Contents

Capital Relief Trades

Winds of change

Bumper 2023 GSE CRT returns set to diminish

The outstanding returns offered by GSE CRT product last year are unlikely to be repeated in 2024 as the tailwinds which boosted the sector dissipate and may even become headwinds, according to Mark Fontanilla, the founder and chief executive of the market-leading data and information company which bears his name.

Benchmark GSE CRT bonds yielded a record total annual return of 17.69% in 2024 as credit, convexity and carry aligned positively. Credit behaved outstandingly well with persistently low delinquencies as unemployment never crossed into 4% territory - despite year-long predictions of an incipient recession. Home values were relatively robust as well. It is difficult to see these conditions improving much, he notes, but neither are they expected to deteriorate significantly.

Convexity is a different question. More bullish sentiment in fixed income bond markets has eroded some of the competitive advantages which GSE CRT enjoyed last year. Technical factors were very positive last year, as supply was much constrained and regular tender offers offered optionality to investors and also raised secondary market values of remaining notes.

Issuance of STACR and CAS was only US$8.3bn last year, just 38% of 2022’s record volume. Supply might not improve greatly in 2024 as mortgage origination remains meagre by recent standards, but tenders are expected to be smaller than last year as much less low factor product remains outstanding. If the Fed does lower rates three or four times this year, as many commentators have predicted, new mortgage business and refinancing will improve but it will be too late to affect 2024 GSE supply.

The cessation of the Fed tightening programme and the predicted move into easing gear will reduce the attractiveness of CRT floating rate notes. Coupon resets have been boosted by as much as 525bp over SOFR since March 2023. “Coupon carry has provided more than half of the CRTx Aggregate’s 2023 total return, which is substantial considering the amount of spread tightening and tender premiums paid in 2023,” says Fontanilla. The CRTx is the flagship index of Mark Fontanilla and Co.

Rate tightening allowed CRT coupons to climb alongside and be competitive with the high yield market, where issues still trade below par, but given the different rate prognosis for 2024, the upside is much more limited.

M1 issuance comprised 56% of the overall supply last year as B tranches became less significant. Tender business accounted for US$5.1bn of retirements (chiefly B1s) while paydowns of US$4.4bn more than offsetting new issuance. This meant total net supply in the GSE CRT market in 2023 was minus USS1.19bn.

Simon Boughey

Capital Relief Trades

Accretive process

Wasif Kazi, structurer at UniCredit, forecasts continued growth and steady state expansion for Central and Eastern European (CEE) SRT activity

Q: Given that 2022 was widely viewed as a breakthrough year in terms of CEE capital relief trade issuance, is the Polish market still a trend to monitor, or is it becoming an established jurisdiction for SRT transactions?
A: I would say it's somewhere in between the two. We see more transactions each year coming out of Poland. We see repeat transactions from issuers that have already issued and we're also aware of several new transactions in the pipeline.

I think it's close to becoming something that most banks have now either in scope or already in their toolkit, in terms of capital management instruments. And, on the other side, we’re seeing increasing familiarity from market investors.

Q: What makes Poland an attractive jurisdiction and prospect for SRT transactions?
A: We've been active in the Polish market for close to eight years now, originally focusing on the true sale side. Our assessment was always that Polish banks have very strong risk management systems.

Additionally, their portfolios are well-constructed, well-managed and perform over the lifecycle. Moreover, until now, investors haven't really had the opportunity to get access to those portfolios via securitisation.

In conclusion, it is a well-run banking sector with strong institutions. And then within those institutions, there is a very meticulous diligence culture, in terms of the management of risk. That means that you have a lot of attractive portfolios from a securitisation perspective, with long and well-put together data, as well as solid underwriting practices.

Q: Are you witnessing increased activity in the broader CEE region?
A: Given the private nature of the SRT market, one of the challenges is actually to keep an eye on what is going on outside of our own remit. It is fair to say that more is happening in CEE securitisation than people generally realise. A far as I can see, virtually every jurisdiction has had at least one transaction now.

Obviously, with synthetic transactions, you take away the legal and tax challenges that you have with cash deals. So synthetic becomes a focused question about the portfolio and the economics of the capital structure. Given that a flag has been planted from an SRT perspective in more or less every jurisdiction, obviously you see this kind of follow-on effect.

By way of example, we undertook the first Bulgarian transaction for UniCredit Bulbank (SCI 19 October 2022). Local regulators soon find a level of comfort and a local ecosystem forms in terms of legal, tax and capital advisors, for example, who can also analyse transactions.

We feel Poland will remain the most active jurisdiction, given the volume of deals that have already been done there, but we see growth in all these markets. It will most likely be a gradual process, whereby one or two new participants come into each jurisdiction every year and there is a steady build-up over time, rather than a big surge.

Q: Is there, for now, still a clear dominance by international financial institutions (IFIs) and the likes of the EIF and EBRD as investors? Are they still the most cost-effective option in the region?
A: I would say so, generally. In Poland, we've had the pleasure and the privilege to help drive forward the expansion of the product from the IFI space into the private investor space. But we always say, both products work very well in the right context.

For the first transaction based on a granular SME portfolio, with capacity on the redeployment side - which is obviously a key factor in an IFI deal - those deals make a lot of sense. For larger corporates or large mid-corporates (being more concentrated portfolios) or different asset classes and/or where the institution doesn't have the same capital redeployment targets in mind, then the private investor market also makes a lot of sense. So, we would see the two developing in parallel, but - as you say - probably with the IFIs in the lead in newer jurisdictions.

Q: Are unfunded deals – with less explicit currency risk – more suitable for CEE jurisdictions?
A: We haven't seen a constraint in Poland in terms of currency. Now, maybe with smaller jurisdictions with less liquid currencies than the Zloty, the unfunded structure does make more sense.

But ultimately, you're still writing protection in the currency of the portfolio. Therefore, whether it's funded or unfunded, there is ultimately still the same underlying currency to be managed.

It will be interesting to see how the market develops for some of these currencies. But, of course, for a lot of these jurisdictions, there are still portfolios in euros which can also be used.

Q: Looking at asset classes, are you seeing an expansion away from the core SME corporate portfolios?
A: I think that in Poland we are. In Poland, we've seen, for example, in addition to corporate SMEs, trades referencing consumer loan and corporate leasing portfolios.

One of the factors is that there seems to be, in a lot of jurisdictions, a high percentage of corporate and SME loans that are the beneficiary of development bank or local state, quasi-state guarantees, particularly arising during Covid times. So, as long as that's one of the characteristics of the portfolios, it can constrain available corporate portfolio volumes. However, given that most institutions are just starting this process in the region, we would still expect corporate SME to be the lion's share of the first few deals from these such issuers.

Q: Finally, what is your outlook for 2024?
A: We foresee continued growth and steady state expansion. We don’t expect to see a big step-change between 2023 and 2024, but rather an accretive process over time of new originators coming in and benefiting from the product, and repeat issuance from existing market participants.

The product makes a lot of sense and there are certain developments in the market which benefit the region. Generally, one would expect to find more standardised banks in CEE, and the market has learned how to structure and manage these portfolios well over the last few years - which should, in turn, translate into efficient transactions. To conclude, we expect an increasing run rate of CEE deals in the coming years.

Vincent Nadeau

Structured Finance

Job swaps weekly: Greenberg Traurig appoints three new partners from Seward & Kissel

People moves and key promotions in securitisation

The first weekly roundup of securitisation job swaps of 2024 sees Greenberg Traurig appointing a trio of structured finance specialists as partners. Elsewhere, Obra Capital has hired two senior investment executives from AllianceBernstein and RiverRock Funds, while Stout’s md and co-lead of structured credit leaves the firm for a new project.

Kalyan Das has joined Greenberg Traurig, along with Sharan Calay and Andrew Silverstein. The trio of partners – who focus primarily on structured finance matters – come from Seward & Kissel, where Das has spent over three decades and was head of its global bank and institutional finance & restructuring practice.

Das will be based in Greenberg Traurig’s New York, London and Bridgehampton offices, while Calay and Silverstein will be based in New York. They join the firm as shareholders.

Meanwhile, Obra Capital has hired Scott Macklin as head of US leveraged finance, overseeing its CLO management platform. Macklin leaves his role as senior vice president and director of leveraged loans at AllianceBernstein after nearly five years with the company. He will be based in Obra’s New York office and report to head of structured credit Peter Polanskyj.

The appointment coincides with the firm’s hiring of RiverRock Funds’ ceo Anthony J Annino as senior md and head of longevity. Annino left his role as ceo at RiverRock (SCI 3 January) to take up the position at the start of January, after four years with the business. He previously spent 9 years at Perspecta Trust, leaving his role as chief investment officer in late 2019.

Stout md and co-lead of structured credit Gunes Kulaligil has stepped down two years after the company’s acquisition of Methodical Valuation and Advisory, which Kulaligil co-founded in 2018. Kulaligil has yet to announce what his next project will be. Prior to launching Methodical Valuation and Advisory he spent seven years at Houlihan Lokey.

Sumitomo Mitsui Banking Corporation has promoted Karim Jaroudi to head of corporate and structured finance for the Middle East, based in its Dubai office. Jaroudi is promoted from head of corporate finance in the region, having joined the bank in 2018. He previously worked at HSBC, The Global Emerging Markets Group and Jefferies & Company.

Cadwalader has elected six attorneys to its partnership, effective 1 January 2024. In addition, the firm has promoted seven attorneys to special counsel and counsel.

Among those promoted is Skyler Walker, who becomes a capital markets partner, based in Charlotte. She represents investment banks and other institutional lenders and underwriters on CLOs and in a wide variety of syndicated and bilateral commercial lending transactions, including structured asset-based loans.

Meanwhile, William Sharp has been named counsel, capital markets, based in London. Focusing on securitisation, he has worked on a number of repackaging and CLN issuance programmes, as well as UK auto and consumer loan ABS.

Real estate services firm Cushman & Wakefield has promoted executive vice chair Rob Rubano to head of equity, debt and structured finance (EDSF) and hired Nicholas Murphy as a senior director in the same team. 

Rubano is based in its Los Angeles office and will report to the firm’s president for Americas advisory, Dan Broderick, and its regional president for the west region, Matt Chatham. He will be tasked with overseeing further technology enhancements and leading expansion and operational efficiency in the EDSF platform. Rubano joined Cushman & Wakefield in 2018, leaving his role as md at Eastdil Secured after 13 years with the company.

Murphy will be based in the firm’s Houston office and have a particular focus on the multifamily sector. He leaves his position as director of acquisitions at Sync Residential after five years with the business, having previously worked at Berkadia, KeyBank and Land Advisors Organization.

The EDSF team has also hired Landmark Properties’ Ben Huckaby as a senior analyst in its Charlotte office. Huckaby leaves his role as a development analyst at Landmark after a year and a half with the business and previously worked at McWhirter Realty Partners.

London-headquartered Gunnercooke has hired former Lansky Ganzer und Partners lawyer Levente B Nagy as partner, based in Vienna. Nagy left Lansky Ganzer in early 2022 after four years with the firm and has been working on a self-employed basis since under the Nagy Law banner. He previously worked at UniCredit and KPMG.

Miller Thomson has promoted Ahmad Adam to partner, based in its Toronto office. Adam specialises in structured finance and securitisation, with a focus on corporate and project finance. The appointment is one of 14 promotions to partner announced by the firm.

Inver Re has recruited Steven Rance as head of credit and structured solutions, based in London. He was previously managing partner at Gallagher Re, where he focused on mortgage risk and capital management.

Real estate capital markets services company Newmark Capital Markets has appointed Anthony Valenzuela as executive managing director for debt and structured finance in its multifamily capital markets team. Valenzuela will be based in Phoenix and joins the firm from CBRE, where he was senior vice president for debt and structured finance. He spent 15 years at CBRE across four spells and also previously worked at Hunt Mortgage Group, BBG-Butler Burgher Group and Strategic Valuation Group.

Morningstar Sustainalytics has promoted Begum Gursoy to director, sustainable finance solutions, based in Amsterdam. She was previously associate director, sustainable finance solutions at the firm, which she joined in December 2018.

Berkeley Partners has hired Veritex Community Bank’s Leo Smith as principal in its credit investments team. Smith will originate, structure and manage Berkeley's credit strategies and structured finance investments within debt, mezzanine and preferred equity. He was vp for commercial real estate lending at Veritex, where he spent five years, and previously spent five years at Commerce Bank.

And finally, German bank Berenberg has promoted Jan-Moritz Eilers and Jan Szkudlarek to vice presidents in its structured finance team, based in Frankfurt and Hamburg respectively. Eilers is promoted from the role of senior associate and joined Berenberg five years ago. Szkudlarek joined the bank in late 2021. His new role is vp for structured finance and real estate finance and he is elevated from senior associate for corporate finance and real estate finance.

The SCI Job Swaps Weekly team would like to wish all our readers a Happy New Year and a prosperous 2024.

Alternative assets

Riverstone co-founders launch Breakwall Capital

Market updates and sector developments

Riverstone Holdings co-founders have launched a new independent energy focused asset-manager, Breakwall Capital, dedicated to supporting energy companies through the complexities of the energy transition. The new firm will be led by Riverstone co-founders and colleagues of close to 20 years, Christopher Abbate, Jamie Brodsky and Daniel Flannery.

Breakwall will support conventional, renewable and ‘next generation’ energy companies in meeting the rising demand for energy while simultaneously reaching and advancing on global decarbonisation targets. The team will also manage the Riverstone and Vitol collaboration, Valor Upstream Credit Partners, which makes structured credit investments in upstream oil and gas companies in North America.

The new venture will remain centred on the same principle as Riverstone of supporting energy companies across the energy value chain, and will continue to focus on short duration, first lien senior secured loans to middle-market and developing energy companies. Investments will be sought in the following areas: increasing efficiency, sustainability, and decarbonisation of energy infrastructure; waste-to-value and the circular economy; next generation fuels and the electronification of transport; the stabilisation of the power grid; and responsibly sourced natural resources.

With offices in New York, Rhode Island, and Houston (led by md Walt Hughes), Breakwall will continue to support former partners at Riverstone on the winding down of all existing Riverstone Credit vehicles.

Claudia Lewis

Alternative assets

CIFC launches multi-strategy credit fund

Market updates and sector developments

CIFC has launched a UCITS multi-strategy credit fund, combining sub-investment grade fixed income with structured finance, senior secured loans and liquid credit investments identified by its distressed team. The firm is looking to capitalise on growing sentiment that rates have peaked and on investors' resulting appetite for fixed-rate credit in order to "lock in the current high rates".

The fund, named CIFC Multi-Strategy Credit Fund, is domiciled in Dublin and dollar-denominated. It marks CIFC’s third UCITS vehicle and will be tailored to non-US investors seeking long-only exposure to selected sub-investment grade credit. 

The new vehicle will be led by CIFC’s head of US high yield bond investments, Jason Horowtiz, who will be supported by a team of portfolio managers in the US and Europe spanning a number of strategy specialisms. It will also have its own asset allocation committee including cio and ceo Steve Vaccaro, head of opportunistic credit Steven Gendal, head of structured credit investments Jay Huang, deputy cio Stan Sokolowski, and European senior investment analyst Rinse Terpstra.

Claudia Lewis

Investors

Obra acquires Unified and taps RiverRock's Annino

Market updates and sector developments

Obra Capital, the US-headquartered asset manager focused on insurance special situations, structured credit, asset-based finance and longevity, has acquired life and health insurance business Unified Life Insurance Company. The announcement coincides with the group’s appointment of RiverRock Funds’ ceo Anthony J Annino as senior md and head of longevity.

The Unified deal is intended to expand Obra’s presence into the life insurance markets, add to its longevity footprint and present it with additional investment opportunities in reinsurance and primary issuance. The transaction is part of the group’s ongoing acquisitive growth strategy.

Unified has around 100,000 active policy holders and 49 associated licences, according to a statement issued by Obra. The business has itself historically pursued a buy-and-build expansion strategy in the reinsurance space.

Annino leaves his role as ceo at RiverRock after four years with the business. He previously spent 9 years at Perspecta Trust, leaving his role as chief investment officer in late 2019.