Contents

Structured Finance

Fundamental review

FSB response calls for level playing field

Paris Europlace has filed its response to the Financial Stability Board's (FSB) request for feedback on the effects of the G20 regulatory reforms on securitisation implemented since the GFC. Regarding the CRT market, the organisation underlines several issues, while noting that although volumes have recently improved, a detailed assessment of the kind of measures that should define significant risk transfer (and for which purpose) remains necessary.

The French organisation – which includes leading banks, insurance companies, asset managers, financial intermediaries, international corporates and other financial services providers – highlights the too familiar observation that prudential rules have become extremely conservative for banks and insurance firms, notably in Europe, which in turn has driven a significant decline of the EU securitisation market compared to other key jurisdictions. Specifically regarding the SRT segment of the European market, the report notes that supervisors implemented such stringent rules, beyond the BCBS ones, that potential issuers are often discouraged by the lack of fluidity and the lack of predictability of the SRT tests.

Nevertheless, Veronique Ormezzano, chair of the European financial regulation committee at Paris Europlace, notes that three key regulatory measures have supported the significant increase in SRT volumes experienced in recent years. She says: “A clear game-changer or boost for the market was when synthetic securitisations were allowed to bear the STS label. The second point to highlight is the EBA’s final RTS on the determination of exposure value of synthetic excess spread and its revision of pro rata amortisation. Finally, the last point to mention is the shift in the ECB and its guidance around SRT transactions.”

Although she describes a certain “lull” on the regulatory front, Ormezzano advocates for further changes and urgency. She notes: “We provided in our response some practical examples of issues to solve at the international level, and we hope to see more improvements at the EU level, such as ESMA’s review of the STS templates. There is still a lot of work to be done for securitisation to be a scalable tool to finance the real economy and the energy transition.”

She continues: “And that is what we have advocated for in our response to the FSB. We strongly advocate for an urgent review of the BCBS securitisation framework and better calibration and a level playing field application of regulatory disposals in all jurisdictions. Up until now, the Basel Committee has been completely absent on this front, so the fact that the FSB is taking charge is truly significant.”

On the latter point, one SRT investor describes a clear turning point, noting that the FSB only intervenes as such “every 10 years.”

He says: “What is happening through this request for feedback is huge. The FSB is adopting a rather US approach to regulation and it implies that the Basel Committee will no longer be able to act as they wish.”

He concludes: “Going through the FSB’s evaluation letter, what truly impressed me is the language and their use of ‘material unintended consequences’. This type of analysis will help identify any material unintended consequences that may have to be addressed, without compromising on the objectives of the reforms. Regulators are usually not prone to recognise such ‘unintended’ effects, but in the case of securitisation, I trust that the FSB will have to recognise that the BCBS rules, where implemented, had a highly detrimental impact on the market and need a fundamental review.”

Vincent Nadeau

Structured Finance

SCI Start the Week - 2 October

A review of SCI's latest content

Last week's news and analysis
Fed clarifies CLN definition
Updates on US Fed’s Regulation Q and UK PRA’s Basel timetable
In the fast lane
US prime auto ABS issuance to set new record
Job swaps weekly: Khan heads to Natixis CIB
People moves and key promotions in securitisation
LBBW, mBank out of the blocks
SRT Market Update
Next level
ESG back-reporting gaining traction
Pedal to the metal
Auto ABS accelerates as supply-chain issues dissipate
Risk transfer round-up - 28 September
The week's CRT developments and deal news
SME SRT prints
'CRE-heavy' portfolio revealed
Wilmington bank adds CLO expertise
Updates on WSFS’s expansion and CMU securitisation
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

Last week's news and analysis
Fed clarifies CLN definition
Updates on US Fed’s Regulation Q and UK PRA’s Basel timetable
In the fast lane
US prime auto ABS issuance to set new record
Job swaps weekly: Khan heads to Natixis CIB
People moves and key promotions in securitisation
LBBW, mBank out of the blocks
SRT Market Update
Next level
ESG back-reporting gaining traction
Pedal to the metal
Auto ABS accelerates as supply-chain issues dissipate
Risk transfer round-up - 28 September
The week's CRT developments and deal news
SME SRT prints
'CRE-heavy' portfolio revealed
Wilmington bank adds CLO expertise
Updates on WSFS’s expansion and CMU securitisation
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

Structured Finance

Front and centre

More bank origination expected as TLTROs expire

An uptick in securitisation originations among European banks is anticipated as central bank funding programmes, including the ECB’s targeted longer-term refinancing operations (TLTROs), reach maturity. Central bank liquidity supressed bank-originated securitisation issuance over the last decade, as banks stepped away from the market due to the abundance of cheap funding.

“Just 10 years ago, most European securitisation issuance was from bank originators, and now most issuance is done by non-banks,” explains Andrew South, EMEA head of structured finance research at S&P.

The end of central bank funding programmes was interrupted by Covid, which caused the facilities to be renewed for a couple more years as an emergency measure. However, in the eurozone, TLTROs have already paid down from a peak of approximately €2.2trn to between €500bn-€600bn, with the UK equivalent TFSME due to start maturing some of the borrowings mid-next year.

“It’s hard to quantify how much the banks that have borrowed under those schemes will replace them with other types of funding like securitisation, but TLTRO borrowing was massive,” states South. “Most of those funds were parked as excess reserves with the central banks. But even if just a small portion of the €2trn TLTRO borrowing did fund lending and need to be refinanced, that would still be quite material for what is still quite a small euro securitisation market.”

Newer banks are due to be the first to jump back on the securitisation band wagon in the UK. Indeed, RMBS is expected to be the asset class of choice for both first-time and returning banks.

“There’s still nearly £200bn of outstanding TFSME borrowing in the UK. The largest chunk of this is obviously from the big high street banks, and when they pay that back they can rely on the many funding options they have, like deposits,” South explains. “However, a decent part of the TFSME borrowing is from newer challenger banks, which may be relatively more reliant on wholesale funding, and so it’s those kinds of players that may want to replace some of this with RMBS issuance.”

He adds: “While it isn’t massively affecting volumes in the securitisation market yet, I think it is more likely to do that in the UK. The impact isn’t really here yet because the TFSME maturities aren’t until next year, but I would expect a bit more bank-originated securitisation from the UK as we go forward.”

The EBA’s recent Funding Plan report does not predict a major resurgence in securitisation over the next 12 months, instead focusing on other funding instruments. Where securitisation represent less than 5% of the EBA’s funding focus for the year ahead, long-term unsecured funding and senior unsecured funding account for 45% and 40% respectively of the 159 surveyed banking institutions.

Nevertheless, there are signs of life in the bank-originator securitisation market. “This year, in terms of the actual volumes of issuance done by banks, it’s not materially different. However, if you look at the number of bank originators issuing in the securitisation market, that has gone up by about a third,” observes South.

He concludes: “Where we can tangibly see the impact of the end of these central bank schemes is in the covered bond market, where the repayment of TLTROs has coincided with an uptick in issuance. In countries like France and Germany, for any banks with a heightened secured wholesale funding appetite, we’d expect covered bonds to be their first port of call rather than securitisation.”

Claudia Lewis

Capital Relief Trades

Glad confident morning again

Fed's CRT clarity both welcome and begins new era

The Federal Reserve last Friday finally issued guidance on the capital treatment for CRT transactions based on both SPVs and direct CLNs (SCI 29 September), and it ushers in a brave new world of much increased clarity and greater issuance in the US SRT market.

Not only have SPV-based transactions been given the green light, direct CLNs have received more warmth from regulators than might have been predicted.

It is not too big a stretch to say that this opens the floodgates, and a perceptible frisson of delight has shuddered through the US banks.

“A number of banks are happy.  They wish it had come sooner, but I think there are many happy people that now have a pass to move forward with these deals with a high degree of confidence,” says Matthew Bisanz, a securitization partner at Mayer Brown in New York.

Specifically, the Fed said that institutions regulated by it can recognize the credit risk mitigation through transactions using an SPV "provided that the requirements in section 41 or 141, as applicable (12 CFR 217.41, .141), are met and that the transactions satisfy the definition of 'synthetic securitization”’. This gives a clean bill of health to most SPV deals.

While it was perhaps expected that direct CLNs would receive an unambiguous thumbs down, that is not the case.

It is “less clear” that such deals meet the operational requirements of credit risk mitigation in two categories: that the embedded credit derivative is executed under standard industry documentation, and that the deal incorporates a “recognized credit risk mitigant, such as collateral."

However, in such cases the Federal Reserve has said it is willing to exercise a “reservation of authority.” In other words, it is said it is quite open to a review process on a case-by-case basis and will issue capital relief accordingly.

This is a big step forward. It means that not only SPVs work. Moreover, it is worth noting that interview and negotiation with the Fed is a regular and accepted part of US banking.

“I’m hearing a lot of clients saying, 'Let’s get a letter in front of the Fed so they will approve my CLN,'" says Bisanz.

Transactions which incorporate eligible guarantees, or an eligible credit derivative are also able to claim capital relief, which has been accepted in the market for some time, but these are less frequently used by banks for legal and practical reasons.

This leaves the market with, as Bisanz says, ‘Three A plus models and one B plus model.” That should be enough to kickstart the US market after a long hiatus.

The market has been waiting for this guidance since the early days of 2020. The regulatory fog that has surrounded these mechanisms in the last three and a half years has been a source of much frustration.

As a speaker at a conference said last year, “It has always been a mystery to me that the world’s largest financial market gets its regulatory guidance through a conversation overhead in an elevator in 1985."

But the way is now clear, and perhaps a glad, confident morning for the US CRT market is now to dawn.

Simon Boughey

Capital Relief Trades

'Sluggish' September?

Quarterly SCI CRT data review

CRT issuance so far this year appears to have consistently tracked below that of last year’s volumes. In terms of deal count, SCI data shows that 39 transactions have closed in the year to end-September 2023, versus 52 for the corresponding period in 2022.

As the chart illustrates, 11 deals apiece closed in the first quarters of 2022 and 2023, moving to 18 versus 16 in the second quarter respectively and 23 versus 12 in the third quarter. SRT market participants reported a “sluggish” beginning to September, when issuance traditionally picks up following the summer break (SCI 12 September), possibly explaining the lower volumes. However, SCI’s Capital Relief Trades Deal Pipeline points to at least 15 deals slated for completion this quarter.

In terms of the currency that CRTs were executed in, the vast majority of transactions for the first three quarters of 2022 were either euro-denominated (accounting for 22 deals) or US dollar-denominated (24 deals). In contrast, SCI data shows only 11 US-denominated deals for the same period this year, versus 21 euro-denominated deals – perhaps reflecting the US Fed-induced pause in larger CCAR bank activity. Notably, while no sterling-denominated deals were closed during the first three quarters in 2022, four have been issued so far this year.

A similar pattern can be discerned when it comes to location of reference portfolio assets. The vast majority of pools are located in continental Europe, accounting for 25 deals versus 20 in the year to end-Q3 2022 and 2023 respectively. US pools account for eight versus three, while global pools account for 10 versus seven respectively.

In terms of deal format, 13 transactions were structured as CLNs during the first three quarters of both 2022 and 2023. But financial guarantees made up the largest number of known deal structures during the period last year, at 19, versus 10 this year.

Regarding asset class, pure corporate loans unsurprisingly make up the bulk of reference portfolios, accounting for 18 transactions in year to end-Q3 2022 versus 16 so far in 2023. SME loan, SME and mid-cap loan, and corporate and SME loan portfolios account for an aggregated 13 versus 11 transactions respectively.

Residential mortgages and CRE loans account for six and two deals respectively during the period in 2022, compared to two and one respectively so far this year. In terms of emerging asset classes, capital call facilities made up the reference portfolios for a pair of transactions a piece year to end-Q3 in 2022 and 2023.

For further information, see SCI’s Capital Relief Trades Database.

Corinne Smith

Capital Relief Trades

Risk transfer round-up - 5 October

The week's CRT developments and deal news

Market news
A new paper published by the European Systemic Risk Board (ESRB) suggests that the synthetic securitisation sector has reached sufficient critical mass to make SRT a permanent feature in the capital management toolkit of European banks. However, it notes that as more banks and investors enter the market, the current assessment process will “need to become more efficient to avoid bottlenecks while still maintaining adequate supervision”.

The paper puts forward standard documentation, like the ISDA swap agreements, as one potential solution. It also indicates that the market could develop and disseminate “key data” to improve transparency and overall awareness, although the ESRB believes that SRT should continue to be limited to professional investors that are prepared to “understand and sustain” the risks associated with these structures.

Synthetic SRT securitisation has been most widely adopted by Single Supervisory Mechanism (SSM) significant institutions (SIs), with the number of banks using this approach totalling 27 in 2022, according to ESRB data. The top four SSM banks account for around 60% of total notional volume, although this share has been decreasing as more banks adopt SRT.

The paper further highlights that SRT has delivered strongly on capital optimisation, with capital relief in euro terms increasing more than three-fold during the period of the study (2018-2022) to a record €5.6bn in 2022. Total CET1 created by SRT securitisations over the period represented 0.5% of the total CET1 of the 27 SIs, while notional securitised assets represented around 3.5% of their total assets. Overall, synthetic securitisations represent 70%-90% of the total capital relief achieved by SSM banks in the ESRB sample.

The SRT market is predominantly concentrated among banks in the four largest EU Member States, with French banks accounting for over 30% of volume over the study period and Italian banks showing a very steep increase in the last year of the sample.

The paper concludes that further research is needed to understand the effects of SRT on the banking system, including comparing the capital ratio trajectories of banks using SRT against those that do not, as well as investigating how the instrument shifts risks to other areas of the financial system. From a financial stability perspective, the paper also argues that a better understanding is needed of the factors that underpin the positive track record of SRT so far.

People moves
Two capital markets partners with synthetic securitisation expertise have left Linklaters. Toby Gray has joined Dentons as a partner in its banking and financial services team in London, bringing with him over 27 years of experience at Linklaters, specialising in repackagings, CLNs and synthetic securitisation. Meanwhile, Matthew Monahan is to join Simmons & Simmons in November as structured finance and derivatives partner in its London practice, specialising in OTC derivatives transactions and synthetic securitisation.

Pipeline update
As the final quarter of the year begins, SRT market participants are preparing to absorb a lot of trades. 

“Unsurprisingly, given that Q4 has just started, we are seeing - or anticipating - a deluge of trades,” notes one SRT investor. “We are receiving almost a deal a day and I believe the market should finish with over 100 transactions closed by year-end.”

In Europe, two leading French banks - BNP Paribas and Societe Generale – are each believed to have recently closed a French corporate loan transaction. However, the investor already expects some deals to be postponed for next year.

“Naturally, big banks tend to be more organised and regular issuers don’t usually wake up in October. Right now, I would say that there is a bit of space for everyone to come to market,” he says.

He adds: “However, pricing tends to widen during Q4 and inevitably some transactions will be postponed. Also, investors’ teams only have around 2-5 people and so it is impossible to analyse 40 deals at once.”

While the US Federal Reserve’s recent guidance on synthetic securitisation has generally sparked optimism regarding CRT issuance by large US banks (SCI 2 October), the investor remains prudent. “There has already been one trade done this year using a direct CLN structure, so there is a precedent. What we got last week is what I would call a useful clarification,” he notes.

He concludes: “I don’t doubt that big US banks will surely but safely come back to issue again; yet what would be clearly problematic is the adoption of the Basel regulatory framework, specifically the SEC-SA model. It has not been properly addressed and should come into effect in 2025, which would make deals completely inefficient.” 

CRT new issue pipeline

SCI SRTx indexes

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

CLOs

Roll with the changes

CLO rating upgrades on the cards

CLOs may see more rating upgrades, despite current macroeconomic challenges, as more transactions reach their amortisation periods (see SCI CLO Markets). With defaults rising across the credit universe, actively managed CLO transactions are an outlier as the collateral remains stable.

“Perhaps counterintuitively, we might see more CLO upgrades in the current environment,” stated Andrew South, S&P EMEA head of structured finance research at the agency’s European Credit Conditions roundtable last week. “For other asset classes, it’s the norm that ratings drift higher - provided that there’s nothing bad happening to the underlying collateral - because the debt gets paid down as they get past a certain stage in their life and this de-risks the securities.”

For the first time in years, this is now happening with CLOs too. More deals are reaching amortisation than before, as refinancings and resets have not been the most economical move for managers over the last 18 months. As South explained: “As a result of that, you are getting some outstanding CLOs that are reaching the end of their reinvestment periods and starting to potentially pay down – meaning suddenly we do have that deleveraging effect and we have started to see some upgrades.”

Sandeep Chana, director and lead analyst in S&P’s EMEA structured credit team, added: “Unlike the other asset classes that pay down, CLOs are reinvesting vehicles – managers will manage the portfolio to the initial credit ratings assigned to the CLO tranches on day one. But when deleveraging starts, that typically puts upward rating pressure on the notes.”

This is not the first display of resilience from CLOs, however. “During the pandemic, we downgraded a very small number of CLOs, and there hasn’t been anything since,” South confirmed. “But there haven’t been upgrades either.”

S&P expects the default rate on underlying European speculative-grade corporates to reach 3.75% by June 2024. However, given that a peak of 6% seen during Covid-19 had very little effect on CLO tranche ratings beyond just a few downgrades, the outlook for a current recessionary backlash on CLOs is minimal.

“Current default rates would need to pretty much double to reach that Covid-peak again, and even then, that didn’t cause a problem for the CLO tranches,” South said.

So far, recession-related financial difficulties have been heavily sector-specific through the current downturn. Therefore, with some areas of the market hit harder than others, diversification has been an important consideration in CLO management. However, beyond active management, strict concentration rules and overlap-clarity are strong mitigants.

“The average CLO today has around 120 unique obligors across 40 industries – so you would need a widespread, very acute, very extreme downturn to have such an impact,” explained Chana.

On the overlap of corporate names between CLOs, especially those managed by the same manager, South stated: “There is some overlap, but it’s not necessarily a problem. It just means that if there was a downturn and corporates held in CLOs were downgraded or defaulted, then that would impact a relatively large number of CLOs. If there was ever a downturn that affected CLO tranche ratings, for example, it might be relatively widespread and so the downgrade rates of the CLO tranches would move up quite quickly. But the same applies to upgrades as well.”

Further, given that the maximum concentration level of any asset is typically 1% of a CLO’s pool balance, the impact of corporate downgrades on CLOs is reduced. “We had a one in a million event in 2020 with Covid, CLOs still survived. There was nothing in terms of default rates – there were some downgrades [in] single-Bs and double-Bs - it was less than 0.2% of our ratings, and since then we’ve upgraded a large majority of these ratings,” concluded Chana.

S&P’s EMEA Structured Finance Chartbook for September confirmed that the majority of the 48 rating upgrades made to securitisation tranches in July and August were in the CLO and RMBS sectors.

Claudia Lewis

SRTx

Latest SRTx fixings released

Index values indicate incremental widening in spreads, while credit risk outlook trends towards negative

The latest fixings for the SRTx (Significant Risk Transfer Index) have been released. Participants’ estimates indicate a tightening in European spreads compared with September’s fixings (SCI 7 September), while market sentiment relating to credit risk remains elevated across the board in both Europe and the US.

This month’s survey responses suggest that European spread estimates have tightened for both large corporate transactions and SME transactions, by 101bp (a -8.5% change) and 106bp (-8.6%) respectively. In the US, estimates are that spreads have widened slightly by 14bp (+1.5%) for large corporate transactions, but tightened by 30bp (-2.4%) for SME transactions.

The SRTx Spread Indexes now stand at 1,085, 954, 1,131 and 1,210 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively, as of the 2 October valuation date.

The SRTx Credit Risk Indexes have remained biased towards negative sentiment across all categories, with respondents anticipating continued worsening in conditions. Values continue to trend at 65 or above in all categories for the second month in a row.

The SRTx Credit Risk Index values rose marginally for large corporates (+1.3% for Europe and +1% for the US) and for US SMEs (+3.1%), but dipped slightly (-2.5%) for European SMEs. The indexes now stand at 68 for SRTx CORP RISK EU, 69 for SRTx CORP RISK US, 65 for SRTx SME RISK EU and 69 for SRTx SME RISK US.

Expectations surrounding market volatility in the US have returned to neutral, according to the SRTx Volatility Indexes, after September’s expectations of lessening volatility. European market participants are anticipating little change in market volatility, as was the case in September.

There has been a 14.3% increase in index value month-on-month for US corporates and a 27.5% increase for US SMEs, while the figure rose by 3.6% and fell by 1.8% for European large corporates and SMEs respectively. The SRTx Volatility Index values now stand at 48, 50, 45 and 53 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

Finally, the SRTx Liquidity Index values reveal moderately positive sentiment across the board, with all index values below 50. There is a month-on-month increase of 3.6% and 11.1% for European and US large corporates respectively, reflecting a slight tempering in outlook. This is contrasted by a decrease of 7.3% and 5.7% for European and US SMEs respectively, trending increasingly towards a positive outlook.

The SRTx Liquidity Indexes stand at 48, 42, 43 and 39 across SRTx CORP LIQ EU, SRTx CORP LIQ US, SRTx SME LIQ EU and SRTx SME LIQ US respectively.

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

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

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

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

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

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

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

Kenny Wastell

Structured Finance

RRAM acquires second slate of CLOs

Market updates and sector developments

Redding Ridge Asset Management has acquired CLO management contracts totalling US$2.8bn in AUM from Gulf Stream Asset Management. With the close of the transaction, Redding Ridge will have more than US$26bn of AUM and expects a seamless integration of the contracts and to actively manage the new portfolios consistent with its disciplined CLO strategy.

Redding Ridge is an independently managed affiliate of Apollo, specialising in CLO management and structured credit partnership investments. This is the second portfolio acquisition of CLO management contracts by affiliates of Apollo from Gulf Stream, stemming from a longstanding relationship and aligned investment philosophy. Apollo and Redding Ridge entered into a strategic partnership with Gulf Stream in March 2019 to relaunch its CLO business and, under the leadership of president and cio Mark Mahoney, Gulf Stream grew to US$2.8bn of CLO AUM.

In other news…

Altriarch secures anchor investor
Altriarch Asset Management has launched a new private credit investment strategy focusing on transactions that are internally sourced, underwritten and structured. With a strategic focus on senior secured facilities, mezzanine facilities and participating capital or asset-backed loans, the new strategy will seek to deploy capital to an expansive network of diversified secured finance operators across the US. The University of Wyoming Foundation is anchor investor in the fund.

As traditional banking systems become more risk-averse, the funding gap for small businesses continues to expand. Altriarch believes factors and other asset-backed lending companies, which represent a combined US$404bn annual market segment, are qualified to fill that gap as alternative lenders become increasingly popular for businesses seeking access to credit.

CRAs charged for recordkeeping failures
The US SEC has announced charges against DBRS and KBRA for longstanding failures to preserve electronic records. Additionally, the SEC charged DBRS with violating disclosure and internal control provisions of the federal securities laws in rating certain CMBS.

The SEC’s recordkeeping order finds that, since at least July 2019, DBRS employees communicated internally by text messages about initiating and determining credit ratings and about adjustments to results of the quantitative predictive model that the agency used to rate multi-borrower CMBS. The order finds that DBRS failed to retain these messages in violation of recordkeeping provisions of the federal securities laws. DBRS admitted the SEC’s findings and agreed to pay a US$6m penalty, cease and desist from committing violations of the relevant recordkeeping provisions, and a censure.

The SEC’s disclosure and internal controls order finds that, in rating certain multi-borrower CMBS between July 2019 and November 2022, DBRS made systematic adjustments to credit enhancement levels in a manner not described by DBRS’s published procedures and methodologies. Additionally, according to the order, in rating three single-asset/single-borrower CMBS, the agency publicly disclosed that it used a legacy SASB methodology, but it instead used a key element of a proposed methodology that DBRS had not yet approved and adopted.

The order finds that DBRS had an ineffective internal control structure governing adherence to its published procedures and methodologies. Without admitting or denying the SEC’s findings, the rating agency agreed to pay a US$2m penalty, cease and desist from committing violations of the relevant provisions, and to be censured.

Meanwhile, in connection with KBRA, the SEC’s order finds that since at least January 2020, KBRA employees sent and received numerous text messages concerning credit rating activities on their personal and KBRA-issued mobile devices. The agency did not preserve the substantial majority of these off-channel communications, in violation of recordkeeping provisions of the federal securities laws. KBRA admitted the SEC’s findings and agreed to pay a US$4m penalty, cease and desist from committing violations of the relevant recordkeeping provisions, and to be censured.

Both rating agencies have also agreed to retain an independent compliance consultant to conduct a comprehensive review of their policies and procedures relating to the retention of electronic communications and their frameworks for addressing non-compliance by employees with those policies and procedures.

Structured Finance

Job swaps weekly: HSBC snaps up former Deutsche Bank CLO head

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees a former head of CLOs at Deutsche Bank taking up a director role at HSBC. Elsewhere, CBRE has promoted a London-based executive md to president and coo in its Tokyo office, while SLC Management has appointed two new co-heads for its private fixed income team.

Deutsche Bank’s former head of CLOs, Nikunj Gupta, has joined HSBC as a director in its structuring team in London. Gupta returns to the banking business after a brief stint consulting in the structured credit space at self-founded 4N Capital advisory firm. Gupta has extensive industry experience, holding positions at Merrill Lynch, UBS and GreensLedge before joining Deutsche Bank as head of European CLO new issue in 2015.

Meanwhile, CBRE Japan has promoted Takashi Tsuji to president and coo, working in its Tokyo office, following the elevation of Eiji Sakaguchi to chairperson and ceo. Tsuji is promoted from executive md and head of capital markets Japan. He joined CBRE in 2019 after 28 years with Mitsubishi Corporation.

Across the Pacific, in its Houston office, CBRE has also promoted Michael R Cregan to vice president in its debt and structured finance team. Cregan joined CBRE in 2018 and moves up from the role of senior financial analyst. He previously spent a year as a valuation and advisory services analyst at JLL.

New co-heads for SLC Management’s private fixed income team have been named, following the announcement of Sam Tillinghast’s plans to retire at the end of this year. Tillinghast’s successors, Andrew Kleeman and Elaad Keren, will assume responsibility as co-heads from January 2024. Kleeman, who is SLC PFI’s current head of corporate private placement, will oversee the firm’s corporate credit and infrastructure debt, while Keren, who is currently head of private fixed income portfolio management, will take charge of structured credit and PFI portfolio management.

Brazilian asset manager ASA Investments has hired industry veteran Augusto Banuls to its debt capital markets and structured finance team. Banuls leaves his role as executive director for debt capital markets at Safra after four years with the business. 

In his new role, Banuls will work on origination and development of short and long term financings, as well as tailored solutions for a range of financing scenarios. He previously spent nine years in the structured finance and debt capital markets teams at Bradesco BBI and a cumulative 10 years across two spells in Banco do Brasil’s corporate banking and international debt capital markets teams.

Two capital markets partners with synthetic securitisation expertise have left Linklaters (SCI 5 October), as well as a managing associate. Toby Gray has joined Dentons as a partner in its banking and financial services team in London, bringing with him over 27 years of experience at Linklaters, specialising in repackagings, CLNs and synthetic securitisation. 

Meanwhile, Matthew Monahan is to join Simmons & Simmons in November as structured finance and derivatives partner in its London practice, specialising in OTC derivatives transactions and synthetic securitisation. Monahan leaves his position as a capital-markets-focused partner at Linklaters after 22 years with the firm.

Mikaela Bolin has also left Linklaters to take up the role of legal counsel in the structured finance team at SEB, working out of the Nordic financial services group’s Stockholm office. Bolin leaves her position as managing associate at Linklaters after two and half years with the firm. She undertook a six-month secondment at SEB in 2022 and, prior to joining Linklaters, spent two and a half years at Törngren Magnell & Partners.

Morgan Lewis has appointed Penelope Christophorou from Cleary Gottlieb Steen & Hamilton as a partner in its New York office. In her new role, Christophorou will focus on various areas of commercial financing transactions and bankruptcy, including advising on structured financings. She leaves her position as counsel at Cleary Gottlieb after 24 years with the firm.

Austrian financial services group Heinrich & Mortinger has re-appointed Dieter Kanduth as a senior member of its Vienna-based team. Kanduth leaves his role as head of structured finance at healthcare-focused real estate business Vamed after 13 years with the company. Prior to joining Vamed, he spent a year at Heinrich & Mortinger and also had stints at Kommunalkredit Austria and Erste Group Immorent.

William Brewin has left Australian bank NAB to take up the role of associate director on the structured finance team at BP. Brewin joined NAB five and a half years ago from Citi and leaves his role as associate director at the bank. He is based in London.

The US International Development Finance Corporation’s (DFC) Alexander Evans has joined solar energy developer Pivot Energy as senior counsel for structured finance. Evans will work remotely from Washington DC and leaves his role as deputy general counsel at DFC after 16 years with the organisation.

Andrea Yurie Ishioka Rago has joined Brazilian real estate group Fibra Experts as investor relations and structured finance executive director, based in its São Paulo office. Ishioka Rago left her position as a partner in the debt capital markets team at One Corporate in July, after seven months with the firm. She previously spent five and a half years at Itaú BBA, leaving her role as senior officer and real estate specialist in November last year.

In promotion news, MUFG has elevated Ryuhei Yamauchi to vice president in its structured finance credit office in Tokyo. He moves from the group’s London office, where he most recently held the role of associate and assistant vice president. Yamauchi joined MUFG eight and a half years ago.

Pluto Finance has promoted senior credit team member Bertie Edwards-Hedges to lending manager as part of its plans to bolster its lending team in London. Edwards-Hedges has been with Pluto since 2021, joining the firm from Proseed Capital. In his new role he will offer clients bespoke structured finance solutions, focusing on supporting the development finance needs of SME housebuilders.

NatWest has elevated Thomas Murray to vice president for corporate banking and structured finance, working out of its Manchester office. Murray has been with the bank for eight years and is promoted from the role of associate in the same team.

Munich Re has promoted Florian Huebner to senior risk underwriter in its structured finance team. Huebner is based in Munich and joined the insurance group in 2020, leaving his role as associate director for portfolio management on HypoVereinsbank’s project finance team. He spent eight years at HypoVereinsbank and previously worked at Univativ.

Citi has hired Guanglu Wang, formerly of ING, as assistant vice president focusing on financing and securitisation underwriting in its Hong Kong office. The role is in a newly created first line of defence department within Citi’s institutional clients group. Wang left his position as associate in ING’s global securitisation team in June after three and a half years with the Dutch financial services group in order to return to Hong Kong.

Los Angeles-headquartered commercial real estate advisory firm Way Capital has hired Marc Belsky’s Ryan McShea as a senior director in its structured finance team. McShea leaves Marc Belsky after two and a half years and has previously worked at Kronos Investment Partners, Colliers International, CoStar Group and CBRE.

And finally, Yeldo, the Swiss fintech and real estate investment platform, has hired DWS Group’s Federica Comunello as head of structured finance. Comunello leaves her role as real estate transactions officer at DWS after three years with the business, and was previously vice president at Colony Capital.

Structured Finance

Rithm strengthens MSR capabilities

Market updates and sector developments

The transaction remains subject to customary closing conditions, including regulatory approvals. Completion is expected to take place in 1H24.

In other news…

Analytics partnership inked
Claira is set to integrate its analytics offering within Octaura, enabling Claira’s AI-driven document intelligence to be seamlessly accessible to traders for each CLO deal on Octaura’s platform. Traders will be able to rapidly understand stipulations and covenants from deal documents, and better incorporate terms and conditions information into price and risk considerations, according to the two firms. As electronic trading for loans and CLOs grows in prevalence, this integration ensures users can swiftly access precise deal information, sidestepping the need to sift through dense legal paperwork.