News Analysis
RMBS
Budding partnerships
Hope for newcomers to tap opportunities in US private-label RMBS
Fitch and subsidiary dv01 launched a new RMBS presale platform in February with the intention of boosting access to data and luring more investors to US RMBS, including the private-label securities (PLS) market. The tool, named Interactive RMBS Presale Report, is the first in a pipeline of projects born out of Fitch’s acquisition of the structured-finance-focused loan-level data and analytics platform in September 2022.
For now, PLS RMBS deals account for just 5% of total issuance in the US, with the majority of the US$14trn RMBS market dominated by federal government issuance – approximately 60% Fannie Mae and Freddie Mac, and 30% Ginnie Mae.
“We’ve seen some growth, but I don’t think we’ve yet reached the full potential for the private-label securitisation market,” says Kevin Kendra, head of US RMBS at Fitch Ratings. “If you think about the size of the market in the US alone, securitisation should play a bigger role in financing that – certainly more than 5% of the market.”
He adds: “While PLS is only securing 5% now, a healthy market would have up to 20% being financed by securitisation – so we are still somewhat captive to what is not being financed by GSEs.”
Although US RMBS issuance activity has been strong so far this year, the market has still not seen a significant rise in volumes post-GFC, as high barriers to entry prevail. Many understand there to be plenty of room for new investors, yet Fitch says the persistently high barriers are in part due to the demanding and costly processes of purchasing data and analytics systems separately. This is especially the case for participants not yet involved in the RMBS market.
“By lowering that barrier to entry you’ll get more eyeballs on the product,” says Kendra. “They can understand the risk, and make recommendations on the asset class with the tools in place to manage the risk effectively.”
Building on traditional presale reports, the new initiative intends to offer market participants greater insight into Fitch’s credit risk analysis and key ratings drivers for US RMBS. By increasing transparency through customisable multi-risk layer stratification tables, the new interactive system could prove to be a powerful tool for potential new entrants.
“We are providing better transparency to investors on our analytical processes about what is really driving our loss expectations at the various rating categories,” explains Kendra. “This is an extension of what we began doing for ourselves internally. We found it useful and thought investors might find it useful.”
Marking the first initiative to be born out of Fitch’s 2022 acquisition of dv01, the new Interactive RMBS Presale Report is a seemingly natural extension of both firms’ work. The rationale is to up the ante on the evaluation of collateral quality and performance for US RMBS by combining Fitch data with dv01 data and systems (SCI 13 September 2022).
“There is nowhere else investors can access our loss expectations, so having access to that is brand new, but then stratifying portfolios, seeing how much the portfolio has a Fitch FICO in the 750-760 band or the 750-775 band – they can customise that however they want to,” explains Kendra. “Currently, they would have to request the data tape from the bankers, download and manipulate it to create the stratifications, and it would still be missing Fitch’s loss expectations.”
The customisable views offered by the new presale report, which are intended to provide better insight into deals and more comprehensive comparisons, are understood to not yet be available elsewhere. This is designed with the intention of giving investors even more flexibility.
Although it is broadly considered inevitable that data access and usability will continue to improve across the market, Kendra views the transparency offered by the new Interactive RMBS Presale Report as being largely unprecedented (SCI February 2023).
“People discuss loss-modelling as if it’s a black-box exercise – and this system actually sheds light into that process,” Kendra explains. “Maybe you can’t see all of the moving parts, but you certainly can see the impact individual risk factors have – or don’t have – on what we are expecting for losses.”
The new initiative could prove especially useful given expectations around growth in the US PLS RMBS market, as well as the several challenges facing the broader US MBS space at present. While mortgages once stood out as an attractive investment in the US, regulatory changes have made it more expensive to hold assets – meaning appetite for holding whole loans has been in decline. However, Kendra notes that securitisation is a natural tool to help shift the credit risk for the market, providing exposure to mortgages via RMBS.
He adds: “Basel 3 endgame is of course pushing some portfolios on the balance sheet towards the PLS market too, as how capital charges will be attributed in the US remains up in the air. So, those portfolios represent potential growth for securitisation financing.”
Of course, the process of upping transparency is a delicate balance – no matter how beneficial it could be in establishing a more robust market in the US. Many participants remain hesitant to offer greater disclosure, as they are yet to be convinced of the benefits of doing so. The new Interactive RMBS Presale Report is intended to be flexible enough to match the varying levels of disclosure in US RMBS – for instance, Fitch anonymises the mortgage originators to be consistent with the offering documents.
Indeed, for bankers, given some of the legal aspects to marketing a transaction, they do not want to create any more risk on their side – or they at least want things to be attributed appropriately. Although bankers are reportedly mostly interested in the initiative, Kendra says, many are still awaiting legal signoff.
Nevertheless, both the reception and future prospects of the new initiative remain strong. “It is early days,” says Kendra. “We already have one issuer who is very excited about it [and is] working on a transaction – and their banker is excited about it too. The recently published NRMLT 2024-NQM1 presale report is the first transaction utilising Fitch’s Interactive RMBS Presale features.”
Future initiatives
While the Interactive RMBS Presale Report is the first project to be announced from Fitch’s acquisition of dv01, the pair have also announced their second project: the Non-Agency RMBS Benchmarks. The tool is intended to improve market representation and analysis by offering a free platform covering the non-qm and prime jumbo markets.
“Benchmarking is an important part of the analytical process to assess how a deal or shelf looks compared to the overall market, understand what is driving the risk, and separating one from the other – if one is performing better or worse than the other,” explains Kendra.
The initiative will establish two different benchmarks based on Fitch and dv01 data – which combined capture around 70% of all recent issuance seen in the marketplace.
“We’re working towards full coverage, but by joining our overlapping coverage lists, the benchmark will probably be one of the most robust indices in the market,” Kendra states. “They can use dv01 tools to interrogate and understand the benchmarks better – investors will only see the aggregated data, not all the loan level data unless disclosed by the issuer.”
Beyond the first two initial projects born from Fitch’s acquisition, Kendra outlines that longer-term initiatives are already underway.
“A lot of what dv01 does and what we at Fitch do is very synergistic,” he says. “We will only continue to use and learn from their technology.”
Claudia Lewis
28 February 2024 13:48:30
News Analysis
Capital Relief Trades
US SRT: Unblocking uncertainty – video
Clifford Chance's Gareth Old speaks to SCI about recent developments in the US SRT market
Gareth Old, derivatives- and structured-finance-focused partner at Clifford Chance, speaks to SCI's Simon Boughey about recent developments in the US SRT market. Old discusses the use of the synthetic securitisation framework in bank-issued credit-linked notes, the time frames required for deal submissions and approvals, whether future developments could remove further hurdles to issuance, and more.
29 February 2024 10:23:34
SRT Market Update
Capital Relief Trades
Greater visibility?
SRT Market Update
As the last month of Q1 begins, a number of banks are expected to close SRT trades imminently. Consequently, more clarity is likely to emerge around where spreads are heading.
“Generally, there is not a lot of new information coming out of the SRT market. However, we are definitely getting to the point where trades are starting to price, which will give some visibility as to where spreads are going in Q1,” notes one SRT investor.
In terms of timing, Standard Chartered (with its latest Chakra trade), Santander (Ducati) and Deutsche Bank (CRAFT) are all expected to close transactions very shortly. Regarding the latest Chakra transaction, Standard Chartered is offering - like last year - two tranches to investors: a first loss (0%-6.5%) and a mezzanine tranche (6.5%-9.25%).
Regarding whether the deal is expected to price tighter compared to its predecessor, the investor points to its unconventional portfolio. He says: “For Chakra, it will be a bit different, given its extremely heavy commodity exposure - particularly compared to the rest of the trades that are pricing at the moment. But then again, it’s a relatively small transaction, at less than US$100m.”
He adds: “I feel that investors involved in the previous deals continue to bid on the new ones. If suddenly Standard Chartered were to upsize the deal, then I believe it would struggle.”
Rumoured to have priced this week, meanwhile, is BNP Paribas’ Broadway trade. Commenting on the pricing, the investor suggests that the issuer was “targeting a flat 8%, but it might have priced under that.”
Regarding other segments in the market, another SRT investor notes: “In the real estate spectrum, we haven’t seen anything yet. The market is very tight and there's not much supply either, with a lot of investors pouring in.”
He continues: “We anticipate that Barclays will bring another Colonnade deal soon, but also the other big players are likely to tap the market. The pipeline is building, but it currently lacks some visibility.”
Looking ahead, the investor anticipates a busy Q2. “I think it’ll be a busy second quarter - particularly around May and June - because the banks will have to print deals.”
Vincent Nadeau
News
ABS
Endgame alarm
Speakers at SFA mull the chances of re-proposal of Basel Endgame
There is only a 30% chance that the highly controversial US bank capital rules known as the Basel III endgame will be re-proposed, said a speaker today at the Structured Finance Association (SFA) conference in Las Vegas.
This gives a 60% chance of it going forward as it stands, with 10% being in the lap of the gods.
Others added that if regulators are determined to press ahead with the rules without modifications, then they could be implemented as soon as May or June. It is an election year in the US, and there is thought to be pressure to get things moving before a possible, and more hostile, administration assumes power.
It is now down to the seven governors of the Federal Reserve, three of which are Republican and four Democrat. Even though there has been broadly based pushback against the capital rules, some governors are said to be keen to “push ahead without a full consensus.”
Some speakers were more optimistic, saying the proposals had met such widespread and cross-party opposition and there was a good chance they would be re-proposed. Another, paraphrasing – perhaps unconsciously - Winston Churchill, said “I think the regulators will do the right thing after they have exhausted all the other possibilities."
The Fed’s Basel III Endgame was excoriated by a variety of speakers, termed “poorly conceived and poorly executed.” It was “rushed out” in the wake of the bank failures of almost a year ago, and regulators wanted to get something on the table before the possible re-election of Donald Trump in November.
There has been an “appalling” lack of co-ordination with other agencies and there is a striking asymmetry with European regulators. “The fault lies not in our Basel but in our stars and stripes,” said a panellist, on this occasional paraphrasing Shakespeare.
For example, the Federal Reserve has proposed a p-factor of 1.0% in securitized transactions, while the EU imposes a p-factor of 0.5% and just 0.25% for qualifying transactions. This will make deals more expensive, hurting both the US consumer and US competitiveness.
Another speaker drew attention to the planned imposition of a haircut floor “similar to corporate debt” in the repo market for securities financing transactions. Lenders will have to hold more capital against such trades, making it more costly to finance GSE purchases.
The phrase “unintended consequences” was used several times as speakers lined up to warn of the dangers of the rules as they now stand.
The proposal would raise capital requirements for large banks, those with assets over US$750bn, by 16% to 25%, while smaller banks, those with over US$100bn in assets, would be looking at a roughly 11% jump, say analysts.
Randall Kroszner, a former Fed governor who is now professor of economics at University of Chicago’s Booth School of Business, argues in a new paper that Basel III Endgame won’t just be costly for banks, it will have “unintended consequences” for consumers and businesses across the US – echoing the words of many.
Simon Boughey
27 February 2024 06:47:35
News
Structured Finance
SCI Start the Week - 26 February 2024
A review of SCI's latest content
Last week's news and analysis
Challenger firm
Dentons looking to put SRT at the forefront
CLO 'stress indicator' launched
Plus updates on homogeneity rules and ETF conversions
Getting ahead
SRT Market Update
Historic opportunity?
MPL ABS set to benefit from credit card refinancing needs
Into the blue
Alpha Bank's latest SRT unveiled
Job swaps weekly: Allen & Overy lures five from Milbank
People moves and key promotions in securitisation
Landmark DFC facility inked
Updates on StoneCo’s new facility and Arc’s analytics platform
Rates and regionals
Greater AOCI pressures will bring US regional banks to SRT market
Record breakers
SRT benefiting from 'greater public awareness'
SCI In Conversation Podcast: Ian Wolkoff, Pretium Partners
We discuss the hottest topics in securitisation today...
Unlocking new frontiers
TRS market to grow as investor demands and market needs collide
US SRT: First waves - video
Seer Capital's Terry Lanson speaks to SCI about the outlook for SRT in 2024
Plus
Deal-focused updates from our ABS Markets and CLO Markets services
SCI In Conversation podcast
In the latest episode of the SCI In Conversation podcast, SCI US editor Simon Boughey speaks to Ian Wolkoff, structured credit and CLO liabilities md at Pretium Partners, about the CLO market’s outlook for 2024. Wolkoff discusses the types of loans that are likely to see default rates tick upwards; refinancing challenges; the high levels of issuance seen so far in 2024 and what it suggests for the year ahead; and more.
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
ESG Leaders’ Securitisation Summit
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
26 February 2024 11:27:10
News
Capital Relief Trades
Bank bonanza
GSIBs, super regionals and regionals to line up for SRT
Between 10 and 30 US banks will be regular issuers in the SRT market, and there also is likely to be a few smaller deals from banks outside this main group, according to a speaker at the SFA conference in Las Vegas today.
Issuers will comprise the GSIBs, super regionals and smaller regionals, the panellist added.
There are 28 banks with US$100bn or more in assets, and six of these have assets of over US$1trn, and these will be the biggest players in the market.
But there are over 200 banks with assets of US$10bn or more and these are all possible candidates for SRT issuance as well.
“Every bank over a certain size is aware of these transactions,” said another speaker.
Investors are also stepping up. One said that it had done nothing in the SRT market until about six months ago, but was now heavily involved in the sector.
“I get a call from an investor asking about this market every day,” said a speaker, adding that it’s a good time to be an investor. There still aren’t all that many in the US and yet the deal flow is becoming more plentiful so more and more deals are competing for a relatively limited supply of dollars.
Banks like to focus on higher quality assets in the SRT market, many of which receive the same risk weighting as lower quality assets but can be sold with lower spreads. The capital call market will be one of the dominant asset classes of 2024 in the US, predicted another panellist.
Simon Boughey
28 February 2024 06:55:02
News
Capital Relief Trades
CEE momentum
EIB inks pair of green transition deals
The EIB Group this week executed two synthetic securitisations that support the green transition, one in Austria and the other in Bulgaria. The move comes amid a ramping-up of SRT activity in the Central and Eastern Europe region by the EIF (SCI 10 January).
Cyril du Boispean, investment officer at the EIF, confirms that the fund’s investments in the CEE region have been growing at a fast pace over the past few years and accounted for over 55% of its investments in 2023, driven by Romania, Bulgaria and Poland. “This is an impressive achievement, given that we started operations in 2020 in Romania and 2022 in Bulgaria. Northern Europe (France, Germany, Austria) and Southern Europe (Italy, Spain, Portugal) made up respectively 24% and 20% of our investment in 2023.”
The EIB Group’s new Bulgarian SRT transaction represents its first synthetic securitisation with Allianz Bank Bulgaria (ABB). This new agreement will increase financing for Bulgarian SMEs and mid-cap companies.
The deal follows a classic structure, whereby the EIF is providing protection on a mezzanine tranche worth €29m – which, in turn, is counter-guaranteed by the EIB - and protection on a senior tranche worth more than €175m, which is guaranteed solely by the EIF. The portfolio includes consumer loans, SME loans and leases with a total outstanding balance of about €207m.
Under the arrangement, ABB has pledged to supply fresh lending of €291m to small businesses and mid-caps over three years. The EIB support is expected to create more favourable conditions for SMEs. Some €64m of this financing will go to climate action and environmental sustainability projects, highlighting how ABB and the EIB Group are supporting the transition to a low-carbon economy.
Meanwhile, the Austrian SRT transaction involved partnering with Hypo Vorarlberg. In terms of structure, the EIB Group is providing Hypo Vorarlberg with a €61m guarantee on the mezzanine tranche of a synthetic securitisation referencing a €360m portfolio of loans to small businesses and mid-caps, mainly originated in Austria. The deal features a two-year replenishment period.
The deal will provide capital relief to create space in Hypo Vorarlberg’s balance sheet and enable the Austrian bank to undertake new lending in support of new highly energy efficient residential buildings. This underlines the EIB Group’s commitment to synthetic securitisation in Austria and its expanding cooperation to support energy efficiency investment and thereby the green transition.
Additionally, the EIB has provided a €50m loan to Hypo Vorarlberg for investments undertaken by SMEs, mid-caps and private individuals. Companies with up to 3,000 employees will be able to apply for long-term loans at preferential rates through Hypo Vorarlberg under the agreement.
Looking ahead at the EIF’s overall strategy, du Boispean points out that “one of our objectives is to expand our geographical reach where we would be - most of the time - the first movers. Slovenia and Croatia are, for instance, likely markets which the EIF expects to tap soon.”
In existing jurisdictions, he adds that EIF also aims at broadening its client base by collaborating with first-time issuers. He admits that “given our thorough due diligence and extensive KYC analysis, notably, onboarding a new originator can potentially be both challenging and time consuming.”
Vincent Nadeau
News
RMBS
Toorak debut
New asset class gets first time rating
Toorak Capital Partners has closed the inaugural rated securitization of residential transition loans, it announced yesterday (February 29).
Designated Toorak 2024-RRTL1, the US$240m trade consists of five tranches, rated low A to low B.
There is also an unrated P tranche.
It was underwritten by Morgan Stanley, which was also an initial purchaser alongside Deutsche, JP Morgan, Performance Capital Trust Partners and KKR Capital Markets.
The deal met robust demand during the marketing process, says Toorak, and was consequently upsized at narrower spreads.
Residential transition loans represent short-term bridge financing, most frequently used to refurbish and rebuild residential properties.
The collateral for this deal comprised 370 transition loans with a total principal balance of US$158.5bn that financed 527 housing units. Over 42% of the two-year revolving loans were originated by Toorak's sister company Merchants Mortgage & Trust Company
Simon Boughey
Market Moves
Structured Finance
Barclays inks 'strategic' credit card sale
Market updates and sector developments
Barclays Bank Delaware (BBDE) has entered into an agreement with insurance accounts managed by Blackstone’s asset-based finance group to sell approximately US$1.1bn of currently outstanding credit card receivables in relation to a defined set of Barclays-branded credit card accounts in the US. This is the first in a series of activities Barclays plans to conduct to reduce its RWAs and create additional lending capacity for BBDE (SCI 23 February).
Anna Cross, group finance director at Barclays, comments: “During our investor update, we said that we would leverage strategic partnerships to execute risk transfer agreements to reduce capital requirements. I am delighted to announce this first agreement in our US cards book.”
As part of the transaction, BBDE will enter into a long-term strategic forward flow sale and servicing arrangement with Blackstone related to the accounts. Blackstone’s investment will be made entirely on behalf of the firm’s insurance clients.
Under the terms of the transaction, BBDE will retain legal title in respect of the accounts and will continue to service the accounts for a fee. Barclays Bank will invest into the transaction alongside Blackstone’s insurance accounts.
The transaction is expected to release approximately £1bn of RWAs on a post IRB approach basis at the Barclays Group consolidated level. BBDE intends to use the proceeds of the sale to fund its lending activities.
Barclays Bank, acting through its investment bank, served as exclusive structuring advisor to Blackstone in the transaction, to which it also served as risk retainer and liquidity facility provider. The transaction remains subject to certain conditions but is expected to fund this quarter.
In other news…
Low-LTV CRT deal prepped
Fannie Mae will be in the market with a new low-LTV CAS deal next week, according to a speaker at the SFA conference in Las Vegas. The GSE will execute US$6bn-US$6.5bn in the credit risk transfer market in 2024, around US$4bn of which will be completed in the capital markets. Issuance will be front-loaded into the first half of the year, partly to take advantage of current favourable market conditions, but also to avoid possible turbulence in Q4 due to the US election.
Pretium lands minority investment
Pretium has formed a strategic partnership with Hunter Point Capital (HPC). The agreement, which includes a minority investment from HPC, aims to support the long-term growth of Pretium's existing strategies – residential real estate and corporate and structured credit – and enable the firm to expand into adjacent areas to create additional value for its clients, residents and employees.
Since its founding in 2012, Pretium has become one of the largest investors in non-agency residential mortgage loans, one of the largest residential business purpose lenders, one of the largest investors in the creation of new homes and the largest owner-operator of single-family homes in the US. "During a time of significant growth and consolidation in the alternative asset management industry, HPC's investment advances many of our top growth initiatives and strengthens our ability to capitalise on the compelling opportunities we see in the residential and credit markets," comments Jonathan Pruzan, president of Pretium. "The persistent undersupply of homes, coupled with the disruption in the banking landscape will offer significant investment potential for the foreseeable future."
Corinne Smith, Simon Boughey
28 February 2024 14:23:57
Market Moves
Structured Finance
Job swaps weekly: Starwood to draft in Blackstone exec as president
People moves and key promotions in securitisation
This week’s roundup of securitisation job swaps sees Starwood Capital Group appoint a new president, as Jeffrey Dishner prepares to transition to a new role. Elsewhere, Siepe has added two structured finance professionals to its leadership team, while Accunia Credit Management has rehired a former senior portfolio manager as head of investments.
Jonathan Pollack is set to join Starwood Capital Group beginning in 2025 as its president, strengthening the firm’s executive leadership team as it prepares for its next chapter of growth. He joins Starwood Capital from Blackstone, where he served as global head of the firm's real estate credit business (BREDS) since 2016.
Pollack was also a member of Blackstone's real estate executive committee and investment committee, as well as Blackstone's operating committee. Prior to joining Blackstone in 2015, he was the global head of commercial real estate at Deutsche Bank and established the bank as the top CMBS issuer and a leading special situations investor, following the global financial crisis in 2008.
Jeffrey Dishner, president and coo of Starwood Capital, will remain in his role as president until Pollack joins the firm, at which time he will assume the role of vice chair and head of strategy and business development.
Meanwhile, Starwood subsidiary Starwood Property Trust has hired Stellar Management’s Pawan Melgiri as md to head up its newly launched mid-market loan originations business. Melgiri leaves his role as an investments-focused partner at Stellar after nine years with the firm. The new division is part of Starwood’s plans to capitalise on regional banks’ retrenchment from the mid-market lending space over the past 12 months, according to statements made by Starwood Capital ceo Barry Sternlicht in a recent quarterly earnings call.
Siepe has recruited two new structured finance experts to its leadership team as it strengthens its CLO and fund compliance services. Shelly Torkelson and Teresa Lange Pierson join the Siepe team as the respective new directors of software-as-a-service and compliance, each bringing more than twenty years of expertise to their new roles.
CDO and CLO industry veteran, Torkelson, joins Siepe from Virtus Partners where she served as md, overseeing its CLO, fund and middle-office services. Pierson joins from BNY Mellon, where she spent more than two decades focused on compliance in the CLO marketplace – and most recently led the group’s management of CLO and ABS analytics.
PensionDanmark’s David Altenhofen is to return to Accunia Credit Management as head of investments. Altenhofen leaves his position as a credit-focused senior portfolio manager at PensionDanmark after five and a half years with the pension fund, during which he specialised in CLOs and high-yield bonds. He spent almost four years at Accunia between 2014 and 2018, when he left his position as a senior portfolio manager, and has also worked at Danmarks NationalBank and Danske Bank.
Brevet Capital has promoted Mei-Li da Silva Vint to chief commercial officer and Mark A Egert to chief compliance officer, both in its New York office.
In her new role, da Silva Vint will oversee product development and the commercial strategies of Brevet, as well as having continuing co-management responsibilities for the firm’s platform origination business. She joined the business in 2016 as chief compliance officer after four and a half years at Morgan Stanley, and previously worked as a corporate attorney at McDermott Will & Emery.
Egert is promoted from director of Compliance and md of the legal and compliance team. He joined Brevet in 2022, leaving his role as chief compliance officer at Voyager Digital after one year with the company. He also previously worked at Yorkville Advisors Global, JP Morgan Chase & Co and Brown Brothers Harriman.
And finally, DLA Piper has hired Derwin Jenkinson as a London-based partner in its finance, projects and restructuring practice. Jenkinson leaves his position as partner at Paul Hastings after three and a half years with the firm. He focuses on the energy and infrastructure sectors and works across all levels of the capital structure, including structured finance, project finance, capital markets and acquisition and term debt, as well as restructurings and special situations. Jenkinson was previously a partner at Ashurst and spent 12 years at Clifford Chance.
Corinne Smith, Kenny Wastell, Claudia Lewis
Market Moves
Capital Relief Trades
It's a CIRT
First CIRT of 2024 for Fannie
Fannie Mae has completed its first CIRT deal of 2024, the GSE announced today (March 1).
The deal, designated CIRT 2024-L1, transferred US$355.6m of single-family mortgage risk to 24 reinsurance firms.
There are about 28,000 LTV loans in the reference pool, totalling nearly US$9bn, acquired between January and February of last year.
The GSE will retain risk for the first 150bp of loss. If the $135.1m retention layer is exhausted, the 24 reinsurers will cover the next 395bp of loss, up to a maximum coverage of $355.6m.
Fannie Mae said this week that it will do US$6bn-US$6.5bn in the credit risk transfer market in 2024, around two-thirds of which will be in the CAS market.
Simon Boughey
Market Moves
CMBS
NRA loans on the rise
Market updates and sector developments
Non-recoverable advance (NRA) determinations impacted US$2.7bn of US CMBS loans last year, representing an eye-watering 130% increase from year-end 2022, according to KBRA. NRA determinations can help limit potential losses if advances and interest on servicing advances are at risk of not being recovered upon asset resolution - a risk that rises in environments with declining or uncertain commercial real estate valuations. Against this backdrop, servicers have increasingly curtailed advances on delinquent CMBS loans, particularly on seasoned conduit deals where only a few loans remain outstanding.
Given the rise in the balance of loans with NRAs - which is expected to climb further in 2024 - KBRA reviewed recent trends across the US CMBS universe, comprising 1,017 transactions totaling US$628.6bn. The analysis found that although at year-end 2023 78 loans totaling US$2.7bn were determined to be NRAs, the overwhelming majority of distressed loans (90.3% by loan count and 93.3% by balance) have not had NRA determinations.
The 78 loans with NRAs are spread across 63 transactions that total US$25.8bn in principal balance. More than two-thirds (67.9%) of the NRA loans are from 2011 to 2014 vintage transactions. The majority of the remaining loans in these transactions are either past or nearing maturity, which is one of the considerations servicers generally use in determining advance recoverability.
Of the NRA loans, KBRA notes that the office sector makes up the largest percentage by balance (46.1%) and second by loan account (28.2%), while retail is second by balance (19.4%) and first by loan count (32.1%).
Overall, servicer advancing remains an important liquidity feature in the CMBS market. In total, 92.7% of the US$35.6bn of distressed loans with advancing needs have not been determined as NRA loans. The total outstanding advances on these loans was US$1.8bn, as of December 2023.
Corinne Smith
26 February 2024 15:26:46
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