Contents

CMBS

Hotel upgrades

Uplift in fortune seen for lodging CMBS

The lodging sector is one of the few bright spots in the US CMBS landscape. This Premium Content article uncovers the reasons why.

The US lodging sector has enjoyed an uplift in fortunes over the past 18 months, with pent-up demand from holidaymakers driving a post-Covid recovery. Despite a slight uptick in delinquencies in recent months, sector-specific metrics suggest hotels provide snug shelter for investors, while other areas of CMBS are hit hard by macroeconomic headwinds.

Hotel delinquency rates in Fitch’s US CMBS universe reached 3.57% in September, according to data released by the agency in October. While this is an increase on the 3.53% rate in August and well above the pre-pandemic rate of 1.4% in March 2020, it remains significantly lower than the 4.9% in October 2022 and pandemic peak of 18.4%.

Similarly, Darrell Wheeler, head of CMBS research at Moody's, says that the agency saw hotel-related delinquency rates in US-focused multi-loan pools reach as high as 20% at one point in 2020, falling to 7.6% in August 2022 and 5.2% in August 2023. A key driver behind this improvement is strong global growth in revenue per available room (RevPAR) within the hotel sector, explains Ramzi Kattan, a senior real estate analyst in Moody’s corporate finance team. This figure is calculated by multiplying occupancy rates by average daily rates (ADR).

“When you look at these three metrics [RevPAR, ADR and occupancy], they are up year-to-date by 15% to 20% [globally] on 2022 and mostly up on 2019, which is the pre-Covid year,” says Kattan. “We expect that growth to be sustained, although perhaps not quite at the rate we've seen over the past 18 months."

This global increase in RevPAR has been reflected in the US market and consequently fuelled an improvement in the performance of multi-loan pools. "The performance on the underlying loans has been much stronger than people might have expected out of Covid,” explains Wheeler.

In a recent CBRE webinar, Lawrence Britvan, president and vice chair of the firm’s institutional hotels debt and structured finance team, also hailed the post-Covid performance of the hotel sector as being unprecedented. Lodging typically underperforms in downturns with a strong correlation to retail, but that has not been the case in the aftermath of the pandemic, he said.

“It's been a strange coincidence of hotels overperforming, while other asset classes have hit struggles that they've never hit before because of the pandemic,” said Britvan. The result is that hotel owners have enjoyed greater accessibility to debt. Lenders, he added, are more comfortable lending into an asset class that has strong fundamentals compared with its commercial real estate peers.

Projections also anticipate ongoing RevPAR growth over the coming 10 years, partly because new hotel room supply has been lower than historical norms. Britvan primarily attributes this lack of new development to increased costs of capital.

"The debt financing is there on the construction side, just like it is in every other part of the hotel space,” he noted. “It's the equity dollars that are harder to come by to get the returns you need, with the increased costs associated with the debt." This is further compounded, he explained, by increased costs of building supplies.

Normalised growth
Naturally, the scale of improved performance can only be viewed within the context of the cliff edge brought about by global lockdowns, as EJ Park, vp and senior credit officer in Moody's commercial real estate finance team, stresses. Nonetheless, she says that ratings have held relatively stable due to strong fundamentals. Referencing STR data, Park says the lodging sector went through a decade of expansion and peaked in 2019 prior to the Covid pandemic, followed by a 48% decline in RevPAR in 2020.

"In 2021, RevPAR recovered by almost 60% from 2020 and then in 2022, it recovered by another 30% from 2021,” says Park. “That artificial cap early in the pandemic is why you see these big numbers and percentage changes. Putting all that aside, if you compare 2022 to 2019, it effectively grew about 8%.”

She continues: “Year-to-date through September, 2023 is up about 13% compared to the same period in 2019. So now you're seeing normalised growth of single-digit numbers compared to 2022."

Some types of travel - notably business travel - have taken longer to recover than others, meaning there is still runway for improved performance in multi-loan pools with exposure to the lodging space. “Of course, at a certain stage in the recovery, that growth in RevPAR begins to peter out naturally,” says Wheeler. “But there are several markets we continue to follow - primarily gateway cities - that haven't fully recovered, and they are still continuing to benefit."

CBRE’s Britvan agrees. "The overall general trend after the initial shock of Covid has been hotels overperforming in terms of resorts and drive-to leisure initially. Now we've seen a massive recovery in business and group travel as well, that's led to great recovery in the urban markets too.”

This pattern of recovery is another that Moody’s Park says has been unconventional compared with other recoveries. In previous economic shocks, she says, large urban gateway cities such as San Francisco and New York were typically the first to recover. Due to the nature of the pandemic, it was smaller markets that first showed signs of recovery, as holidaymakers were reluctant to fly and opted for more local and drivable destinations.

Hotel California
While the recovery in New York started in late 2021 through to 2022, Park says, San Francisco is an example of a gateway city that is still lagging. A recent US-focused CMBS report by Moody’s outlines the scale of San Francisco’s challenges.

The RYG quarterly assessment scores the short-term supply and demand characteristics of various property types and markets, assigning a red, yellow or green score of 0-100. While the New York hotel sector was given a yellow score of 40 for 2Q23 - an improvement of 17 points compared with the same period in 2022 - San Francisco was given a red score of zero. New Orleans and Austin also received scores of zero, behind Miami and San Jose, at four and five respectively.

Nevertheless, Park stresses that Moody's is careful to take a longer-term approach to markets that had been performing well prior to 2020. "Overall in the US, for the year-to-date through September, RevPAR compared to the same period in 2019 is up around 13%, whereas San Francisco is down 27%,” she says. “Las Vegas, by comparison, is up 29%, so you have a very wide-ranging pattern of recovery.”

She adds: “Do I think hotels in San Francisco are just going to go away and we'll never see them again? No. Markets tend to go through cycles of expansion and contractions. This just happens to be the part of the cycle that San Francisco is in right now."

CBRE's Britvan suggests that the biggest risk to the hotel space is a decrease in cashflow that would accompany any potential recession. With ADR driving RevPAR growth, there is a possibility that the industry will not be able to sustain the price rises seen recently, as above-target inflation persists.

"The other big risk that's out there," Britvan observes, "is the cost of insurance. We've seen that cost double - even triple - in markets like Florida, where there's real risk from hurricanes and so forth.”

Indeed, another recent report by Moody’s Analytics found that hotels in Fort Lauderdale, just north of Miami, had the highest average insurance costs of US$1,436 per unit in 2022, a compound annual growth rate of 8.1% since 2017. Yet the rise in insurance costs is not exclusive to the US’s most hurricane-hit state.

“We've seen [insurance] go up 30% to 70% in markets like Denver that historically do not have big losses," Britvan noted. This, he believes, is due to insurance companies attempting to counterbalance anticipated losses elsewhere.

Despite these challenges, the overriding story in US hotel CMBS currently appears to be a positive one, with performance likely to continue improving. “For most of the other big urban gateway cities, they all seem to be recovering very nicely, which is good,” says Moody’s Park. “Barring another unexpected shock, lodging should continue to perform well in the foreseeable future. That's the one bright spot in commercial real estate right now."

Kenny Wastell

Capital Relief Trades

Basel 4 series: Industry impacts - video

Exploring the effects of Basel 4 on market participants and their clients or members

In the second instalment of SCI's Basel 4 video series, The D. E. Shaw Group's Syril Pathmanathan provides a brief outline of what's new in Basel 4 and SCI's Kenny Wastell asks market participants about the extent to which Basel 4 will affect them and their clients or members.

Structured Finance

SCI Start the Week - 20 November

A review of SCI's latest content

New SCI video series
In the first instalment of SCI's Basel 4 video series, Alantra md Holger Beyer provides a brief outline of what's new in Basel 4 and SCI's Kenny Wastell asks market participants whether the new regulations will be a game changer for the SRT market.

Last week's news and analysis
Angel Oak ABS-focused ETF reaches US$100m in AuM
Update from Atlanta-based fund
Ares flies high
Top alt credit investor predicts CRT boom
CAS and out
Fannie Mae prints 8th and final CAS of 2023
Global Risk Transfer Report: Chapter three
In the third of six chapters SCI explores recent structural developments
Inflection point?
White & Case discusses the drivers to facilitate a more commoditised SRT market
Job swaps weekly: BNP bulks up in Americas
People moves and key promotions in securitisation
Manulife acquires CQS
Alternative credit manager added
Reissue, renew, reprint
Big banks focus on retention in German RMBS
Risk transfer round-up - 16 November
The week's CRT developments and deal news
Stand by, CRT
CRT boom but adverse regulations loom, say SCI conference speakers
Value covered
LibreMax Capital outlines the asset-based private credit opportunity set
Waiting game?
Islamic securitisation gaining traction
Plus
Deal-focused updates from our ABS Markets and CLO Markets services.

Free Special Report available to download

SCI Global Risk Transfer Report 2023: New frontiers in CRT
Capital relief trade issuance witnessed another record-breaking 12 months in 2022, yet a number of regulatory challenges remained outstanding by the end of the year. SCI’s latest Special Report examines how the risk transfer community is addressing these issues – whether through regulatory fixes or structural enhancements – and the fallout from the turmoil in the bank sector in March. It also explores the new frontiers that are emerging across jurisdictions and asset classes, including by highlighting the potential of the Canadian and the CEE CRT markets.
Sponsored by Arch MI, Man GPM, Mayer Brown and The Texel Group, the report is available to download here.

Regulars

Recent premium research to download
Data centre securitisation – November2023
Insatiable demand for connectivity is fuelling a rise in data centre securitisation issuance. This Premium Content article tracks the market’s development.

(Re)insurer participation in CRTs – October 2023
(Re)insurer interest in CRTs is rising, but execution of unfunded transactions remains limited. This Premium Content article outlines the hurdles that still need to be overcome.

Utility ABS – October 2023
An uptick in utility ABS is expected as US utilities seek financial solutions for retiring the country’s aging fossil fuel fleet. This SCI Premium Content article explores how the proceeds from these transactions can be used to facilitate an equitable energy transition.

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.

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

SCI In Conversation podcast
In the latest episode, Matthew Bisanz, a partner in Mayer Brown’s bank regulatory practice, outlines how the Federal Reserve’s update on 28 September of the FAQs on Regulation Q is likely to impact the US capital relief trades market. The long-awaited guidance clarifies the definition of a synthetic securitisation and, crucially, states that a reservation of authority can be requested for direct CLNs. Bisanz, for one, anticipates an increased willingness – especially among larger CCAR banks – to enter into CRTs as a result.
The episode can be accessed here, as well as wherever you usually get your podcasts, including Apple Podcasts and Spotify (just search for ‘SCI In Conversation’).

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
European CRE Finance Seminar
28 November 2023, London

Capital Relief Trades

Global Risk Transfer Report: Chapter four

In the fourth of six chapters surveying the synthetic securitisation market, SCI explores supply and demand trends in SRT

IACPM’s latest risk-sharing survey notes that 2022 highlighted not only a substantial growth in SRT product utilisation by banks, with €200bn in new issuance, but also some structural changes in the risk-sharing activity of banks. Nevertheless, a number of regulatory challenges remain outstanding.

SCI’s Global Risk Transfer Report examines how the risk transfer community is addressing these issues – through regulation or structural enhancements – and the fallout from the turmoil in the US bank sector in March. It also explores the new frontiers that are emerging across jurisdictions and asset classes.

Chapter 4: Supply and demand
The turmoil in the US regional bank sector and failure of Credit Suisse – and the subsequent write-down of its AT1s – in March has been viewed by some as an opportunity for CRT market participants, as banks seek new ways to manage their capital requirements. The situation has also emphasised the robustness of CRT transactions as an investment, given that the product continued to perform as expected.

“Credit Suisse was one of the most active issuers of SRT transactions and nothing has happened to the performance of the deal. It is another example of a bank going through resolution that was an issuer of SRT transactions and where the transactions have continued to perform,” says Olivier Renault, md and head of risk sharing strategy at Pemberton Asset Managers.

He adds: “It is great to be able to demonstrate to investors that this is not investing in bank equity or bank additional tier one. This is a completely different product.”

SRT transactions are not part of a bank’s liabilities, but rather a credit hedge that references a specific portfolio on its balance sheet. As AXA IM Alts points out in a recent note, entitled ‘SRT: poised for further growth’, the protection provided for those loans is in the form of collateral which can be posted either with the issuing bank or a third-party bank.

“This SRT collateral is akin to senior-ranked debt or uninsured deposits and is expected to rank above equity, AT1s and other debt held by the bank,” the note states.

However, that doesn't rule out the risk that the regulator of another bank might decide to bail in more of the capital structure of the bank and start to hit the senior depositors or the senior debt holders - in which case, that could affect the SRT market. “The approach most investors are taking is that it is very unlikely that the regulator would not intervene to find a solution for the depositors and the senior debt holders for systemic banks. That's what happened with CS and with other banks,” Renault says.

Although investors are incrementally more interested in the asset class, Matthew Moniot, md and co-head of credit risk sharing at Man GPM, says that his firm has fielded questions about the differences between structural, contractual and statutory protection and hierarchy of instruments in the capital structure. “Bank resolutions serve to remind us that banks can get into trouble. But many people seem to believe that SVB and CS went bankrupt,” he observes.

He continues: “In fact, banks don't go bankrupt – they get put into resolution or forced into sale. Both SVB and CS were acquired by other entities. From the standpoint of SRT investors, neither episode implied meaningful risk.”

Certainly, the AT1 market is now incrementally more expensive. “I’m not sure investors have taken on board that AT1 is not really senior to equity. As they do, to the extent that AT1 competes with SRT, banks may well decide SRT is the better option,” Moniot adds.

Counterparty risk
Following the Silicon Valley Bank and Credit Suisse failures, some investors have sought reassurance about taking on bank counterparty risk in SRT structures, in addition to the underlying asset risk. Indeed, Moniot stresses the importance of ensuring that counterparties are properly understood.

“The more complicated the banking system is, the more people think about issuer credit risks. That’s helpful to the SRT asset class,” he observes.

Some market participants have raised the prospect of the aftermath impacting issuance from smaller banks, with investors apparently perceiving larger institutions to be less risky. In response, smaller or newer issuers can bring deals where the cash is deposited with a third-party custodian.

Renault confirms that there is bifurcation between the bigger, more solid and systemic banks and the smaller institutions, where investors are seeking ways to hedge or mitigate the risk. “This hasn’t stopped the smaller banks doing transactions, but the focus on bank risk has increased,” he says. “We agree on a security package that hedges the bank risk. For example, instead of depositing the collateral with the bank itself, it may be best to put it with another bank or collateralise it with securities like ABS or covered bonds.”

Jack Thornber, broker, structured and bespoke solutions at The Texel Group, agrees: “Notwithstanding the challenging economic climate, small and regional banks across Europe, particularly the newly emerged so-called ‘challenger banks’, continue to explore – and investors continue to express interest in – trades intended to secure capital relief and this trend looks set to continue. The notion that CRTs are only viable for those banks that boast multi-billion dollar balance sheets and the ability to execute numerous trades backed by portfolios of over €500mn is becoming less universal.”

Across the Atlantic, regional banks in the US still need a lot of capital and raising other forms of capital remains expensive.

Michael Bennett, chief underwriting officer, European Mortgage at Arch Capital, suggests that, large or small, it’s the options for issuers and investors to customise CRT transactions that are key. “The attractiveness of SRT as a tool to access capital has likely increased compared to AT1 bonds. The ability of insurers and their investors to customise SRT transactions in terms of the eligibility criteria and the composition of the assets in the pool, and also the ability to customise the structural features of the transaction are very valuable,” he says.

He continues: “During volatile market conditions, deals can be executed which meet the investors' risk appetite and still meet the objectives of the banks. The customisable nature of the product has enabled them to withstand market volatility.”

One example of a structural feature that can be adjusted is the replenishment period, which can be shortened to reduce the term of the exposure. “Where market conditions are volatile, it can be an effective way to customise the transaction to satisfy investor demand,” Bennett concludes.

SCI’s Global Risk Transfer Report is sponsored by Arch MI, Man GBM, Mayer Brown and Texel. The report can be downloaded, for free, here.

Structured Finance

Global goals

Chris Whitcombe, head of European and US ABS at Challenger Investment Management, answers SCI's questions

Q: Challenger IM recently launched its first securitisation-only investment fund – the Challenger IM Global ABS Fund (SCI 1 November). What makes now the right time?
A: At Challenger IM, we manage assets for leading global and Australian institutions. We have been actively investing in ABS since 2005, including the private ABS market for the last decade. So, although this fund is our first dedicated fund offering in this space, it’s very much on the back of having an established presence and experience in the ABS market.

As we’ve been actively investing for a long period, we’ve seen a lot of interest in the asset class from our distribution teams - who are regularly speaking with institutional investors, fund selectors and consultants. We started offering funds for institutional investors in 2017 with the launch of the Challenger IM Credit Income Fund and have built the product suite since then. Our new Global ABS Fund is a natural extension of this product suite and offers investors access to our first dedicated ABS fund offering.

Q: Interest in the securitisation market is on the up, despite macroeconomic uncertainty and distress. Where is this interest coming from?
A: The asset class has been interesting for a number of years. We’ve really liked ABS for its yield pick-up versus corporates for the same rating, and the different profile of risk it can offer because of the floating-rate nature and the shorter duration. This combination of factors can really give an even more diversified exposure to the wider portfolio against your traditional asset allocations.

Recent stress events - whether that’s Covid, the Russia-Ukraine war, inflationary pressures, interest rates rises, not to mention the range of other stress events noted over the last 10 years - have all really helped demonstrate the robustness of the underlying collateral and performance of the asset class. As well, the LDI crisis last year has also helped demonstrate some of the technical features of the asset class – like increased liquidity and a wider investor base - that may not traditionally have been associated with the ABS market.

Q: The new Global ABS Fund builds on the firm’s existing business. What can it offer institutional investors?
A: Institutional investors are always looking at ways to look at both alternative investments or investments they might not already have exposure to currently, which are additive to their portfolio. ABS fits that with its increased yield pick-up for similar ratings and diversification benefits against traditional asset classes.

What you need with ABS is an experienced team with the expertise and the skillset to be able to underwrite transactions properly, and make sure they fit the risk profile investors are looking for. It’s an asset class investors typically look to specialist asset managers, who have experience with it. This is one of the reasons we are launching this fund, as it offers a way for investors to directly access our ABS experience and be able to have the depth of the team and expertise to look at the asset class.

Q: What’s distinctive about Challenger IM and its offering to investors with the new fund?
A: Challenger IM has a very strong background in ABS and across private credit. We have 14 investment professionals out of the team looking specifically at the ABS asset class.

Across the team, we have a mix of very experienced professionals that lived and breathed the GFC, and have gone through credit cycles. We are able to look at the asset class with this institutional historical knowledge, and with the understanding of how and why it has evolved this way.

One thing that is really key is the development of institutional relationships with originators of assets, for example, in Australian institutions. So, not only do we have this depth of expertise across the global team, but we’ve got market relationships that have sometimes been decades in the making – giving us the background and the knowledge of different platforms and performance on that side.

Q: Why was it important to make the fund global and what are the benefits of that?
A: The key benefit of having a focus across global markets is that we can apply our relative value approach – not just between different jurisdictions, but across asset class and within the capital structure too.

It’s a strong benefit to the portfolio that we’re not segmented and looking at just one asset class or jurisdiction and therefore effectively only investing there. Instead, we can look at the best parts of where we’re seeing the best value across the global developed markets for securitisation, as well as adding in those diversification benefits.

Q: Are there any specific opportunities within the Australian, US or UK securitisation markets you are looking to capitalise on with the new fund?  
A: The key with pursuing any market opportunity is in understanding that market well – which isn’t just expertise, but also having an understanding developed over time about those markets. Securitisation fits developed markets well because of the strong reliance of the asset class on legal and regulatory frameworks.

We do see opportunities across both the public and private markets. We are always looking at the relative value between different opportunities.

Generally, the market backdrop of the underlying loan portfolios across consumer and mortgage ABS does look more challenged in terms of the inflationary pressures and higher interest rates and how that passes through into consumer behaviour. However, consumer performance has held up well, so far – which, in itself, started from a strong baseline with a very low level of delinquencies and arrears.

The structural features and the ABS bond performance outlook we also see as being strong, which has been driven by the more defensive capital structures put in place since the GFC – meaning a better alignment of interests between the asset originators and the bond investors, and more structural protection for the bonds themselves. So, even with the headwinds on the underlying loan pools, we are focused on the predominantly investment grade part of the universe in the Global ABS Fund and like the robust credit profile of those bonds.

Q: What edge does Challenger IM have to support it through any upcoming macro-uncertainty or difficulty in the market?
A: Where we’re focused in the market is driven by where we see the best risk/reward at the moment. So, especially in the fund context, we are focusing on the predominantly investment grade side of the market.

We really like that profile because its performance through the cycle is strong, and the structural protections within transactions can help protect that. That’s the big picture on where we’re active.

We add value with our experience across both corporates and ABS, both public and private markets, and we have experience across different jurisdictions as well. We can evaluate opportunities in the round. Not just look at a specific bond profile, but also really understand the underlying asset pool, the underlying issuer and have the various lenses required to evaluate the investment holistically.

Q: At present, what is the balance between interest in the public versus the private ABS markets?
A: Private markets have grown significantly over the last decade – which I think has led to asset-issuers and securitisation-issuers having more options available to them in how they look to finance their business and their assets. Often we see that issuers can look at different solutions – both public market and private market - and can often be more patient, and not necessarily need to access the public markets at a specific moment in time. This helps, as it means there’s more options for issuers to be able to refinance transactions as they reach expected maturity, which leads to a more stable investment profile for investors.

On the investor side, we do see specific opportunities with private warehouses of loan pools in Australia. We think there’s a good premium to public markets for the ability to take on a little bit more complexity in terms of the documentation, the structuring and the ongoing operational management of that position in exchange. But you really have to have that expertise and skillset to be able to execute those transactions and include that as part of your offering as an investor.

Q: What new opportunities do you see for the securitisation market going forward?
A: We do see the market evolving over time, and we’ve seen that in terms of both the public and private side of things. Being able to look at the different opportunities and see the various risks and opportunities each present is valuable.

And we see that all the time in terms of how the regulation evolves in Europe with Basel 4 round the corner, and with the evolution and entry of new managers in the CLO market and the middle market opening up more usage of CLOs in the US. It is an evolving landscape, which inevitably presents interesting opportunities over time.

Claudia Lewis

Structured Finance

BlackRock launches Article 8 ABS fund

Market updates and sector developments

BlackRock has launched the BlackRock Senior Securitised Fund (BSSF), its new flagship securitisation fund, in the existing BlackRock Specialist Strategies Fund range. The firm says that BSSF is designed to meet the strong demand for securitised assets from both institutional and wealth clients seeking to diversify their fixed income exposures. Clients have demonstrated a desire for the diversification benefits, limited interest rate risk and the yield premium securitised assets typically offer versus corporate credit.

The fund utilises BlackRock’s experience across global securitised assets to identify attractive investment opportunities. BlackRock manages over US$120bn of securitised assets globally on the platform.

BSSF is actively managed and has an unconstrained investment style. Structured as an Irish-domiciled Alternative Investment Fund, it will invest in both primary and secondary offerings of securitised assets.

In terms of investment positions, BSSF is focused on the senior portion of the capital structure, with a minimum exposure of 75% to triple-A rated assets and a minimum rating of double-A minus. The fund is predominately focused on European and UK assets, but can also invest up to 25% in the US and other regions, and will have a minimum exposure of 65% to ABS and a maximum exposure of 35% to CLOs.

Finally, the fund will be classified under the EU’s SFDR as Article 8, with ESG factors acting as a core component of the team’s securitisation analysis.

In other news…

Call for ‘genuine CMU’ built on ‘large’ ABS market
ECB president Christine Lagarde’s speech at the European Banking Congress last week recognised the crucial role securitisation needs to play in financing the EU’s funding gap over the next decade. However, there was no mention of specific measures necessary to facilitate its development.

In her speech, Lagarde stated that Europe is facing a series of common challenges, with deglobalisation, demographics and decarbonisation looming ever larger. She said that while banks have a central role to play in overcoming these challenges, they cannot be expected to take so much risk onto their balance sheets.

Further, she noted that despite two European Commission action plans, Europe’s capital market remains fragmented and that the EU will not succeed in these transitions if the capital markets union (CMU) is not put back on track. “A genuine CMU would mean building a sufficiently large securitisation market, allowing banks to transfer some risk to investors, release capital and unlock additional lending. In the US, banks have access to a securitisation market that is three times the size of Europe’s. This could be even more powerful in our bank-based financial system,” she said.

Lagarde pointed to two key ingredients for success. First, the determination of all participants in both the public and private sectors. And second, this shared determination to be embodied in a change of approach.

So far, there has been a ‘bottom-up’ approach to implementing CMU, according to Lagarde. The focus has been on developing local and regional capital markets to overcome the limitations of small domestic settings and then removing the barriers to those markets being integrated further. But this approach has not led to harmonisation in the policy areas that could really “move the needle, in terms of breaking down cross-border barriers”.

Consequently, she called for a “Kantian shift” – to move from a bottom-up approach to a top-down one. Specifically, she said that supervision remains largely at the national level, which fragments the application of EU rules.

“Creating a European SEC - for example, by extending the powers of ESMA - could be the answer. It would need a broad mandate, including direct supervision, to mitigate systemic risks posed by large cross-border firms and market infrastructures, such as EU central counterparties,” she noted.

But beyond a strong institution, a single rulebook is also key. “To mitigate fragmentation in EU capital markets, a more ambitious approach should involve the creation of a single rulebook enforced by a unified supervisor. That would empower private entities to expand their ambitions in fostering high-growth private investments,” Lagarde concluded.

Structured Finance

Job swaps weekly: EverBank lures Forbright's Walsh

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees EverBank hiring a senior Forbright Bank executive as head of structured real estate finance. Elsewhere, National Australia Bank (NAB) has made two senior promotions within its securitisation teams in Melbourne and New York, while Piraeus Bank has elevated an Athens-based director to the role of senior director, head of securitisations and transaction structuring.

EverBank, the Jacksonville-headquartered bank that recently spun out from the Teachers Insurance and Annuity Association of America, has appointed Patrick Walsh as head of structured real estate finance. In his new role, he will be responsible for overseeing the launch of a national CRE lending platform providing first-out, senior secured financing to US debt funds.

Walsh joins the business from Forbright Bank, leaving his role as md and head of real estate structured lending after two years with the bank. He previously spent nine years at Axos Bank and 18 years at GE Capital, in addition to stints at Cerberus Capital Management, CapitalSource, US Waste Industries and Carriage Hill.

Meanwhile, NAB has made two senior promotions within its securitisation team, elevating Sharyn Le to global head of securitisation origination and Karen Fung to senior associate director for North American structured asset finance. 

Le is based in the bank's Melbourne office and is promoted from the role of director. She joined NAB in 2003 and previously worked at Bell Potter Securities. Fung works out of NAB’s New York office and has been with the bank for eight and a half years. She is promoted from the role of associate director and has previously spent seven years at Westpace.

Piraeus Bank has promoted Vasilis Giannoulis to senior director, head of securitisations and transaction structuring, based in Athens. He was previously director, portfolio sales and transaction structuring at the bank.

Michael Morris has joined Vancouver-headquartered real estate group Shape as vp for debt and structured finance within the wider group and director for mortgage investments in its Shape Capital subsidiary. Morris leaves his position as a director in CIBC’s capital markets division, where he focused on real estate interest rate derivative sales. He spent nine and a half years at CIBC and previously had a two-year spell at CBRE.

London-headquartered metal trading company Gerald Group has hired former HSBC executive Alexandre Dietz as head of trade and structured finance, based in Geneva. Dietz left his position as head of global trade & receivables finance and commodities structured trade finance Switzerland at HSBC in July after seven years with the bank.

M&G Investments has promoted Matt O’Sullivan to head of Asia Pacific private investments. Based in Singapore, he was previously head of Asia Pacific origination - Catalyst at the firm, which he joined in December 2006.

David Blevins has joined Siemens Financial Services as relationship manager for project and structured finance, based in Birmingham Alabama. He left his role as senior specialty healthcare banker at Synovus in October after four years with the business, and previously worked at Trustmark Bank, Renasant Bank and Regions Banks.

CBRE has hired CMLS Financial’s King Ving as a senior analyst for debt and structured finance based out of its Montreal office. Ving leaves his position as senior analyst for real estate finance at CMLS after two years with the business and previously worked at Cominar Real Estate Investment Trust.

Barings has hired former Voya executive Kristine Larson to its private debt group, based out of New York. In her new role she will be a member of the portfolio management team and support the private placement and global structured finance groups. Larson left her role as director on the private placements team at Voya after the division was closed in the aftermath of the firm’s merger with Allianz Global Investors.

Shanghai-headquartered law firm Zhao Sheng Law Firm has appointed former Linklaters professional Ying Zhou as partner, with a focus on structured finance and derivatives. Ying Zhou left her role as managing associate in Linklaters’ Hong Kong practice. Zhao Sheng is Linklaters’ joint operation firm in China.

And finally, Indian law firm Shardul Amarchand Mangaldas & Co has appointed Shruti Singh as a partner, based in its New Delhi office. Singh advises business owners including entrepreneurs, private equity and corporates on transactions including structured finance, m&a, restructuring and insolvency. She previously spent more than four years at Khaitan & Co, including two and a half as partner.

Capital Relief Trades

Fannie signs off for 2023

Multi-family CAS and last 2023 CIRT for the GSE

Fannie Mae has executed its third multi-family CAS deal and also its ninth and final CIRT trade of the year.

Placed by structuring manager and lead bookrunner Bank of America, the US$595m MCAS 2023-01, consists of 423 multi-family loans with an unpaid principal balance (UPB) of US$24bn.

The US$154.6bn M7 tranche was priced at SOFR plus 400bp and has 3.5% credit support. The US$309m M10 was priced at SOFR plus 650bp and has credit support of 1.5%, while the US$131.9m B1 yields SOFR plus 975bp and has 0.625% credit support.

In addition, and alongside its final single-family CAS of the year priced last week, Fannie has placed US$270.7m of mortgage risk with 21 insurers and re-insurers in CIRT 2023-09 – the last reinsurance deal of the year. The loan pool consists of around 34,000 single-family high LTV loans made between October and December last year with an UPB of $11.5bn.

Fannie retains the first 165bp of risk, but if this US$190m retention layer is burnt through then the insurers cover the next 235bp of loss.