Contents

Capital Relief Trades

Latest SRTx fixings released

Comprehensive consolidation

Having moved into 2025, the US election result unsurprisingly remains a point of focus, with the Trump win expected to translate into less stringent antitrust regulations and lower interest rates, sparking more M&A transactions and driving dealmaking in private credit. Nevertheless, varying views across the globe with respect to political ideology, and differentiating views on the levels of interest rate setting from central banks are already affecting market. In the US, inflation is expected to rise as a result of more inward-oriented US policy. Such shift is likely to further limit the ability of central banks to cut aggressively and will put upward pressure on interest rates. Therefore both investors and issuers should prepare for an environment of higher interest rates for longer.

Back in 2024, the SRT market – in line with traditional and liquid credit markets – experienced a (well-documented) compression in spreads, with investors generally reporting bids 100+bps tighter for benchmark deals in the last twelve months. In terms of outlook, the prevalent narrative continues to suggest that banks will be under increasing pressure to optimise use of their limited balance sheets and demonstrate ability to transfer risk. Such narrative should be supported by favourable regulatory developments and the continuously high cost of capital alternatives for banks in the current market environment.

In this context however, a recent research paper by Man Group suggests that SRTs are likely to become more expensive for issuers. It notes that despite the regulatory concessions,“ banks could need to sell thicker tranches to achieve capital relief under the final Basel 3 standards.”

It continues: “As SRT supply increases, transaction pricing may not remain as favourable to issuers as it has been so far this year. Wider spreads would be eagerly welcomed by the market. From an investor perspective, should spreads widen while the market is still expanding rapidly, we believe it will be experience, underwriting and structuring capabilities that lead to consistent yields and credit performance.”

Regarding the latest SRTx fixings, little changes or shifts are to note month-on-month. The latest data reflects a picture of continuing trends, but also perhaps that the SRT market shows strong growth fundamentals.

Continuing on its established and widespread trend, spreads have tightened across the board. Volatility has slightly lessened, building on last month’s values which reflected a clear re-balancing in the aftermath of the US presidential election.

Regarding liquidity, while the SRTx Liquidity Index values had significantly shifted above the 50 benchmark in the US last month (highlighting uncertainty around deregulation under the new administration and the implementation of Basel 4), this month’s data shows signs of recovery (Large corporate: EU -4.3% US -20.0%; SME: EU +1.7% US -15.6%). With the resignation of Michael Barr from his position of Vice Chair of Supervision, a faithful and timely implementation of Basel 3E in the US is increasingly unlikely.

Finally, while still biased slightly worse, credit risk data is showing further signs of consolidation.

The SRTx Spread Indexes now stand at 761, 510, 840 and 951 for the SRTx CORP EU, SRTx CORP US, SRTx SME EU and SRTx SME US categories respectively, as of the 7 January valuation date.

The SRTx Volatility Index values now stand at 47, 60, 47 and 63 for the SRTx CORP VOL EU, SRTx CORP VOL US, SRTx SME VOL EU and SRTx SME VOL US indexes respectively.

The SRTx Liquidity Indexes stand at 44, 55, 47 and 56 across SRTx CORP LIQ EU, SRTx CORP LIQ US, SRTx SME LIQ EU and SRTx SME LIQ US respectively.

The SRTx Credit Risk Indexes now stand at 61 for SRTx CORP RISK EU, 54 for SRTx CORP RISK US, 61 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

Capital Relief Trades

SCI in focus: Risk transfer at the ready

CRT an invaluable tool in GSE march to privatization – and beyond

Privatisation of the GSEs is back on the cards, but this time around CRT could play a crucial role not only in accelerating the route out of conservatorship but also in maintaining capital requirements once the exit has been made, say market experts.

It is by no means certain that the incoming Trump administration will seek to end conservatorship -  and the President-elect has said nothing on the topic - but to many this seems to be the way the wind is blowing.

The last time this came up, under the previous Republican administration when the Federal Housing Finance Agency (FHFA) was headed by Mark Calabria, the CRT market came under fire. Calabria was an outspoken critic of the CAS and STACR programmes, and under his leadership the FHFA released a new Enterprise Regulatory Capital Framework (ERCF) which essentially removed a large portion of the benefit derived from these transactions.

Consequently, Fannie Mae abjured the market for 18 months and only came back when new FHFA director Sandra Thompson  produced a different ERCF in September 2021.

Such shenanigans are deemed unlikely in 2025, partly because CRT is too valuable a tool to dispense with as the GSEs seek recapitalization and partly because the CRT mechanism is now much more widely known, and less suspicious, than it was in US markets four years ago.

There is to be a successor to Sandra Thompson, who was appointed after Calabria was fired in June 2021. At the end of last week, she said she will step down on January 19^th, the day before Trump’s inauguration, thus clearing the way for a new Republican appointee

It been thought by many that Thompson would stay on as she’s widely seen as a safe pair of hands, but a new broom is coming to the FHFA.

On January 2, in a letter to Thompson, Treasury Secretary Janet Yellen (who will be replaced by Scott Bessent) also clarified the treatment of preferred stock and common equity, which was also seen as a step by which the route to private hands was smoothed out a little more. 

The FHFA also wrote to the Treasury committing to a transparent process for ending conservatorship should this come to pass.

These tea leaves seem quite easy to read. “It appears that they’re trying to create an orderly path for the GSEs to exit conservatorship,” says Joe Koebele, co-leader mortgage and structured credit at Lockton Re, in Philadelphia.

Stocks in Fannie Mae and Freddie Mac seem to be taking it that way as well. Shares in Fanne jumped from US$1.30 after the election to US$3.56 and are now over US$5. Freddie Mac stock has done just as well: it has surged from US$1.50 before the election and is also now over $5.

But if new government does to get the GSEs out of conservatorship, having failed the last time. But it is less likely to take a wrecking ball the CRT market.

Calabria was highly controversial, not only a passionate opponent of conservatorship but scornful of the CRT mechanism. He thought actual capital was better than regulatory capital, that the agencies should hold more real dollars, and in fact said on several occasions that CRT was an expensive waste of time.

Though it’s not impossible that a new director will feel the same way, it’s not thought probable. Calabria was a one-off. But also, over the last four years, acceptance of the CRT mechanism in the US has increased significantly.

“We’re seeing growth of CRT, or SRT, however you want to define it across the USA and the world and it doesn't feel to me that they’ll go the Calabria route and essentially make CRT non-usable,” says Lockton.

In fact, what seems more likely is increased useage of CRT by the GSEs, as they will need to be much better capitalized before they can be returned to the private market.  CRT can play a big role in addressing the capital deficit.

“The GSEs’ ability to meet minimum regulatory capital is a key measure. They remain under-capitalized and that capital deficit is a key impediment to releasing them. This is where CRT fits in,” says Mickey Shemi, md and North American structured credit leader at Guy Carpenter, in New York.

At the end of last year, Fannie Mae said it plans to raise about US$4bn in the CAS market in 2025 in five to seven transactions, but it has the flexibility to increase that number if required. It sold just over US$4bn in 2024 in six different deals. Freddie Mac has not released any predictions for issuance but says it will sell one to two STACR transactions per quarter.

Not only can the CRT market prepare the GSEs for an exit from conservatorship it can speed up the route to this destination. This could be particularly compelling for an administration that has to look at a four-year time horizon.

“CRT is a critical tool in reducing the capital shortfall, but, perhaps more importantly from the administration’s standpoint, it accelerates the timeline to reach the minimum capital requirement,” adds Shemi.

Nor is there any reason for the GSEs to abandon CRT once they have been re-launched as private enterprises. An increasing number of US banks in the last year have demonstrated that CRT can have significant importance in reducing the capital required to support RWAs. It can continue to contribute to the accumulation of loss-absorbing resources and allay any lingering concerns that the GSEs can’t support the secondary mortgage market and meet immediate financial concerns.

“CRT has an even more important role over the long-term outside conservatorship as it does for any other regulated financial institution,” says a source.

Indeed, should banks take a larger share of the mortgage market after privatization, then the CRT market could have a greater footprint.  “CRTs would be more important after the GSEs exit conservatorship assuming banks take a larger share of the mortgage market,” says Chuck Callahan, head of Heliostat Capital, a New York-based structured solutions adviser.

Nevetheless, the GSEs would still need a hefty injection of capital to go back onto the open market outside the government guarantee. If the government were to sell its stake, it would produce the funds to offer perhaps the largest IPO ever seen in the US. Perhaps US$100bn could be offered to new investors, and sovereign wealth funds are likely to line up.

Fannie Mae and Freddie Mac will likely need to meet about 2.5%-3% of assets in minimum regulatory capital requirements to start life outside conservatorship. The current ERCF indicates a higher number than this, but, points out Shemi, this includes hefty leverage buffer requirements beyond the minimum. Without buffers, the amount of capital required, and the time needed to reach it, shrinks.

Of course, it is still far from a foregone conclusion that the new administration will seek to get the GSEs out of conservatorship. Trump has said nothing about it in the election campaign. The whole thing would cost a great deal of money but also a lot of political capital. Trump has only thin room for manoeuvre in the Senate, and he doesn’t want to blow all his favours at once.

The decision would also add to mortgage costs.  Any dilution of the government guarantee would cause borrowing costs for the agencies to rise.  Currently, Fannie Mae sells 10-year mortgage paper with yields of 6.60%, while white label 10-year notes are over 7%.

“I support the GSEs exiting conservatorship, but is this the right time? Ten-year Treasury yields are up more than 100bp despite rate cuts. Do we want to compromise the single most effective funding mechanism for mortgages? This seems contrary to making housing more affordable.” says Callahan.

There are all sorts of questions about what will happen to the credit ratings of securities issued by Fannie and Freddie. It also raises the possibility that the future of the two agencies, which own about 40% of the residential mortgage market, might be governed by activist investors.

“Privatising the GSEs, if pursued, would be a massive and complex project that would take multiple years and likely require coordination among all three branches of government,” according to a report on this topic produced this month by DoubleLine, an LA-based money management firm. The same paper also noted that the task will not only be highly complex, but one with “possibly limited political and consumer upside.”

None of which means it won’t happen of course. The new president is not predictable. But if he does follow this avenue, it should mean that the GSEs, which pioneered credit risk transfer in the US over a decade ago, will see a renewed and augmented position for the mechanism.

Simon Boughey

Asset-Backed Finance

Packed pipeline

Private credit riding a wave of optimism

US private credit is set for a strong year, buoyed by post-election stability and less stringent antitrust regulations expected under the new Trump administration. At the same time, investor appetite for ABF is increasing in Europe, with strategies becoming more clearly defined within the broader private credit landscape.

“We have a lot of deals coming to market in Q1,” says Ralph Mazzeo, global finance partner at Dechert. “Folks have been taking out additional warehouse lines to meet demand. My clients are pretty bullish about 2025.”

This wave of optimism is rooted in activity levels that suggest sustained momentum. For instance, one of Mazzeo’s RMBS issuer clients has deals lined up nearly every month this year, with a potential pause in late summer when market activity typically slows down.

Further, an expanding investor base is adding to the momentum. “We’re seeing more clients interested in making their deals risk retention-compliant for the EU, enabling them to bring more international investors into US transactions,” notes Mazzeo.

Meanwhile, concerns about credit quality remain minimal. “Delinquencies on residential mortgages are trending up slightly over the last year, but overall the rates remain low. From what I see, people are not shying away from the market because of credit concerns,” says Mazzeo.

He forecasts a solid year ahead for this sector, particularly if mortgage rates decline. “If mortgage rates drop, we’ll likely see increased demand for new home purchases, as many have delayed buying during the high-rate environment – further boosting activity in the fix-and-flip sector as well.”

Indeed, bridge loans have emerged as a key growth area, feeding into the broader trend of home fixing and flipping. “Bridge loans have been a hot asset class since their securitisation debut in 2018, with issuer volume steadily rising,” explains Mazzeo.

A milestone that solidified the sector’s trajectory in 2024 was the first rated securitisation of residential-backed transition loans, Toorak 2024-RRTL1 (SCI 1 March 2024). “The introduction of rating criteria for residential-backed transition loans was a game-changer,” says Mazzeo. “With rated deals, financing costs from securitisation decrease, making the market more efficient and accessible.”

At the same time, the private credit sector is poised to continue capitalising on opportunities created by the retreat of banks from certain lending segments, including consumer receivables. “We’ve seen asset managers ramping up direct lending and aggregating assets away from banks,” says Mazzeo. “This trend is supported by growing interest from international investors and insurance companies, who are channelling capital into private credit markets.”

European proliferation
Across the Atlantic, the European private credit market is also set to gain further traction, fuelled by the ongoing disintermediation of banks and growing investor demand. “Non-banks are better at using new technology to improve the borrower journey,” says Ganesh Rajendra, managing partner at Integer Advisors. “This seamless integration gives them a competitive edge.”

Investor appetite for ABF is increasing, with strategies becoming more clearly defined within the broader private credit landscape. “ABF is driving increased allocations and attracting new players,” explains Rajendra, adding that larger asset managers are entering the space through acquisitions, signalling growing institutional adoption.

The rapid proliferation of private credit – amid discussions that demand may outpace supply – is, however, raising questions about the potential for market imbalances or future distress in the asset class.

Rajendra feels confident that the market is far from bubble territory. “A key indicator of a bubble would be if the cost of borrowing from a non-bank converged with, or even undercut, the cost of borrowing from a bank for the same loan. We’re nowhere near that point with respect to most private credit asset classes.”

Structural differences between the US and European market persist. In the US, the GSEs provide a crucial safety net, acting as ready buyers of loans originated by both banks and non-bank lenders.

“If Europe could adopt similar structural support for non-bank lenders, the growth potential would be immense,” says Rajendra. “This ready market for loans is a powerful enabler of growth of the alternative finance model, as evidenced in the US.”

Nevertheless, the future of Fannie Mae and Freddie Mac remains a subject of discussion, with growing indication that policymakers may be considering an exit from conservatorship for the GSEs under the new administration (SCI 14 January).

Marta Canini

ABS

A volatile road ahead?

BofA's SF analysts discuss the state of structured finance markets in 2025

Bank of America’s structured finance research team, led by Alexander Batchvarov, head of international SF research, discussed the state of the structured finance market at a roundtable last week. Key analysts of the European SF research team, including Altynay Davletova, who specialises in RMBS, and Mark Nichol, focusing on credit, share insights on market trends, challenges and forecasts for the coming year.

Batchvarov opened the session with a pragmatic overview: "2025 will be, I think, a difficult year, quite volatile in many respects. We have to be prepared for anything.”

He highlights two critical areas for focus: the continuation of trends from 2024 and the regulatory landscape shaped by the PRA and the European Commission.

Batchvarov’s historical lens underscores 2024 as a record year since the global financial crisis, with €144bn in placed supply and an additional €15-18bn in placed synthetic securitisations. However, he warned against superficial interpretations: "The headline numbers look spectacular, but when adjusted for rollovers, the real growth is more modest."

He adds: “The placed issuance numbers should not be seen as material given the high volume of repricing and amortisation on the SF market. For example, the gross CLO supply of €49bn resulting eventually in a net supply of €23bn; two-thirds of the non-conforming RMBS and about half of BTL RMBS issuance were roll over of existing transactions, leading to a very low net new supply. In other words, the record post-GFC nominal issuance numbers are not indicative of a significant or uncontrolled market volume growth.”

Sector snapshots

Meanwhile, Davletova, a veteran analyst with over 20 years of experience, dissected the RMBS market with precision. "Total placed European RMBS was €13bn in 2024 and we’re expecting a slight increase to €14bn in 2025," she noted, highlighting that growth remains limited by the legacy effects of TLTRO repayments.

On credit performance, Davletova observed resilience in prime RMBS, albeit with notable risks in non-conforming sectors. "Prime RMBS should continue to be resilient, but in non-conforming RMBS, we’re seeing rising arrears and defaults, particularly in junior tranches.”

She attributed this divergence to economic pressures on lower-income borrowers: "The average consumer remains relatively healthy, but marginal consumers, especially in the lower-income segments, show signs of weakness."

Nichol, with nearly 16 years at BofA, highlighted a record year for auto ABS issuance: "We saw €24.8bn in issuance, with Germany and the UK leading the charge. Senior tranches enjoyed stable demand, while subordinated tranches saw significant spread compression."

Nichol also addressed the evolving dynamics of green finance in auto ABS: "Europe still hasn’t seen a single green-labelled auto ABS bond, due to stringent EU taxonomy rules. Hybrids, for instance, don’t qualify as green, despite their popularity among consumers."

On performance, he emphasised resilience: "While delinquencies have marginally increased, they remain within historical norms. Even among subprime borrowers, the sector has shown remarkable stability."

In terms of regulatory challenges, Batchvarov was candid: "STS deals, ironically, require more due diligence than non-STS deals, making them less attractive to investors."

Nichol elaborated on the constraints posed by Solvency 2: "Insurance companies avoid CMBS, CLOs and RMBS, due to high capital charges. This regulatory environment severely limits market growth."

Batchvarov noted broader inefficiencies: "The LDI crisis in 2022 revealed how European regulations impede liquidity. US asset managers were able to capitalise on volatility that European investors couldn’t access, due to cumbersome due diligence requirements."

Performance and market trends

Davletova predicted a mixed outlook for RMBS: "While we expect prime UK RMBS issuance to increase, due to TFSME repayments, non-conforming RMBS may face headwinds from unfavourable tax and regulatory environments.”

She flagged rising idiosyncratic risks: "Junior tranches in non-conforming RMBS show heightened vulnerabilities, though overall default levels remain low relative to historical standards."

Nichol painted a stable picture for auto ABS: "Car sales are flat and issuance volumes will likely remain range-bound. Performance metrics, including delinquencies, continue to reflect healthy underlying fundamentals."

The team collectively expressed cautious optimism for 2025. Batchvarov summarised: "The risks in 2025 are more elevated than in 2024, but we do not expect regulatory changes to materially impact issuance this year. However, geopolitical and macroeconomic uncertainties loom large."

Finally, he highlighted underexplored opportunities: "Private credit and its impact on structured finance deserve more attention. This is an area ripe for research and discussion."

Selvaggia Cataldi

ABS

Australian ABS issuance primed for continued momentum

Following record RMBS issuance and non-bank dominance in 2024, Westpac's Martin Jacques forecasts steady growth for 2025

It’s no secret that Australian ABS is coming off the back of a banner year in 2024, with RMBS having led the charge. As the market kicks back into gear following the new year, the signals are that momentum is likely to continue throughout 2025.

RMBS issuance in Australia hit a record AUD61.1bn in 2024. According to Martin Jacques, head of securitisation and covered bond strategy at Westpac, this performance was driven by another strong year from the non-bank sector and a return to normal funding environments for banks after the Term Funding Facility’s conclusion.

Banks of all sizes have re-entered the securitisation space, with three major benchmark deals, a rarity in recent years, pushing up volumes. “Securitisation offers banks pricing diversity,” Jacques explains. “Smaller ADIs also leverage it for capital benefits, making it a win-win.” That said, Jacques predicts broader participation in 2025, though volumes may plateau.

Spreads have tightened across both prime and non-conforming RMBS markets, enhancing securitisation’s appeal. “Triple-A pricing has contracted, though tightening in mezzanine margins has been most pronounced benefiting smaller issuers working with the full capital stack,” Jacques observes. This trend has particularly advantaged smaller banks and non-banks, aligning all-in funding costs more favourably.

With interest rates potentially declining in 2025, non-banks focusing on prime mortgages might gain momentum. However, non-conforming RMBS remains resilient as higher rates and cost-of-living pressures sustain demand among borrowers needing financial flexibility.

“Non-conforming lenders play a vital role for borrowers navigating financial challenges,” Jacques notes. “Another strong year is on the horizon for this segment.”

Non-banks have taken the lead in the auto ABS market, as banks step back. Jacques highlights strong demand from both domestic and offshore investors, with UK and European markets especially keen on Australian collateral. In 2024, AUD16.3bn was issued in auto ABS, all by non-banks.

“Australia’s market stability makes it a favourite among global investors, especially given concerns pertaining to discretionary commission arrangements in the UK auto space,” he adds.

The SME ABS and CMBS sectors contributed a respectable AUD2.2bn in issuance, thanks partly to the groundwork and initiatives stemming from the Australian Business Securitisation Fund. Jacques commends its role in fostering standardisation but tempers expectations.

“This is a story of steady growth. New issuers are emerging, but transformative change is unlikely in the near term,” he says.

Green ABS issuance reached AUD1.7bn in 2024, reflecting growing interest in sustainable investments. Jacques foresees moderate but consistent expansion in this space. “Fully green deals backed entirely by green mortgages remain a future goal,” he says. “For now, green-linked tranches will continue driving growth.” As ESG principles gain broader traction, this segment’s importance is set to grow.

In the consumer ABS sector, activity went from strength to strength throughout 2024 with AUD3.8bn issued across buy-now-pay-later, credit card and personal loan receivables. The latter segment saw AUD2.2bn alone with new issuers entering the market. “We expect to see another strong year for the unsecured receivables sector; the consistent performance and cadence of issuance from programmatic issuers will ensure continued investor interest,” Jacques emphasises.

Selvaggia Cataldi

Capital Relief Trades

Polish SRT

SRT market update

The European Bank for Reconstruction and Development (EBRD) and Poland-based commercial bank Bank Millennium have completed a synthetic securitisation.

Structurally, the EBRD is providing credit protection of up to €66m (equivalent in Polish zloty) on the mezzanine tranche of a synthetic securitisation in the form of an unfunded guarantee. The underlying securitised portfolio is a granular portfolio SME and corporate loan and factoring obligations originated by Bank Millennium.

Additionally, the structure includes an innovative ramp-up feature, allowing Bank Millennium to increase the securitised portfolio size after closing – its first such transaction. This feature ensures cost efficiency and further optimises the capital benefits of the structure. 

Bank Millennium has committed to redeploying the risk-weighted asset relief achieved to new lending to SMEs and mid-caps in the country. An amount equal to 150% of the EBRD’s guarantee will be allocated to new financing for green projects, aligned with the EBRD’s Green Economy Transition (GET) criteria. This includes renewable energy and energy efficiency financing, supporting Poland’s green transition. The SRT meets the STS criteria.

This is the EBRD’s second capital relief transaction in Poland, following an inaugural transaction with Santander Bank Polska in 2023.

Vincent Nadeau

Capital Relief Trades

Another green light

FASB says CRT doesn't need separate disclosures

The US CRT market received another shot in the arm when the Financial Standards Accounting Board (FASB) yesterday (January 16) decided to reject calls for CRT transactions to receive specific and separate disclosures as part of the GAAP statement.

All seven board members (Richard Jones, Christine Botosan, Fred Cannon, Susan Cosper, Marsha Hunt, Joyce Joseph and Hillary Salo) voted unanimously not to take forward a project to require CRT deals to have their own accounting treatment.

This followed recommendations provided in a report by FASB staff who investigated the market and which was presented at yesterday’s board meeting by Lucas Rich.

“This is good news not only because it removes another impediment to bank issuance of CRT, but it also shows another regulator recognizes CRT as a useful tool for the financial services industry,” says Matt Bisanz, a partner specializing in bank regulation at Mayer Brown.

The proposal to require CRT disclosures emanated from Jill Cetina, executive professor of finance at Texas A&M University, but the board determined that existing FASB and SEC regulations already require considerable germane disclosure about CRT deals and that, at the moment, no more is needed.

Prevailing disclosures of CDS and CLNs are “quite robust” and “provide the kind of information that investors would want to see,” noted Botosan, while Sato said that in the past FASB has run into “challenges” by adding specific disclosures for just one type of risk management deal.

Other caveats to new treatment were also raised. Fred Cannon noted that no corresponding disclosure is required from the investors who assume the risk, while several board members said that the confidentiality of CRT deals would present a roadblock.

The scope of the required disclosure might also be difficult to define as in many respects CRT deals resemble non-risk transfer deals, board members added. CRT transactions represent just “one tool in a toolkit to manage credit risk,” said Sato while Botosan made the welcome point that CRT trades are getting capital relief “because banking regulators feel it is appropriate.”

Simon Boughey

Capital Relief Trades

Assertive response

ACC issues comment letter

The Alternative Credit Council (ACC)[1] provided a response to the International Monetary Fund’s (IMF) Global Financial Stability Report (GFSR), opening a dialogue and challenging technical assumptions.

Last October, the IMF disputedly argued that certain innate SRT characteristics could increase risks to financial stability, notably the perceptions that SRTs may elevate interconnectedness and create negative feedback loops during stress, and that SRTs may mask banks’ degree of resilience because they may increase a bank’s regulatory capital ratio while its overall capital level remains unchanged.

In its response and comment letter, the ACC highlights and constructs six specific points which challenges such concerns. These include market opacity, impact on bank resilience, reliance on SRT liquidity, securitisation of riskier asset pools, regulatory arbitrage, and supervisory transparency.

The ACC notably and vehemently disputes the view that SRTs may artificially inflate a bank’s regulatory capital ratios without improving actual resilience, (rationally) highlighting how SRTs effectively reduce risk-weighted assets and improve risk mitigation. It argues that SRTs can meaningfully improve a bank’s regulatory capital ratios, but the means by which they do so is not through an increase in the overall level of Common Equity Tier 1 / total capital (i.e., numerator), but rather through a decrease in the risk-weighted assets (RWAs) associated with the underlying portfolio (i.e., denominator). SRTs therefore act as a true credit hedge.

Further examples of clarification involve how SRTs are transparently disclosed to banking supervisors (citing examples of stringent oversight in both the US and the EU) and how they increase banks’ loss absorption capacity and resilience.

Finally, it challenges and counters the narrative and apprehension that SRTs could lead to reduced capital buffers across the financial system without reducing overall risk, in asserting that SRTs in fact shift risks to more suitable institutions, thus improving systemic stability and enabling continued bank lending.

Vincent Nadeau

Structured Finance

Job swaps weekly: Axis hires structured credit lead

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Axis appointing a new SRT-focused structured credit lead in its capital risk solutions team. Elsewhere, Orrick has promoted two securitisation lawyers to partner in New York, while Ares Management has elevated a partner to co–head of alternative credit.

Insurance and reinsurance business Axis has hired Bryan Niggli as structured credit lead in its capital risk solutions team, based in Zurich. In his new role, Niggli will report to head of capital risk solutions Mark Harwood and will focus on the SRT/CRT business. He joins Axis from UBS, leaving his role as executive director on the wealth management and loan portfolio management team after three years with the firm. He previously worked at AmericanEagle, Swiss Re and Credit Suisse.

Meanwhile, Orrick has promoted Elizabeth Elias and Meredith Dawson in its latest round of partner promotions. Both based in New York, Elias has been a member of the firm’s esoteric ABS team since 2014 and focuses on representing issuers and investors in the commercial PACE and whole business segments. Dawson joined Orrick in 2017 and holds expertise in speciality lending – including advising lenders, borrowers and sponsors on bespoke structured credit transactions.

Ares Management has promoted Kevin Alexander from partner to co–head of alternative credit. Since joining the firm in 2019, Alexander has played a pivotal role in the firm’s strategy, particularly in investment origination and structuring. Prior to Ares, he spent 16 years at Natixis CIB Americas, where he held senior roles including deputy ceo, head of global markets, and head of global markets and investment banking. Alexander brings over 27 years of industry experience, having started his career at the Fed of New York in 1997.

Clifford Chance has appointed Gianluca Fanti as the new partner in its global financial markets team based in Milan. The hire is part of the company's plan to expand its European structured debt and special situations team.

With over 20 years of experience, Fanti has a background in advising Italian and global investment banks, funds and financial sponsors on structured credit solutions including real estate finance and asset backed finance. He joins Clifford Chance after serving as a partner at White & Case for more than eight years.

White & Case counsel Adam Farrell has also left the firm to join Mayer Brown as partner in its global structured finance and private capital groups. Farrell's practice focuses on securitisations including CLOs, consumer ABS, RMBS, CMBS, trade receivables and esoterics. He leaves White & Case after a combined five years with the firm across two spells, having previously worked at Paul Hastings and Ropes & Gray.

Greg Olafson has been appointed president, co-head of global credit, and co-cio at BDT & MSD Partners, effective July 2025. Olafson joins the firm after spending over two decades at Goldman Sachs’ asset management arm, where he most recently served as global head of private credit, managing US$130bn in assets. In his new role, Olafson will oversee the BDT & MSD’s private credit strategies alongside Rob Platek, who will transition from co-head of global credit to chairman of global credit at the end of the year.

Mount Street Group has appointed Rawle Howard as the head of its US team. Howard is a CRE professional with over 20 years of experience in the market. Prior to joining Mount Street, he founded and worked at CREcentric, a platform that monitors commercial real estate investments. Howard also has experience with the Canada Pension Plan Investment Board and worked at BlackRock Financial Management, expanding the real estate debt business in Europe.

Ymer SC has appointed Filippo Sampietro to its investment team, where he will play a key role in identifying new opportunities across the structured credit landscape. Sampietro has over 20 years of experience in structured credit markets, with proven investment expertise gained at Serone Capital Management (where he was a partner - senior portfolio manager) and GoldenTree Asset Management.

The LMA has recruited Emma Norman as chief of staff to the ceo, Scott McMunn. With 15 years’ experience working in the leveraged finance market, her role will have a broad remit, with an initial focus on helping McMunn implement his strategic vision.

Norman was previously senior legal counsel at Invesco, providing investments legal support to three fixed income investment teams, including in connection with CLOs. Before joining the firm in March 2018, she was a restructuring and insolvency senior associate at Freshfields.

Royal London Asset Management has appointed Matthew O’Sullivan head of private multi-asset. With the move, O’Sullivan has returned to London, having previously been head of Asia Pacific private investments at M&G Investments in Singapore. He joined the firm in December 2006 and served as the London-based head of commercial securitisation and co-head of ABS credit research, among other roles.

DLA Piper structured finance partner, Kos Vavelidis, has relocated to the firm’s New York office from London. Vavelidis initially joined the firm in 2023 from Paul Hastings and holds particular expertise in CLOs. From his new base in the US, Vavelidis will continue advising clients in both the US and Europe on securitisation transactions, and continue his focus on CLOs.

Close Brothers has recruited Chiara Caldwell to lead its efforts across the growing purpose built student accommodation (PBSA) and build to rent (BTR) sectors. Caldwell joins the firm as md of structured finance from CBRE where she had served as head of residential debt advisory since 2018. She previously held other senior roles including as head of private rented sector at NatWest. Close Brothers hopes to leverage Caldwell’s two decades of industry experience to expand its loan book in the PBSA and BTR asset classes in the UK.

Securitisation-focused service provider Lux Kapitalmarkt Management has appointed Stefan Rolf as md. The firm says the appointment will enable it to offer “asset-based-finance-as-a-service” to clients, in particular SMEs, NBFIs, fintech and PE portfolio companies. Rolf will continue in his role as ceo at his own advisory boutique Rolf Advisory, which he founded in 2023. He previously spent 13 years at Volkswagen Financial Services, leaving his position as head of ABS and treasury in the Asia-Pacific region in 2018, following which he had spells at ING Deutschland and IQ-EQ.

Frazier Healthcare has launched an in-house structured solutions team, targeting offering flexible capital to lower middle market healthcare companies. The new team will be based in Seattle, and led by former SVB md, JP Michael, as general partner. Michael will be joined by former SVB colleagues, Douglas Hollenbeck and Hannah Maatallah, who will serve as partner and vp, respectively.

Matthew Gizzi has joined MUFG as an associate in its securitised products group, focussing on origination and based in London. Gizzi leaves his position as associate at HSBC after six years with the bank, during which he focused on structured finance portfolio management and structured finance modelling and analytics. He previously worked at Deloitte and PwC.

And finally, energy-transition-focused alternative investment firm RGreen Invest has promoted Mathilde Ketoff from deputy cio and head of debt investment to partner, heading up its newly launched debt strategies division. Based in Paris, Ketoff joined the firm as investment director in 2019, having previously spent 12 years at BNP Paribas. As part of a broad reorganisation of the firm, RGreen is also establishing a new division focused on equity investment and has appointed Alexis Broders, who recently joined the management team, to serve as managing partner of the division.

Claudia Lewis, Corinne Smith, Marta Canini, Marina Torres, Kenny Wastell

CLOs

Palmer Square launches ETFs for European investors

New vehicles to address rising institutional demand for structured credit

Asset manager Palmer Square Capital plans to launch three exchange-traded funds (ETFs) for European institutional investors in early 2025.

Two of these ETFs will passively focus on euro- and US-dollar-denominated triple-A and double-A CLO debt. The third fund is to be an active multi-strategy ETF, offering similar exposure to the actively managed ETF currently offered in the US by Palmer Square.

Taylor Moore, md and portfolio manager at Palmer Square, tells SCI: “The new ETFs meet the increasing institutional investor demand we’ve seen for the European CLO market and are a natural extension of our global expertise in structured credit. We expect attractive returns in structured credit due to higher-for-longer interest rates and relatively widespread versus other credit products,”

The ETFs aim to preserve capital by concentrating on cycle-resilient assets with no historical defaults. They will include an actively managed multi-asset credit allocation product, which provides a single-manager solution to simplify portfolio construction.

This initiative follows Palmer Square's recent ETF launch in September, when the Palmer Square Credit Opportunities ETF (PSQO) and the Palmer Square CLO Senior Debt ETF (PSQA) began trading on the New York Stock Exchange (SCI 12 September 2024).

The funds contribute to a recent surge in ETF vehicles providing access to the securitised credit market, driven by heightened appetite in such products in Europe.

“Institutional interest in our proprietary European CLO indices and debt products further emphasises the demand for these ETFs,” Moore says.

The Palmer Square ETFs are expected to launch in Europe in early 2025, the firm said.

Camilla Vitanza