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Capital Relief Trades

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More buyers than ever but less see reg cap trades, says research

While more and more investors have entered the reg cap world in the last couple of years, the sellers, paradoxically, are showing new trades to fewer and fewer buyers, according to new research released this week by New York-based Seer Capital.

“Several of our key issuance partners have recently told us that, in the face of many new investors professing interest in reg cap, they are showing deals to a narrowing range of counterparties and prioritizing investors who have participated in reg cap programs in the past,” says the research document.

The new buyers often submit requests for more information and data than the issuers have ever seen before, not only costing time and energy but also betraying a lack of understanding about the reg cap product.

One senior reg cap banker at a frequent issuer reported that he is obliged to explain to his bosses why he is unprepared to work with investors that are key clients of the institution in other asset classes, saying that they are insufficiently experienced in reg cap business.

Seer is an established investor in CRT/SRT in both the US and Europe, and notes that while initial meetings with new sellers are lengthy and require extensive data, the issuers appreciate that these requests are founded upon knowledge of the market. Once a new seller has been onboarded, repeat transactions become much more streamlined.

This is not always the case with newer buyers, and an issuer wants, more than anything else, to be able to execute deals consistently through ups and downs of the market. There is little point in selling deals to investors that vanish when repeat issuance appears.

This is exactly what regulators don’t want to see either. They are concerned that when a reg cap trade matures the issuer is unable to do a repeat trade and the risk ‘flows back’ onto the balance sheet. This is less likely if the issuer can rely on a stable, tried and trusted group of investors.

In Q4 2024, Seer reviewed 11 new deals, and of these ten were repeat issuers, seven were repeat programs and nine were previous partners.

“There were many more deals issued in Q4, of course, but we have a longstanding presence in the market and issuers know our preferences in terms of structure and pricing and our yield targets. Issuers don’t know the appetites of newcomers, and may spend time educating them and answering questions, only to find them unable to come up with a timely and on-market bid,” says Terry Lanson, a portfolio manager and md at Seer.

As a rule of thumb, European issuers prefer club deals while US issuers have so far generally gone for the bilateral route. Major European players like Bano Santander, BNP Paribas, Intesa Sanpaolo and Societe Generale issue club deals, and a lot of them too. These names issued deals in 2023 which referenced US$51bn, US$46.3bn, US$24.1bn and US$30.7bn, respectively, according to Seer.

Club deals offer the advantages of market discipline afforded by a group of players, and also establish relationships with a wider group of names. But the European market is established and has deep roots.

That is not the case with US banks. They have considerable pent-up need for issuance – as the market was stymied by regulatory uncertainty until deep into 2023 - generally want investors who can take big tickets in often plain vanilla assets and so favour bilateral trades. The big US sellers, primarily JP Morgan and Citi, sold deals in 2023 which referenced US$35.5bn and US$20.9bn, respectively.

Some banks in the US also fear that club deals with run foul of the so-called conflict of interest provisions of the Volcker Rule – part of 2010’s Dodd-Frank legislation. Lawyers expert in the field say that deals can be structured and sold to more than one buyer so this is not the case, but as yet US banks have been unwilling to test those waters.

“My expectation is that large US banks who are in it for the long haul will develop the syndicated approach, but none of them has done so yet,” says Lanson.

Simon Boughey

Capital Relief Trades

Scaling up

AfDB and partners sign agreement for multi-originator synthetic securitisation

The African Development Bank Group (AfDB), together with the Development Bank of Southern Africa (DBSA) as well as key institutional investors including  Academy Securities, Africa50, and Newmarket, have signed a Letter of Intent to explore the establishment of a multi-originator synthetic securitisation transaction.

It marks a significant step in the Bank Group’s realization of its vision embodied by its Ten-Year Strategy 2023-2032, which places emphasis on private capital mobilisation and derisking as central themes to redress the slow pace of delivery of the Sustainable Development Goals.

The announcement additionally follows increased market calls and observations for MDBs to significantly enhance their risk management through strategic risk transfers. It further builds on the success of the AfDB’s inaugural US$1bn synthetic securitisation transaction under its Room to Run Program in 2018[1]. This new platform and multi-originator synthetic securitisation transaction seeks to transfer a mezzanine tranche to private sector investors, while retaining senior tranche risk within the originators to allow AfDB and DBSA to unlock additional lending capacity.

The multi-originator platform aims to feature a reference portfolio of US$1.5-2bn, with a diverse mix of assets spread across sectors, geographies, and risk profiles. It will include loan and guarantee exposures that align with the shared priorities of the AfDB and DBSA, particularly in sectors crucial for sustainable development, such as climate finance and infrastructure.

Vincent Nadeau

ABS

Recovery ABS on fire

Storm recovery bonds price this week, more due early 2025

Ameren Missouri will price a US$476.1m storm recovery bond tomorrow (Tuesday), Southwestern Electric Power (Swepco) is expected to price a US$336m deal on Wednesday, while New York utilities are expected to bring deals early next year as the storm recovery market hots up.

Ameren’s trade is led by Goldman Sachs (structuring) and RBC, with SMBC Nikko, Drexel Hamilton and Ramirez filling the co-manager slots. It is rated AAA, will mature in 2041, and has issued price guidance of plus 70bp-75bp over 10-year Treasuries. It will settle on December 20.

The Swepco trade is rated AAA/Aaa, is anticipated to mature in 2039 and is led by Citigroup (structuring lead) and RBC. The expected settlement date is 18 December.

Price talk for Swepco has not been revealed but sources close to the underwriters say it will come very close to where Ameren prices. It will price against the interpolated yield curve rather than Treasuries.

New York utilities New York State & Electric Gas (NYSEG) and Rochester Gas & Electric (RG&E) have filed registration to issue deals after state governor Kathy Hochul signed into law S9339 in August and are now waiting for the sign off from the New York Public Service Commission.

Sources say that this is expected to come through early next year, and the deals should follow shortly thereafter.

“After a lull in issuance over the past few months we are seeing renewed activity with a handful of offerings expected to be announced during the early part of 2025,” says a market source.

Indeed, it had been hoped that the New York trades would price this year, but the process has been delayed by the intercession of ratepayer advocacy groups.

The legislation signed by Hochul allows securitization of utility bills to finance storm and forest fire recovery efforts and is increasingly big business in the US, and now over half the states have signed legislation allowing securitization of utility bills to finance storm recovery.

Simon Boughey

Capital Relief Trades

Santander NA on the road again

Second prime auto CLN of 2024 pricing soon

Santander Bank NA (SBCLN) is expected to price a US$264.317m US prime auto loan CLN tomorrow (11 December), designated SBCLN 2024-B.

The reference pool is estimated to be just over US$2.5bn.

Joint bookrunners are JP Morgan (structuring) and Santander US Capital Markets.

The trade is divided into seven small fixed-rate tranches, rated Aaa down to unrated.

The Aaa US$12.95m A2 is expected to price at around 80bp over the interpolated Treasury curve, the Aa3 US37.58m B tranche will price at around plus 90bp-100bp, the A3 US$51.83m C tranche will price at around plus 100b p-110bp, the Baa3 US$45.35m D tranche will price at around plus 140bp, the Ba3 US$32.39m E tranche will price at plus 275bp-285bp, the B3 US$58.31m F tranche will price at plus 490bp and the unrated US$25.91m G tranche will price at plus 840bp.

Santander is a regular issuer in the European market and this week closed a synthetic securitization of its UK auto loans book.

This is its second US auto loan CLN of the year. It first visited the market in June, which was also fixed rate.

Auto loans are very much the asset of choice for regional and smaller US banks at the moment, but it remains to be seen if this trend will continue in 2025.

Simon Boughey

Capital Relief Trades

Scotia back

BNS to return to CRT early in '25 after a year away

Scotiabank is planning a regulatory capital relief trade referencing corporate loans early in 2025, say well-placed market sources.

The reference pool will be disclosed, and in the region of US$5bn-US$6bn, they add.

There are no details on likely pricing or tranche sizing as yet.

Scotia has not been seen in the CRT market in the US for over a year, according to SCI records, when it brought a US$4bn pool of corporate loans to the market, arranged by Natixis.

This came only three months after its debut in the market, dubbed Granville USD. That trade was arranged by BNP and securitized a US$9bn pool of corporate loans.

Granville was upsized from an original US$4bn and represented the largest debut Canadian reg cap trade yet seen. For this achievement it won the SCI award for NA Transaction of the Year.

The pioneer of the Canadian CRT market was Bank of Montreal (BMO), but last year it was joined by Scotia, Canadian Imperial Bank of Commerce (CIBC), Toronto Dominion (TD) and Royal Bank of Canada (RBC), all of whom initiated new programmes. Of the big six  Canadian banks only National – which is considerably smaller than the others – now does not have a CRT presence.

However, this year has seen only very limited issuance from Canadian entities, contrary to most expectations. Use of the CRT tool to generate capital is seen as less important than it was a year or more ago, say market experts.

Simon Boughey

Capital Relief Trades

Latest SRTx fixings released

Shift in liquidity

Undeniably, the political uncertainty which surround the US presidential election has reduced and turned to policy anticipation. With it the dollar strengthened, US stocks reacted positively, and treasury yields moved higher. Such recalibration would suggest and reflect some enthusiasm for pro-growth policies, but also near-term inflation and fiscal uncertainty. The scope and timing of legislative changes under a second Trump presidency remain unclear. Looking at the latest SRTx fixings, such trend is embodied by a certain shift in the US liquidity figures and sentiment.

In Europe, investors have emphasised the potential (or need for) consolidation of European banks, best currently exemplified by the possible takeover Commerzbank by Italy's UniCredit. In this context, Pemberton Asset Management have cited that the German issuer is contemplating increasing SRT as part of its defence against Unicredit. Furthermore, aa common consequence of a successful acquisition is that the combined entity often faces excessive concentrations. SRTs are ideally suited to enable banks to reduce sector, region or single borrower concentrations.

SRTx Spread Indexes once again indicate a wider tightening across sectors (Large corporate: EU -7.6% US -3.2%; SME: EU -2.8%), with the exception of US SMEs (+3.5%). Such trend is further exemplified in Seer Capital’ latest ‘Reg Cap’ (SRT) market update, which indicates that spreads for new issue ranged from 650 to 900bps over the past couple months, around 100bps tighter than 1H2024 prints.

The SRTx Spread Indexes now stand at 793, 575, 860 and 975 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively, as of the 6 December valuation date.

While November’s US presidential election had inevitably spurred some volatility in market sentiment, this month’s values reflect a clear re-balancing. Consequently, the latest fixings reveal a tightening across the board

The SRTx Volatility Index values now stand at 54, 63, 54 and 67 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

Regarding liquidity, the SRTx Liquidity Index values have significantly shifted above the 50 benchmark in the US (Large corporate: +57.1%; SME:+60.0%), highlighting uncertainty around deregulation under the new administration and the implementation of Basel 4 (sceptical voices have repeatedly warned that a soft Basel 4 implementation could reduce the need for large banks to issue SRTs for capital relief). European figures also reveal a widening (Large corporate: +18.2%; SME: +18.2%), yet figures still land below 50.

The SRTx Liquidity Indexes stand at 46, 69, 46 and 67 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 have begun to denote an improving or consolidating sentiment, suggesting a broader tapering off in delinquencies and defaults (Large corporate: EU -5.3% US -16.7%; SME: EU 0.0%, US -27.3%).

The SRTx Credit Risk Indexes now stand at 64 for SRTx CORP RISK EU, 50 for SRTx CORP RISK US, 64 for SRTx SME RISK EU and 50 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

Job swaps weekly: Dentons elects Europe board members

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Dentons elect new members to its Europe board and hire a new partner in London. Elsewhere, Deutsche Bank has appointed a former Citi executive as lead structurer, while fintech company Intain has lured a structured credit, derivatives and mortgages veteran to its board.

Dentons has elected its European and Italian head of banking and finance, Alessandro Fosco Fagotto, to the Dentons Europe board. Based in Milan, his practice focuses on transactions spanning structured finance, acquisition and leveraged finance, general corporate lending and refinancing. 

Fagotto joined Dentons in 2016, having previously spent five and a half years at Pedersoli Studio Legale, in addition to holding partner positions at Marena D'Angelo & Fagotto, MBL & Partners, and Marena Bonvicini Aghina e Ludergnani. The election of Fagotto to Dentons’ Europe board was announced alongside that of Jurjen Bevers, co-head of the Europe tax practice and head of the Netherlands tax practice.

The firm has also hired Neil McKnight from Morgan Lewis as a partner in its tax team in London. McKnight's practice focuses on M&A transactions, international tax structuring, financial transactions including securitisations and structured finance, and real estate tax. He leaves Morgan Lewis after eight and a half years, having previously spent five and a half years at Taylor Wessing and two and a half at K&L Gates.

Meanwhile, former Citi executive Dragos Nedelea has joined Deutsche Bank as lead structurer based in its London office. Nedelea leaves his role as a director at Credit Benchmark after six months with the business. He previously spent nine years at Citi, where he focused on corporate credit, structured finance and fixed income solutions for UK and European banks, insurance companies, pension funds and asset managers.

Asset-backed-investments-focused fintech company Intain has hired structured credit, derivatives and mortgages veteran Patrick Tadie from Wilmington Trust as a member of its board of advisors. Tadie leaves his position as executive vp at Wilmington Trust – where he focused on global structured finance – after 10 years with the business. He previously spent 10 years at BNY Mellon and three years at Freddie Mac.

And finally, OakNorth has hired Santander Corporate & Commercial Banking's Daniel Taylor as an associate on its debt finance team. Taylor leaves his role as associate focusing on structured finance and growth capital at Santander after eight and a half years with the bank. 

Kenny Wastell