Contents

ABS

NPL proposal questioned

ABS industry baulks at Italian borrower buy-back plan

Italian non-performing loan securitisation cashflows could be delayed until a proposal to allow non-performing borrowers to buy back exposures is passed or rejected. But prime minister Meloni’s government appears on course to water down the controversial measures, with doubts arising as to how many borrowers would take up the option, should it pass.

Proposal AC 843 would allow private and SME borrowers to return to performing status by buying back debt that had been transferred to third parties, including via securitisations and loan disposals. Under the proposal, transactions would be priced on the basis of the aggregate sales price for the overall portfolio to which they belong, with a premium of 20% or 40% - depending on whether recovery proceedings had been initiated or not.

Fitch and Scope both note that the proposed law has presented significant uncertainty and turbulence for banks and investors. The former says it could weigh on banks’ ability to dispose of NPLs. The latter says that the retrospective nature could cause “significant damage to the underlying NPL market” and that it anticipates “delays in transaction cashflows until the proposal is passed or rejected”.

Gianrico Giannesi, a partner at law firm Chiomenti, told a recent Scope roundtable that the proposal is intended to boost credit recovery, but will have the opposite effect by capping the maximum recoverable amount. He added his voice to market concerns that the law would negatively affect both future transactions and those that had already been carried out.

There had been fears in the market that Meloni’s populist right-wing government would look to bypass the parliamentary process and introduce the law, which was first presented in January, by decree. This would have brought it into effect for a period of at least 60 days, following which parliament would have the option to amend or reject it. Market participants say there are now signs that the Italian government is rowing back - or at least watering down - its plans.

“The time for approval of law proposals is very long in Italy, and the path is very steep and very difficult,” says Giannesi. “The proposal would have to go to commission to be commented on, then go to one chamber for approval and passed to another chamber, which would either approve it without amendments or return it to the first for new approvals.”

He adds that in recent weeks, Adolfo Urso, minister for economic development of Italy, indicated to Italian media that the government is beginning to understand - in part, due to pressure from the finance community - that they would be hitting a €300bn market. It is, Giannesi says, a market that is key in terms of Italy’s development, reputation and credibility.

Nevertheless, Scope questions how many borrowers would take up the option in reality. “These borrowers have defaulted in the past, probably starting with a very low interest rate,” says Paula Lichtensztein, a senior representative on Scope’s structured finance team. “Now they would be refinancing at a much higher interest rate, far higher than 3% or 5%, with specialist operators.”

She concludes: “In that sense, we would be shifting credit risk from investors’ balance sheets to the balance sheets of specialist lenders and ultimately not curing the borrowers’ status. That could fail to cure their default status, if they were then unable to repay their refinancing loans.”

Kenny Wastell

Structured Finance

SCI Start the Week - 11 September

A review of SCI's latest content

Free webinar this Wednesday – US esoteric ABS
This Wednesday September 13 at 10:00-10:40 AM EDT/3:00-3:40 PM BST, join us in Exploring the Evolving Landscape of Esoteric ABS with our expert panel Xilun Chen, KBRA; Emile Ernandez, Guggenheim Securities; Stuart M. Litwin, Mayer Brown; and Max Mullen, KKR. Click here to register for free.

Last week's news and analysis
BMO back
Algonquin transaction in the market, to close next month
CLO saviour?
Collateral managers act to save two CLOs in Q2
Energy performance regulations yet to impact RMBS
Updates on climate and RMBS, ICE adding Black Knight and Man Group acquiring Varagon
Job swaps weekly: Pretium snaps up Morgan Stanley coo
People moves and key promotions in securitisation
Latest SRTx fixings released
Index values indicate incremental widening in spreads
Tapping the nest egg
Growth in ERM demand presents securitisation opportunities in Europe
Plus
Deal-focused updates from our ABS Markets and CLO Markets services

Regulars

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, Guy Carpenter's md, mortgage and structured credit segment leader Jeff Krohn talks about the recent shape of events in the GSE CRT sector, from the perspective of the capital markets and reinsurance market. He also touches on the topic of recent issuance - or the lack of it - from mortgage insurers and looks as well forward to the prospect of greater issuance in the CRT sector by US banks.
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
Women In Risk Sharing
18 October 2023, London

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

Esoteric ABS Seminar
7 November 2023, New York

European CRE Finance Seminar
28 November 2023, London

Capital Relief Trades

Optimistic outlook

SRT Market update

While SRT market participants generally describe a sluggish beginning to the month, further details on some of the deals in the pipeline are emerging. Overall, an optimistic outlook for Q4 prevails.

“We really have not seen many deals outside of those referencing corporate and leveraged loan portfolios,” notes one European SRT investor. “Banks appear to be focusing on hedging corporate risk and the European market is rather liquid for those types of deals. But I had expected to see more trades outside of that spectrum.”

As he reports a “lack of flow of synthetics” since the end of the summer, the investor additionally describes a certain stalemate on the regulatory front. “All the changes that would have been driven by Basel 4 are simply not happening at the moment. We are already in mid-September and I struggle to see an awful lot of new issuance.”

Nevertheless, a handful of well-known issuers and programmes are expected to print soon. For example, Santander is in the market with Magdalena 7, joined by Lloyds with a fresh Salisbury trade.

While according to another investor the latter has not launched yet, Santander’s trade is at an advanced stage. “The bank is trying to collect feedback at the moment, with pricing expected later this month.”

The investor continues: “I understand that an HSBC deal has been discussed for a couple of weeks now, with an Italian bank also currently exploring a trade. Additionally, two French deals are about to close, respectively referencing a mixed portfolio and a large corporate portfolio.”

Regarding LBBW’s transaction (SCI 3 August), referencing a circa €5bn portfolio of German commercial real estate exposures, the European investor expresses doubts on its completion. He says: “There are suggestions that it is getting done. However, I always thought it would be hard to print this deal. The portfolio doesn’t appear to be as straightforward as people thought.”

Overall, in terms of the CRT market’s restart from its summer hiatus, the investor presents an optimistic outlook for Q4. “I don’t know what is causing deals to be delayed at the moment, but I would have expected that by this week there would have been quite a few transactions launched for Q4. There is a lot of potential pipeline that we have not seen yet. A number of banks – in the UK, France, Germany and Italy – will be planning transactions for Q4, so I anticipate quite a bit more activity over the remaining 2-3 months of this year,” he concludes.

                                                                                                Vincent Nadeau

Capital Relief Trades

Risk transfer round-up - 14 September

The week's CRT developments and deal news

Market news
M&G Investments’ latest Insights publication explores why now could be a good moment for patient investors to consider SRT transactions and why this opportunity could be short-lived, given the current economic cycle. The firm notes that in sterling terms, it has recently seen SRT transactions pay out coupons of 10% and higher returns.

“With the generally fairly risk-off tone we’ve seen in credit markets for the last 18 months, recent transactions have appeared very attractive versus what we have seen historically,” comments James King, head of structured credit at M&G Investments.

Indeed, he suggests that a typical SRT transaction could now offer a better spread compared to those seen in 2021 or the last time there was momentum in the market in 2019. “It will be a better-quality transaction in terms of underlying collateral and I may well have a thicker tranche, which means I've got a less volatile return profile. But these transactions don't exist in perpetuity. They exist because, right now, the market is saying: ‘There is uncertainty, and we want to be compensated for these additional potential risks’.”

However, if risk appetites return, it could become more challenging to build a portfolio of SRT risk, according to M&G Investments. Many of the transactions currently being carried out are going to buy-and-hold investors, and the firm believes those investors could be enjoying returns from those assets for the next 5-8 years.

“In our view, this market is still relatively under-invested, which is one of the reasons why spreads have remained so attractive. However, over time, it is likely that this premium will be eroded as more investors come into the asset class. We believe these factors combined make it a very interesting time to be putting money to work in the SRT market,” the Insights publication concludes.

New issue pipeline

People moves
Lockton Re has launched a global mortgage and structured credit segment, co-led by Sean Hannah and Joe Koebele. The pair will work closely with the Lockton Re global team – including the specialty division based in London and led by Paul Upton, head of specialty – to drive the new offering to clients.

Joining the Lockton Re team in 2020, Hannah has been pivotal in the development and deployment of the firm’s analytics platform. He previously led the build-out of Willis Re’s global mortgage and structured credit analytics capability.

Koebele joined Lockton Re last month, having most recently been svp, mortgage and structured credit at Guy Carpenter.

Meanwhile, Mario Maria Venosa has joined STS Verification International (SVI) as associate, tasked with working on STS verification mandates across all securitisation types, including synthetics. He was previously transaction management senior specialist within Intesa Sanpaolo’s credit portfolio management division, where he focused on assessing SRT frameworks.

Finally, the Texel Group has recruited Vesna Vladusic and Jack Thornber as brokers in its structured and bespoke solutions group. Vladusic was previously a structurer at Canopius Group, which she joined in October 2021, having worked at Mizuho, Greensill Capital and RBS before that. Thornber was previously an associate in both Clifford Chance’s structured, asset-backed and real estate finance (SABRE) group and, prior to that, the asset finance group, having joined the firm as a trainee solicitor in February 2017.

The pair report to Alan Ball, director and head of Texel’s structured and bespoke solutions group.

Regulatory update
In a joint letter to the US Fed, FDIC and OCC, the Bank Policy Institute, the American Bankers Association, the Financial Services Forum, the Institute of International Bankers, SIFMA and the US Chamber of Commerce have called for a re-proposal of the regulatory capital rule (SCI 29 August), in order to remedy what the trade associations claim are violations of the Administrative Procedure Act (APA). The letter states that the proposed regulations would significantly increase capital requirements for larger banks, yet the rule repeatedly relies on data and analyses that the joint agencies have not made available to the public. As such, the associations suggest that this reliance on non-public information violates clear requirements under the APA that agencies must publicly disclose the data and analyses on which their rulemaking is based.

In particular, the associations highlight the proposal to increase the p-factor for securitisations from 0.5 to 1.0, to offset the decrease in risk weights applicable to certain underlying assets under the proposal. They note that no analysis used to calibrate the increase in the ‘p’ parameter has been made available to the public.

Because of such “critical procedural deficiencies”, the associations say they are unable to fully and properly comment on the proposal at this time. Accordingly, they request that the agencies make available all evidence and analyses that was relied on in proposing the rule and re-propose the rule with a new comment period.

“Our request is not just that the agencies ‘play by the rules’, although a failure to do so should alone be sufficient to justify that request. Rather, this is a rule of sweeping impact and it is not only essential for our members, but also in the national interest, that the new requirements be adopted only after the public has a meaningful opportunity to scrutinise both the proposal and the underlying rationale,” the letter concludes.

SCI SRTx indexes

For more information on the Significant Risk Transfer Index (SRTx), click here.

Capital Relief Trades

Italian SME boost

EIB Group and Deutsche Bank close synthetic securitisation.

The EIB Group has closed its first synthetic securitisation referencing a portfolio of consumer auto loans originated by Deutsche Bank Italy. The transaction aims to support the investments of around 650,000 SMEs and mid-caps in Italy, providing them with access to new resources.

The EIF guarantee on the mezzanine tranches covers a reference portfolio of approximately €1.38bn, while a counter-guarantee (back-to-back) from the EIB mirrors the EIF's obligation, so that the EIB covers the credit risk related to the mezzanine tranches. The capital freed up by the EIF guarantee will be reused to provide over €594m in new financing, around €149m (25%) of which will be allocated to innovative companies to foster economic growth and up to €178m (30%) to projects in social cohesion regions.

The trade falls under the STS securitisation framework and marks the EIF's second STS synthetic securitisation with Deutsche Bank.

                                                                               Vincent Nadeau

Regulation

Opening broadside

House subcommittee slams July 27 capital rules

The July 27 Basel 3 endgame proposals would place the US “ahead in a race to a gold-plated top for global capital requirements and push the US to the bottom for global competitiveness,” said Andy Barr (KY), chairman House Financial Services Subcommittee on Financial Institutions and Monetary Policy, this morning (September 14).

The sub-committee is holding hearings titled “Implementing Basel III: What’s the Fed’s Endgame?”

The proposed new rules were introduced by bank regulatory agencies, including the Federal Reserve, Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC).

“The proposal would install arbitrary and extreme increases in required capitalization for what regulators, Biden administration officials, and Fed stress tests have said is an already resilient, well-capitalized US banking system,” added Barr.

He went on to say that the lack of unanimity among Fed governors and FDIC directors underscores the partisan nature of the mooted rules and called for the “divisive, underdeveloped, and arbitrary recent Basel III endgame proposal” to be withdrawn.

Before the hearings began, Republicans on the House Financial Services Committee, headed by chairman Patrick McHenry (NC), sent a letter to Fed vice chair for supervision Michael Barr, FDIC chairman Martin Gruenberg, and acting Comptroller of the Currency Michael Hsu, saying “The proposal calls for massive increases in capital requirements on US banks, far exceeding what is required by the Basel 'agreement.' As Fed Chair Powell opined, the proposal 'exceeds as well what we know of plans for implementation by other large jurisdictions.'"

Committee Republicans agree that this will compromise global competitiveness and attempts to portray the proposals as a response to recent bank failures are “misleading.”

Moreover, despite their likely meaningful impact little cost-benefit analysis has been undertaken by the regulators. The letter notes that a “paltry 17 pages” out of a hefty 1087-page document are devoted to impact analysis and even then those few pages contain “unsubstantiated assertions and citations to studies that often are too outdated to be relevant.”

Given these “fatal” shortcomings, the proposals should be withdrawn, they say.

The comment period for the July 27 proposals lasts until the end of November.

Anecdotal evidence suggests that banks are retrenching from lending in a number of different markets across the US. Moreover, the proposals now draw an larger number of banks than hitherto into its net as they apply to banks with assets over $100bn, rather than $250bn.

Simon Boughey

Structured Finance

RFC issued on CLO good practices

Market updates and sector developments

IOSCO has called for an improvement in practices in the leveraged loan market and is seeking feedback on a number of good practices it is proposing in connection with CLOs. The organisation notes that a “prolonged borrower-friendly environment” has impacted market practices, giving rise to covenant-lite leveraged loans, increased complexity of documentation and the aggressive use of EBITDA adjustments.  

“The proposed set of good practices are an important step towards mitigating some of the vulnerabilities observed in our work, particularly the possible conduct and conflicts of interest risks observed across the intermediation chain – from leveraged loan origination through the distribution of the CLO notes,” IOSCO sates.

The organisation has released a consultation report that explains why the vulnerabilities identified in the leveraged loan and CLO markets could impact its objectives of protecting investors, ensuring that markets are fair, efficient and transparent, and reducing systemic risk. The report also outlines 12 proposed good practices, which are grouped into five themes: origination and refinancing based on a sound business premise; EBITDA and loan documentation transparency; strengthening alignment of interest from loan origination to end investors; addressing interests of different market participants throughout the intermediation chain; and disclosure of information on an ongoing basis.

In other news…

FCDO anchor investor on BIC IV
Bayfront Infrastructure Management has completed its fourth infrastructure ABS transaction via the Bayfront Infrastructure Capital IV vehicle. The deal is backed by a circa US$410.3m portfolio comprising 40 individual loans/bonds, spread across 33 projects, 15 countries and 10 industry sub-sectors.

Five classes of investment grade notes – classes A1, A1SU, B, C and D – were rated by Moody’s and offered to institutional investors. The class A1SU notes represent a dedicated sustainability tranche and were issued under the Bayfront Sustainable Finance Framework, with net proceeds used to finance infrastructure debt for eligible green and social.

As sponsor of the transaction, Bayfront has acquired the retention preference shares, comprising 5% of the capital structure. Additionally, the UK Foreign Commonwealth & Development Office committed an anchor investment of up to US$20.4m in the preference shares as part of its Mobilising Institutional Capital Through Listed Product Structures (MOBILIST) programme, receiving a final allocation of US$5m, given strong oversubscription for the notes.

The unrated class D notes benefit from a guarantee from GuarantCo, which is rated AA-/A1 by Moody’s and Fitch, for principal and interest amounts payable. GuarantCo is a contingent credit solutions provider that is part of the Private Infrastructure Development Group. The notes were preplaced with funds managed by Apollo Global Management.

Structured Finance

Job swaps weekly: M&G poaches Pimco's Scott

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees M&G Investments luring a former Barclays structured finance veteran from Pimco to take on the role of director. Elsewhere, Avenue One has added senior hires to its real estate capital partnerships and alternative capital partnerships teams, while Pinsent Masons has hired a new securitisation partner. 

M&G Investments has appointed Pimco executive vice president and former Barclays veteran Rob Scott as a director on its structured credit team. The new recruit will be based in the asset manager’s London office and will report to head of structured credit James King.

Scott leaves Pimco after two years with the firm, during which he led its European loan portfolio asset management team. He previously spent 15 years with Barclays across two spells, leaving his role as managing director in the securitised products division in 2021. 

In his new role, Scott will focus on originating, structuring, analysing and executing deals for M&G’s specialty finance and its mortgage and consumer income strategies. The appointment comes shortly after the firm held a £266m final close for M&G Specialty Finance Fund II, which is actively managed and invests in portfolios of performing residential mortgages and consumer loans in European OECD countries.

Meanwhile, Avenue One, the single-family-rental-focused real estate marketplace for institutional investors, has hired Brent Elkins and Jeremy King as head of real estate capital partnerships and head of alternative capital partnerships respectively. 

Elkins left his role as md and head of fundraising at Beacon Capital Partners after seven years with the business in May. He previously had stints at BlackRock and Colony Capital and is based in Boston. King is based in New York and leaves his role as md and head of business development at Insight Investment after eight and a half years with the asset manager. He previously worked at Guggenheim Partners, Unigestion and Man Group.

Mayer Brown’s Harjeet Lall has joined Pinsent Masons as a finance and restructuring partner, working out of its London office. Lall specialises in structured finance and securitisation, and leaves her role as senior associate and co-chair of the India practice at Mayor Brown after four years with the firm. She previously worked at Axon Partners, Latham & Watkins, JP Morgan and White & Case.

Sterling Capital Management has hired former Wells Fargo Securities stalwart John McElravey as executive director and senior fixed income analyst in its structured products division. McElravey will be based in Charlotte, North Carolina, and joins Sterling from the Federal Reserve Bank of Boston, where he spent two and a half years. Prior to that, he spent 14 years working on ABS and MBS at Wells Fargo, leaving his role as md in the fixed income and credit division in early 2021.

Real estate and credit manager Angelo Gordon has appointed Barings’ Maja Lindstrom as md in its client partnership group, as the firm looks to expand its client base in northern Europe. Lindstrom leaves her role as md for EMEA business development at Barings after seven years with the manager. She previously worked for Babson Capital Management, Armajaro Asset Management and Storm Capital Management.

Canadian law firm KRB has appointed Lavery Avocats’ Stéphane Martin as a senior member of its banking and finance group, working out of its Quebec City office. Martin leaves his position as an associate in the business law team at Lavery after three years with the firm and previously spent 19 years at Cain Lamarre.

Rome-headquartered law firm Gianni & Origoni has hired Chiomenti’s Alessio Palumbo as counsel focusing on structured finance. Palumbo joined Chiomenti from Orrick, Herrington & Sutcliffe at the beginning of 2020 and was promoted from senior associate to counsel in early 2022.

CBRE has appointed Merricks Capital’s Ben Fletcher as director in its debt and structured finance team. He will be based in the firm’s Melbourne office and will focus on Australian agriculture and commercial real estate. Fletcher spent two years at Merricks, where he was promoted from business development manager to director in April 2022. He has previously worked for ANZ, National Australia Bank and KPMG.

Joe Ellis-Grewal has joined Mount Street Group from Global Loan Agency Service (GLAS), working out of its London office as an executive director reporting to md Serenity Morley. Ellis-Grewal leaves his role as head of UK business development at GLAS after five years with the company. He previously had a nine-month spell as a professional cricketer, playing for Essex County Cricket Club.

And finally, Trustmoore, the fund and structured finance service provider, has appointed Fisher Investments’ Maria Natasha Kaae as senior compliance officer for structured finance and capital markets. Kaae will be based in London and joins after four years as a legal and compliance analyst at Fisher. She previously spent two years at Pinsent Masons.

Structured Finance

BXCI to offer 'one-stop solution'

Market updates and sector developments

Blackstone has integrated its market-leading corporate credit, asset-based finance and insurance groups into a single new unit, named Blackstone Credit & Insurance (BXCI). Credit and insurance is Blackstone’s fastest-growing segment – more than doubling to US$295bn in assets under management over the last three years.

The new structure is designed to further accelerate growth by creating a more seamless experience for clients and borrowers. BXCI will offer a one-stop solution across corporate and asset-based, as well as investment grade and non-investment grade, private credit.

Gilles Dellaert, global head of Blackstone Insurance, will serve as global head of BXCI and lead the business’s combined operations. Since Dellaert joined the firm in 2020, Blackstone has nearly tripled the assets it manages for insurance clients.

Dwight Scott, global head of Blackstone Credit, will serve as chairman of BXCI, prioritising client relationships, key growth initiatives and the further expansion of the firm’s European platform. Scott is a nearly 20-year veteran of Blackstone, who has built a world-class credit business with market-leading positions in direct lending, energy transition, leveraged loans and CLOs.

Dellaert and Scott will be supported by long-tenured heads of Blackstone’s investment businesses, who will be taking on expanded roles in BXCI - including Rob Horn, global head of sustainable and structured credit, and Rob Camacho, global head of asset-based finance. Jonathan Pollack will continue to lead Blackstone’s US$67bn real estate credit business as global head of real estate credit.

In other news…

Ginnie launches social bond label
Ginnie Mae has launched its ‘Social Bond’ label for single-family forward MBS prospectuses and released a Social Impact and Sustainability Framework. Together, these updates support Ginnie Mae's mission-oriented work and communicate the positive social impact of its programmes to investors. The aim is to help increase investor awareness of the value proposition in Ginnie Mae securities, increasing opportunities to attract new sources of capital in support of lenders and borrowers Ginnie Mae ultimately serves.

The prospectus revisions highlight structural aspects of Ginnie Mae’s programmes that have a significant social impact by promoting broader access to mortgage financing for historically underserved communities. Investors will have the choice, along with MBS pool level disclosure data, to independently determine Ginnie Mae MBS as ‘Social Bonds’, meaning the underlying collateral is designed to support a positive social and affordable housing outcome.

YieldStreet settles SEC action
The US SEC has announced a settled action against New York-based YieldStreet and its registered investment adviser subsidiary, YieldStreet Management, for failing to disclose critical information to investors in a US$14.5m ABS offering. In September 2019, YieldStreet offered securities to finance a loan a YieldStreet affiliate made to a group of companies to transport a retired ship and arrange its deconstruction. The SEC’s order finds that the collateral for the loan was the ship to be deconstructed and that YieldStreet’s right to the ship was the most important security for the loan and the securities that YieldStreet sold to investors, yet the firm failed to disclose to investors a heightened risk that it would be unable to seize the ship in the event of a default.

The order finds that, prior to the offering, YieldStreet personnel had information showing that ships securing other loans that YieldStreet affiliates had made to the same borrowing group were reported as deconstructed without any notice or repayment or could not be located because their tracking systems were off. According to the order, the firm proceeded with the offering without disclosing this material information to investors.

The order states that YieldStreet later concluded that the borrowing group caused the ship securing the September 2019 offering to be deconstructed, but it stole the deconstruction proceeds by not repaying the loan from YieldStreet, leaving investors facing millions of dollars of losses.

Without admitting or denying the findings, YieldStreet consented to the entry of an SEC order finding that it violated certain antifraud and other provisions of the federal securities laws. The SEC’s order requires the firm to cease and desist from these violations and to pay more than US$1.9m in penalties, disgorgement and interest.

RMBS

Pressure on UK BTL loans in RMBS portfolios

Market updates and sector developments

The UK buy-to-let mortgage market is likely to see an increase in arrears, a reduction in origination volumes and higher rates of home repossessions in the months ahead. Analysis of RMBS portfolios by DBRS Morningstar highlighted headwinds in the form of tenant affordability, stricter regulations and changes in taxation that are likely to put pressure on BTL landlords.

The analysis finds that 17% of BTL loans from a sample of 72,000 are due to undergo resetting by the end of 2024. DBRS Mornningstar says borrowers impacted are likely to face an average increase of 52% in their monthly mortgage payments.

Recent rises in rates have meant mortgage costs are outstripping rental yields in many places. A report from Savills forecasts that BTL profits, net of tax, will fall to 3.9% in the second quarter of 2023, compared with 25.7% five years ago.

In other news…

Santander project finance CLO given triple-A(SF) rating for senior notes

Charlotte 2023 Funding, a £704.9m project finance CLO originated by Banco Santander, has secured a triple-A(SF) rating for its senior notes from Scope Ratings. The overall revolving cash securitisation consists of £482.8m in senior notes and £222.1m in non-rated class B notes.

All 48 loans in the deal are denominated in sterling and based in the UK, with the class A notes benefiting from a 31.5% credit enhancement provided by subordination, Scope says. Around 74% of the portfolio is operational assets, with 36.4% in the private finance initiative sector, 29.6% in infrastructure, 21.2% in renewables and 12.8% in utilities.

European fintechs attract US VCs

European securitisation-focused fintech platforms GenTwo and Tradeteq have raised US$15m and US$12.5m respectively from US venture capital firms. The fresh capital will enable the businesses to pursue international expansion. 

MS&AD Ventures led the series-A round for London-based Tradeteq, which helps lenders securitise and distribute trade finance assets. Interlock Partners also took part in the deal, following which Tradeteq will look to expand into the US market. 

The series-A round for Zurich-headquartered GenTwo was led by Point72 Ventures. The startup, which says it specialises in securitising assets that are both bankable and non-bankable — such as fine art — did not reveal specific details of its international expansion plans.