Contents

ABS

Consumer goals

EIF, historic champion of SMEs, embraces consumer ABS

Three recent transactions by the European Investment Fund (EIF) reveal a subtle but potentially impactful change in approach to the institution’s securitisation investment strategy. The fund is displaying an increasing willingness to invest in consumer ABS transactions, with green transition and gender diversity goals at the top of the agenda.

In early July, the EIF took a stake in two Spanish ABS deals, namely Santander Consumer 5 and BBVA Consumer Auto 2023-1. For an organisation renowned for its focus on the SME space it is noteworthy that both of these deals have an explicitly consumer orientation.

Georgi Stoev, head of northern Europe and CEE securitisation at the EIF, explains that specifically consumer transactions are not new to the institution. The EIF has invested its own funds and those of the EIB in both synthetic and true sale securitisations backed by consumer loans for many years. What is new is that until recently the resulting proceeds had to be used by originators to build new portfolios composed of SME loans.

“What we had started recently, is that we may now agree to a new resulting portfolio being composed of 100% consumer loans, so long as those loans are 100% green,” says Stoev. “Those would typically be loans for electric cars or for home renovations that fit certain criteria such as energy efficiency measures.”

He continues: “We also invest in transactions that are backed by residential mortgages or sometimes commercial mortgages, and there the rule is identical. Historically, the new portfolio again would need to be 100% SMEs. The new alternative is that — if we cannot agree with the originator for their new portfolio to be fully dedicated to SMEs — we can allow the portfolio to be composed of mortgages. But this needs to be 100% green. It needs to be mortgages for houses that comply with certain energy efficiency criteria.”

While EIF has shown that it is open to evolution on the scope of the use of proceeds concept, it is unlikely that these purely consumer-focused transactions will become core to their securitisation strategy, Stoev says. The EIF’s bread and butter “was, is, and is extremely likely to remain” in SME-backed transactions.

“Given our statutes, we have a limitation of how many investments we can make that lead to support for non-SME related sectors,” he explains. “As such, the share of green mortgages and green consumer loans within these new portfolios is unlikely to become a dominant proportion of our investment. Both new alternatives are limited by a very stringent budget and as such are quite niche in our investment practice.”

The institution sees this gambit as a potential weapon to be deployed in pursuit of policy objectives. “Obviously, climate transition is a big theme,” Stoev says. “So with every investment we make, a certain proportion of the resulting new portfolio needs to be composed of green loans, without exception. In every investment there needs to be a link to supporting the climate transition.”

Another policy objective, and one that is likely to grow in prominence in EIF transactions in the coming years, is support for female entrepreneurs. In early July, EIF invested in Alba 13 SPV, a €1.24bn securitisation issued by Italian lease financing company Alba Leasing. As part of the deal, Alba has committed to at least 20% of the new portfolio resulting from EIF’s investment to loans to SMEs led or owned by women, Stoev explains. This, he says, is the first time it has secured such a commitment from an originator.

“This particular trend, I expect to play a more prominent role in the future,” says Stoev. “Alba is the first transaction explicitly to support female entrepreneurs, but it definitely will not be the last one.”

EIF has inarguably established itself as a champion of — and core investor in — the European SME securitisation space. As far back as 2010, the institution published research arguing that securitisations are an important tool to support European SME lending. Stoev argues that EIF does not just play an anchoring role, but a pivotal one.

“We would always try to be an anchor investor in transactions where we see we would help the originator reach the critical mass necessary for the transaction to actually take place,” he says. “And we actively collaborate to figure out what areas from our policy goal palette are achievable within the market and within the strategy of any particular originator.”

He adds: “When it comes to the support of the wider economy via the concept of use of proceeds — which we have employed ever since EIF started investing in securitisation transactions — we are already making very good progress in the direction that the European Union is pursuing.”

Kenny Wastell

CMBS

CMBS opportunities

Despite sector malaise pockets of gold are to be found

US commercial real estate fundamentals give rise to concern about CMBS returns, but there are areas of the market which are offering opportunities not seen for a decade or more, says Sanmore ceo Boris Sanchez.

Sanmore is a Houston, Texas-based commercial real estate lender, broker and investor.

While the CMBS market as a whole has suffered depressed values for the last couple of years, this broad-based descent conceals eye-catching openings in assets that have become undervalued.

“There are some unique opportunities in the market at the moment. We can snap up properties at prices we haven’t seen in ten years,” says Sanchez.

For example, retail malls that are conveniently located will continue to see good profits. The area of the mall market which is likely to struggle are high end outlets, which are often two or three hours’ drive outside major urban areas and also these days find it difficult to beat online retailers in price.

Malls that are based around a large and well-known anchor retailer, like Macy’s, are also likely to prosper. Yet in many cases within the retail CMBS market prices of all types of malls are depressed – which in turn, of course, means yields are higher.

“I’m seeing cap rates of 8% or 9% on triple net stuff. I love it because if you can weather the lending storm you can end up way better on the other side,” says Sanchez.

Triple net leases refer to those where the tenant pays most if not all of the associated bills, and often come with a substantial corporate guarantee as well.

Multi-family properties also manifest similar characteristics. “Per unit prices are dropping in every class. I’d like to 2010 and 2011 levels, but commercial real estate investing has become more mainstream,” he adds.

The biggest hurdle in the market at the moment is the difficulty in securing lending, and the high rates of interest. The investors that can put together creative financing at attractive levels are those that are most likely to prosper.

Simon Boughey

Structured Finance

SCI Start the Week - 17 July

A review of SCI's latest content

Last week's news and analysis
Capital rising
Regulators announce new rules coming soon
Embracing 'enablement'
Sustainalytics answers SCI’s questions
Polish wave continues
Bank Millennium adds to CEE SRT flow
Regulatory push
Retention RTS, draft SI move forward
SRT boom
IACPM data shows record year for synthetic securitisations
STS shift
Societe Generale executes Colisee two
Student politics
Refis may increase as Biden plan stalls while broad ABS looks better
Test case rolled out
JP Morgan eyes NAV lines
Wheels down
Aviation ABS wobbles after Covid/Russia war

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

Capital Relief Trades

Wider still and wider

GSE CRT spreads blow out in 2023

Freddie Mac CRT spreads have mushroomed this year despite the marked diminution of issuance, confirmed the GSE in its quarterly CRT webinar yesterday.

In some cases, spreads are more than 100% wider than 12 months ago. For example, the STACR 2022 DNA1, priced in January 2022, carried spreads of SOFR plus 100bp, plus 185bp, plus 250bp and plus 710bp for the M1, M2, B1 and B2 tranches respectively.

Fast forward a year to the 2023 DNA1, priced in March, and things look very different. In this deal, the M1 came in at SOFR plus 210bp, the M2 was SOFR plus 325bp, the B1 was SOFR plus 570bp and the B2 was SOFR plus 760bp.

This enormous spread movement has not been confined to the capital markets; similar widening has been visible in the reinsurance market. The M1 in the first ACIS deal of last year came in at plus 95bp, but in the first deal of this year it was plus 255bp – over 150% wider. The M2 tranche had widened from plus 155bp to plus 410bp and the B2 from plus 325bp to plus 610bp.

“These levels are much wider, and it has made the CRT market economically much more challenging for us,” said vice president of CRT Mike Reynolds on the call yesterday.

This appreciable widening has occurred despite significantly reduced issuance. Freddie has issued US$2.75bn in the CRT market this year and expects to price only around US$4bn or US$5bn in 2023. This compares with over US$20bn in 2022 – more than four times as much.

Since the first deal of this year, levels have in fact ground tighter, say sources, but chiefly because the newest deals have incorporated more generous credit enhancements.

The number of investors in CRT deals provides a spark of good news. Some 121 unique buyers have participated in CAS and ACIS deals thus far in 2023, and this includes 11 investors that are new to the Freddie Mac CRT programme.

The type of investor is also changing. In line with wider spreads, hedge funds have become a significantly larger segment of the investor base. This year, 60% of B1 buyers have been hedge funds compared with 24% in 2022.

Secondary STACR trading remains active, noted Reynolds.

Simon Boughey

Structured Finance

Barings and Lakemore partner up

Market updates and sector developments

Charlotte-headquartered global asset manager Barings has entered into a partnership with CLO-focused private credit investor Lakemore Partners. Lakemore, which primarily takes super-majority control equity positions in new US CLOs, says the partnership will expand its global reach, deepen its institutional client base and boost its Aquatine CLO equity platform.

Barings has around US$351bn in assets under management, spanning public equities and fixed income, as well as alternative assets. Of this, around US$75bn is accounted for by broadly syndicated loans, CLOs and high yield bonds. The firm says the deal will provide it with increased flexibility in light of evolving market conditions.

Lakemore invests on behalf of clients across the US, Europe and Middle East, and it has offices in Phoenix, London, Dubai and Zurich. The manager has around US$1.4bn in assets under management, most of which is on behalf of institutional clients.

In other news…

KBRA and T-Rex partner up

KBRA is preparing for continued growth in private capital by partnering with fintech data platform, T-Rex. By incorporating T-Rex’s surveillance, deal reporting and research technology into its existing data infrastructure, KBRA hopes to enable the development of the private credit ABS space and facilitate increasing efficiencies for its private credit ratings business. 

The multiyear collaboration intends to improve the data fragmentation challenge, and support the increasing role of private credit in ABS. KBRA says these securitisations can both improve liquidity in the marketplace and better meet investors needs in respect to public and 144A deals.

Panagram launches second CLO ETF

Panagram Structured Asset Management has launched its second ETF focusing on triple-A rated CLOs. The fund, named Panagram AAA CLO ETF and trading on the New York Stock Exchange under the CLOX ticker, will donate a portion of its management fees to Mosholu Montefiore Community Center in New York. CLOX has a 0.20% expense ratio and aims to provide investors with exposure to a diverse portfolio of industries, sectors and institutional loan managers. 

Structured Finance

Job swaps weekly: Oppenheimer's blockbuster appointment

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Oppenheimer & Co appoint a new head for its Latin America investment banking group. Elsewhere, Angel Oak Companies has poached a new chief legal officer from Reverence Capital Partners, while Fitch has a new head of structured finance product strategy in New York. 

Oppenheimer & Co has stepped up its international initiatives with the hire of Credit Suisse veteran Manuel Rodriguez as head of its Latin America investment banking group. The new recruit will work with the firm’s growing global fixed income team to pursue opportunities in the region in both the public and private sector.

Rodriguez will report to Oppenheimer president and head of investment banking, Robert Lowenthal. Bringing more than 23 years of industry experience to the role, he leaves his position as head of Latin American and Caribbean coverage at Credit Suisse after 17 years with the bank. Rodriguez holds special expertise in originating and underwriting bespoke structured credit transactions across Latin America and the Caribbean.

Meanwhile, mortgage credit-focused asset manager Angel Oak Companies has hired Reverence Capital Partners’ Timothy Saunders as chief legal officer and general counsel. The industry veteran, who spent 21 years at Goldman Sachs, leaves role as general counsel and chief compliance officer at Reverence after two and a half years with the firm. Angel Oak says his “distinct experience in the mortgage and securitisation space” makes him an “excellent fit” for the firm.

Fitch has promoted senior director Benson Thomas to be its new head of product strategy on its structured finance team in New York. Thomas takes on the new role after almost 13 years working on the rating agency’s CMBS and CRE team. He holds more than two decades of experience across CRE finance, credit risk, and CMBS transactions.

Mumbai-based structured finance veteran Viral Mehta has joined the Grant Thornton Bharat structured credit solutions team as partner. Mehta joins the firm’s practice in Mumbai having previously held positions at JM Morgan Stanley, KPMG India, Kotak Mahindra Bank and Kotak Investment Advisors. Most recently he served as an investment director at Edelweiss Alternative Asset Advisors.

Credit rating agency ARC Ratings has promoted Jake Shoer to senior analyst in its structured finance team. Shoer joined ARC in 2020 and works out of the firm’s Maidstone office.

Moody’s md, Jennifer Wu, has been promoted to head of structured finance for APAC. Closing in on 17 years at the rating agency, Wu will continue to be based in its Hong Kong office.

BNP Paribas CIB has promoted Manuel João Amora to securitisation portfolio manager. Amora is based in Lisbon and joined the bank in March of this year.

And finally, Singapore-headquartered bank UOB has promoted Ruthana Bitia to a structured finance-focused manager in its investment banking team. Bitia is based in Jakarta and joined the company’s wholesale banking development team in July 2022.

Structured Finance

Obra adds CLO issuance capabilities

Market updates and sector developments

Obra Capital has acquired the assets of asset management and investment research firm KDP and its affiliated companies. The transaction supports Obra’s expansion of its existing liquid markets capabilities in structured credit into the fundamental credit space. By combining KDP’s established research with Obra’s diversified asset management capabilities, the firm expects to augment its product suite to include the issuance of CLOs - where it is already an active investor – as well as more liquid commingled fund vehicles.

In other news…

Innovative corporate cat bond closed
Swiss Re Capital Markets has structured and placed US$250m of ILS issued with respect to certain real estate funds managed or controlled by affiliates of Blackstone. Dubbed Wrigley Re Series 2023-1, the transaction is Blackstone's first indemnity catastrophe bond and covers named storms and earthquakes in the US and Canada.

The deal is not only the first corporate cat bond covering named storms on an indemnity basis, but it also the first corporate cat bond covering multiple countries. It comprises two classes of principal at-risk variable rate notes: US$100m class A notes that provide protection on an indemnity per occurrence basis for named storms in the US and Canada and an indemnity annual aggregate basis for earthquakes in the US, excluding California, and Canada; and US$150m class B notes providing protection on an indemnity annual aggregate basis for earthquakes in California.

Both classes of notes have a three-year risk period starting on 28 July 2023 and introduce an innovative risk-based premium adjustment mechanism to adjust for changes in risk in the covered real estate portfolio.

CLO Managers

Vertical rebrands

Market updates and sector developments

Vertical Capital Income Fund has appointed Carlyle Global Credit Investment Management as its investment manager and rebranded as Carlyle Credit Income Fund (CCIF). Following the agreement, CCIF will begin focusing on investing in equity and debt tranches of collateralised loan obligations.

The development is part of an agreement that also sees Carlyle building towards a 40% stake in CCIF. In January, the global investment management firm agreed to make a one-off US$10m payment to CCIF shareholders. 

The firm has now completed this payment and has made a further US$40m equity commitment comprised of a tender offer to purchase US$25m of shares and an investment of at least US$15m in newly issued shares and private share purchases.

In other news…

Nassau and Angel Island merge

Nassau Corporate Credit and Angel Island Capital join forces to form a new US$8.4bn  integrated speciality credit platform called Nassau Global Credit. Operating as a subsidiary of Nassau Asset Management, the new platform marks the latest step in the growth of its third-party asset management platform and expansion of its global offerings. 

Nassau Global Credit will be led by ceo Alexander Dias and cio Jonathon Insull. It will continue to invest in performing and opportunistic loan and bond markets across Europe and the US, as well as issuing CLOs and sponsoring private investment funds.

Sixth CAS for Fannie

Fannie Mae is in the market with a US$756m CAS deal, designated CAS 2023-R06. The structuring lead and joint bookrunner is Bank of America while co-lead is StoneX. The co-managers are Cantor Fitzgerald, Morgan Stanley, Nomura and Santander.

The reference pool consists of 64,468 low LTV mortgages with an unpaid principal balance of US$20.3bn. The borrowers in the pool have a weighted average (WA) credit score of 749 and a WA DTI ratio of 37.5%.

There are four tranches in this transaction – M1, M2, B1 and B2. The US$279.5m M1 has a tranche thickness of 1.45%, the $231.3m M2 has a thickness of 1.20%, the $149.15m B1 has a thickness of 1.05% and the $105m B2 has a thickness of 0.80%.

Pipping peers

Fitch has secured a rare victory against S&P and Moody’s, having rated more public US structured finance transactions in H1 2023 than its ‘big three’ peers. Typically finishing in third place behind S&P and perennial runner-up Moody’s, Fitch rated 150 US asset- and mortgage-backed bond offerings in the first half of this year. 

Totalling US$95.1bn according to the Asset-Backed Alert ABS Database, Fitch’s market share in the first six-months of this year is 54.8%, compared with 38.9% in H2 2022.