Contents

Capital Relief Trades

First loss shift

Commerzbank SRT revealed

SCI understands that Commerzbank closed a synthetic securitisation of corporate loans in February called ‘’Project Garda’’. The transaction deviates from the German lender’s past significant risk transfer trades with private investors in the sense that it’s a first loss deal as opposed to a mezzanine trade.

According to market sources, the transaction features a €195.2m first loss tranche that references a €3.2bn corporate portfolio. The pricing couldn’t be corroborated but the deal is rumoured to have priced in the lower double digits. PGGM is the investor in the securitisation.

Project Garda marks the German lender’s return to capital relief trades with private investors following a two-year hiatus. Commerzbank’s last synthetic ABS with private investors was finalized in December 2020 (SCI 22 January 2021).

Although comparisons across risk transfer trades aren’t recommended given the idiosyncratic nature of every deal, a theme has nevertheless emerged for more than a month. Indeed, synthetic securitisations of corporate loans for the past month have tended to cohere around a 6%-7% thickness and priced within the lower double digits.

Barclays acted as the arranger in the transaction.

Stelios Papadopoulos     

Capital Relief Trades

Go Go SRT

More supply, and US banks to join the party, say conference speakers

While 2022 was a record year in the global SRT market, with $20bn of issuance and some $140bn of assets referenced, 2023 will be even bigger, said speakers at the IMN Credit Risk Transfer conference in New York this week.

Though the jury is still out on whether the US will join the issuance bonanza, there is increasing optimism that things are about to change here too as tier one banks try out new structures to please the regulators. 

Various factors have conspired to make the regulatory capital relief market look even better this year. Firstly, banks can’t turn to the equity market. A lot are trading at a discount to book value. “The equity market is closed so this is a good opportunity for the CRT market,” explained a speaker in New York. 

At the same time, higher interest rates have created mark to market pressure for longer duration assets while also increasing competition for bank deposits. The recent demise of First Republic, to be added to the swelling roster of banks that have failed in 2023, shows the urgent need for many regional banks to de-risk. 

A recent report by Seer Capital suggests that there will be perhaps $25-30bn of CRT issuance this year, with 65-70 individual deals referencing over $170bn of assets.

“The SRT market has grown dramatically in recent years, with an increasing number of banks globally looking to avail themselves of the many benefits, including risk relief, capital relief, and demonstrating ability to distribute risk.  The recent bank turmoil, with the failures of SVB and Signature Bank and the rescues of CS and First Republic, will stimulate further growth in the US, in Europe, and further afield,” Terry Lanson, an md and portfolio manager at Seer Capital, told SCI.

Whether the US will come to the party remains the big question. While regional banks have been able to issue reg cap deals, and in the last year or so PacWest, Western Alliance and, most recently Merchants Bank of Indiana, have done so, the tier one market, which is subject to much keener regulatory oversight, has been on hold since the end of 2021.

However, recent market talk indicates that JP Morgan, which has a bigger regulatory capital burden than most, is about to bring an SPV deal to test the waters. Speakers at the conference suggested that the credit linked note structure, preferred by US banks for logistic and accounting reasons, does not conform to the stipulations of Reg Q rules. 

“We understand that the regulators have no philosophical objections to CRT deals, but they must adhere to Reg Q. So there is a clear path forward,” said another speaker on Monday. The clear path forward would seem to involve the use of an SPV. 

Moreover, the recent turmoil in the banking market has made investors a little more wary of assuming counterparty risk, and the use of SPV immunizes investors from that direct exposure. Thus SPVs should make the reg cap market more attractive to a broader range of buyers, and bring more issuers into the fold. 

There are likely to be changes in the way SRT deals are structured as well, as investors will seek higher rewards and less risk. Tranches will be thicker, higher quality assets referenced and replenishment periods will be shorter with tighter criteria, predicts the Seer Capital report. 

Yields at the end of last year regularly reached mid-teens, as spreads had widened 200-300bp over the course of the year while SOFR rates had also increased sharply. To prevent levels rising even further, banks will look to reference less risky assets as well as using more risk-averse structures. 

As the report notes, despite the bad publicity surrounding bank names, the market is moving in favour of investors, with wider spreads, more conservative structures and more carefully selected portfolios. Smaller banks will stay in the game by paying wider spreads and implementing buffers to insulate investors still further. 

And US banks should not find themselves locked out of the SRT party. 

“The banking turmoil finally creates the ‘use case’ that US regulators have been waiting for to pave the way for the widespread adoption of the SRT product as a way for US banks, both large and small, to remove risk from their balance sheets and distribute it among sophisticated investors.  We expect the US market to come on line imminently and drive exponential growth in the market,” predicts Terry Lanson.

Simon Boughey

Capital Relief Trades

Risk transfer round up-5 May

CRT sector developments and deal news

Intesa Sanpaolo is allegedly working on a synthetic securitisation of corporate loans that is expected to close in 2H23. The Italian lender’s last synthetic securitisation of corporate loans was executed in December last year (see SCI’s capital relief trades database).  

Stelios Papadopoulos

SRTx

Latest SRTx fixings released

Index values indicate widening spreads but volatility and liquidity outlooks trend towards neutral

The latest fixings for the SRTx (Significant Risk Transfer Index) have been released. The most significant changes in the index values since April’s fixings (SCI 5 April) are that – against a backdrop of global bank volatility – spreads have continued to widen across all segments, though volatility and liquidity indexes have trended towards more neutral levels.

This month’s survey responses suggest that spread estimates have widened by 55bp (representing a +5% change) and 5bp (+0.6%) for European and US large corporate transactions respectively, and by 77bp (+6.2%) and 146bp (+12.8%) for European and US SME transactions.

The SRTx Spread Indexes now stand at 1,155bp, 935bp, 1,310bp and 1,285bp for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US indexes respectively, as of the 2 May valuation date. 

For the SRTx Volatility Indexes, the values show a decline of between 2.6% and 14.3% month-on-month for European and US large corporates and for European SMEs. This suggests sentiment has tempered in recent weeks, with respondents believing volatility is unlikely to deteriorate as both European and US large corporates trend towards 50. The outlier is US SMEs, estimates for which increased by 21.2%.

The SRTx Volatility Index values now stand at 54, 50, 38 and 67 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

Meanwhile, the SRTx Liquidity Index values point to stabilising sentiment across the board, falling in a range between 10.7% and 23.1%. The indexes have dropped back to 50, 60, 50 and 63 across SRTx CORP LIQ EU, SRTx CORP LIQ US, SRTx SME LIQ EU and SRTx SME LIQ US respectively.

Finally, credit risk sentiment has improved slightly month-on-month, though values remain significantly above 50 across the board. The SRTx Credit Risk Index values fell for large corporates (by 8.2% for Europe and 6.7% for the US) and for European SMEs (by 8.2%), but remained the same for US SMEs. The indexes now stand at 64, 70, 64 and 75 across SRTx CORP RISK EU, SRTx CORP RISK US, SRTx SME RISK EU and SRTx SME RISK US respectively.

SRTx coverage includes large corporate and SME reference pools across the EU and US economic regions. The index suite comprises a quantitative spread index - which is based on survey estimates for a representative transaction (the SRTx Benchmark Deal) that has specified terms for structure and portfolio composition - and three qualitative indexes, which measure market sentiment on pricing volatility, transaction liquidity and credit risk. 

Specifically, the SRTx Volatility Indexes gauge market sentiment for the magnitude of fixed-spread pricing volatility over the near term. The index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating volatility moving higher.

The SRTx Liquidity Indexes gauge market sentiment for SRT execution conditions in terms of successfully completing a deal in the near term. Again, the index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating that liquidity is worsening.

Finally, the SRTx Credit Risk Indexes gauge market sentiment on the direction of fundamental SRT reference pool credit risk over the near term. The index scale is 0-100, with levels above 50 indicating a higher proportion of respondents estimating that credit risk is worsening.

The objective of the index suite is to depict changes in market sentiment, the magnitude of such change and the dispersion of market opinion around volatility, liquidity and credit risk.

The indexes are surveyed on a monthly basis and recalculated on the last trading day of the month. SCI is the index licensor and the calculation agent is Mark Fontanilla & Co.

For further information on SRTx or to register your interest as a contributor to the index, click here.

Kenny Wastell

Structured Finance

Apollo launches new platform for global wealth investors

Sector developments and company hires

Apollo launches new platform for global wealth investors

Apollo Global Management has launched an investment platform aimed at global wealth investors, as the firm looks to expand its wealth business outside of the US. Apollo Private Markets SICAV, which will offer investors in EMEA, Asia and Latin America tailored access to a portfolio of alternative investment products, has received regulatory approval from Luxembourg’s CSSF.

The new platform has launched with two investment strategies — one offering broad private market exposure and the other focused on the US private credit market — with more to be added in the coming months. The firm says the structure will enable investors to access strategies in their local currency and with “lower investment minimums than traditional alternative product offerings”.

In other news…

AlbaCore appoints Courey as president

AlbaCore Capital Group has appointed its serving partner and COO Matthew Courey to the newly created role of president. The promotion comes slightly more than a month after Mitsubishi UFJ Financial Group announced the acquisition of a majority stake in AlbaCore via its Australian business First Sentier Investors.

In his new role, Courey will oversee the European credit firm’s overall strategy, product development, risk management, portfolio strategy and operational execution. Courey was a founding partner at AlbaCore and will continue to serve as partner, COO and a member of the firm’s executive committee.

PGIM acquires Deerpath

Prudential Financial’s asset management business PGIM has agreed to acquire a majority stake in US direct lending manager Deerpath Capital Management. The move is intended to accelerate the growth of PGIM’s alternatives platform, specifically in the lower mid-market sponsor-backed space.

Deerpath, which has around US$5bn in assets under management, will operate independently following the deal. It will continue to be led by co-founder and CEO James Kirby and co-founder and COO Tas Hasan following the deal.

EMEA

International law firm Maples Group has appointed former Vistra director and structured finance specialist Fergus O’Donnell as vice president in its Ireland office. O’Donnell leaves his role as director and head of client services at Vistra after four years with the securitisation-focused service provider.

The appointment coincides with three other senior hires by Maples in Ireland. Vice president Shane Toomey has relocated from Hong Kong to take on the role of head of company secretarial, while Siobhán Lawlor — formerly of Aero Capital Solutions and Alter Domus — and former Dubai Aerospace Enterprise financial controller Charlie McGinley have joined as senior vice presidents.

WFW promotes seven structured finance lawyers

Watson Farley & Williams has promoted seven structured finance lawyers to partner in this year’s round of global partnership promotions. Accounting for the majority of the 11 total partnership promotions, the legal professionals promoted across WFW’s global assets and structured finance practice will bring the firm’s total number of partners to 195.

Promotions include that of aviation and maritime sector specialist Laura Cadenas in the firm’s Madrid office, as well as shipping-experts Marinos Papadopoulos and Emily Widdrington in London. Philip Jackmauh has been promoted to partner in WFW’s New York office, whose practice centres on commercial aircraft leasing and finance, and Shusuke Fukunaga, Ricky Kim, and Richard Williams have been promoted to partner across the firm’s Asian structured finance teams in Tokyo, Seoul, and Singapore, respectively.

Structured Finance

Prytania hires business development md for US and Canada

Sector developments and company hires

Prytania hires business development md for US and Canada

London-headquartered Prytania Asset Management has appointed former Schultze Asset Management executive Angela Lui as managing director to head up business development activity across the US and Canada. The appointment comes seven months after private equity group Nile Capital Group Holdings acquired a minority stake in Prytania (SCI 27 October) to support the expansion of its platform.

At the time of Nile’s investment, Prytania said the additional resources would enable it to “expand [its] reach to institutional and private wealth platforms”. Nile said it saw significant growth prospects for the firm, partly due to the diversification benefits offered by structured credit as a hedge against rising interest rates and inflation.

Lui left her position as md, head of business development and distribution, and investment committee member at Schultze in March, after two years with the hedge fund manager. She previously spent five and a half years at Autonomy Capital, leaving her role as a director in the firm’s investor group in 2020.

In other news…

EMEA

BNP Paribas has promoted Marcin Makowski as a director in its structured finance team, working out of its Warsaw office. Makowski joined the bank in 2020 after eight and a half years working on the structured finance team at Santander Bank Polska, previously known as Bank Zachodni WBK.

North America

The Structured Finance Association has appointed Federal Reserve Bank of Dallas’s Scott Frame as chief economist and head of MBS policy. Frame leaves his role as vice president at the Dallas Fed after nearly four years with the organisation. He previously spent 16 years across two spells at the Federal Reserve Bank of Atlanta.