, states: ‘’Issuance picked up - at least in part - due to dramatic changes in the base rate that impacted the implied values of lower yield, legacy fixed rate books, as well as costs of funding. It was one of several drivers of SRT activity, since banks tried to optimise their holding of such affected books.’’

Olivier Renault, head of risk sharing at Pemberton, comments: ‘’Last year we saw 12 first-time issuers. The rise in issuance in 2022 was driven by a copycat effect, but also STS, which has proven to be a resounding success. STS allows many more banks to achieve efficient economics for SRT.” 

While the US market paused last year, North America has seen plenty of activity overall, as evidenced by BMO’s record issuance. “It is paradoxical that US regulators have paused the market, given that US transactions are very clean, all first loss and with no complex features, while all are structured as direct CLNs. From a regulatory standpoint, there’s no better structure, with banks having cash for the duration of the deal,’’ observes Renault.  

He continues: ‘’Spreads, however, are now wider: when you add spread over Euribor or Libor, it’s 3%-4%. Raising equity though is still expensive and CRTs make sense in that respect. Moreover, you can customise deals, so spread widening isn’t that bad.’’

Similarly, Christophe Fritsch, global head of alternative credit at AXA IM, notes: ‘’2022 has been one of the top years in terms of issuance, with €12bn - and the market continues to grow, with the number of banks involved increasing, despite the lack of issuance from US banks in 2022. German Landesbanks and those from Eastern Europe, for example, have executed their first SRT transactions last year. The type of underlying assets was similar to last year, with the exception in the rise of leveraged loan CRT issuance.’’

He continues: ‘’Spreads have not dramatically widened - as with some other liquid credit alternatives - and transactions have been broadly enhanced, due to structural adjustments, such as shorter deals, tighter covenants and portfolio selection criteria. Nevertheless, the current economic environment with inflation, interest rate hikes and energy prices in some regions will remain a key area of focus for investors.’’

Additionally, Kaelyn Abrell, partner and portfolio manager at Arrowmark Partners, suggests that exposure to China was a risk, as well as consumer-based transactions. “Companies with revenues tied to consumers were also considered riskier. German SME transactions were one area that the market didn’t differentiate on pricing. The trades priced similar to other geographies, despite the uncertainty related to the impact from the Ukraine conflict,’’ she says.

Overall, bankruptcies rose by 20% quarter-on-quarter in 2H22, according to Luca Borella, co-founder at Algorthimica. Indeed, because of rising defaults, the issuer-weighted annual default rate for all Moody's-rated corporate issuers increased to 2.3% at the end of 2022, which is above the 0.8% rate in 2021. Nevertheless, this is still lower than the 3.2% rate in 2020, during the height of the Covid-19 pandemic.

Among speculative-grade issuers, the default rate showed a similar trend - rising to 4.3% at the end of 2022 from 1.8% in 2021, but down from 6.9% in 2020.

Such risks haven’t stopped investors from looking at blind portfolios, however. Tanmaya Sanghvi, head of independent valuations at Oxane Partners, explains: “Most of the inquiries from our side have, in fact, been about blind pools. Yet blind pools aren’t exactly black boxes. Investors can get visibility on industry composition and internal ratings and thus the general risk profile.”

She continues: “But the traditional valuation methodologies aren’t appropriate to value such trades, since there are changes that happen to the pool monthly, so we monitor the pool and adjust accordingly. Valuing the blind pool involves relying on internal ratings instead of an independent rating process.’’

Defaults weren’t the only risk emerging last year. The Basel output floor proved to be a major regulatory challenge, highlighted by the publication of a Risk Control report stating that the implementation of the floor risked rendering corporate and SME synthetic securitisation unviable (SCI 22 November 2022). The only solution from the banks’ perspective was to halve the p-factor.

The p-factor is an input into the SEC-SA and SEC-IRBA formulas, which were introduced well before the output floor was mooted. They govern non-neutrality for the retained senior tranches of synthetic securitisations, with the aim of addressing modelling and agency risks.

Under the output floor, a bank using internal models must now calculate RWAs using the standardised approach and then multiply the amount obtained by 72.5%. The output floor will be gradually introduced from 1 January 2025 over a period of five years. Effectively, this may lead to higher risk weights for the retained senior tranches of synthetic securitisations.

The p-factor gained attention with the introduction of the output floor, since the market has generally come to accept the output floor, despite its punitive impact on securitisation and SRT. As such, the focus shifted to the rectification of the SEC-SA through the halving of the p-factor. Several months of wrangling between regulators and the market followed, as the former proposed the reduction of the risk weight floor for the retained senior tranches of synthetic securitisations in lieu of halving the p-factor (SCI 13 December 2022).

Nevertheless, both the European Parliament and the European Commission endorsed halving the p-factor, as momentum continues to grow in favour of the securitisation industry. The decision of the Trilogue meetings on this issue is still pending (SCI 24 February).

Regulatory uncertainty was perhaps the dominant theme for the US market, as regulators paused it for various alleged reasons, including scepticism over the direct CLN structure. However, JPMorgan is said to be exploring SPV and other structures at the moment, so there may be light at the end of the tunnel (SCI 9 February).

The collapse of Silicon Valley Bank and the financial instability that has ensued, along with the implications for CRT is currently in focus. At present, both the buy-side and the sell-side are continuing uninterruptedly with their trades, although some investors expect some spread widening to occur.

Nevertheless, arrangers and investors highlight several reasons why the current crisis is an opportunity for the CRT market. First, the challenges of the AT1 bond market - following the wipe-out of the Credit Suisse AT1 securities on the eve of the bank’s acquisition by UBS - should be positive, since CRT has shown to be an alternative for banks seeking to manage their capital.

Second, whatever widening might occur, on a relative basis, deleveraging via synthetic hedges makes more sense than a costly and dilutive rights issue. Third, CRTs are private transactions, so deal premiums are largely non-directional since investors aren’t taking any specific views on the market.

Fourth, across the Atlantic, the deposit outflows from the smaller US regional banks to the larger global US banks provides impetus for boosting CRT issuance, given the bigger balance sheets that have to be managed along with higher capital requirements from stress tests and Basel 4. Still, this remains a big ‘if’, given current US regulatory attitudes towards CRTs.

Another question arising from the current bout of instability is what happens to the legacy CRT trades of Credit Suisse and the potential issues that this raises for CRT contracts going forward (SCI 29 March). The question that market participants are pondering doesn’t concern credit events, with the Credit Suisse programmes - such as Elvetia - known for their stellar performance track record.

Instead, the bigger question is what UBS will do now, given that the bank virtually abandoned the CRT market as an issuer years ago. Its acquisition of Credit Suisse is still ongoing, so answers to such questions will take time to materialise.

Meanwhile, business continues as usual, with numerous trades in the pipeline. Looking ahead, Renault concludes: ‘’This year we will see more opportunities to do deals with first-time issuers, continued growth and diversification and hopefully the resolution of the regulatory uncertainty in the US. Moreover, we are hoping that new ESMA templates for private deals will facilitate EU investors to participate in non-EU originated transactions, although that may only happen in 2024.’’      

Stelios Papadopoulos

ABS

IBRD prints largest-ever cat bond

Unique transaction provides earthquake coverage for Chile

The IBRD has priced a joint catastrophe bond and swap transaction to provide earthquake insurance coverage to the Chilean government, marking the bank’s largest catastrophe risk transfer transaction for a single country and the first time catastrophe bonds have been listed on the Hong Kong Exchange. Dubbed CAR 131, the deal is structured as US$350m of parametric cat bonds and US$280m of catastrophe swaps, providing total coverage of US$630m. By simultaneously offering the risk to both bond investors and to re/insurance companies in swap form, the World Bank was able to access a larger amount of risk bearing capacity than either market could offer on its own.

“We are encouraged by the extremely strong demand for the transaction from both bond investors and insurance counterparts, who have shown their support for a more resilient future for the people of Chile,” says Anshula Kant, md and cfo of World Bank Group.

Insurance-linked securities funds accounted for 76% of investors in the bond portion of the transaction, with asset managers accounting for 15%, pension funds for 6% and insurers or reinsurers for 3%. Geographically, 54% of bond investors are from Europe, 40% from North America, 4% from Bermuda and 2% from Asia. European counterparties accounted for 60% of the catastrophe swap distribution, with North American (36%) and Bermudan (4%) counterparties accounting for the remainder.

The bonds are priced at par with a coupon of compounded SOFR plus a funding margin of 4bp per annum and a risk margin of 475bp per annum. The joint transaction provides Chile with financial protection to mitigate the disruptive economic impacts of earthquakes and resulting tsunamis. It will provide coverage for three years, with payouts triggered if earthquakes occur within a predefined area and are over a certain level of severity.

“Chile is one of the most seismically active countries in the world, experiencing some of the largest earthquakes ever recorded,” says Carlos Felipe Jaramillo, the World Bank’s vp for Latin America and the Caribbean. “Through the intermediation of the World Bank, this cat bond allows Chile to transfer major earthquake risks to the capital markets while enabling the authorities to respond quickly to the needs of citizens when calamities strike.”

The transaction follows a catastrophe bond issued by the bank in 2018 for Chile, Colombia, Mexico and Peru. The latest issue brings the number of catastrophe bonds executed by the IBRD to 19.

Aon Securities, Swiss Re Capital Markets and GC Securities acted as joint structuring agents, managers and bookrunners on the transaction, while Mercer Investments (HK) also acted as joint manager. AIR Worldwide provided risk modeling and analysis.

Kenny Wastell

Structured Finance

SCI In Conversation podcast: John Pellew, Arrow Global

We discuss the hottest topics in securitisation today...

In this episode of the SCI In Conversation podcast, Arrow Global principal John Pellew discusses the evolution of blockchain technology in the securitisation market. We highlight the milestone achievements in the space, as well as the challenges that still need to be overcome.

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

Structured Finance

SCI Start the Week - 27 March

A review of SCI's latest content

Last week's news and analysis
Capital call CRT prepped
Standard Chartered readies synthetic ABS
Regionals roughed up
US tier one banks set for new dawn in SRT market while regionals suffer
Ringfencing the problem
Fed's SVB response calms RMBS nerves
Risk transfer comeback
Lloyds executes synthetic ABS
Subjective issue
CLO ESG reporting gaining traction

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

Recent premium research to download
CLO ESG reporting – March 2023
CLO managers are increasingly investing in their own methodologies and disclosure processes to provide investors with helpful ESG information. However, as this Premium Content article shows, the subjective nature of this data remains an issue.

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, Arrow Global principal John Pellew discusses the evolution of blockchain technology in the securitisation market. We highlight the milestone achievements in the space, as well as the challenges that still need to be overcome.

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

On the wing

Gryphon to expand into new areas of structured finance post-acquisition

Australian asset manager Gryphon Capital Investments will look to expand its remit beyond RMBS, following its recent acquisition by Barings (SCI 17 March). The transaction will also enable Barings to accelerate the buildout of its structured finance presence in the Asia Pacific region.

“One of the key segments that’s emerging, where there is a lot of movement from the banks into the non-banks sector, is auto finance,” says William Awad, global head of private structured finance at Barings. “I would see that as likely being one of the key sectors that we extend into as we start integrating our platforms and extending the conversation beyond resi.”

Gryphon was founded in 2014 and is led by founding partners Steve Fleming, who serves as ceo, Ashley Burtenshaw who is cio, and Henry Cooke, who oversees UK investor relations. It manages SMAs on behalf of wealth managers and institutional clients ⁠- most of which are insurance and superannuation funds ⁠- as well as listed trust Gryphon Capital Income Trust.

Awad explains that while Gryphon primarily focuses on the residential market, with additional activity in the small business lending space, its leadership team’s experience spans well beyond that. Joining forces with Barings and tapping into the US$347bn AUM investment manager’s network will enable it to capitalise on that expertise and diversify into new areas.

“While the opportunities the team encountered [after launching] were predominantly resi - and that is how they built their business - their intent has been to move into other segments of the structured finance space,” says Awad. “That includes both consumer and commercial asset-backed credits. Bringing together a capital base and extended resource base that will help accelerate that was very attractive to them.”

From Barings point of view, the deal will enable its structured credit division to follow the strategy taken by the firm’s other divisions - namely, implementing a more global approach. “Across Barings’ investment verticals, it’s a consistent theme to have a global footprint across both private and public investment strategies,” says Awad. “We already have a significant footprint in the APAC region, Australia in particular. That has been the goal for the structured finance group too since we formally launched as a platform in 2018, rather than having solely a US-centric approach.”

Structured credit offers compelling opportunities for global expansion, according to Awad, due to a lack of market penetration and consolidation outside of the US. The firm intends to take a pragmatic approach to building out the platform, with a mixture of organic and acquisitive growth.

With a wide array of potential targets, Barings was particularly attracted to Gryphon because it offered the potential to tap into a new client base. “The Gryphon platform brought a couple of very distinct capabilities,” says Awad. “The first is a deep presence in the wealth channel in particular, although Gryphon also has an institutional focus as well. That was a very attractive proposition in terms of expanding our footprint.”

He adds: “Timing wise, this environment is also very appealing for us; being able to provide attractive financing opportunities for origination partners, that we can then in turn provide to our clients.”

Barings' structured finance platform currently has US$8.2bn of AUM and the Gryphon deal will add a further A$2.6bn, currently equivalent to around US$1.7bn. But beyond scale, the acquisition will also allow the wider group to offer “very distinct risk profiles vis-a-vis corporate credit”, says Awad. “Having a global origination opportunity set with which to deliver a differentiated return profile is hugely important.”

M&A is never without risk and it is important that both parties in any deal share common goals and corporate cultures. Both Barings and Gryphon believe they have found the ideal partner. The mission now will be to implement those synergies and maximise their benefits.

Kenny Wastell

Capital Relief Trades

Risk transfer round up-28 March

CRT sector developments and deal news

Bank Millenium is believed to be readying a synthetic securitisation of leasing assets. The bank’s last capital relief trade was executed last year. Dubbed Jazon, it was the Polish lender’s first synthetic risk transfer trade and referenced corporate and SME loans (see SCI’s capital relief trades database).  

Stelios Papadopoulos

Capital Relief Trades

Credit protection continues

UBS takeover leaves Elvetia notes unaffected

SCI can confirm that the announcement of the merger between UBS and Credit Suisse has left the Elvetia notes unaffected given that the contracts don’t stipulate any link between change of ownership and termination events.

Indeed, the ISDA Master Agreement between Credit Suisse (Switzerland) Ltd as the protection buyer and J-Elvetia Finance Limited as the protection seller under the relevant credit default swap does not contain any provisions that a change of control in one of the parties would constitute a termination event. Moreover, the terms and conditions of the notes do not contain any early redemption or early termination provisions for such an event.

Change of ownership wouldn’t be typically linked to termination events and the same applies to originator bankruptcies. Early termination events in the case of synthetic securitisations generally pose concerns in relation to SRT, since they increase the risk that the credit protection terminates before the expected maturity of the transaction. From an originator’s perspective, in the case of termination of the contract upon the bankruptcy of the originator, the insolvent originator would no longer be able to rely on the credit protection while it faces reduced regulatory capital resources due to the previous achievement of SRT. Consequently, banks typically wishing to achieve SRT can’t feature contractual clauses where termination events are linked to bank insolvencies.

However, failure to pay events where banks fail to pay the protection premiums will trigger a termination event. Hence, as long as lenders keep paying the premiums the hedge remains in place. The latter feature of synthetic structures partly explains why capital relief trades from the now insolvent Getin Noble Bank and Banco Popular survived despite their bankruptcy (SCI 3 November 2022).

Still, investors have been asking about the contractual language around counterparty credit risk. The key features that would be usually looked at is the choice between SPV and on balance sheet CLN structures. One salient question is whether to deposit cash in a third-party bank account or collateralize them with the bank via high quality securities.

Stelios Papadopoulos

Capital Relief Trades

Maturity extensions

Credit Agricole lengthens maturity in new SRT

Credit Agricole has finalized a synthetic securitisation of corporate loans. Dubbed CEDAR 2023-1, the transaction features a longer legal final maturity compared to previous trades from the programme.

The trade features a €180m first loss tranche (0%-6%) that references a €3bn portfolio of global corporate revolvers and term loans. The deal priced at three-month Euribor plus 11%. The main difference with previous trades from the programme is the longer seven-year legal final maturity. Indeed, the lender extended the maturity from five to seven years to keep credit facilities that might be subject to maturity extensions.

Further features include a portfolio weighted average life equal to approximately 3.5 years and a pro-rata amortization structure with triggers to sequential amortization. Moreover, there’s a time call that can be exercised from November 2026 onwards and a nine-month replenishment period. The replenishment period is relatively short for a synthetic securitisation, but a longer replenishment period would lead to higher pricing from the bank’s perspective. Credit enhancement is present only in the form of first loss protection.

Credit Agricole typically issued one synthetic securitisation of corporate loans every year, but last year the bank boosted its issuance and there’s an intention to print additional corporate deals this year.  

Stelios Papadopoulos

Capital Relief Trades

Merchants joins the party

Brand new US SRT deal from Merchants Bank of Indiana

Merchants Bank of Indiana, a subsidiary of Merchants Bancorpt, headquartered in Carmel, Indiana, has become the latest US regional to issue a SRT trade, it has been discovered.

The bank, which had $9.7bn in assets of March 2022, has sold a $158m face value credit linked note (CLN) due May 26 2028.

This deal represents a securitization of a $1.3bn reference pool of healthcare commercial real estate (CRE) loans. Healthcare facility lending represents a principal business line for the borrower.

The advisor to the deal was Atlas SP, say sources. This is a new credit firm focused on asset-backed financing, based in New York. It was originally the Securitized Products Group at Credit Suisse but was purchased by Apollo Global Management and then spun out as a standalone vehicle in a deal announced early last month.

 It has been a busy week for Atlas, as last week it arranged a $1.4bn asset-backed financing facility for under pressure Pacific Western Bank (PacWest).

The notes pay a yield of SOFR plus 15.50%, paid monthly, and Computershare, an Australia-based firm that provides custody services, is the securities administrator.

The identity of the investor, or investors, is not known.

The trade attaches at 1% of losses.

Merchants Bank becomes only the fourth US regional bank to complete a reg cap deal since Texas Capital Bank broke the ice in this market over two years ago.

This was thought to be the curtain raiser for a host of regional banks entering the market but in fact only Western Alliance Bank, with four deals, and PacWest with one trade, have followed suit. The sector has been bedevilled by regulatory uncertainty and logistical complications, but, say lawyers and advisors close to the market, something in the region of 20 regional banks are circling the sector with great interest.

This trade also represents, as far as is known, the first US reg cap securitization of CRE assets.

Merchants Bank of Indiana has been unavailable for comment.

While it had $9.7bn as of March 31 2022, it had $7.5bn in deposits. It is the third largest bank in Indiana and is ranked 161^st in size in the US.

Simon Boughey

Structured Finance

Swedish auto lease ABS debuts

Sector developments and company hires

Swedish auto lease ABS debuts
Volkswagen Financial Services has closed its inaugural Swedish auto lease ABS. Dubbed VCL Master Sweden Compartment 1, the Skr9.1bn transaction is backed by a diversified pool of receivables representing over 40,000 leasing contracts extended to corporates and individuals in Sweden by Volkswagen Finans Sverige (VFS).

In a private placement, the Aaa/AAA/AAA rated (Moody’s/ DBRS Morningstar/Scope) Skr6.56bn class A notes priced at one-month Stibor plus 100bp and the Aa3/AA(l)/AA- rated Skr910m class B notes at plus 160bp.

The majority of the underlying contracts are operating leases (accounting for 61.2% of the portfolio), with the remainder being financial leases. The portfolio is granular: the top one, 10 and 100 lessees represent 0.11%, 0.56% and 2.58% of the portfolio respectively. The largest industry concentration – construction - accounts for 11.50%, according to Scope.

The deal features a 12-month revolving period.

In other news…

Alantra reorg to drive global growth
Alantra has reorganised its investment banking division in a bid to accelerate its global growth ambitions. Miguel Hernández has been appointed ceo of the group, based in London, with Andy Currie and Franck Portais named co-chairs.

Hernández has been with the firm since 2000 and has an extensive track record in cross-border and Spanish M&A deals, both on the buy- and sell-side. Based in London and Paris respectively, Currie is managing partner of Alantra’s UK investment banking division, while Portais is ceo of Alantra France.

Meanwhile, Jan Caspar Hoffmann has joined Alantra as the new ceo and managing partner of Alantra Germany. He has 25 years of investment banking experience, having worked in leading positions at Merrill Lynch, Société Générale and Moelis & Company in Frankfurt and London.

Additionally, Philipp Krohn has been promoted to ceo of Alantra USA, having been with the firm since 2010, most recently as partner and head of corporate development. He will be based in Boston and New York.

Finally, Javier García-Palencia has been promoted to ceo of Alantra Investment Banking Spain. He has been with the firm since 2015 and was previously head of debt.

CIRT pair closed
Fannie Mae has executed two CIRT reinsurance deals on US$31.8bn of single-family loans, the GSE has revealed. The transactions, designated CIRT 2023-2 and CIRT 2023-3, transferred a total of US$926m of mortgage risk to the reinsurance market.

These two deals underline the continuing importance of reinsurance transactions, which now account for about half the credit risk transfer executed by Fannie. It has sold two CAS deals so far in 2023, with a face value of a little over US$1.4bn, while it has executed three CIRT deals to a value of just over US$1.3bn on over US$40bn of single-family loans.

With CIRT 2023-2, Fannie Mae will retain risk for the first 95bp of loss on the US$13.8bn covered loan pool. If the US$131m retention layer is exhausted, 19 reinsurers will cover the next 365bp of loss on the pool.

In CIRT 2023-3, the GSE will retain risk for the first 100bp of loss on the US$18bn covered loan pool. If the US$179.8m retention layer is exhausted, 18 reinsurers will cover the next 235bp of loss on the pool.

DECO 2019-RAM tender launched
Cale Street Investments has launched a tender offer for up to £50m of outstanding class A and class B notes issued by the DECO 2019-RAM CMBS. The sponsor says the purpose of the offer is to provide liquidity to noteholders, with the purchased notes to be held by the offeror without any entitlement to exercise voting rights at noteholder meetings.

The purchase price of the class A and B notes is respectively 92.50% and 84% of the factored nominal amount of the outstanding notes. The offer is due to expire today (27 March), with settlement expected on 30 March.

NPC debuts interval fund
Nomura Private Capital (NPC) has launched its first investment product, the Nomura Alternative Income Fund (NAIFX), marking a significant milestone in Nomura’s global push into private markets. To underline its commitment, Nomura has provided an initial US$100m to seed the fund, a closed-end interval fund that provides diversified exposure to private and public credit sectors.

NAIFX will invest a majority of assets both directly and indirectly through investment vehicles across global credit markets. The investment team, led by NPC cio Matthew Pallai, will constantly assess market opportunities and employ a flexible allocation strategy to help maximise risk-adjusted returns and current income. The team intends to make relative value decisions on a wide range of private credit exposures, including direct lending, real estate lending, specialty finance and asset-based lending.

The launch of NAIFX is the first of several products that NPC plans to bring to market over the coming years.

Specialist lender acquired
Shawbrook has acquired specialist lender Bluestone Mortgages (BML) in a cash and share deal. With both Bluestone Mortgages and The Mortgage Lender brands, powered by Shawbrook’s capital base and presence in the deposits market, the combined group is well placed to meet growing demand for specialist mortgages.

BML has originated over £1.8bn since it launched in 2014 and currently manages a book of over £1.3bn residential loans. The growth of the business has been supported by an experienced team, which today stands at around 90 employees based in offices across London and Sheffield.

Shawbrook has been working with BML since 2017 through a platform lending arrangement. The acquisition is expected to provide BML greater stability in funding to continue powering its growth trajectory. The two organisations also share an approach to providing specialist finance at scale, which “combines technology and data with the expertise and judgement of their people”.

The move follows the acquisition of Kensington Mortgages by Barclays, which was completed at the beginning of March.

Structured Finance

HPC buys into L Catterton to support credit strategy

Sector developments and company hires

HPC buys into L Catterton to support credit strategy
Hunter Point Capital (HPC) has acquired a minority stake in L Catterton to support the launch of the consumer-focused private equity firm’s new credit strategies. In recent months, L Catterton has launched platforms dedicated to impact investing and private credit, as well as a renminbi-denominated growth capital fund.

HPC co-founder and executive chair Bennett Goodman will serve as strategic credit advisor to L Catterton as part of the deal. All proceeds from the transaction will be reinvested into L Catterton’s funds.

In other news…

North America
Chicago-headquartered investment manager Antares Capital has appointed Apex Credit Partners’ Andrew Stern as md in its liquid credit team. The firms says the appointment is intended to support Antares’s ongoing expansion beyond private debt, as it looks to become a “full-scale asset manager”.

Stern will focus on portfolio management and trading for the firm’s mid-market origination and CLO platforms. He leaves his role as md at Apex after 10 years and will continue to be based in New York.

Structured Finance

Enpal backed for Germany's first solar ABS

Sector developments and company hires

Enpal backed for Germany’s first solar ABS 
Renewable energy company Enpal has secured €356m from Citi and M&G to fund a warehouse facility for Germany’s first residential solar securitisation. The deal will provide Enpal customers access to financing for around 12,500 photovoltaic systems spanning energy storage and electric vehicle charging.

Citi has made a senior debt commitment of €300m to the facility, while M&G has made a mezzanine debt commitment of €56m. The transaction is the first European investment by Citi and M&G in the residential solar assets space.

In other news…

MILN tender offers on the cards
Essent is seeking noteholder consent to undertake cash tender offers to repurchase the mortgage insurance-linked notes issued by Radnor Re 2019-1 and Radnor Re 2020-1, respectively due 25 February 2029 and 25 January 2030. The consent of 100% of noteholders is required by 18 April, although consenting will not obligate holders to tender their notes in any cash offer.

If 100% consent is received, RMIR 2019-1 and RMIR 2020-1 will each enter into a supplemental indenture and amendment to the reinsurance agreement with respect to the notes to commence the cash tender offers. The supplemental indenture and amendments may be executed at any time prior to 28 April.

As an incentive, the issuer will pay noteholders that deliver valid consents prior to 18 April a cash payment equal to US$1 per US$1,000 outstanding principal amount of notes. For purposes of the consent fee, the principal amount used for the calculation will be the outstanding principal amount of notes, less the principal portion of any impairment amounts. The consent fee will only be paid if all the conditions of the applicable consent solicitation are satisfied, including the receipt of consent from the holders of 100% of the outstanding principal amount of the applicable notes.

SEC re-proposal ‘critically flawed’
The SFA has submitted a comment letter to the US SEC regarding the recently re-proposed rule on the prohibition of conflicts of interest in securitisations (SCI 26 January). Given that the SEC did not grant a deadline extension, as requested by SFA and 11 other trade associations, the SFA’s letter acknowledges that more work remains to be done to assess the impact of the proposal.

Overall, the letter highlights that the sweeping approach taken in the re-proposed rule would significantly impede and restrict vital activities – including risk-mitigating hedging, financing and investing – across a wide swath of the investor, bank, broker-dealer, corporate issuer and servicer communities. It also details how the re-proposal is critically flawed, conflicts with the goals of numerous prudential regulators, relies too heavily on the Volcker Rule as a precedent and would leave a broad universe of market participants not knowing whether it is covered by the rule - and if so, whether its conduct could be deemed to have violated the rule.

Additionally, the letter suggests that the rule could perversely discourage ABS investors from negotiating the terms and collateral of ABS because those actions could be interpreted as “substantial involvement” in the design, structure or assembly of the ABS that would then trigger the need to implement a complex, expansive and ambiguous compliance regime. Given the limited deadline and broad remit of the re-proposed rule, the SFA says it plans to submit a second supplemental letter after the technical deadline to further detail its market-wide consensus recommendations.