Contents

Capital Relief Trades

Risk transfer round up-26 June

CRT sector developments and deal news

Unicredit is believed to be readying a synthetic securitisation of residential mortgages that is expected to close in 2H23. The bank’s last capital relief trade closed in November last year and it was a full stack transaction (see SCI’s capital relief trades database).

Stelios Papadopoulos

Capital Relief Trades

SCI In Conversation: Terry Lanson, Seer Capital

We discuss the hottest topics in securitisation today

In this latest episode of our SCI In Conversation podcast, Terry Lanson, a managing director at Seer Capital and an established luminary in the regulatory capital relief trade market, discusses the prospects for further growth and development of the SRT market in the US. Although this is well-trod ground, Terry believes that, in the wake of the failure of several regional names and renewed capital pressures on US banks in general, there are grounds for optimism.

In the preamble to this discussion, we highlight a couple of recent premium content articles. These include the impact of the acquisition of Credit Suisse by UBS and its likely impact upon the structuring of reg cap trades, and also that greater complexity of definition of “social” criteria in ESG trades.

You can access the episode here as well, as well as where you normally get your podcasts such as Spotify and Apple Podcasts. Just search for SCI In Conversation.

Capital Relief Trades

Risk transfer round up-28 June

CRT sector developments and deal news

JP Morgan is believed to be readying another synthetic securitisation in addition to one backed by corporate loans for 2H23. The alleged transaction is said to reference leveraged loans. Meanwhile, Santander is said to be prepping another synthetic securitisation from the Syntotta programme which references Corporate, SME and project finance loans.

Stelios Papadopoulos

Capital Relief Trades

Regulatory boost

Trilogue endorses halving of p factor

The Council of the European Union has yesterday announced the finalization of the Basel 3 reforms. Indeed, SCI understands that the negotiators from the Trilogue which consists of the Council, the European Parliament and the Commission have all agreed on the halving of the p factor to lessen the impact of the Basel output floor.

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 has gained attention with the introduction of the output floor since by rectifying the SEC-SA via the halving of the p factor, originators are able to lessen the punitive impact of the floor.

Supervisors were initially reluctant to agree on the halving of the p factor causing much dismay among market participants, with a risk control report released last year concluding that the output floor would render synthetic securitisations backed by corporate and SME loans unviable (SCI 22 November 2022). The EBA initially proposed a reduction of the risk weight floor for the retained senior tranches but lenders unequivocally rejected that in the strongest possible terms (SCI 13 December 2022).

Eventually, after much back and forth between market participants and EU bodies, the European Parliament and the European Commission agreed on the transitional halving of the p factor. However, this occurred earlier in the year when the Trilogue negotiations were still ongoing, so the Council was still not on board with the position of the Parliament and the Commission.

According to the press release that was published yesterday from the Council, negotiators reached a ‘’provisional agreement on amendments to the Capital Requirements Regulation and the Capital Requirements Directive. Under the provisional agreement, negotiators have agreed on how to implement the so-called 'output floor', limiting banks' variability of capital levels computed by using internal models, and the appropriate transitional arrangements to allow sufficient time for market players to adapt.’’

However, the release offers no details on the implementation of the floor or the transitional arrangements that have been agreed. Nevertheless, SCI understands that the final agreement accepts the Boyer amendment from the European Parliament’s proposal (SCI 24 February). The latter calculates bank capital requirements for the purposes of the output floor in the SEC-SA for IRB banks and calls for a transitional halving of the p factor for those banks.

Clearly, this goes beyond the EBA’s proposal from last year for a reduction in the risk weight floor, but it obviously applies only to IRB banks, so it doesn’t have a more general application. The issue of a more general application will be discussed at an unspecified date along with a revision of the prudential framework. The latter is important for synthetic securitisations given that many Southern European banks that have ramped up their issuance over the last three years are standardized banks.

Going forward, further details on the content of the final text will be revealed in the coming weeks.

Stelios Papadopoulos

Capital Relief Trades

Park Mountain returns

BNP Paribas executes synthetic securitisation

BNP Paribas Fortis has finalized a funded €100m mezzanine tranche that references a €2.2bn blind pool of predominantly Belgian SME and corporate loans backed by over 3500 borrowers. Dubbed Park Mountain 2023-1, the transaction was initially going to be executed last year but was postponed due to market volatility and other factors.

Bilal Husain, head of securitised products group and real assets syndicate at BNP Paribas notes: ‘’The market last year was volatile, and we weren’t willing to print any structure at any price where price visibility was elusive. We printed the trade this year off the back of a reverse enquiry from investors who were ultimately unsuccessful last year, but this year brought more stability to execution parameters.’’

The transaction was priced at three-month Euribor plus 11% and features a pro-rata amortization structure with triggers to sequential amortization for the retained senior tranche and the sold mezzanine piece. However, the retained first loss tranche amortizes on a fully sequential basis. The portfolio weighted average life is just over two years and the portfolio replenishes over a six-month period. Finally, the deal has a first optional redemption date in just under three years’ time.

BNP Paribas will be aiming for higher volumes of SME SRTs going forward.

Stelios Papadopoulos

Capital Relief Trades

Resonance prints

BNP Paribas opts for direct CLN in new SRT

BNP Paribas has executed a new synthetic securitisation from the Resonance programme. Dubbed Resonance ten, the €250m mezzanine tranche references a €4.5bn static global corporate portfolio. The transaction differs from previous trades from the programme given that it was designed as a direct CLN as opposed to an SPV structure.

According to Bilal Husain, head of securitised products group and real assets syndicate at BNP Paribas, ‘’we want to continue executing across our SRT programmes throughout the year and are fortunate enough to have a strong roster of accounts we work with across the BNPP SRT platform. The transaction was executed as a bilateral ticket with an investor who is a close counterparty for BNPP across a range of products, and Resonance ten further cements our strong institutional dialogue.’’

The trade was priced in the high single digits and features a pro-rata amortization structure with triggers to sequential amortization for the senior and mezzanine tranches and a sequential structure for the 0.4% retained first loss. The portfolio is backed by approximately 400 borrowers and has a weighted average life equal to 2.9 years.

Finally, unlike previous Resonance deals, BNP Paribas opted this time for a direct CLN structure as opposed to an SPV, given that the former is much more cost effective than the latter. The selection of a direct CLN structure by the bank reflects a broader shift to direct CLNs across the market (SCI 19 May).

Stelios Papadopoulos

Capital Relief Trades

CEE expansion continues

Raiffeisen finalizes SRT

Raiffeisen has executed a synthetic securitisation of Czech corporate loans. Dubbed Roof RBCZ 2023, the €67m funded mezzanine tranche references a €960m portfolio. The transaction reflects both Raiffeisen’s expanding CEE SRT issuance and a broader pick up in activity in the region (SCI 6 January).

According to sources close to the transaction, the sold mezzanine tranche amortizes on a pro-rata basis with triggers to sequential amortization over a 1.5 year portfolio weighted average life. Moreover, the portfolio features a replenishment period equal to two years. The trade boosts the CET1 ratio by around 52bps at the RBCZ group level, the Austrian lender’s Czech subsidiary.

Kamila Makhmudova, RBCZ cfo notes: "Securitization is an important instrument to strengthen our capital ratio. We have chosen a structure that does not affect our customer relationships and supports the growth of the RBCZ group."

Significant risk transfer issuance in Central and Eastern Europe received a boost in 2022, with the opening of the Polish market. However, activity across the rest of the region will likely continue to be dominated by EIF transactions, although the snowballing effect from Poland has led to a rise in activity for deals with private investors in Hungary, Croatia and the Czech republic.

Stelios Papadopoulos

Structured Finance

Job swaps weekly: US Modular Capital lures Transwestern veteran

People moves and key promotions in securitisation

Job swaps weekly: US Modular Capital lures Transwestern veteran

This week’s securitisation job swaps have seen an industry veteran leave her role as head of structured finance at Transwestern to take up a new C-suite position at US Modular Capital. Elsewhere, US Bank has named a successor to Stephen Philipson as head of commercial products, while Barclays, Winston & Strawn and Cardo AI have all made senior additions to their teams.

Jan Sparks has left her role as executive md for structured finance and capital markets at Transwestern to become head of credit and underwriting at US Modular Capital in its Houston office. A founding partner of Transwestern’s structured finance platform, she leaves after a 12-year stint with the business to join the construction-focused private credit fund as its new chief credit officer.

Sparks holds more than 30 years of experience in real estate finance and financial products. This includes structuring debt and equity transactions, debt origination, real estate portfolio underwriting and due diligence.

In her new role, Sparks will oversee US Modular Capital’s underwriting operations as well as creating new lending strategies. The company says she will play an integral role in its development through her extensive industry and leadership experience.

Meanwhile, US Bank has promoted Jimmy Whang to head of its commercial products group, where he will oversee its fixed income and capital markets team and its working capital finance team. Whang joined the bank in 2009 and is promoted from head of credit fixed income, municipal products and structured credit. He is based in US Bank’s Charlotte office and takes over from Stephen Philipson, who was promoted to head of global markets and specialised finance in April.

Barclays has poached structured credit sales professional Daniel Jimenez from Deutsche Bank. Jimenez joins Barclays’ structured credit sales team in New York as a director after spending more than 10-years with DB, where he most recently served as a director within its structured credit origination and syndication team.

Law firm Winston & Strawn has expanded its structured finance practice with the hire of new partner Claudine Chen-Young in its Washington DC transactions department. She is Winston’s third new mortgage finance partner recruited this year, as the firm seeks to expand its structured finance practice beyond the CLO and esoteric asset classes. Chen-Young joins from Katten Muchin Rosenman and has more than 20 years of experience as a securitisation and mortgage finance attorney.

Artificial intelligence-focused structured finance fintech Cardo AI has made two new senior management hires as it prepares for the next stage in its international development. Allvue Systems duo Tim Ferguson and Omar Dapul have been appointed as London-based global head of sales and Singapore-based chief growth officer respectively. Both new recruits will report directly to the firm’s co-founder and ceo, Altin Kadareja.

Ferguson leaves his role as EMEA md at Allvue after 11 years with the firm and will have responsibility for Cardo AI’s business development worldwide. Dapul departs as head of strategic engagements at Allvue after 12 years with business and will lead Cardo AI’s global revenue growth strategies. 

In other fintech news, MBS-focused Pennsylvania software business Agile has appointed former Wells Fargo executive Greg Vacura as president. Vacura has 30 years of experience in the mortgage industry and was previously svp of correspondent pricing at Wells Fargo. Agile’s platform is designed to facilitate the exchange of TBA MBS between mortgage lenders and broker-dealers.

National Bank of Egypt (NBE) has promoted Ahmed Abbas to manager on its syndication, corporate banking, debt and structured finance team. Abbas works out of NBE’s Cairo office and was promoted to deputy manager on the same team in 2021. He has been with the bank since 2010.

Houston-headquartered geothermal energy firm Fervo Energy has hired Carbon America’s Alex Clopton as structured finance manager. Clopton will work out of Denver and leaves his position as a manager in the corporate and structured finance team at Carbon America after a year and a half with the business.

Finally, Denver-headquartered credit-focused investment manager ArrowMark has appointed KBRA’s Lacey O'Dowd to its CLO structuring team. O'Dowd leaves her role as a funds-focused senior analyst at KBRA after two years with the agency. ArrowMark’s credit division has US$10.3bn in assets under management across liquid and private credit markets, including leveraged loans and bonds, commercial real estate and specialty lending. Its CLO division operates as a manager, investor and warehouse lender.

Capital Relief Trades

Fannie Mae prices fifth CAS deal of 2023

Market updates and sector developments

Fannie Mae has priced a $738m four tranche CAS transaction, its fifth of the year and designated CAS 2023-R05. This trade follows its sixth and seven CIRT credit risk reinsurance deals, announced at the end of last week (SCI 26 June).

The $288.2m M1 tranche, rated A-/A- has been priced at 30-day average SOFR plus 190bp, while the $230.5m M2, rated BBB/BBB= comes in at SOFR plus 310bp.

Further down the stack, the $127.4m B1 is rated BB-/BB+ and is priced to yield SOFR plus 475bp and the $92.2m B2, rated B/BB-, yields SOFR plus 685bp.

The reference pool for CAS 2023-R05 consists of around 64,000 low LTV loans acquired in May and June of 2022.

Simon Boughey