Contents

ABS

Student politics

Refis may increase as Biden plan stalls while broad ABS looks better

Following the June 30 Supreme Court decision to strike down President Biden’s plan to forgive the $430bn federal student debt, refinancings in government-owned loans may accelerate from October as payments recommence, suggest analysts.

Private lenders may offer more competitive rates to the 27m borrowers affected, and as there is no longer any incentive to continue to hold government debt, borrowers will be incentivized to switch to the commercial market.

This is the most likely effect of the Supreme Court decision, say ABS strategists. Beyond this, there is likely to be minimal impact to spread levels in the direct loan and FFELP markets, they say.

“It’s kind of a non-event. It would have been more of an event if it had gone ahead. It would have been positive for credit performance as lower debt is lower debt,” says Theresa O’Neill, senior ABS analyst at Bank of America in New York.

Spread had not tightened significantly in anticipation of lower overall debt levels as there was a widespread feeling in the market that President Biden’s scheme would run into constitutional difficulties.

But the administration isn’t finished yet. It has several plans in the works to ease the burden of student loan debtors. Almost immediately, it initiated a rule-making process. One of the schemes afoot is names Saving on a Valuable Education (SAVE) which would allow borrowers to consolidate all loans into one direct loan programme with lower monthly repayments and a shorter period to overall forgiveness (10 years to 20 years rather than 25 years).

Payments will be set according to income levels and family size and could be quite minimal. Parts of it are due to be implemented in August this year.

This, in turn, could incentivize those that hold commercial loans to refinance into government owned loans, meaning that prepayment levels would be higher.

“The impact on spreads of higher prepays depends on the dollar price of the bond. If it is priced at a discount to par, and prepay speeds increase then it will have a positive effect on spreads. If it is priced premium to par then the effect will be negative,” explains O’Neill.

The outlook for the overall consumer debt ABS market has improved a little over the last month or so. Credit performance should get better as economic conditions may not deteriorate as fast or as deeply as was feared recently.

The continued relative robustness of the labour market has given confidence that not as many borrowers would run into payment difficulty as was originally feared. Households retain relatively high levels of disposable income compared to low growth periods in the past while lenders have also tightened borrowing conditions.

The specific areas where weakness was expected were prime auto loans, student debt, credit cards and solar leases, but these are now anticipated to stabilize in 4Q. Subprime auto loans, consumer loans and time share loans are still expected to weaken to 4Q, but not by as much as was thought likely a month or two ago.

Total ABS new issue volume in H1 2023 was $138.2bn, down 5.4% on the same period last year. The auto ABS was the largest sector, as is common, contributing over half the overall amount. Some sectors saw modest to hefty spread tightening, while others saw spread widening.

Year-on-year issuance is now expected to decline by a modest 2% to $250bn, less than the 12% drop which was predicted earlier this year. Spreads across the board are expected to end the year slightly narrower.

Simon Boughey

Structured Finance

SCI Start the Week - 10 July

A review of SCI's latest content

Last week's news and analysis
Changing agenda
UK RMBS evolving alongside borrowers' needs
Keeping traction in transition
Faster-than-forecast EV take-up could present auto ABS challenges
Latest SRTx fixings released
Improved tone continues in July index values
Out of office
European, US CMBS headwinds diverging?
Popularity contest
Life insurers clash over CLO capital charges
Risk transfer expansion
Banco BPM continues tapping private market
Shipping wave continues
Alpha bank boosts shipping SRT issuance
Job swaps weekly: Succession at Oaktree
People moves and key promotions in securitisation

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

Recent premium research to download
Emerging UK RMBS – July 2023
The return of 100% mortgages and the rise of later-life lenders herald an evolving UK RMBS landscape. This Premium Content article investigates how mortgage borrowers’ changing needs are being addressed.

Office CMBS – July 2023
The office CMBS market is grappling with headwinds brought about by declining occupancy rates and rising costs of borrowing. However, as this Premium Content article finds, the European CRE market may not be as badly affected as its US counterpart.

CRT counterparty risk – May 2023
Recent banking instability is unlikely to result in contractual changes in synthetic securitisations, but structural divergences are emerging. This Premium Content article investigates further.

‘Socialwashing’ concerns – May 2023
Concerns around ‘socialwashing’ remain, despite recent advances in defining social securitisations. This Premium Content article investigates why the ‘social’ side of ESG securitisation is more complex than its ‘green’ cousin.

European solar ABS – May 2023
Continental solar ABS is primed for growth as governments and consumers seek energy independence. This Premium Content article investigates.

All of SCI’s premium content articles can be found here.

SCI In Conversation podcast
In the latest episode, Terry Lanson, an md 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. Lanson 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.
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 Australian/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 Tauseef Asri 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
Esoteric ABS Seminar
12 September 2023

Women In Risk Sharing
18 October 2023

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

Structured Finance

Regulatory push

Retention RTS, draft SI move forward

The last week has ushered in a couple of regulatory updates in the European securitisation market. The European Commission adopted the regulatory technical standards (RTS) on risk retention under the EU Securitisation Regulation on 7 July, while the UK Treasury on 11 July published a draft of the statutory instrument (SI) that is set to replace the EU Securitisation Regulation for the UK market (SCI 12 December 2022).

Regarding the latter, PCS notes that the approach is to remove large parts of the rules from primary law-making and the UK Parliament and vest them in the regulatory authorities. The organisation cites as an example the fact that the draft retains the STS framework, but delegates the creation of STS criteria to the FCA at a later stage.

Notably, the proposed rules confirm that the SPV of an STS securitisation does not need to be domiciled in the UK, although the originator and sponsor do. They also provide the Treasury with the power to designate other jurisdictions as ‘equivalent’ to the UK when it comes to STS. Once designated, securitisations meeting the STS rules from those jurisdictions will be able to be treated as STS by UK investors.

PCS points out that the text deliberately uses the expression "simple, transparent and comparable" derived from the Basel rules, implying that equivalence may be available to those countries that have adopted STC.

The SI also carves out a set of due diligence rules specifically for small UK alternative fund managers. “These rules are, once more, yet to be written by the FCA. But the direction of travel - lightening the due diligence burden on small investors - seems clear,” PCS suggests.

The Treasury is receiving feedback on the draft until 21 August and intends to bring the SI into law by year-end. “Overall, this seems a decent attempt at onshoring the European rules. But, with so much rule-making now delegated to the FCA and the PRA, the final state of the post-Brexit UK securitisation landscape remains very much to be defined,” states PCS.

Meanwhile, following the Commission’s adoption of the risk retention RTS, they will be scrutinised by the European Council and the European Parliament before being published in the Official Journal - which is expected in 4Q23 or 1Q24. The risk retention RTS cover requirements on: the modalities of retaining risk; the measurement of the level of retention; the prohibition on hedging or selling the retained interest; the conditions for retention on a consolidated basis; the conditions for exempting transactions based on a clear, transparent and accessible index; the modalities of retaining risk in case of traditional NPE securitisations; and the impact of fees paid to the retainer on the effective material net economic interest.

According to an Arthur Cox memo, one particularly notable point is the sole purpose principles at Article 2(7), which set out when an entity will be regarded as established or operating for the sole purpose of securitising exposures. “The EBA confirmed in its feedback on its June 2021 consultation that both limbs of those principles should be met for the sole purpose test to be fulfilled. The two limbs remain the same as in the April 2022 final draft RTS, save that the reference to ‘members of the management body’ needing to have the necessary experience has been replaced by a reference to ‘the responsible decisionmakers’,” the law firm observes.

Elsewhere, the RTS confirm the ability for a servicer to act as risk retainer on an NPE securitisation, provided that it meets the expertise requirements set out in Article 19 of the rules. Regarding NPE securitisations, they also confirm the ability to calculate the 5% risk retention on the basis of the net value of the underlying NPEs.

Meanwhile, there are three exceptions to the prohibition on selling the retained interest: insolvency of the retainer (which was in the original October 2021 draft RTS); the retainer being unable to continue acting as such, due to legal reasons beyond its control and beyond the control of its shareholders; and in the case of retention on a consolidated basis, as referred to in Article 14 of the RTS (the latter two being added by the EBA in its revised draft RTS).

The EBA first published draft risk retention RTS in 2018, but these had not been finalised by 2021 when amendments to the SecReg under the Capital Markets Recovery Package brought into scope risk retention in securitisations of non-performing exposures and the impact of fees paid to the retainer on the effective material net economic interest. The deadline for finalising the RTS was extended as a result to 10 October 2021 and the EBA launched a June 2021 consultation on a fresh set of draft RTS to replace the 2018 draft RTS, which was published in April 2022.

Corinne Smith

Capital Relief Trades

STS shift

Societe Generale executes Colisee two

Societe Generale has finalized an €85m funded financial guarantee that references a static €1bn portfolio of equipment leasing exposures originated by Sogelease and backed by 2800 borrowers. The transaction is a repeat significant risk transfer trade of the first Colisee deal that was executed in December 2020 (SCI 18 October 2021). Unlike the first deal from the programme, the latest transaction has received the STS designation.

The synthetic ABS was priced in the high single digits and has a portfolio with a weighted average life equal to 2.5 years. The tranches amortize on a pro-rata basis with triggers to sequential amortization. Further features include a time call that can be exercised after the WAL. Credit enhancement is present in the form of a retained first loss tranche. Residual value risk is a feature of these exposures but in this case, the unhedged RV is capped at 10% and, if higher, it’s hedged via repurchase agreements with manufacturers or dealers. Moreover, Sogelease can repossess the equipment and sell it and the sale price usually exceeds the contractual RV which is clearly helpful for recoveries since it may reduce credit losses from unpaid rental payments.

Pascale Olivie, director, asset backed products at Societe Generale notes: ‘’We waited close to three years to execute the second transaction to get the right volume for the portfolio. The main difference with the first Colisee is the fact that the latest one is an STS securitisation. When we closed the first Colisee we relied on a carve out for STS restricted to SME loans but now that we have an STS synthetics framework we aren’t restricted to SMEs anymore. The mix of borrowers in the second deal is also a mixture between firms with less and over €50m turnover.’’

Societe Generale will be aiming for one SRT from the Colisee programme every eighteen to twenty-four months.

Stelios Papadopoulos

Capital Relief Trades

Capital rising

Regulators announce new rules coming soon

As expected, US regulators are poised to increase capital requirements for domestic banks imminently, according to a speech yesterday (July 10) made by Michael Barr, vice chair of supervision at the Federal Reserve, at the Bipartisan Policy Center in Washington, DC.

Large banks, described as those with over US$100bn in assets, could be asked to hold an extra 2% of capital and the changes are expected to be announced this summer, he said.

The standards for risk-based requirements "should be updated to better reflect credit, trading, and operational risk,” said Barr.

Ever since Barr was appointed by President Biden, more onerous capital needs have been on the cards, but the events of the spring, when Signature Bank and Silicon Valley Bank (SVB) failed, have not only made them inevitable but also bumped them higher on the regulatory agenda.

The vulnerability of smaller banks also called into question previous regulatory thinking, which has assumed the most pressing threats to the financial system emanated from the banks dubbed “too big to fail.” This has shown to be wrong, said Barr, and smaller banks will not now escape the most draconian rules.

These changes will make the attractiveness of the SRT mechanism more striking to banks both large and small, say market watchers.

“Banks will have several possible avenues to meet the additional requirements. These are, firstly reducing lending and/or increasing the cost of lending. Secondly, to reduce dividends or issue additional equity, which will reduce ROE and make bank shares relatively less attractive. Or, thirdly, to find another way to raise capital. With regulatory cooperation, the third alternative should include issuance of significant risk transfer deals,” comments Terry Lanson, an md at Seer Capital in New York.

SRT in the US has been in a state of abeyance for the last 18 months as banks have struggled to come up with a formula for capital relief trades that would meet the approval of US regulators. It is believed that banks are now prepared to shift tack and offer transactions with an SPV structure, and that this will usher in a new era of more plentiful issuance.

JP Morgan reported at the end of June that after its performance in the latest CCAR stress tests its Common Equity Tier One (CET1) capital ratio requirement was 11.4%, including regulatory buffers, had declined from 12.5% to 11.4%, but the new changes could take its requirement to 13.4%.

Citigroup performed less well in the stress tests. The Stress Capital Buffer was increased from 4% to 4.3% and the CET1 ratio thus bumped from 12% to 12.3%, it announced on June 30. An additional 200bp of capital will take the overall requirement to 14.3%.

These are meaningful increases for both banks and will have an effect on business lines such as corporate lending.

The financial industry reacted with disappointment to Barr’s speech. “The bottom line – these new Basel capital requirements would only make it harder for banks of all sizes to meet the needs of their customers, clients and communities. Policymakers, who consistently cite the breadth and depth of our banking system as a source of strength, have not yet shown that these reforms will preserve that unique banking diversity or outweigh the significant costs to the U.S. economy,” commented Rob Nichols, ceo of the American Bankers Association (ABA).

Misgivings were also expressed by the Financial Services Forum, which represents chief executive officers at some of the biggest banks. “Capital isn’t free. Further capital requirements on the largest US banks will lead to higher borrowing costs and fewer loans for consumers and businesses - slowing our economy and impacting those on the margin hardest,” said ceo and president Kevin Fromer.

Regulators appear to have resorted to the “blunt instrument” of extra capital, despite the fact, for example, the failure of SVB was caused by the extraordinary withdrawal of US$42bn of deposits in a single day, note sources.

Nonetheless, there is no stopping the regulators now and US banks have to adapt to the new rules. In this context, the virtues of SRT now seem irrefutable.

“US regulators have effectively prohibited large US banks from using this tool for the past couple of years, but all signs point to regulators imminently reinstating access, which will allow banks to meet higher capital standards without reducing lending or compromising shareholder returns,” says Lanson.

Simon Boughey

Capital Relief Trades

SRT boom

IACPM data shows record year for synthetic securitisations

The global volume of synthetic securitisation issuance reached its highest ever level in 2022, with both the number of trades and notional pool size far outstripping pre-pandemic levels, according to the latest IACPM survey. The results suggest that 90 significant risk transfer trades were executed last year with an aggregate underlying pool size at inception of €199bn, surpassing previous annual peaks of 71 and €135bn respectively (SCI 30 March).

“The number of synthetic securitisation transactions is growing globally across all asset classes and jurisdictions, as investor demand increases and banks want to expand their lending capacity to support the transition to a sustainable economy,” IACPM says.

The annual survey on synthetic on-balance sheet transactions, which has been running since 2016, receives contributions from 29 banks that are “the largest global and regional institutions which are regular users of this tool,” according to IACPM.

The SRT space is seeing growing diversification, with increased participation from non-European banks and greater variety of asset classes within underlying portfolios. Prior to 2019, 80%-90% of the aggregate underlying pool size captured by the survey was accounted for by banks based in the EU and UK, while in 2022 the figure fell to 60%.

Despite this, there has also been a dramatic increase in the number of transactions qualifying for the STS framework. There were 18 such trades in 2022 compared with the previous peak of 11 in 2021, accounting for 36% and 15% of new EU trades respectively.

In North America, the underlying pool size at inception soared from the previous peak of €13.6bn seen in 2021 to €53.7bn.

In terms of asset class, the survey finds that income-producing real estate lending, residential mortgages, auto loans and trade- and asset-backed finance account for a growing share of securitised assets. However, large corporate loans still account for around two-thirds of reference pool assets since 2016, while SME loans account for 16%.

In terms of investor base, the survey found that investment funds lost a considerable amount of market share over the past three years to pension funds in junior tranches and credit insurers in mezzanine tranches. Investment funds accounted for around 65% of protected tranche volume at inception in 2022, compared with around 70% in 2021, around 55% in 2020 and more than 80% in 2019.

Insurers participating in a separate IACPM annual survey issued 52 new insurance protections last year - versus 30 in 2021 and 11 in 2019 - mostly on European synthetic securitisations. The underlying loan pools that insurers contributed to protect at the mezzanine level amount to €78bn (versus €55bn in 2021), 80% of which was granted in Europe. Insurance protections are by their nature syndicated and each participant retains on average one-third of the insured tranche, with an average size of insurance protection of €30m after syndication.

Kenny Wastell

Capital Relief Trades

Test case rolled out

JP Morgan eyes NAV lines

SCI understands that JPMorgan is readying the execution of a synthetic securitisation of NAV lines. The transaction is said to have been designed as an SPV structure and is driven by hedging considerations although the US lender is understood to be targeting RWA relief from US supervisors as well. The transaction would be the first known test case of a US capital relief trade with an SPV structure as regulators put the market on hold last year given concerns over direct CLNs and call features (SCI 19 August 2022), and amid prospects of higher capital requirements (SCI 11 July).

The main difference between capital relief trades backed by capital call facilities and those backed by NAV lines is that the former are secured against LP commitments while the latter are the fund’s investments. Data from 17Capital and cited by Pitchbook note that deal volume involving NAV financing soared 50% in the 12-month period ending in September 2022, and the average size of NAV facilities provided in the same period grew by 40%. Various factors cited by market sources include the lack of traditional financing sources amid bouts of volatility.

Nevertheless, despite the difference in the underlying collateral both types of transactions are driven this year by the need to manage concentration risk. Standard Chartered has executed a capital call CRT this year called ‘’Hector’’ for these very reasons and Santander was said to be working on one as well.

Consequently, sources point out that the JPMorgan transaction should be considered as a ‘’de-risking’’ deal but the same sources qualify that the bank would be seeking RWA relief as well. Indeed, this wouldn’t be surprising because it has been known since April (SCI 13 April) that the bank would be targeting SPV structures for capital relief purposes after US supervisors put the market on hold last year given concerns over direct CLNs and call features.

The trade follows a novation of a Western Alliance CRT that the bank carried out with Blackstone in spring. The latter was being reformatted into a different structure but it’s still not known whether that is an SPV format or not (SCI 12 May).

Large US banks are getting ready for a substantial boost in capital requirements, but US regulators have always been much more sceptical towards the structure and it’s their attitude that will ultimately determine the revival of the market. The consensus is that SPV structures might do the trick, but an SPV can be considered as a commodity pool and banks would therefore have to comply with swap regulations. The market will have to wait for the remainder of the year for answers to such questions.  

Stelios Papadopoulos

Capital Relief Trades

Polish wave continues

Bank Millennium adds to CEE SRT flow

Bank Millennium has finalised a funded synthetic securitisation of Polish leasing assets that references a PLN4bn portfolio. Dubbed Project Medea, the transaction is the bank’s third significant risk transfer trade and adds to the Polish SRT deal flow that began last year (SCI passim).

According to sources close to the transaction, the deal features a retained first loss thickness and a 7% mezzanine thickness. Synthetic excess spread is present in the transaction.

‘’The new EBA rules on synthetic excess spread are more onerous, but the EBA has clarified recently that if issuers can demonstrate that the synthetic excess spread is in line with the expected loss of the portfolio, then there’s no need for full capitalisation,’’ says Pedro Esperança Martins, md and head of risk at Bank Millennium.

The portfolio revolves over a one-year replenishment period and has a weighted average life equal to around 2.5 years. The sold tranche amortises on a pro-rata basis with triggers to sequential amortisation and has been priced in the lower double-digits.

Residual value risk is typically a feature of leasing exposures, but sources close to the trade note that it’s not the case here, given that at the end of the contract, the borrower must buy back the leased product. Final payment amounts under the lease are capped at 5%-10% in any case.

The bank intends to tap the SRT market twice a year and is allegedly readying another synthetic securitisation for 2H23. The latter is said to be backed by consumer loans.

UniCredit acted as the arranger of Project Medea.

Stelios Papadopoulos

Structured Finance

Embracing 'enablement'

Begum Gursoy, global technical head, debt capital markets and sustainable finance commercials at Sustainalytics, answers SCI's questions

Q: Sustainalytics supports investors develop and implement responsible investment strategies, including by providing second-party opinions (SPOs) on whether a green, social or sustainability bond framework is aligned to market expectations. Could you outline the steps involved in assigning an SPO to an ESG securitisation?
A: The overarching function of an SPO provider is to have a holistic view of the market standards and communicate that view clearly and transparently. The key pillars of an SPO centre on an issuer’s investments, how the projects are selected, how the proceeds are managed and reporting. It should also provide investors with the full picture of how an investment fits with the issuer’s sustainability goals and how the financing will provide a positive impact.

With ESG securitisation SPOs, Sustainalytics tries to gain a robust understanding of whether the instrument is aligned with investors’ expectations and the relevant external standard, such as ICMA’s Principles. Each transaction is different, so it’s important to identify which type of securitisation it is, whether the underlying assets are credible and impactful, and which other parties are involved. A key goal is to understand the mechanisms to avoid double-counting, thereby ensuring that the green or social label is assigned to a single party and that the labeled transaction does not purchase another labeled instrument.

The next step is to analyse the alignment of the instrument against the relevant standard - such as ICMA’s - component by component, in terms of governance and undertaking reporting.

One piece that isn’t so obvious about providing SPOs is that part of our role is understanding the considerations that investors may take into account, which aren’t necessarily limited to making a call about what’s ‘green’ or ‘social’. Investors consider many different factors, including that the parties involved have sufficient entity-wide sustainability practices in place, that the originator is credible and that the instruments and its investments contribute to parties’ sustainability journey. In that sense, we want to make sure SPOs are one-stop communication tools to enable investors to make informed decisions.

Q: Are there any securitisation-specific challenges that need to be overcome when providing an SPO?
A: ESG securitisation is a relatively new market that continues to evolve. As such, official definitions and guidance are still developing - which could be challenging because we’re still expected to opine on the alignment of instruments against evolving market standards. Such an environment also allows for ambiguity of interpretation, which can result in issuers testing different structures.

Overall, there is still work to be done on creating or uniting ESG standards for securitisation on a product level. We observe that relying on the ICMA principles, for example, sometimes limits access for issuers in certain jurisdictions, given the challenges around looking at the transaction from an originator’s point of view.

The European Commission recently published new measures to strengthen the EU sustainable finance framework that stipulate the use of proceeds is applicable to the originator, rather than the issuer. This means that instead of relying on eligible assets being included in an ESG investment, an investor can analyse the role of the originator, which would be committing the proceeds to generate new green assets.

It is a different approach and has the potential to open up the ESG securitisation market if it’s implemented in a credible and diligent manner. However, while the measures might result in more deals being eligible, they don’t address the lack of supply for ESG assets to securitise, because the assets need to be aligned with the EU Taxonomy.

Q: Sustainalytics provides annual reviews of ESG bond frameworks. What happens when a securitisation is no longer aligned with the commitments set out in its bond framework?
A: Annual reviews gauge whether an issuer has allocated proceeds and reported on the impact of the investments in the way that was proposed in the Framework. Sometimes there is a different outcome – for instance, the issuer needed to change strategy – and the transaction is no longer aligned to the framework. Our job is to be transparent about the divergence in alignment; it’s up to the issuer and investors to take any further action, where necessary.

Q: A lack of clarity seems to persist within the securitisation industry around what constitutes a ‘social’ bond. Does this impact the provision of SPOs?
A: With respect to ‘green’ activities, an issuer is expected to meet a widely recognised and science-based criteria in order for a securitisation to be ESG-aligned. However, there is no agreed-upon definition in terms of the positive impact of ‘social’ activities and a lack of knowledge about their additionality. Every context is unique and the outcomes are different, depending on whether the issuer is domiciled in the Nordics, the US or Asia, for example.

For us, the key is to understand the social challenge, as well as who faces that challenge within a given jurisdiction. Consequently, a social investment should ensure that the investment is addressing the challenge without creating additional struggles.

Q: In your view, is the ESG securitisation market on the right track?
A: Yes, I believe that the ESG securitisation market is moving in the right direction. Investor demand for ESG securitisation remains strong and sponsors continue to integrate ESG considerations into their businesses.

However, diversification is an important topic right now. The majority of the securitisation market is focused on green assets, whether that be energy efficient buildings or renewable energy assets. But the market also needs to move beyond the core sectors of green securitisation – and there is potential to expand into other sectors, such as affordable housing and education, and therefore attract a broader range of investors.

Another pressing issue is incorporating transition financing elements into the ESG securitisation framework. There isn’t a widely recognised official definition of what constitutes a ‘transition’ securitisation yet, but there is an understanding that such financings could target industries, activities or assets that are crucial to overall decarbonisation efforts, without creating a ‘lock-in’ effect in the case of technologies or business models that may be greener. In order to help industries meet the climate targets, it is important to embrace the principle of ‘enablement’ and look at assets from this point of view.

Corinne Smith

Structured Finance

Generali inks Conning acquisition

Market updates and sector developments

Generali Investment Holdings (GIH) is set to acquire Conning and its affiliates, with the aim of enhancing the long-term growth plans of both companies. Conning will continue to execute its growth strategies with support from the company’s current owner, Cathay Life Insurance Co, and Generali.

Conning and its affiliates will continue to operate independently under their current management teams, including the leadership of ceo and chair Woody Bradford. Following the closing, Octagon Credit Investors, Global Evolution Holding and Pearlmark Real Estate will benefit from continued strategic support from Generali and Cathay, including additional assets to manage, collaboration on opportunities to seed new strategies and the exploration of other potential investments.

As part of the transaction, Cathay will contribute its ownership of Conning and its affiliates in exchange for a 16.75% in ownership of GIH. Additionally, Cathay has agreed to a minimum 10-year financial commitment in relation to certain insurance assets that will continue to be managed on its behalf by the Generali Asset Management businesses, including Conning.

“Through the acquisition of Conning and its affiliates and the long-term partnership with Cathay Life, Generali will enhance its asset management capabilities, strengthen its footprint in the key US and Asian markets, and create a platform to deliver on its broader asset management strategic ambitions in order to maximise value for all stakeholders, including Generali’s insurance business,” comments Philippe Donnet, group ceo of Generali.

The transaction is subject to regulatory approval and is anticipated to close in 1H24.   

Structured Finance

Job swaps weekly: All change at Deutsche Bank

People moves and key promotions in securitisation

This week’s bumper roundup of securitisation job swaps sees Deutsche Bank Investment Bank appoint two new co-heads on its EMEA capital markets team. Elsewhere, a Virgin Money veteran has retired after 15 years with the bank, while there have been a flurry of senior hires in the US commercial real estate finance space. 

Deutsche Bank Investment Bank has promoted two company veterans to lead its capital markets practice for the EMEA region. The move comes as the bank aims to expand its origination and advisory capabilities following recent growth in its debt capital markets activity.

Hoby Buvat and Mark Lewellen will serve as co-heads for its equity capital markets, debt capital markets, leveraged debt capital markets and strategic equity transactions groups. The pair, who were formerly leveraged debt capital markets md and head of DCM origination respectively, will continue to operate from the bank’s London office in their new roles.

The appointments come shortly after Deutsche Bank’s outgoing president Karl von Rohr handed over responsibilities to his successors. At the start of July, Claudio de Sanctis took over responsibility for Deutsche Bank’s private bank; Alexander von zur Mühlen began overseeing the EMEA — excluding UK and Ireland — and APAC regions; and cfo James von Moltke was given additional responsibilities for asset management. The process to select von Rohr ‘s successor as chair of the DWS supervisory board is ongoing.

Meanwhile, industry veteran Neill Keveren has stepped down from his position as senior director at Virgin Money and retired from banking after 15 years with the bank. Most recently a London-based senior director on the strategic finance team, he spent seven years as a relationship director on the corporate and structured finance team at Clydesdale ahead of its acquisition by Virgin. Prior to Clydesdale, he had a long stint at Barclays Bank.

Santander Corporate and Investment Banking has hired BNP Paribas’ Dmitrij Levitski as a director in its securitised products group, based in its London office. Levitski leaves his position as director in BNP Paribas’ securitised products group after two years with the bank. He previously spent 11 years at Lloyds Banking Group.

Michael Weinberger has joined Gibson Dunn as a partner within its real estate practice in New York to focus primarily on CMBS transactions. Weinberger brings extensive lender-side real estate experience to Gibson Dunn, where he will continue his CMBS practice having spent more than 30-years at Cleary Gottlieb Steen and Hamilton.

SMBC has created a new sustainability unit within its international and structured finance department for the EMEA region. The new sustainable finance unit will be led by former md and head of power and renewables, Caroline Lytton, who has been with the bank since 2007. Lytton will also operate as coordinator for SMBC’s ESG advisory and solutions hub.

Austin-headquartered commercial real estate financing firm Petros PACE Finance has hired Morgan Stanley’s Kevin Porter as chief credit officer. An industry veteran, Porter leaves his position as executive director on the commercial real estate lending team at Morgan Stanley after six years with the bank. He also previously held real-estate-focused director roles at Merrill Lynch and S&P Global.

Greystone, also a commercial real estate finance firm, has hired Lument’s John Sloot as managing director in its Dallas office. Sloot will report to senior vice president of agency production Vince Mejia and focus on multifamily debt products spanning the entirety of Greystone’s financing platforms. He leaves his role as director in the multifamily originations team at Lument after 10 years with the firm.

Elsewhere in the US commercial real estate space, manager Newmark has hired institutional debt and equity capital-raising specialist Bill Fishel as executive vice chairman in its debt, equity and structured finance group. Fishel joins the firm’s Los Angeles office and will report to North American capital markets president Chad Lavender. He will work with the US capital markets and west coast debt team to support expansion of its capital markets business. Fishel leaves his role as senior md and co-head of debt and structured finance at JLL Capital Markets after four years with the firm.

Dentons has hired a trio of senior lawyers from Perkins Coie as partners on its hotels and leisure practice. Adam Docks, Lindsay Jewell and Jordan McCarthy leave their roles as partners at Perkins Coie after 17 years, 11 years and 12 years respectively. Docks and Jewell have experience across a variety of asset classes and transaction types including CMBS. McCarthy primarily works with hotel clients on acquisitions, dispositions, hotel finance, REIT structuring, joint ventures, franchise and hotel management agreements.

EDF Renewables North America has promoted Henry Hays to senior analyst in its structured finance team. Hays joined EDF from Goldman Sachs in May 2022, leaving his role as analyst in its renewable power group team.

Sydney-headquartered Commonwealth Bank has promoted Sam McFarlane to senior manager on its securitisation and ESG risk teams. McFarlane is based in the bank’s Melbourne office and transitions from his role as senior manager in the fund finance and ESG for non-bank financial intermediation teams. He joined Commonwealth Bank in 2007.

CBRE has added another new recruit to its structured finance practice with the hire of former commercial lending vp, Kellen Dick. He joins the firm’s office in Denver, Colorado as a vp on its growing capital markets, debt and structured finance team.

Fiduciary services and fund administration specialist Ocorian has appointed former BNY Mellon executive Christoph Schwarz as director of business development, working out of its London office. Schwarz leaves his role as principal in the business development team at BNY Mellon’s corporate trust division after five years with the firm. He was previously managing director at StormHarbour Securities.

BTIG Investment Banking has expanded its debt capital advisory team in New York with the hire of new md Thomas Roh. He will concentrate on asset securitisation and speciality finance in his new role and brings more than 25 years of fixed income investment banking experience. Roh has previously held positions at Lehman Brothers and JP Morgan Securities, and joins the firm from Odeon Capital Management’s advisory team where he led its consumer and commercial finance coverage.

And finally, Tikehau Capital has expanded into the Middle East with the opening of its 15th office in the UAE’s financial centre, Abu Dhabi. The opening of its first office in the GCC region is intended to be the first move towards extending the firm's regional presence and capitalising on local opportunities – including in structured finance. As part of the move, former Paris-based executive Gustave Laurent relocated to Abu Dhabi to serve as head of business development for the Middle East.

RMBS

Angelo Gordon REIT moves to poach WMC

Market updates and sector developments

Angelo Gordon’s real estate investment trust, AG Mortgage Investment Trust (MITT), has offered to buy Western Asset Mortgage Capital Corporation (WMC) in a deal that would give the business an enterprise value of around US$300m. The proposed transaction comes shortly after WMC, which is managed by Franklin Templeton, announced an agreement to merge with Mavik Capital Management’s Terra Property Trust (TPT).

MITT has presented WMC’s board of directors with a proposal that gives its shares an implied price of US$9.88 apiece, comprising a stock consideration of US$8.90 per share and a cash consideration of US$0.98 per share. The prospective buyer says its proposal is “financially superior to the TPT deal”, highlighting that it represents an 18.2% premium on WMC’s closing share price of US$8.36 on 12 July and that, unlike the TPT transaction, it includes a cash consideration.

Under the terms of MITT’s proposal, WMC shareholders would maintain a “31% pro-forma ownership” of the combined company and Angelo Gordon would waive US$2.4m in management fees for the first year after closing. Additionally, MITT’s board would be expanded to include two additional members from WMC.

In other news…

ESMA updates SecReg Q&As

Following regulatory updates by the European Commission and UK Treasury this week (SCI 13 July), ESMA has now published a revised set of securitisation Q&As. They deal primarily with disclosure and templates in connection with the implementation of the CRA Regulation and the Securitisation Regulation.

ESMA says the purpose of the document is to promote common, uniform and consistent supervisory approaches and practices in the day-to-day application of the Securitisation Regulation by providing responses to questions asked by the public, financial market participants, competent authorities and other stakeholders. The authority intends to update it on a regular basis, in line with additional questions it receives through the Q&A tool on its website.

Structuring/Primary market

Gen II's Euro vision drives Crestbridge bolt-on

Market updates and sector developments

New York-headquartered private markets fund administrator Gen II Fund Services has agreed to acquire European competitor Crestbridge, in a move designed to expand its international presence. The acquisition will increase Gen II’s assets under administration to more than US$1trn and give it a foothold in new European jurisdictions including the UK, Jersey and Ireland.

The transaction, which is subject to regulatory approval, will create a business with 1,500 employees. Jersey-headquartered Crestbridge has additional offices in London, Dublin, Southampton, Luxembourg, New Jersey and New York. It provides outsourced administration, accounting, corporate governance and compliance services to private equity, real estate, private credit, infrastructure and venture capital managers.

The acquisition comes six months after Gen II promoted Christophe Ponticello to country head for Luxembourg and Duncan J Christie to chief operating officer, also working out of its Luxembourg office. The appointments coincided with the promotions of eight new principals across its various global offices.

In other news…

Marathon Asset Management has secured a further US$1.7bn to invest in the asset-backed lending space. The oversubscribed third vintage of its close-end ABL fund, Marathon Secured Private Strategies Fund III, has closed after securing capital commitments from institutional and high net worth investors from across the globe.

With the growth of its ABL strategy, Marathon intends to capitalise on growing opportunities in the secondary market as major lenders look to downsize their lending programmes. By leaning into the growing feature of ABL within private credit portfolios, Marathon hopes to deliver attractive returns throughout credit cycles for its clients.