Contents

Structured Finance

Break in the clouds

2024 investment opportunities eyed across Europe

With brighter skies forecast for 2024 as some normalcy returns to the European economy, several interesting pockets of investment opportunities are opening up in the structured finance market. Indeed, the outlook for European ABS in the year ahead is markedly more hopeful than 12 months ago – with interesting opportunities for investors in the French, Italian and UK structured credit markets.

“European ABS can also reward investors for moving into more specialised sectors or down the rating curve,” said Douglas Charleston in TwentyFour Asset Management’s recent European ABS Outlook 2024 market update. “Spreads are near the 70th percentile, which is wide to other fixed income markets.”

Moving down the capital structure was a popular move last year – although oversubscription is no new trend for the mezzanine tranches. This may continue in the year ahead, particularly in regard to French risk, which may stand to be favourable versus other Euro-markets based on spreads seen at the end of 2023 on French auto ABS and RMBS transactions.

Elsewhere, one market participant tells SCI that senior Italian ABS and of course UK BTL RMBS are on investors’ watchlists this year too. UK BTL RMBS is seeing better relative value than prime and non-conforming counterparts, which are exposed to more performance deterioration.

Weight off
While BTL and non-conforming RMBS markets may be a little flat this year given reduced supply from a drop-off in lending, issuance for prime RMBS and auto ABS is looking up. 

“There’s a really strong technical there,” says Charleston. “Because a lot of triple-A BTL and non-conforming bonds have been pre-placed for the past year or so, there’s just less bonds available in the market fuelling a strong spread tightening.”

Moving down the rating curve or into more specialist corners of the market could be attractive for investors this year, according to TwentyFour. Spreads in UK single-A rated BTL RMBS sit at +300bp, with triple-B at +400bp. Investors can tap triple-B rated ABS to enjoy similar spreads seen in high yield indices, or achieve spreads of +500bp from triple-B CLOs rather than buying triple-C rated high yield at similar spreads. 

Clear pick-ups in spread are especially appealing in a late cycle environment according to TwentyFour. Double-B rated RMBS will usually offer a 200bp pick-up relative to triple-B’s – the same ratings shifting for CLOs will offer a pick-up of around 300bp.

“Generally, there’s good inflows, so demand more broadly is strong,” says Charleston. “The biggest differentiator is the types of deals – those that can attract bank treasury investors and those that cannot.”

Historically, the likes of UK prime RMBS and major auto deals from VW in Germany have benefitted from broad investor participation. While these deals will attract participation from large building societies such as Nationwide, they typically will not invest in the likes of the latest Fortuna transaction – Fortuna Consumer Loan ABS 2024-1 – which do still benefit from solid participation (SCI 16 January). This dichotomy in the investor base is expected to continue in the year ahead.

However, across the board, Charleston expects to see most buyers being happy enough to focus on their own specialities. He adds: “Because the technicals of supply and demand are probably more important in securitisation than in other markets, it tends to drive performance spreads quite quickly.”

This includes European CMBS, which could see a revival this year after a modest uplift in activity in Q4 of last year. Indeed, setting aside December 2022 – when figures were skewed by Barclays’ fully retained £3.5bn Shelby Real Estate Funding CMBS – the €678m of European primary CMBS issued in November 2023 was the highest monthly figure since the €1.6bn issued in July 2021, according to SCI data. It was also the first time the European market had seen two consecutive months of activity since April-May 2022.

“Seeing a couple of primary deals last year helped set the pricing again, because nobody really knew where those bonds would trade,” states Charleston. “That not only set the floor for spreads, but also started to give investors some more confidence as to where they should be bidding or selling bonds.”

He adds: “We were not active in CMBS for around a year but the market – including ourselves – has closely monitored these deals, so I expect it will be an area of focus later this year, particularly with the tightening of spreads in CLOs. Suddenly when markets are buoyant, the investors ask where the best potential value is. CMBS has really been a place for more nimble investors that are happy to be the first-movers.”

Claudia Lewis

Romanian SME boost

EIB Group and Deutsche Leasing Romania close synthetic securitisation

The EIB Group and Deutsche Leasing Romania (DLRO), part of the Deutsche Leasing Group, have executed a €335m synthetic securitisation.

In terms of structure, the transaction follows the pattern previously set by the EIB Group. Specifically, the EIF is providing protection on a mezzanine tranche of €54m (which is in turn counter-guaranteed by the EIB), and protection on a senior tranche of €276m (50% of which is in turn counter-guaranteed by the EIB). The structure, which features synthetic excess spread in the form of use-it-or-lose-it, a three-year replenishment period as well as pro-rata amortisation of the senior tranche and the mezzanine tranche (subject to performance triggers), references a portfolio of leases and loans with a total outstanding balance of €355m.

Under this arrangement, DLRO is committing to provide new lending of €439m to small businesses and mid-caps over a three-year period. Nearly 30% of the financing will be committed to projects contributing to climate action and environmental sustainability, highlighting the commitment of DLRO and the EIB Group to support the transition to a low-carbon economy.

Vincent Nadeau

ABS

Transition boost

Climate-focused guarantor eyes emerging markets

The Green Guarantee Company (GGC), the first-ever climate-focused financial guarantor, is set to boost climate finance in developing countries by providing guarantees for institutional investors buying green loans issued in the private credit market and green bonds listed on the London Stock Exchange (LSE). Instruments that are eligible for a GGC guarantee include securitisation bonds that are certified under the Climate Bond Initiative’s Climate Bonds Standard. 

GGC will leverage an initial US$100m from its anchor investors - the UK Foreign Commonwealth & Development Office’s MOBILIST programme, the Green Climate Fund, the Nigeria Sovereign Investment Authority (NSIA), the US Agency for International Development (USAID), Prosper Africa and Norfund - to provide up to US$1bn of guarantees, underpinned by a triple-B insurer financial strength (IFS) rating with a stable outlook from Fitch. The firm will seek to raise additional capital from the private sector as it scales its operations, targeting a guarantee capacity of US$5bn-plus by 2035.

GGC’s cover will target green infrastructure, renewable resources, alternative energy and clean transportation transactions. Guarantees will be prioritised for issuers from countries eligible for official development assistance in Africa, Asia and Latin America. By helping to improve the credit ratings of assets to above investment grade, the guarantees will enable borrowers in developing countries to access a bigger pool of capital at a lower cost than they would otherwise achieve.

GGC also plans to support borrowers in delivering a high standard of reporting on the climate impact of the green bonds and loans it guarantees. The firm will work with issuers to build their capacity to deliver quality and consistent reporting to help make green bonds and loans from developing countries an attractive asset class deserving of larger allocations in global climate debt portfolios.

“GGC’s ambition to unlock US$1bn in climate finance is a clear illustration of the powerful role that public markets can play in mobilising the capital needed to realise the climate transition in emerging markets. The UK’s recent International Development White Paper highlighted the need for greater investment in these markets, including from the private sector. MOBILIST’s investment in GGC delivers that vision by mobilising new sources of finance through new vehicles that can crowd in new investors at scale,” comments Andrew Mitchell, UK Minister of State in the FCDO.

The FCDO’s flagship MOBILIST programme supports investment solutions that help deliver the global goals for sustainable development and the climate transition. MOBILIST competitively sources and selects dedicated emerging and frontier market investment products.

GGC was established and will be managed by the Development Guarantee Group, which was co-founded with incubator Cardano Development as its institutional shareholder. The leadership team comprises co-founders Boo Hock Khoo and Lasitha Perera, who collectively have over 45 years’ experience in finance, across structured finance, guarantee and credit enhancement products.

Corinne Smith

Structured Finance

SCI Start the Week - 5 February 2024

A review of SCI's latest content

Last week's news and analysis
B note bonanza
GSE CRT benefitting from 'bullish technical'
Job swaps weekly: M&G lures new cio from Allianz GI
People moves and key promotions in securitisation
Mortgage modelling
Agency MBS could 'exacerbate' financial crises
Office loans face global DFG challenges
AEW publishes its first global CRE debt funding gap analysis
Powen pioneers Spanish solar ABS
Brookfield Asset Management portfolio company close pioneering deal
PRA urged to fix non-neutrality issue
Updates on PCS output floor response and Italian NPL court ruling
Plus
Deal-focused updates from our ABS Markets and CLO Markets services

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 Global Risk Transfer Report 2023: New frontiers in CRT
Sponsored by Arch MI, Man GPM, Mayer Brown and The Texel Group, the free report is available to download here.

SCI In Conversation podcast 
In the latest episode of the SCI In Conversation podcast, SCI's deputy editor Kenny Wastell speaks to S&P Global Ratings’ md and head of EMEA structured finance research Andrew South and Alastair Bigley, md and sector lead for European RMBS, about the year ahead.
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
SCI’s 3rd Annual ESG Securitisation Seminar
16 April 2024, London

Emerging Europe SRT Seminar
18 June 2024, Warsaw

2nd Annual Esoteric ABS Seminar
25 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

Economic risk underestimated?

RWA density study shows downward convergence

A new Deutsche Bundesbank discussion paper points to a downward convergence of banks’ RWA densities over time after switching to the IRB approach for calculating capital requirements for credit risk. The paper demonstrates that such a convergence cannot be entirely explained by differences in bank size, loss levels, country risk or time of IRB implementation and therefore could underestimate banks’ actual economic risk.

Calculated as a bank’s RWAs over total assets, the RWA density provides a measure of the average riskiness of its assets. An increase in the RWA density shows that the overall quality of a bank’s assets has deteriorated from a regulatory perspective, while a decrease in RWA density would indicate that the assets’ risk profile had improved.

An increase may arise as assets with higher risk substitute lower-risk assets, without any change in the corresponding risk weight factors, the Deutsche Bundesbank paper notes. Alternatively, changes in RWA density may be due to national regulations influencing RWA calculations, with soft or hard minimum capital requirements translating to a lower bound on banks’ RWA density.

While previous studies have focused on the heterogeneity of RWA densities across banks and jurisdictions, changes in RWA densities over prolonged time-periods across countries with different risk profiles and supervisory strictness have not been explored. The paper therefore investigates quarterly data of 52 listed banks headquartered in 14 European countries that adopted the IRB approach between 1Q07 and 4Q19, controlling for several factors that could explain convergence, such as country risk, bank size, portfolio composition, loan loss provisions and profitability. Further, differences in RWA levels are explored by grouping banks based on their sovereign risk and regulatory and supervisory strictness.

The results reveal that the mean RWA density decreases from 49.77 in 2007 to 35.47 in 2019 and the corresponding standard deviation decreases from 18.70 to 13.18. The paper finds that factors like bank profitability, equity capital and countries’ credit supply are significant in explaining variation in RWA density. Moreover, countries in the same risk or regulatory strictness group share some common traits.

In countries with high country risk, for example, banks’ RWA density only slightly decreases or even increases with the adoption of the IRB approach - still closely reflecting the high country risk. Yet, the initial change is followed by a gradual decrease that occurs at a higher pace than in most other countries.

In countries with less strict regulations, a significant initial reduction of RWA density is observed upon adopting the IRB approach, followed by further gradual decreases over time. In contrast, banks in countries with strict supervision reduce their RWA densities to a smaller extent after the switch to the IRB approach, with densities subsequently remaining largely stable and even increasing in response to the tightening of regulations.

“Overall, our results show that the adoption of the IRB approach reduces differences in RWA densities between countries, which makes internal models less suitable for reflecting the country-specific risk factors. Internal credit risk models are intended to map the risk in each institution more effectively than the standardised approach; yet a downward convergence in risk across countries is counter-intuitive,” the paper states.

It goes on to warn that output floors on minimum capital levels in the IRB framework should be determined “with caution”, as excessively high pre-imposed levels might have the counter-effect of leaving banks with less room to maneuver - which would ultimately lead to RWA density convergence across banks and thereby fail to reflect the actual level of economic risk.

“Especially in high-risk countries, RWA densities seem to underestimate banks’ actual economic risk. Hereby, we reveal that risk does not fully explain RWA density convergence. Thus, the IRB approach enables regulatory arbitrage, whereby authorities may only enforce strict supervision on capital requirements if they do not jeopardise bank existence,” the paper ultimately concludes.

Corinne Smith

Capital Relief Trades

Capital velocity

SRT market update

With February now well underway, SRT investors repeatedly report a busy start to the year. Describing a context in which increasing volumes are mostly driven by growth and repeat issuance, participants already expect 2024 to be another record year for the SRT market.

“I think that everyone at the moment is driven by capital velocity,” notes one SRT investor. “It’s not just SRT; it's originate-to-distribute and forward flow arrangements - those kinds of transactions. But capital velocity is king this year and a lot of that activity will be in SRT.”

The investor further suggests that a tightening in spreads is sparking optimism. He says: “There’s a lot of optimism and I think the sense on the investor side is very much that spreads are tightening, for all sorts of reasons – supply and demand dynamics, fundamentals, the rate cycle and so on. There is a clear expectation that spreads are tightening, at least for the first few months of the year.”

Regarding current market dynamics and issuer appetite for SRT deals, the investor notes: “We’ve had a record number of RFPs hit our desk already and it’s only just February. And the majority of those RFPs are referencing SME and corporate portfolios.”

Additionally, the investor describes existing issuers as being more proactive. He says: “Because there’s such a regulatory cliff in 2025, there is a sense that everyone is trying to get ahead of that. Nobody wants to be issuing at the end of the year because it's likely to become a bit of a pile-up, with banks potentially trying to close deals that they couldn't get away earlier.”

He continues: “On top of that, our understanding is that established issuers are looking to double their number of trades this year. If you did one transaction, the expectation is you now do two. So, there is twice the volume – roughly - to place in a shorter period of time, if you discount the end of a year. The market is therefore very busy at the moment.”

Elsewhere, a letter of release was issued by BNP Paribas, confirming the call of its Resonance 3 transaction. In terms of the SRT deal pipeline, meanwhile, the bank is believed to be in the market with another US corporate SRT, entitled Dune. Further confirmation has also emerged that Standard Chartered is prepping its ninth Chakra trade (SCI 25 January).

Vincent Nadeau

CMBS

Non-traditional use

CMBS temporary housing challenges highlighted

Some landlords grappling with elevated office and lodging property vacancies in New York City are turning to alternative sources of revenue. The special servicer on the US$77m 315 West 36^th Street loan (securitised in the BMARK 2018-B3 and COMM 2018-COR3 CMBS transactions), for instance, last month reported that the borrower is in discussion with city officials to lease the property as a migrant shelter.

According to KBRA, initial discussions included a potential three-year lease term with two one-year extension options. The 143,479 square-foot mixed-use building in the Garment District of midtown Manhattan is almost entirely vacant after WeWork terminated its 133,208 square-foot lease through bankruptcy. The loan fell 30 days delinquent in May 2023 and was transferred to special servicing. The special servicer subsequently installed a receiver and continues to pursue foreclosure.

KBRA notes that this is not the first time the city has used its abundance of underutilised office space as an opportunity to address housing for migrants and homeless individuals. The agency cites the Hall - a 674,000 square-foot 10-building office complex near the Brooklyn Navy Yard – as an example, which was vacant following its completion in 2021 until owner/developer RXR entered into an agreement with the city’s public health care network to utilise two buildings as short-term respite centres for migrants.

The remaining eight buildings underwent conversion for longer-term shelter use. Since then, the shelter has reportedly been plagued with overcrowding and contractor issues, all while generating income far below original expectations that assumed traditional office use.

The city also continues to expand homeless and migrant housing options through contracts with various lodging properties, which are more readily available for immediate use as housing. KBRA highlights the US$275m contract between the Hotel Association of New York City (HANYC) and the New York City Department of Homeless Services (DHS) to house at least 5,000 migrants for six months. The contract was later extended in September 2023 for an additional three years at a price of nearly US$1.4bn.

Beyond the uncertainty surrounding the duration of these contracts, the agency says it maintains concerns regarding above-average wear-and-tear at properties utilised for temporary housing. “Challenges faced in retrofitting lodging/office for non-traditional use (homeless and migrant housing) extend beyond upfront capital investments. If demand for temporary housing inventory dwindles, there is uncertainty in the viability of a conversion back to traditional commercial use as office, residential or lodging. These factors would influence investor demand and weigh on property values,” it adds.

The KBRA Loan of Concern (K-LOC) Index stood at 21.071% in December 2023, remaining virtually unchanged from 21.072% the previous month. The agency identified 64 new loans (representing US$1.45bn) as K-LOCs in its conduit CMBS coverage universe in December, including 28 office loans (US$954.5m).

Corinne Smith

SRTx

Latest SRTx fixings released

Index values indicate tightening in spreads in line with overall risk markets, with improved outlooks for volatility and liquidity

The latest fixings for the SRTx (Significant Risk Transfer Index) have been released. Spread indexes have tightened compared with January’s fixings (SCI 8 January), mirroring trends seen elsewhere in global risk markets. There have been improvements in both the volatility and liquidity indexes reflecting a more accommodative market and high deal volumes.

After last month’s widening in SRTx Spread Indexes, this month’s survey responses show a tightening across the board – in terms of both geography and segment. However, the move is more pronounced in the large corporate segment (-11.6% in Europe and -9% in the US) than the SME space (-5.3% in Europe and -3.2% in the US). 

The SRTx Spread Indexes now stand at 1,038, 881, 1,108 and 1,238 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively, as of the 1 February valuation date. 

On the volatility front, this month’s survey responses saw index values dropping significantly to below the 50 mark in each category and geography, signifying further positive sentiment. All SRTx Volatility Index values fell by more than 25%.

The SRTx Volatility Index values now stand at 41, 42, 41 and 38 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

Similarly SRTx Liquidity Index values point to continual improvement in sentiment, with most values dropping to around the 30 mark. European large corporate and SME values both fell in lockstep (-21.9%), while the value for US large corporates fell more modestly (-12.5%) but from a lower base. The Index value for US SMEs was the only value that increased (+12.5%), though it remains below 40. 

The SRTx Liquidity Indexes stand at 31, 29, 31 and 38 across SRTx CORP LIQ EU, SRTx CORP LIQ US, SRTx SME LIQ EU and SRTx SME LIQ US respectively.

Finally, The SRTx Credit Risk Indexes indicate that credit risk remains elevated and at the back of minds until the macroeconomic backdrop improves, though values have tempered somewhat since last month. All values are now within the 55-60 range, with European values rising slightly (+2.3% and +8% for large corporates and SMEs respectively) and US values falling (-12.5% for large corporates and -15.6% for SMEs).

The SRTx Credit Risk Indexes now stand at 56 for SRTx CORP RISK EU, 58 for SRTx CORP RISK US, 59 for SRTx SME RISK EU and 56 for SRTx SME RISK US.

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

ABS

Navient unveils 'strategic actions'

Market updates and sector developments

Navient has unveiled a strategic action plan designed to simplify the company, reduce its expense base and enhance its flexibility, following an in-depth review overseen by the Board over the past several months. The strategic actions include outsourcing the servicing of its student loan portfolio to a third party; exploring strategic options for its business processing division, including potential divestment; and streamlining the company’s corporate functions to align with a simplified business model.

Under the plan, Navient has entered into a binding letter of intent that will transition its student loan servicing to MOHELA. This transaction is intended to create a variable cost structure for the servicing of Navient’s student loan portfolios and provides attractive unit economics across a wide range of servicing volume scenarios. Navient says that it will work with MOHELA to ensure a seamless transition in the coming months and provide customers with uninterrupted servicing of their loans.

In addition, Navient is exploring a range of strategic options aimed at creating value for its business processing division, which provides high-quality business processing services for a variety of government and healthcare clients. With the decision to outsource student loan servicing, exploring options for the business processing division increases the opportunities for shared cost reduction, according to the firm. As such, it is working with financial and legal advisors to explore options, which may include a sale of the division in whole or in part.

As it implements these actions, Navient also plans to reshape its shared services functions and corporate footprint to align with the needs of a more focused, flexible and streamlined company. Based on full-year 2023 operating expenses, approximately US$400m - which is net of expected outsourced servicing expenses - could be eliminated under a scenario in which these three steps are completed.

Implementation of these transactions is expected to be largely complete over the next 18 to 24 months.

As at year-end 2023, Navient’s student loan portfolio comprised US$39.1bn FFELP loans and US$16.9bn of private student loans (including US$8.8bn of refinance loans). Meanwhile, the company serviced US$44bn of FFELP loans.

BofA Global Research analysts anticipate that Navient will continue to be the named servicer for its securitisations and will retain the right to repurchase loans and/or call transactions. At the same time, it is set to continue originating private student loans.

Structured Finance

FCA review spells uncertainty for UK auto ABS

Market updates and sector developments

The UK FCA last month announced a review of the historical commission structures across several auto lenders in the UK, with a warning that should widespread misconduct be found, appropriate redress measures will be taken to compensate customers. While the overall credit risk profile of UK auto ABS transactions is unlikely to be negatively affected, the investigation exposes the sector to considerable uncertainty, according to Morningstar DBRS.

Indeed, the rating agency foresees two potential sources of risk arising from the investigation that may adversely affect existing transactions: set-off risk, which may be invoked by securitised borrowers; and a remote risk of loan cancellations and/or variations. Set-off risk could arise due to customers being owed a debt (the potential redress amount) by the seller. Typically, transaction documents provide for extensive indemnification obligations by originators when set-off claims arise.

Similarly, if a loan were to be voided or had its customer rate reduced, there are often structural protections in place to mitigate such risk. Morningstar DBRS cites as an example VW’s inclusion in the skilled person review undertaken by the FCA, following which the issuer has advised that it does not expect any potential penalties to have an impact on its going concern assessment and that it expects to live up to its obligations under the transaction documents in connection with the Driver UK 6 and 7, as well as the Private Driver UK 2020-1 securitisations (ABS Markets Daily - 30 January).

“If a significant number of loan contracts were subject to the exercise of set-off rights or be voided or amended to reflect a lower rate of interest, this could result in the reduction of amounts due under the purchased receivables or the timing of the availability of funds,” the agency observes. “Such outcome may adversely affect the respective issuer's ability to make full and timely payments due on the notes issued. Adequately sized liquidity reserves may alleviate the short-term liquidity stress presented.”

The volume of loans affected by the investigation in UK auto ABS is limited, due to discretionary commissions being banned with effect from January 2021 and the relatively short life span of auto loans.

In other news…

Dexia outsources legacy bond portfolio
Mount Street is set to take over the servicing of Dexia’s €17bn legacy bond portfolio and incorporate a team of eight of the firm’s Dublin-based bond management experts, acting as Dexia’s exclusive outsourced service provider for portfolio management services. Under the terms of the five-year contract, Mount Street - through its regulated business, Mount Street Portfolio Advisers (MSPA) - will undertake a range of services, including asset management, trade execution, portfolio market data and valuation, and strategic advisory.

The €17bn portfolio comprises a range of bonds, financial instruments and credit products from issuers in the public finance, local municipality, utility, social housing and related sectors, across various jurisdictions in Europe and North America. The transaction enables Dexia to pursue the management of its loan and bond portfolio in run-off in an orderly manner.

The new mandate builds on Mount Street’s outsourcing track record, following its acquisition of EAA Portfolio Advisors in 2017 (SCI 23 January 2017) and its role as independent portfolio manager for Helaba’s HLB Private Markets platform.

Structured Finance

Job swaps weekly: Interpath poaches four from EY

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Interpath Advisory hiring four senior professionals from EY, including a securitisation-focused md. Elsewhere, Sumitomo Mitsui Banking Corporation (SMBC) has hired a new md and deputy head of Asia Pacific to oversee structured lending and private wealth, while Natixis has appointed a Paris-based global head of securitised product trading and expanded its real estate and hospitality team for the Americas.

Interpath has expanded its financial services (FS) deal advisory offering with the recruitment of four experienced professionals from EY. Jenna Picken joins the firm as an md and will lead its securitisation debt advisory unit, based in Manchester.

With a broad and varied career in structured finance, she was previously a director within the financial services corporate finance team at EY, primarily operating across mid-market financial services and speciality finance. Before that, Picken worked at Together and RBS in structured finance-related roles.

Also joining Picken in Interpath’s FS deal advisory team are Jack Dutton, Nico Angeliniadis and Olivia Dunning. Dutton joins the firm as a director, having previously spent five years in EY’s financial services corporate finance team, where he specialised in debt advisory. Prior to EY, he worked at RBS in roles spanning structured finance and fund finance.

Angeliniadis arrives as an associate director from the financial services corporate finance team at EY, where his experience included advising a UK asset finance lender on a £275m private securitisation. Prior to that, he worked across financial services audit and valuations, including at KPMG.

Dunning joins the team as a manager, having previously spent over six years at EY, specialising within the debt advisory and turnaround & restructuring practices.

The arrival of the new team follows the hiring of Nick Parkhouse to lead Interpath’s financial services deal advisory offering, beginning in March. He was previously a partner at EY, which he joined in September 2015, having worked at RBS in specialty finance securitisation before that.

Meanwhile, SMBC has appointed Carsten Stoehr as md, deputy head of Asia Pacific. In this new role, he will oversee the firm’s structured lending and private wealth businesses across the region, working closely with its coverage teams to drive further growth and maximise client opportunities.

Based in Singapore, Stoehr will join SMBC on 19 February, reporting to the firm’s co-heads of Asia Pacific. He joins from Credit Suisse, where he spent over 25 years, most recently as md, ceo – Greater China, as well as chair of the board of Credit Suisse (HK) and Credit Suisse Securities (HK). Prior to this role, Stoehr was head of Asia Strategic Products, where he was responsible for the integrated financing platform for all financing and lending, securitisation and syndication activities across the Asia Pacific.

Natixis has promoted Antoine Dulucq to global head of securitised product trading, based in Paris, and made two senior appointments within its real estate and hospitality (REH) Americas team. Christopher LaBianca has joined as md and head of conduit origination, based in New York, and David Kadin has joined as md, senior originator and head of the firm’s Los Angeles office.

Dulucq is promoted from the role of executive director for European ABS and CLO trading, having joined the bank in 2021. He previously worked at NatWest Markets, where he spent 15 years in a number of structured finance roles.

The arrivals of LaBianca and Kadin round out the firm's strategic reinforcement of its real estate platform, which began in June 2022 with the hiring of Priscilla Torres as head of REH Americas. Torres' appointment was followed by the recruitment of Julie Han as head of underwriting and David Schwartz as head of portfolio lending. Additionally, Chuck Lee was hired as the head of CMBS Americas in April 2023.

LaBianca and Kadin, along with Han, Schwartz and Lee report to Torres.

LaBianca has more than 30 years of experience in the real estate debt markets across the commercial and investment banking and private equity space. Most recently, he served as head of origination and business development for the CRE finance division of UBS and led the origination platform for its real estate finance and MBS group.

Kadin has 25 years of broad-based experience in loan originations, acquisitions and the asset/property management of office, industrial, retail, life science, self-storage, hotel and multifamily properties. He joins Natixis from Nuveen Real Estate, where he served as head of debt for the Western US, managing the origination and closing of multi-billion value-add floating rate and core fixed rate loans in major US markets.

Assured Guaranty has appointed Nicholas Proud as global head of origination for its financial guaranty business, a new role that aims to enhance the firm’s strategic approach to generating new business and executing transactions, including in new asset classes and jurisdictions. Reporting to coo Robert Bailenson, Proud is responsible for developing new financial guaranty solutions and will now oversee the US public finance business, in addition to the international infrastructure and global structured finance teams.

Dominic Nathan will assume Proud’s responsibilities as ceo of Assured Guaranty UK (AGUK) and head of international. Nathan was most recently senior md, infrastructure finance and the chief underwriting officer of AGUK, with additional responsibility for the international infrastructure business at AGE.

Reinsurance brokerage firm Augment Risk has launched a dedicated ILS division, enabling its clients to access private, institutional capital backing reinsurance structures. Augment Risk ILS Solutions will be led by Thad Hall, who brings two decades of industry experience across ILS, structured products, finance and asset management at firms including AXA XL and Travelers. Most recently, he was md at Ledger Investing.

Citi has appointed Srikanth Sankaran head of European credit strategy, based in London. He was previously md, head of credit and ABS strategy, Europe at Morgan Stanley, which he joined in 2010. Before that, Sankaran worked at UBS and JPMorgan.

DLA Piper has appointed Joo Kim as a partner in its structured finance practice in New York. She has over 23 years of experience in advising large financial institutions and companies in complex structured finance transactions and securitisations, with a focus on CMBS. Kim was previously special counsel at Cadwalader, which she joined in January 2017, having worked at Mayer Brown before that.

Ian Catterall has joined Howden CAP as executive director, head of project finance advisory within the balance sheet advisory and structuring group. He has 30 years of experience in project finance, most recently as md, head of natural resources at MUFG, which involved deploying the bank’s full product suite, including structured finance.

Alison Coen has joined CMBS advisory firm Brighton Capital Advisors as a principal, based in New York. She was previously a senior md at Greystone, which she joined in May 2021, having worked at Barclays, Natixis, Citi and Fitch before that.

And finally, Johannesburg-headquartered car financing business Planet42 has promoted Richard Kesküla to structured finance lead, based in Tallinn, Estonia. Kesküla is promoted from the role of business analyst and has been with the firm since 2021, when he joined from Swedbank.