Contents

Structured Finance

SCI Start the Week - 4 December 2023

A review of SCI's latest content

Last week's news and analysis
Arch agony
Cancellation of 8 ILNs leaves investors stewing
Basel 4 series: Preparing - video
Market participants share their insights about how to prepare for Basel 4
Global Risk Transfer Report: Chapter five
In the fifth of six chapters examines trends in North American CRT
Job swaps weekly: Sirius execs join forces to launch Karis
People moves and key promotions in securitisation
Positioned for quality and liquidity
BlackRock answers SCI’s questions on its new Senior Securitised Fund
Risk transfer round-up - 1 December
The week's CRT developments and deal news
Rules of conflict
Final SEC "conflict of interest" ruling offers crumbs of comfort
SIFMA calls for STC framework
Updates on SIFMA, HAPS, Irradiant and SEC ABS rule
Treasury overhang
Unprecedented Treasury supply dominates agency MBS story for 2024
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
Hotel CMBS – November 2023
The lodging sector is one of the few bright spots in the US CMBS landscape. This Premium Content article uncovers the reasons why.

Project finance CRT – November 2023
Synthetic securitisation is expected to play a key role in assisting Europe’s transition towards a more sustainable economy. This Premium Content article explores the significance of project finance SRT transactions within this context.

Data centre securitisation – November 2023
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.

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

8th Annual Risk Transfer & Synthetics Seminar
1 February 2024, New York

SCI’s 3rd Annual ESG Securitisations Seminar
16th April 2024, London

Emerging Europe SRT Seminar
16 May 2024, Warsaw

2nd Annual Esoteric ABS Seminar
June, New York

CRT Training for New Market Entrants
14-15 October, London

Women In Risk Sharing
15th October, London

10th Annual Capital Relief Trades Seminar
16 & 17 October 2024, London

2nd Annual European CRE Finance Seminar
November 2024, London

Capital Relief Trades

Salisbury sees momentum

Lloyds' latest SME SRT unveiled

Lloyds has executed Salisbury 2023-1, the seventh synthetic securitisation from its Salisbury programme, following Salisbury 2022-1 in April 2022.

The significant risk transfer transaction references a £1.75bn portfolio of UK SME loans extended to circa 3,500 borrowers located across the UK and originated by Lloyds. In terms of sectors, the portfolio comprises 41% real estate exposures, 28% in healthcare, 10% in farming and agricultural services, and 6% in retail (among other sectors).

Structured as a CLN, the trade provides credit protection for six years, with a one-year replenishment period, subject to eligibility and replenishment conditions - including limits on portfolio weighted average probability of default and weighted average life. The CLNs were directly issued by Lloyds and feature pro-rata amortisation from the outset, subject to triggers (including triggers linked to cumulative loss and default) for reversion to sequential amortisation during the first five years and in the last year regardless.

£175m of unrated CLNs were placed with a wide syndicate of international investors. Specifically, the trade features a £52.5m second loss tranche (7%-10%), which priced at SONIA plus 4.75%, and a £122.5m first loss tranche.

Lloyds says that the transaction included a broad marketing to around 25 investors, with the objective of maximising price tension in a more volatile and crowded market. The offering saw strong initial bids from more than 15 accounts, creating momentum for final bids to guide pricing inside the initial interest.

Vincent Nadeau

Capital Relief Trades

CRT Market Update

Looking ahead

With only a couple of weeks left before the Christmas break, market participants’ focus already appears to be geared towards the new year.

Regarding the past and current SRT pipeline, one investor does not expect any new deals to price between now and the end of the year, noting that “pretty much everybody has closed their books.”

Previously described as a difficult trade to print, LBBW’s transaction – referencing a circa €5bn portfolio of German commercial real estate exposures –  is rumoured to not be going ahead: “It’s been in the market for almost a year and to my knowledge it is not happening.”

Meanwhile, it is understood that Nordea have closed their second corporate SRT of the year, following Sisu two in March. The trade, which priced in November, features a 5.75% tranche thickness and references a €4bn pan-Nordic corporate portfolio.

Further confirmation has also emerged that Bank of Ireland’s Vale 2 priced last week. The reference portfolio predominantly comprises of corporate loans, as well as 15% infrastructure exposures.

Analysing the beginning of December, the investor describes a macro-economic context in which companies are rushing to issue debt, taking advantage of the cheapest borrowing costs available in the months following the sharp global bond market rally. He notes: “The dominant news at the moment is that the credit market has massively rallied in December. Is it entirely justified? I’m not quite sure…”

As he reflects on Q4, the investor notes that the SRT market has been “quieter than anticipated,” before adding: “But clearly a few transactions have been pushed to Q1 next year.”

He continues: “Generally I feel we have seen slightly less volume overall than last year. We were also initially expecting more trades referencing real estate exposures, but this is probably something to look out for next year. Also we would have thought that second-tier banks would have used this product this year, which has not really happened. Again, this is another trend to monitor next year.”

As we quickly head into year-end, the investor however expects the SRT market to continue to grow. He concludes: “The market is getting bigger and will follow its upward path. We are seeing more and more new investors and the product will only grow.”

Vincent Nadeau

SRTx

Latest SRTx fixings released

Index values indicate gradual tightening in spreads and improved outlooks for liquidity, as well as a tempering in negative credit risk sentiment

The latest fixings for the SRTx (Significant Risk Transfer Index) have been released. There have been incremental but modest improvements in spread and risk indexes and a tempering of values in volatility indexes, which had risen in November’s fixings (SCI 2 November) in response to conflict in the Middle East.

This month’s survey responses point to a reversion in SRTx Volatility Indexes across the board towards neutral sentiment, though three of four categories remain in the high 50s. There has been a 20.1% drop in the volatility index value for European large corporate transactions and a 9.5% drop in the index value for European SMEs, compared with a 12.9% drop for US corporates and a 17.5% drop for US SME transactions.

The SRTx Volatility Index values now stand at 47, 57, 56 and 55 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively, as of the 1 December valuation date.

For the second consecutive month, SRTx Spread Indexes are slightly tighter in the large corporate segment (-2.5% in Europe and -7.1% in the US), though they remain broadly stable in the SME space (-0.8% in Europe and -0.6% in the US). The SRTx Spread Indexes now stand at 1,045, 865, 1,152 and 1,220 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively.

The SRTx Credit Risk Indexes indicate a tempering of negative sentiment across the board. Index values fell by double digits for large corporates (-11.5% for Europe and -14.3% for the US) and for US SMEs (-18.3%) but dipped more modestly for European SMEs (-5.4%). The indexes now stand at 58 for SRTx CORP RISK EU, 54 for SRTx CORP RISK US, 67 for SRTx SME RISK EU and 58 for SRTx SME RISK US.

Finally, the SRTx Liquidity Index values point to the possibility of ongoing improvement in sentiment for US corporates (-14.3%) and SMEs (-16%). This could be a continuation of the effects brought about by the Fed’s updated Q&A in October providing greater clarity on the use of credit-linked notes.

Liquidity index values surrounding European large corporates and SMEs shifted more modestly (-1.1% and +4.8% respectively), but remain around the neutral 50 mark. The SRTx Liquidity Indexes stand at 47, 32, 50 and 35 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

Alternative assets

Digital download

Up, up and away for digital infrastructure market in 2024

There has been dramatic growth in the US esoteric securitization market in the last three years or so, but the pace isn’t about to slip, says Michael Nowakowski, director and interim head of structured products at Conning, a Hartford, Connecticut-based investment manager which caters to the insurance industry.

The leading light of the esoterics sector is the digital infrastructure market, chiefly comprised of data centre, wireless tower and fibre cable securitization. This is the boom business and this is where most action will be seen.

Issuance in this sector has grown from around US$16bn in 2020 to US$26bn in 2021 to US$28bn in 2022 to US$35bn this year. Next year could potentially see US$40bn, says Nowakowski. Regular issuers have been joined by new names in the last 12 months as borrowers see the usefulness and comparative cost effectiveness of securitizing their assets. Deals are also often sizeable – up to US$2bn.

“I see a big increase in fibre deals as cable companies see the value of the market. We saw a big one this year and if word gets out that ‘hey we can put this collateral in securitization at a reasonable cost of capital then cable companies will take advantage,” he says.

The large deal of which Nowakowski refers was a US$1.05bn securitization from Frontier Communications in July.

There is also particular potential for growth in the data centre securitization market beyond the now established corridor of northern Virginia into second and third tier markets like Atlanta and Dallas.

The piercing attractiveness of the securitization market to digital infrastructure borrowers is also occurring at a time in which bank lending is retrenching.

Conning has around US$205bn assets under management, and the structured finance bucket – which Nowakowski runs – comprises around US$19bn of that.

Single A infrastructure deals can furnish spreads of SOFR plus 300bp, and even though all-in yields have dropped in line with lower rates, a return of 7% or so at the front end of the curve is very attractive to asset managers like him.

The structure of digital infrastructure deals can also afford a level of comfort to investors that other types of securitized deals struggle to match. For example, in many cases the borrower owns the collateral, and this is the most valuable component of the deal.

Fibre cable contracts are often long-term, supplying users like student hostels or retirement communities. Even after that contract expires a new supplier would have to tear up the ground to install new cables so the barriers to entry are considerable.

There are also powerful incentives for the renters of data centre space to continue paying the rent whatever financial circumstances they find themselves in. In many cases, their business model depends on connectivity, so the rent must be made.

All this provides the investor with a high degree of confidence.

Conning moved into the digital infrastructure space earlier than most investors, and that degree of experience and savvy has allowed it to develop rankings for borrowers and structures. It knows what names and types of structures it likes best and why, and the structure it likes best is when the borrower owns the inherent equipment.

Within the esoteric space, Conning has also invested in the less frequented areas such as rail and container securitization, triple net lease contracts and even billboard revenue securitization. But these are occasional transactions, and it’s not where the growth in esoterics is coming.

The broader ABS space has seen hefty volume in the prime auto deals lately. “There’s been a bit of a deluge, which has forced spreads a little wider,” says Nowakowski. In part the weight of issuance is due to the stickiness of auto inflation rather than the number of new loans.

Unsecured consumer loan deals have also seen a recent uptick. Last week, Affirm announced it was raising US$406m in a securitization of point of sale unsecured loans in a deal called Affirm Asset Securitization Trust 2023-X1. At the end of October, Achieve, a digital finance company, sold US$157m of notes backed by AAA Consolidation Plus loans.

It is one of the most active borrowers in this space, with several deals last year, while Lending Point, another provider of unsecured loans, entered the space for the first time in July.

Traditional brick and mortar lenders are also active in the unsecured lending securitization space and Conning tends to prefer these deals as generally an established relationship exists with the consumer borrower and they have observable history and experience through economic cycles.

Yearly volume in unsecured lending is between US$5bn and US$15bn and a similar amount is expected in 2024.

Predictably, little more is expected in the ABS market for the remainder of 2023, but next year the digital infrastructure space is set to impress.

Simon Boughey

Capital Relief Trades

Global Risk Transfer Report: Chapter six

In the final chapter of our report surveying the synthetic securitisation market, SCI explores new frontiers in CRT

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 6: New frontiers
Together with the resurgence of the US market, new jurisdictions and asset types are the key growth areas for CRT in the near future. In particular, issuance across Central and Eastern Europe (CEE) is set to provide plenty of opportunities, following the opening-up of the Polish market to private investors last year.

The introduction of the STS synthetics regime was the key to unlocking SRT in Eastern Europe. “Without STS, it is very expensive for standardised banks to do transactions because you’ll need to place extremely thick tranches,” explains Olivier Renault, md and head of risk sharing strategy at Pemberton Asset Managers. “The only market participant that could do a transaction at an efficient price was the EIF. Now with the STS framework, you can do a transaction at economical cost of capital with private investors.”

The first transactions with private investors in Poland were funded structures, such as mBank’s debut synthetic securitisation – Project K2 - in March 2022. The STS deal was structured as a direct CLN, with the aim of supporting the development of the bank’s corporate and retail banking franchises.

Getin Noble Bank’s CRT – a funded first loss guarantee referencing a static portfolio of housing community loans - followed in July 2022. The transaction was one of a handful of standardised bank SRTs sold to private investors and enabled a significant reduction in risk weighted assets for the reference portfolio of more than 80%.

CEE challenges
While Renault now expects a general rollout of SRT to smaller banks across Europe, within CEE, moving beyond Poland could be challenging. “A lot of people are very comfortable with the Polish economy. It is much more difficult for some of the other countries. The banks are smaller and maybe the economic prospects are not as attractive.”

The current limitation, observers suggest, is that Poland is the only market with reasonable volume, accessible for institutional investors. But there are difficulties even there.

“One key challenge with Poland is the currency. It's quite volatile and not many investors have native złoty,” says Robert Bradbury, md and head of structured credit execution at Alvarez & Marsal.

He adds: “In every other CEE country where SRT has not already taken off, the market is smaller – and, in many cases, there isn't an equivalent securitisation framework. So, you've got some fairly fundamental roadblocks to CEE SRT outside the development banks.”

On one side, potential CEE SRT issuers are likely to begin with low-risk portfolios, such as residential mortgages, although diversified corporate portfolios could be another option. Tranching is also expected to be more conservative.

On the other side, potential CEE SRT investors will have to grapple with currency hedging, data availability and the fact that many of the local banks are not under the IRB approach. Another wrinkle was Getin Noble Bank’s bankruptcy in September 2022, which – although its SRT transaction remained unscathed – highlighted the risks investors have to consider when dealing with smaller and less experienced issuers in a relatively uncharted territory. 

Consequently, activity across the region is likely to continue to be dominated by EIF transactions. Together with the EBRD and the EIB, the EIF has been pushing for similar trades in places like Bulgaria and Romania.

“The EIF is likely to continue being the dominant player, as long as they have the capital to do it. They're still a lot cheaper than the private market. Their role should be to do transactions where a private market solution doesn't work - which has been the case for many CEE transactions; in particular, before the STS framework was introduced,” says Renault.

EIF activity
In the last 18 months, the EIF closed its first synthetic transaction in Bulgaria, with one of the largest banks in the country, UniCredit subsidiary Bulbank. The transaction was carried out under the European Guarantee Fund mandate, which was launched in late 2021 and had a short deployment period, until June 2022.

“It allowed us to invest in junior pieces for the first time, rather than our usual bread-and-butter mezzanine protection. We were able to deploy almost €1.4bn in investments,” says Georgi Stoev, head of Northern Europe & CEE securitisation at the EIF.

The Bulbank transaction had a very strong signalling effect. “We managed to close one more transaction in Bulgaria this June, with ProCredit Bank for around €300m. After they heard about the main Bulbank transaction, they decided to try it out for themselves. We started discussions in autumn 2022 and in June, we concluded a transaction,” explains Stoev.

The EIF is at an advanced stage with another banking group in Bulgaria, with whom it expects to sign a transaction this month (October 2023), while another transaction in Romania is anticipated towards the end of the year. The first Romanian transaction was with Deutsche Leasing in early 2021; then the EIF entered into a transaction with Raiffeisen Bank, Romania, in December 2022.

“We start the market and then we see the snowball effect,” observes Stoev. “It’s the same recipe we followed in Poland. Competitors of the first banks that concluded securitisation transactions with us followed suit.”

He continues: “We will keep on playing our role as an anchor investor. It sparks interest from hedge funds and insurance companies on the back of our initial deals.”

The next frontiers could be Croatia and Slovenia - EU countries where the EIF has yet to transact. The EBRD recently executed a transaction with Raiffeisen Bank Croatia, featuring a €25.6m unfunded mezzanine guarantee, which is smaller than the EIF’s typical appetite for transactions (in excess of €50m).

But Stoev says the trade “shows that those countries do have interesting prospects”. He adds that the EIF is discussing more potential transactions on a preliminary basis with several banks from these regions.

“Countries that have a local currency, but also have long exposures denominated in euros create some difficulties when the transaction is being structured. But for Slovenia, this is not an issue. I would expect either a Slovenian or Croatian transaction with our participation over the next 12 months,” he confirms.

Certainly, Arch MI is bullish on the prospects for CEE countries. “We've already seen increased issuance, but there are challenges for us to overcome in those markets,” says Michael Bennett, chief underwriting officer, European Mortgage at Arch Capital. “In some of the countries, the banking environment hasn't been established as long as in Western Europe. Obtaining a long time series of default and loss data, including data during a period of stressed market conditions, can be challenging in those countries.”

But he notes “that investors are able to negotiate the composition of assets in the pool and concentration levels to help mitigate those risks and enable transactions to be executed successfully”.

Stoev agrees that opening up smaller countries is challenging and they typically have more difficulty in attracting foreign or private capital. “But I could very well see the setting up of regional funds. During my meetings with hedge funds and pension funds, I see they start to grow their interest outside Poland. It will take some time, but I'm confident that one day we would see a market where private and public capital would transact equally in these markets.”

The EIF is as active in Central, Western and Southern Europe as it is in Eastern and Southeastern Europe – Greece, Bulgaria or Romania – he stresses. “I can't see transactions in the smaller countries eclipsing the amount of debt we deploy in Spain, Italy or Germany. But we are exploiting each opportunity that we have after a signal has been sent to the market, typically by a particular transaction.”

Supranational issuance
While institutions such as the EIF invest in SRT transactions, multilateral development banks (MDBs) and development finance institutions (DFIs) represent a potentially major new class of issuers. Alan Ball, director, structured and bespoke solutions at the Texel Group, notes: “The unfunded credit insurance market has a long, well-established track record of providing huge amounts of risk transfer to these institutions. The credit insurance market knows the sectors, asset classes and institutions in this space extremely well and perhaps better than any other investor base for these transactions. The insurance market is also able to offer pricing that is much more consistent with the concessional lending that these institutions engage in.”

An area where Texel has been particularly active is using credit insurance to ‘crowd in’ private capital from sources that would otherwise not support the MDB sector. “We’ve set several market firsts in this regard and much of the know-how we’ve developed is readily applicable to CRT transactions. Addressing the capital needs of such institutions is increasingly important, given the expectations placed on them as a result of inter alia the UN’s Sustainable Development Goals,” notes Ball.

He continues: “We’ve often mentioned the scale the insurance market can bring and the associated benefits when approached and managed well. Our work in the DFI sector shows the scale of this potential, where we’ve now arranged several transactions for different DFIs, each of which have provided cover for transactions approaching half a billion dollars.”

Global appetite
In terms of new geographies, investors appear to have appetite for transactions from issuers in the Middle East and Asia. More jurisdictions are expected to implement regulatory frameworks that enable CRTs, following the trend seen in Eastern Europe and Canada.

“I’d love Australia to open up, but the regulator is not signing off on transactions at the moment. Hopefully, it will look at the adoption of SRT technology across the world and change its position,” Renault remarks.

Meanwhile, issuance is expected to continue to be dominated by corporate portfolios. But the market might start to see more assets emerging where the risk weight has changed – for example, under Basel 4 – such as high loan-to-value mortgages.

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

Job swaps weekly: EU finance ministers choose Calviño for EIB

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Nadia Calviño chosen to become head of the European Investment Bank (EIB). Elsewhere, the Structured Finance Association welcomes seven industry leaders to its new board of directors, while a Mayer Brown partner and structured finance specialist has joined Jones Day as partner in its London office.

Spain’s deputy prime minister Calviño has won the race to be named the next head of the EIB. Calviño has been chosen by the EU’s 27 finance ministers over – among other candidates – European Commission vice president Margrethe Vestager. She will take up the role from 1 January after Werner Hoyer steps down from the position on 31 December.

Calviño was promoted to Spain’s deputy prime minister in July 2021 and has been the government’s minister for economy and business since June 2018, after leaving her role as director general of the budget department at the European Commission. She joined the European Commission in 2006, having previously spent 12 years in the Spanish Ministry of Economy.

Meanwhile, European Commission NPL advisory panel member Eric Cloutier has left his position as a partner in KPMG’s European Central Bank office to join Mazars. Cloutier joins the professional services firm’s London office as a partner and global head of banking regulations. He joined KPMG in 2015 from Alvarez & Marsal, having previously worked at SNS Reaal and ABN Amro.

Mayer Brown partner Chris Arnold is to join Jones Day as a partner in its financial markets practice, based in London. Arnold has a particular focus on derivatives and structured finance and leaves Mayer Brown after 13 and a half years. He previously spent eight years at Allen & Overy. The development comes shortly after Jones Day’s Boston-based partner Matthew Martel was elected to the board of directors of the Structured Finance Association.

The SFA has also appointed FICO’s Joanne Gaskin, Kroll Bond Rating Agency’s Rosemary Kelley, Loomis Sayles & Company’s Jennifer M Thomas, Lord Abbett’s Loritta Cheng, Norton Rose Fulbright’s Patrick Dolan and RBC Capital Markets’ Richard Lawrence as new board members.

Man Group managing partner and global head of CLOs and loans Dan Robinson has joined DWS Group as head of alternative credit for EMEA, as part of the asset manager’s drive to “accelerate” its private credit footprint. Robinson leaves Man Group after a year and a half with the business. He was previously chief investment officer at CIFC Asset Management and head of liquid credit at Apollo Global Management, prior to which he spent 12 years at Oaktree Capital Management.

Angel Oak Capital Advisors has hired Sumit Sasidharan from Ares Management as md and head of commercial real estate. He will lead the firm’s existing CRE platform, as well as focusing on the expansion of its permanent and bridge-loan financing activities and overseeing its presence in the CMBS market. Sasidharan leaves his position as md at Ares after six years with the firm and previously worked at Annaly Capital Management, CWCapital and Fitch Ratings.

ING has named Marco Klein director in sustainable finance, within its wholesale banking group. Based in Frankfurt, he was previously a director in the firm’s structured solutions group. Before joining ING in July 2017, Klein worked at Intesa Sanpaolo, Sal Oppenheim and Sparkasse Saarbrücken.

NPL Markets has recruited Alexandre Paixao as senior advisor, with the remit of helping the firm to expand its franchise in Brazil. Paixao has over 20 years’ experience in merchant banking, principal finance and investment banking, including structured credit transactions, in Latin America and Europe. Among his previous roles, he was director, Brazil head – structured credit LatAm at Deutsche Bank.

Stefan Rolf has founded ROLF Advisory, a structured finance, treasury and debt restructuring advisory business. He was previously global head of securitisation and private debt at IQ-EQ, based in Amsterdam, which he joined in August 2022. Before that, Rolf worked at ING and VW Financial Services in senior securitisation-related roles.

Liberty Specialty Markets has promoted Tom Russell to senior underwriter – financial risk solutions, focusing on portfolio trades and structured credit. He was previously lead underwriter – portfolio solutions, within the financial risk solutions team, having joined the firm as senior underwriting assistant in November 2016. Before that, Russell was an underwriting assistant at Munich Re.

And finally, Canadian energy company TC Energy has promoted Arpan Patel to director in its structured finance and corporate development team, based in its Chicago office. Patel joined the business in 2021 and transitions from the role of director in the energy origination and development team. He was previously svp for renewable energy finance at Bank of America Merrill Lynch and had spells at Exelon, SunCoke Energy and Threshold Power.

Capital Relief Trades

SRT inspection

Lawmaker warns of perceived SRT risks

The risks of SRT trades “may not be fully understood” Senator Jack Reed, (D-RI) has warned US regulators. In a letter to the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), Reed, a senior member of the Senate Banking Committee, said “I am concerned that synthetic risk transfers may not be conducted in a safe and sound manner by the banks under your supervision and that they may increase risk across the financial system.”

The risks fall into two buckets, according to Reed. Firstly, SRT deals move risk into “opaque private markets where it may not be adequately managed and cannot be properly measure.”

Secondly, the growth of the market may encourage greater risk-taking by banks.

Given these dangers, Reed asks regulators to take “a very careful and judicious approach to synthetic risk transfers.”

“Without a full assessment of the risks associated with synthetic risk transfers, I am concerned that widespread efforts to avoid stronger capital requirements put in place as a response to the 2008 crisis could expose the financial system to new risks,” he added.

RMBS

Fix-and-flip fund debuts

Market updates and sector developments

Faes & Co, an investment firm led by LendInvest founder Christian Faes, has launched its maiden private credit fund focused on the US real estate bridging finance market. The Faes & Co Income Fund intends to capitalise on the firm’s domain knowledge of the short-term mortgage market to provide investors with consistent, superior risk-adjusted returns.

The fund will invest in loans originated by Faes & Co’s own group company, F2 Finance, which was launched earlier this year. The focus will be on funding a diversified portfolio of granular short-term mortgages secured by first mortgages against residential property in the US, with the aim of lending to ‘property entrepreneurs’ that are active in the ‘fix and flip’ market. In due course, the fund intends to securitise the assets.

Faes has almost two decades of experience in the real estate bridging finance sector, operating in Australia, the UK, Ireland and now the US. He has been managing investment funds in the sector for the last 14 years.

In the US, the short-term mortgage market was recently estimated to be as large as US$68bn a year in annual originations. “The US real estate bridging finance market has undergone a recent period of disruption, where traditional institutional funders have significantly slowed their appetite for a variety of reasons - from the securitisation market being ‘less open’, to regional banks that have had a flight of deposits post the SVB crisis,” comments Faes. “The asset class now presents a very interesting and unique opportunity for investors. It is also a very large and liquid market for building a diversified pool of asset-backed loans that provide a superior risk-adjusted return for investors.”

The Faes & Co Income Fund is open-ended and available to accredited investors in the US, with a Cayman Islands feeder fund available for offshore investors. The fund is administered by Socium, with CohnReznick appointed as auditor.