Contents

Capital Relief Trades

Mr Powell and the banks

B3E looks set to change, but how will it affect US SRT?

Few pronouncements by Federal Reserve chairmen have been as eagerly embraced by the financial community as those made by Jerome Powell in early March about prospects for the Basel 3 Endgame (B3E). No one was paying closer attention than banks that exploit, or want to exploit, the SRT market.

Hitherto, Powell has not emulated the gnomic bearing of past Fed chairmen. But his remarks on this occasion set a new standard for transparency.

"We do hear the concerns and I do expect there will be broad and material changes to the proposal," he told the House Financial Services Committee.

Vice chair for supervision Michael Barr doubled down at a University of Michigan event at the end of March, also saying that he expected “broad and material changes” and that he was working closely with the other members of the board to “reach a broad consensus.”

While this is good news for US banks, it leaves a lot in the air. Which aspects of the B3E proposals will be changed, and will the changes be meaningful or simply window dressing?

It has also been suggested that if the Fed rows back a long way from the original proposals, it will strangle at birth the nascent US SRT market. There has been a marked uptick in US issuance of SRT deals in the last six months, but if the increase in capital requirements is less onerous than envisaged by the original tenets of B3E, then there is perhaps less need to undertake the considerable burden of building an SRT programme. And it could mean that some alternative credit managers may have spent the last 12 months trying to position for an opportunity that may not come to pass.

The first question concerns how much the Fed is likely to retreat from B3E, which was unveiled in conjunction with the OCC and the FDIC at the end of July 2023. The second question, following immediately, is how much it can retreat.

It must secure the support of the OCC and the FDIC, which are more conservative than the Fed. But it must also hope to carry a consensus on the seven member Fed board, comprised of three Republicans (all of whom dissented from the original ruling) and four Democrats.

“There is a limit to how far they can roll back. They have to thread a needle between aligning with Basel 3, while tailoring any rules to the unique risks of US banks, while navigating competing demands and priorities. There will likely be significant compromises,” says Julian Gorski, partner and head of Americas capital markets at Oliver Wyman in New York.

Chris Waller, a Trump appointee, dissented from the July proposal, and Powell will want to have him on board, if possible, thinks Matt Bisanz, a partner in Mayer Brown’s financial services regulation team. On the other hand, he will also want to secure the approval of vice-chair Philip Jefferson, a Biden appointee. A lot of horse trading is on the cards.

It is estimated that the July rules will increase capital requirements on the banks affected (those over US$100bn in assets) by at least 16%. Some analysis suggests it will be more onerous. Research conducted by the Fed itself suggests a 24% uplift for Category I and II banks.

If only the impact on corporate and institutional banking is considered and consumer banking excluded, then the increase could be around 35%, according to an Oliver Wyman report. No wonder banks got alarmed and took out anti-B3E ads that played during NFL play-off games.

Matthew Moniot, co-head of credit risk sharing at the Man Group in London, thinks a final capital increase of 10%-13% is likely. Bisanz is a little more optimistic, claiming that the need to get Waller and others on board means a final increase in the order of 8%-9% is more likely.

It is worth noting that the heaviest impact of B3E falls upon operational risk and trading risk, so there is less wiggle room in credit risk. Moreover, dropping the abolition of internal risk-sharing models and returning to the former model will have little or no impact, as most US banks use the standardised version of RWA calculation now anyway.

“I expect we will end up with a version that’s a little less effective than Europe’s, but everyone’s going to see some expansion of RWA,” says Moniot.

But will a capital increase that, in the best-case scenario, reduces by 50% what is on the table now discourage SRT usage? The answer is resoundingly in the negative, it seems.

Market sources point out that SRT was being undertaken before B3E was ever thought of and the economic case for capital relief remains persuasive. The B3E rules, whichever final form they take, will make it still more persuasive.

“Even an impact of, say, 10% is big enough that a significant number of businesses will be brought down to at or below ROE targets. Without meaningful new products or a way to expand the margin on existing products, the only thing to move is capital,” says Gorski.

The US banking market is both highly saturated and very competitive, so pricing will remain tight. Product innovation in such a mature market is also unlikely. Reducing the cost base is a non-starter in an inflationary climate.

Indeed, some recent cost increases have not been fully accounted for at many banks. So, the only answer is capital, either in the reg cap market or by whole portfolio sales.

This is not the only way to look at the SRT market either. Banks with less capital pressure than others still like it because the mechanism optimises the balance sheet.

JPMorgan – which has been one of the most forthright critics of B3E - recorded net income of US$50bn last year. It hasn’t got any problems with capital, yet it still initiated a massive US$45bn-US$50bn SRT programme at the end of last year.

“JPMorgan is looking at books where the relationship between RWA and risk profile is out of whack and this is where they do SRT. It is a very smart institution and widely respected. Others will be under pressure to follow,” says Terry Lanson, a portfolio manager at Seer Capital in New York.

That mammoth SRT deal is believed to have referenced a portfolio of investment grade loans, which carry an RWA of 100% under the standardised approach.

Regional banks have a whole new set of problems, however. Raising capital at cost-effective prices is for many unattainable as share prices have slumped.

Indexed at 100 in January 2020, the S&P 500 has increased to 158.8, while the KRX Regional Bank Index has declined to 91.6, according to Seer Capital research. Even Citi, the third largest bank, trades at a 40% discount to book value.

Banks over US$100bn now also need to include unrealised AOCI losses in debt securities in capital calculations. This innovation is a direct result of the failures of Silicon Valley Bank and Signature Bank just over a year ago. Hitherto, losses only needed to be taken into account if they were realised.iother

“At every tier of banks, there are and continue to be motivations for SRT issuance outside the impact of Basel 3 Endgame,” says Lanson.

There are other factors to be considered. Setting up an SRT programme is an expensive and laborious process. Having completed this undertaking, banks will want to test the technology.

It is also difficult for a risk management function to do all this and then tell senior management the mechanism will be shelved for a few years while everybody waits to see how things turn out.

If anything, the more pertinent question is how many US banks will become issuers of SRT in the future. There are 28 domestic banks with assets over US$100bn and all of these are potential issuers.

The net could also include much smaller banks, if unfunded deals can be included for capital relief purposes as well. Funded deals, such as CLNs from bigger banks with larger asset pools, are required to elicit the interest of the hedge funds that normally broker these deals. But if unfunded deals are given the green light as well, then smaller banks could bring insurance-backed solutions too.

“Some smaller banks are already users of non-payment insurance, a product which allows insurance companies to provide credit relief on single obligors or small pools of loans, so banks with even US$30bn in assets and above are a meaningful opportunity,” says Gorski. There are well over 50 domestic banks with assets of US$30bn or more.

And there is some evidence that B3E will allow guarantees provided by reinsurers to qualify for capital relief. Within the Notice of Proposed Rulemaking (NPR), the following sentence can be found: “… a banking organisation would be permitted to recognise the credit-risk-mitigation benefits of eligible guarantees and eligible credit derivatives by substituting the risk weight applicable to the eligible guarantor or protection provider for the risk weight applicable to the hedged exposure.”

This suggests, according to analysis conducted by several firms, that the unfunded market can be used for capital relief. Consultancy Marsh McLennan wrote in a letter to the Fed, FDIC and OCC, dated January 15 “…non-monoline insurers or reinsurers would appear to qualify as ‘eligible guarantors’ under 12 CFR 3.2(2) (OCC)2, based on the following analysis supported further by the Paper.”

Research conducted by Marsh McLennan and Oliver Wyman leads to the same conclusion. “Our analysis indicates the current B3E proposal may allow for beneficial capital treatment of guarantees from non-monoline insurers and reinsurers, given (A) their issuance of investment grade debt and (B) their creditworthiness is not materially correlated with credit risk of exposures insured. However, this would still require the blessing of regulators to allow for any potential capital relief, as part of the finalised rules.”

One of the most controversial aspects of B3E is the proposed increase of the p-factor to 1.0, but there might be grounds for optimism here too. US regulators have decided to march determinedly in the opposite direction to their European counterparts, even though the securitisation market is considerably larger and of greater importance to distribution of financial risk in the US than Europe. This doesn’t seem to make a great deal of sense and those in the market are hopeful it will be reversed.

“If, as a bank, I have US$1bn in assets and I hold US$100m in capital against it, but then I securitise it, I have to hold US$200m against it? Then if I sell off the bottom US$100m, but I still have to hold US$100m. For real? This makes no sense to anyone, and it has to be rolled back,” says one asset manager.

If it is unchanged and as US banks must incorporate a minimum senior credit enhancement of 25% to achieve the desired treatment on the retained senior, then a new market for mezz risk will be forced to develop, believes Lanson. “US banks already have to sell a minimum tranche thickness of 0%-12.5%, while European banks can sell 0%-5%, say. There’s already a different market, and the difference becomes wider with a p-factor of 1.0,” he explains.

So, will the Fed give way? Given the need to have a consensus on the board and bring along the OCC and FDIC, it’s hard to handicap.

Bisanz thinks there is a 65% chance that a 1.0 p-factor will end up in the waste bin. This of course will be a great boon to the SRT market.

Other benefits may be round the corner too. “This is also the first year where the Fed may – and I’m going to say may because I’m not sure yet - specifically take account of the benefit of SRTs in the CCAR process and I suspect they are also waiting to see how this plays out,” suggests Alec Innes, a partner at KPMG in London.

Of course, no one knows when the Fed will come out with a revised proposal incorporating those “broad and material changes” of which Powell spoke. It is thought likely that it will want to enact something before the election in November, as - with potentially a new administration in Washington - B3E could be kicked into the long grass and the agencies are likely to want to avoid this.

It seems that US banks have put SRT issuance largely on hold until the skies become clearer. Activity will heat up in Q3, say sources, with the new proposal likely on the table and year-end in sight.

The temporary go-slow in US SRT might not be a bad thing, however. Many veteran market participants believe issuance went too far too fast after the Fed published its clarification on CLNs in September.

SRT isn’t a highly commoditised sector like the bond market. Buyers need to work closely with sellers to understand who they are, what their origination looks like and what the nature of the assets is. Crucially, sellers need reassurance that the market is there when they need it, and buyers won’t simply melt away into the night if things look a bit choppy.

“I’m confident major US banks will be consistent issuers over the next several decades. This is good, but not if it attracts every credit manager in the US who wants in on the market,” Moniot concludes.

Simon Boughey

Capital Relief Trades

Sustainable double

Polish STS SRT completed

The IFC has closed its second SRT in the Central and Eastern Europe region in under a week (SCI 5 April). Also featuring a sustainability-linked portfolio, the latest transaction marks IFC's first synthetic securitisation with the STS designation.

The IFC and BNP Paribas Bank Polska (BNPP Poland), a subsidiary of BNP Paribas, have executed the deal. This is BNPP Poland’s first SRT and the second SRT partnership between the IFC and BNP Paribas, following a trade which involved BNP Paribas Group's global emerging markets trade finance operations. The transaction, called Meridian, closed in December 2022 and referenced a US$1bn portfolio (see SCI’s CRT Database).

In terms of the structure of the latest deal, the IFC will take mezzanine exposure to a US$548m BNPP Poland on-balance sheet credit portfolio. The deal will help increase sustainable finance for renewable energy, water efficiency and clean transportation projects in Poland.

Despite progress in renewable energy, Poland remains one of the most carbon-intensive countries in Europe, with fossil fuels accounting for nearly 80% of the country's energy supply in 2023. Polish banks are constrained in their capacity to finance the energy transition, which is estimated to cost US$350bn between 2021-2040. In this environment, SRT transactions allow banks to lower risk weights on their asset exposures, thereby freeing up capital urgently needed to expand access to climate finance. 

Vincent Nadeau

Capital Relief Trades

Balancing act

SRT Market Update

The first quarter was notable for a number of SRT trades referencing investment grade portfolios being executed at very attractive levels (SCI 5 April). While demand arguably exceeded supply, this trend is broadly expected to even itself out during the remainder of the year.

“Supply is not generally very strong during the first quarter. In fact, it's been unusually plentiful this year, compared to previous years,” notes one SRT investor.

He continues: “Obviously, you sense that there was a certain spill-over from last year, which has driven some of the spread tightening seen over Q1. However, it remains to be seen whether this is a temporary effect or a more permanent feature in the market.”

The investor points to the fact that generally more and more investors are participating in transactions. “In that sense, it can be argued that demand exceeded supply for the first quarter. However, personally, we believe that this trend will probably even itself out during the course of the year.”

Regarding upcoming supply and the pipeline, the investor anticipates a wide and extensive variety in the type of deals coming to the market. He notes: “I think that we're going to see everything this year - from autos, corporates and SMEs to first-loss, mezz, IG, non-IG and high-yield. Overall tightening, but with a lot of variations, is - I guess - the message.”

In terms of the reopening of the US SRT market, the investor forecasts volumes and momentum to pick up towards the end of the year. He says: “It looks like the US deals will come towards Q3 and Q4, partly because banks care about the snapshots of their balance sheets at year-end. And therefore, they don't really want to pay for protection when it doesn't count until the end of the year.”

He continues: “Nevertheless, I feel the driving force is really one of strong growth in the US. Even though there might be a temporary setback at the moment (and potentially a lull, with the presidential election in November), the US will drive growth in the SRT market globally, particularly once we see more regional banks begin to issue.”

The investor concludes: “Overall, I think that this is going to be a very strong year for the SRT market. We’re going to continue to see a similar rate of growth year-on-year as we saw last year.”

Vincent Nadeau

Structured Finance

SCI Start the Week - 8 April 2024

A review of SCI's latest content

Last week's news and analysis
AGL, Barclays ink cooperation agreement
New private credit investment platform
Blue Owl to form insurance solutions unit
Kuvare purchased
Directional correlations
SRTx mirroring SRT market developments
EARN unveils 'strategic transformation'
Ellington reveals corporate CLO focus, plus an update on Atlas SP
Job swaps weekly: Mount Street hires two amid international expansion
People moves and key promotions in securitisation
Serious business
ESG's evolving role in structured finance unpacked
SRT Monthly - March 2024
First significant wave of transactions of the year
Sustainability-linked SRT inked
SRT Market Update
Plus
Deal-focused updates from our ABS Markets and CLO Markets services

SCI In Conversation podcast
The latest episode is a special for International Women's Day in which SCI deputy editor Kenny Wastell speaks to Ruhi Patil, a counsel in Dentons' London office, about gender diversity and inclusion in the structured finance industry.
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’).

SRTx benchmark
SCI’s SRTx (Significant Risk Transfer Index), is a 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

2nd Annual Esoteric ABS Seminar
30 May, New York

Emerging Europe SRT Seminar
18 June 2024, Warsaw

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

Structured Finance

Wake-up call?

NCSLT decision spurs documentation improvements

The Third Circuit’s decision last month that the National Collegiate Master Student Loan Trusts (NCSLT) are ‘covered persons’ under the Consumer Financial Protection Act (CFPA) (SCI 22 March) could potentially impact securitised products beyond the student loan ABS sector. The extent of the trusts' liability has not yet been settled, but moves to improve securitisation deal documentation are already underway.

Indeed, the initial reaction of securitisation issuers to the Third Circuit's decision has been to expand risk factor disclosures to include the fact that the CFPB may rely on this decision in the future as precedent in investigating and bringing enforcement actions against other trusts. A recent Cadwalader memo suggests that a number of contractual modifications should also be implemented to help mitigate risk and allocate potential liability.

Specifically, indemnity sections should be strengthened to provide clear allocation of not only liability, but also responsibility for servicer bad acts - such as covering civil money penalties, consumer redress, disgorgement remedies and other regulatory fines. A provision could also be included that allows for increased compliance oversight of servicers by securitisation sponsors and/or deal administrators and that allow servicers to be replaced if such oversight reveals practices that violate consumer protection laws or regulations.

In the memo, Cadwalader notes that the CFPB investigated and sued the Trusts because the servicers were allegedly engaged in egregious collections behaviours and they did not have sufficient funds to provide full consumer redress for the consumers harmed by their actions. “This means that the best initial step to mitigate risks and prevent these kinds of lawsuits from being filed consistently by the CFPB (and others) is to ensure that the servicers are complying with law,” the firm observes.

It continues: “Enhanced due diligence of servicers, sub-servicers and debt collectors acting on behalf of trusts should be conducted at the outset and periodically throughout the course of the securitisation. Warehouse lenders, sponsors and administrators should all review collections policies and procedures, require notice from servicers if they change those policies and procedures, and receive regular reports regarding consumer complaints being filed against or received by the servicers.”

Additionally, statutory trusts used in consumer asset securitisations should have proper policies and procedures in place to interpret consumer financial services laws relating to servicing loans and collecting debts. The firm also recommends that deal parties should evaluate typical servicer insurance policies and limits, and require coverage that would be more likely to fully cover potential consumer redress amounts.

Cadwalader points out that consumer protection agencies like the CFPB and the FTC have developed procedures to understand the funds companies do or do not have available for consumer redress and penalties, which help to prevent companies under investigation from trying to jump into bankruptcy - and usually, the agencies want to avoid bankrupting a company. “But now that the NCSLT case has shown a permeable membrane around the consumer-facing servicer, the agencies can reach back to the trust (or really, whomever has deep pockets). So, on the one hand, the CFPB could skip past the servicer once establishing liability and reach beyond them, as a matter of course. Or, on the other hand, deal parties should be aware that servicers could immediately go into bankruptcy and force everyone else to deal with liability and payment,” the firm warns.

So far, securitised products spreads have not reacted to the Third Circuit's decision, possibly reflecting the expectation that the Trusts will appeal the decision. A recent BofA Global Research report indicates that market participants could also seek a legislative solution; for example, by specifically excluding certain securitisation trusts from the definition of a covered person.

Ultimately, if the decision becomes settled law, the securitisation market is likely to experience heightened spread tiering for certain sectors and issuers - especially those that tend to be a focus of the CFPB, such as subprime loans and lenders. In any event, the resultant wider spreads are expected to be passed along to consumers.

Corinne Smith

Asset-Backed Finance

Collectibles offered

SFS debuts fine art programme

Sotheby’s Financial Services (SFS) is in the market with its inaugural 144a securitisation. Believed to be the first-ever publicly rated art loan ABS, the US$500m Sotheby’s ArtFi Master Trust Series 2024-1 transaction is backed by assets consisting primarily of loan receivables secured by works of fine art and collectibles.

In its capacity as an art financing company, SFS enables clients to access the liquidity in their fine art and collectible assets. Generally, SFS will consider lending against works of art or collectible items that Sotheby’s or an affiliated entity would offer for sale at auction or a private sale, including fine art, jewelry, watches and wine or other spirits.

The Series 2024-1 transaction utilises a Delaware master trust structure, which accommodates the continuous sale of loans to an SPE and pledge of those assets under an indenture, with issuance of the notes pursuant to an indenture supplement. The receivables pool equals approximately US$1.42bn of aggregate outstanding principal balance, representing 89 loans backed by 2,484 individual lots.

The deal features an approximately two-year revolving period, during which no principal will be paid to or accumulated for the benefit of any class of the Series 2024-1 notes. Following the end of the revolving period on 1 March 2026 or the occurrence of an early amortisation event, collections will be applied to pay down principal on the notes.

The transaction incorporates both collateral performance triggers and portfolio concentration limits, including early amortisation triggers at the trust and series level related to delinquencies, hammer-to-value auction realisations and excess spread. There are concentration limits on the underlying collateral (based on individual artist and collateral valuations) and at the loan level for the underlying borrowers, loan type and loan-to-value ratio. The weighted-average LTV limit is 60%.

Morningstar DBRS has assigned preliminary ratings to the notes. The provisional capital structure comprises US$296.4m triple-A rated class A1 notes, US$98.8m triple-A rated class A2s, US$38.8m double-A rated class Bs, US$23m single-A rated class Cs and US$43m triple-B rated class D notes.

As of 31 December 2023, SFS had a loan portfolio of approximately US$1.6bn and has originated more than US$10bn of art equity loans and consignor advances since its inception. The company has an experienced management team with backgrounds in financial services and consumer lending, including experience with programmatic securitisation issuance platforms. Included among the staff are 11 employees in the client success group, who are responsible for underwriting and servicing functions, according to Morningstar DBRS.

The rating agency notes that SFS has established collateral possession requirements to ensure that it is able to perfect, maintain and enforce its security interest while the collateral is at such a location, as well as take possession of the collateral in connection with its enforcement of remedies. Prospective collateral must be in the possession of: SFS or any of its affiliates; an approved third-party storage facility in SFS name and account; a third-party museum, gallery, conservator, restorer or other third party that satisfies the SFS bailment requirements; or the borrower or guarantor provided that the collateral is located in a permitted in-residence jurisdiction and meets the SFS requirements.

Based in New York, SFS was founded in 1988 and, as of October 2019, is a subsidiary of Bidfair USA, along with its affiliate company Sotheby’s. Sotheby's will act as the performance guarantor of the Series 2024-1 transaction.

Corinne Smith

SRTx

Latest SRTx fixings released

Tightening in the spread and volatility indexes reflect general firming across the broader markets and healthy SRT volumes during March

The latest fixings for the SRTx (Significant Risk Transfer Index) have been released. Similarly to last month (SCI 6 March), there has been some further incremental tightening in the SRTx Spread Indexes. However and unlike last month’s survey responses, volatility indexes have improved.

SRTx Spread Indexes have moderately tightened in the large corporate category (-3.5% in Europe and -5.5% in the US), reflecting what have investors have described as a “tightening across the board”. For the SME segment, the tightening is slightly more pronounced (-6.5% in Europe and -9.4% in the US).

The SRTx Spread Indexes now stand at 931, 763, 1,038 and 1,113 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively, as of the 9 April valuation date.

SRTx Volatility Index values have tightened incrementally across the board, indicating a lower risk profile across the market. In this context, the European large corporate and SME segments have tightened the most (-26.9% and -22.2%, respectively). The SRTx Volatility Index values now stand at 41, 42, 44 and 50 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively. Nevertheless, with these figures sitting around the 50 benchmark, volatility remains balanced overall.

On the liquidity front, the SRTx Liquidity Indexes reflect mixed results but remaining biased towards positive sentiment overall. The EU (-8.6%) and US (-21.9%) SME values tightened most significantly, while the US large corporate segment witnessed a slight hike (+5.0%).

The SRTx Liquidity Indexes stand at 41, 38, 41 and 31 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 reveal minor changes month-on-month. The figures point to sentiment for large corporate SRT as improving, with both values for EU (-11.2%) and US (-8.3%) large corporate dropping. On the other hand, postive sentiment for EU (+6.6%) and US (+12.5%) SME tempered slightly.

The SRTx Credit Risk Indexes now stand at 47 for SRTx CORP RISK EU, 46 for SRTx CORP RISK US, 56 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.

                                                                                                                      Vincent Nadeau

Structured Finance

Real estate finance platform formed

Market updates and sector developments

Blue Owl Capital has launched a real estate finance strategy with the acquisition of Prima Capital Advisors for the aggregate consideration of US$170m. Jesse Hom, previously global head of real estate credit at GIC, will join Blue Owl to lead the newly created strategy as cio, reporting directly to Marc Zahr, co-president of Blue Owl and head of real estate. 

Additionally, Hom will work to grow the existing triple-net lease business and identify strategic opportunities to build out and scale the real estate platform.

Founded in 1992 by ceo Gregory White, Prima is a real estate lender focused primarily on investing in CMBS, which is majority owned by Stone Point Capital. Prima manages approximately US$10bn in assets on behalf of institutional investors and select high net-worth individuals.

Blue Owl's acquisition of Prima will be funded through a combination of approximately US$157m of equity and approximately US$13m in cash, subject to certain closing consideration adjustments. In addition, there is potential for up to US$35m of earnout consideration in the form of equity. Upon closing of the acquisition, Prima employees are expected to join Blue Owl, including White, cio Nilesh Patel and cfo Julia Tcherkassova.

The acquisition is expected to close in the second or third quarter of 2024, subject to customary closing conditions.

In other news…

New Obra subsidiary launches two debut ETFs
Obra Capital’s newly launched Obra Fund Management has launched its inaugural ETFs focusing on securitised products, led by senior md and head of structured credit Peter Polanskyj and md Matt Roesler.

Obra says the ETFs, named Obra Opportunistic Structured Products (OOSP) and Obra High Grade Structured Products (OGSP), will pursue a dynamic approach, “shifting allocation based on market conditions” and returning a quarterly dividend to investors.

Both vehicles will have broad remits and active approaches, making short- and long-term investments in ABS, RMBS, CMBS, CDOs, CLOs and CMOs. OGSP will focus primarily on high-grade and investment grade securitisation products.

Polanskyj joined Obra in early 2022, leaving his role as md at Sculptor Capital Management, previously known as Och-Ziff Capital Management, after 14 years with the business. He previously spent six years with Morgan Stanley.

Roesler joined the firm a few months later. Prior to joining Obra, he spent six and a half years working on structured credit at Apollo Global Management, leaving his position as partner in January 2021. Roesler previously worked at Citi and Deutsche Bank.

Obra, which rebranded from Vida Capital at the end of 2022, has four strategies including longevity investing, insurance special situations, structured credit and asset-based finance. The business was acquired by RedBird Capital Partners and Reverence Capital Partners in 2019, with the latter divesting its minority shareholding position in October last year to Aquarian Holdings.

Corinne Smith, Kenny Wastell

Structured Finance

Job swaps weekly: A&O Shearman promotes two securitisation lawyers to partner

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees A&O Shearman announcing two new securitisation partners in its first wave of post-merger partner promotions, while an existing A&O partner leaves for Kirkland & Ellis. Elsewhere, Paul Hastings has lured two securitisation specialists from Weil Gotshal & Manges, while Campbells has added a partner in its Hong Kong practice.

Allen & Overy and Shearman & Sterling have announced the first partner promotions for the combined firm, A&O Shearman. A pair of securitisation lawyers are among those being promoted: senior associate Tim Bates, who joined Allen & Overy’s London office as a trainee solicitor in March 2011; and senior counsel Derek Poon, who joined Allen & Overy's New York office as an associate in September 2012.

A total of 40 partners have been elected to the partnership by their current respective firms: A&O elected 32 partners and Shearman elected eight, consistent with the relative size of the two firms and their geographic footprints. They will join the A&O Shearman partnership upon the merger closing on 1 May.

Meanwhile, A&O partner Vanessa Xu has joined Kirkland & Ellis as a partner focused on cross-border leveraged finance transactions. At A&O, Xu focused on structured finance transactions in addition to cross-border leveraged buyouts. Based in London, she leaves A&O after 17 and a half years with the firm.

Weil Gotshal & Manges’ structured finance partner Shawn Kodes has joined Paul Hastings as partner and co-head of asset backed finance in its New York practice. Kodes joins the firm after 13 years at Weil, and will focus on both domestic and cross-border structured finance transactions spanning all asset types. Prior to joining Weil, he worked at Hudson Castle and Ingram Yuzek Gainen Carroll & Bertolotti.

Paul Hastings has also simultaneously appointed Weil’s structured finance counsel Matthew Nemeth as a partner. Nemeth spent eight and a half years at Weil.

Campbells has recruited Paul Trewartha as a partner in its practice in Hong Kong. Joining the firm after spending 10 years at Mourant, Trewartha specialises in advising on structured finance, debt finance and debt capital markets transactions. Trewartha’s addition brings the number of partners on the Campbells’ team in Hong Kong to six, with a total of 13 lawyers.

Real estate investment bank Eastdil Secured has appointed former CBRE Ireland executive director and head of capital markets Johnny Horgan as md, based in Dublin. Horgan joins the firm after five years as md at digital property investment platform BidX1 in Madrid. He will focus on the Irish market and take over from Peter Geissel who is transitioning into the role of senior adviser. Horgan spent five years at CBRE, prior to which he spent four and a half years at Irish Life Investment Managers and eight years at Warren & Partners.

Also in Dublin, ING has promoted Aidan Hore to md - structured distribution solutions, with the firm’s capital markets and advisory unit. He joined the firm in August 2011.

RIPCO Real Estate has poached two former Meridian executives in a bid to expand its debt and structured finance team. Adam Hakim and James Murad will take up roles in construction financing and transitional asset debt capital markets. The pair will join the New York office as executive md and md respectively, after six years of service at Meridian Capital, where they specialised in arranging transactions in the New York metropolitan area and Florida.

Richard Chu has joined Guy Carpenter as md for credit, bond and political risk, and global specialties, based in its Singapore office. Chu joins the global risk and reinsurance business after nine years at Partner Re, where he was head of financial risks for Asia Pacific. He previously worked at Asia Capital Re, AIG and Swiss Re. Chu will report to David Edwards, who heads up Guy Carpenter’s credit, bond and political risk, and global specialties team.

Russell McVeagh has recruited structured finance specialist Kate Maclean to its banking and finance practice in Australia. Based in Auckland, Maclean joins the firm as a senior associate after a six-year stint on Fieldfisher’s structured finance team in the UK, where she advised on a range of structured transactions including several bridging loan securitisations.

Corinne Smith, Claudia Lewis, Kenny Wastell