Contents

Asset-Backed Finance

Real Madrid: future of football finance?

Wave of stadium financing deals set to modernise European sports investment

Real Madrid President Florentino Pérez is reportedly considering plans to restructure the football club’s ownership model with one that may resemble the German 50+1 approach, with the club introducing private investment while remaining under fan control. This model – which has boosted profitability and sustainability across Bundesliga clubs – could accelerate a broader trend of financial modernisation in European football this year, likely coinciding with a fresh wave of stadium renovation transactions.

"If proven successful, this move could pave the way for other Spanish clubs in the hands of members, such as FC Barcelona, to mirror Real Madrid in order to remain competitive in one of the greatest rivalries in sports history," says Manuel Gutierrez, vp, corporate ratings at Morningstar DBRS.

Football clubs are increasingly turning to securitisation and private investment to fund new revenue streams, with stadium renovations playing a major role. Indeed, the financial model employed for the redevelopment of the Santiago Bernabéu and Spotify Camp Nou stadiums appears to be a likely template for future club financing.

Stadium financings on the rise

"We are seeing a wave of stadium financing deals as clubs look to maximise revenue beyond traditional match-day earnings," says Gutierrez. "The success of these deals makes sports finance a much more attractive sector for investors than before. We’ll likely see many more stadium renovations in Spain, with clubs like Valencia and Betis following suit."

A critical issue in football finance is relegation risk, which significantly impacts a club’s revenue. Stadium investment provides financial insulation against relegation-related losses.

"The revamp or construction of new stadiums provides clubs with financial superiority, which in turn can act as a safeguard against the long-term financial risks of TV rights stagnating or relegation," notes Gutierrez.

However, despite this overall push toward modernisation, financial transparency remains a key issue. While some clubs, like Barcelona, have previously opted for public credit ratings to boost investor confidence, most football financing deals remain private.

"A lot of the transactions in sports finance have been private. I don’t foresee that changing anytime soon," notes Christian Aufsatz, md, European structured finance ratings at Morningstar DBRS. "Owners often prefer to keep financial details internal, particularly when it comes to sensitive areas like player contracts."

Financial confidentiality is particularly important when clubs navigate complex financing structures, such as player transfers and sponsorship agreements. "When clubs have a public credit rating, it helps with investor confidence, but also exposes them to scrutiny when financial troubles arise. Many owners prefer to avoid that," explains Michael Goldberg, svp, sector lead, corporate ratings at Morningstar DBRS.

Football governance models vary

Another factor influencing financial stability in football is the role of private equity investment. In the US, such investments are heavily regulated, ensuring that firms cannot gain controlling stakes in teams.

"In the US, private equity firms can buy stakes in teams but have limited decision-making power. In Europe, they can fully own clubs, making governance models quite different," says Goldberg.

American sports leagues, such as the NFL and NBA, operate under strict ownership regulations that prevent clubs from taking on excessive financial risks. In contrast, European clubs have more freedom to seek external investment, which can lead to rapid expansion but also financial instability.

Another emerging trend is the construction of multi-purpose arenas without a sports anchor tenant. "We are seeing more arenas built specifically for concerts and events, rather than sports teams. New venues, like the Co-op Live Arena in Manchester, are being designed purely for entertainment. Many football clubs in Spain are also incorporating such arenas into their training campuses," explains Goldberg.

If Real Madrid’s new ownership model succeeds, the club could leverage commercial investment while securing long-term revenue growth – a move that would have repercussions across the country. "The impact of the highest-revenue European football club changing its ownership structure would be transformative for the whole football ecosystem in Spain," concludes Gutierrez.

Marta Canini

CLOs

CLO success factors

Panellists at SCI and Reed Smith CLO event discuss sustainability, new entrants and long-term track records

Sustainability considerations, an accelerating influx of new managers and the CLO asset class’s long-term track record were at the core of discussions at a recent SCI CLO event hosted by Reed Smith. SCI spoke to a panel of experts for their views on the future of CLOs with particular reference to sustainability.

CLOs have been a successful financing product over the last 25 years, but their success has passed largely unremarked. Speaking at the event, hosted at Reed Smith’s London office in late January, Rob Reynolds, head of CLOs at Pemberton, highlighted the strong performance of CLOs through two market cycles and explained what he considered to be the most important success factors in managing a CLO.

“Clearly asset selection is paramount,” he said. “Managing the portfolio is about getting the credit fundamentals right, buying well, understanding the CLO technology and using the right systems. Systems are important.”

Reynolds explained structuring a CLO is more complicated than simply looking at the triple-A spread: “It’s the weighted average cost and the structure of the equity layer. After a CLO has priced it’s also about the ramp profile and the efficient use of cash to minimise drag. Crucially, you need good people in the team.”

Highlighting the importance of staying nimble, Reynolds noted the firm's preference for liking small positions in big deals. “This means better liquidity and gives me flexibility to be an active manager,” he said.

A softer but equally important consideration is the need to build strong market relationships. “We are competing with some large incumbents and it’s important to build trust with investors, debt arrangers, trading counterparties, trustees, lawyers, corporate service providers, rating agencies, and CLO arrangers,” said Reynolds. 

He continued by highlighting that the influx of new managers has intensified competition in recent years. In 2023, seven new managers entered the market including Pemberton, compared to four in 2022 and three in 2021, and more debutantes are expected to enter the market this year.

ESG was a topic that had been gaining traction in the securitisation space over the past decade, though industry-wide discourse on the subject dissipated somewhat in recent years in the face of macroeconomic and geopolitical uncertainty. At the event, the topic was firmly back on the agenda.

On the sustainability front, Reynolds believes a “green” CLO is unlikely to be seen in the market for a few more years. “In order for a CLO to be considered a green CLO, we would need to invest in sustainable bonds – where the supply is limited,” he said. “These instruments also need to satisfy certain criteria, and we've hired a consultant to help us determine if an instrument is truly sustainable. The problem is that there aren't enough sustainable instruments available, and we need a wide variety of assets to build diversity into the portfolio. Diversity is key to the way the CLO model works.” 

Explaining his approach to sustainability, Reynolds highlighted he tries to gauge the borrower's management of related risks and opportunities, with credit considerations ranging from supply chain risks to environmental policy tailwinds that support growth of a company’s products and services. 

“Social and environmental trends are shaping the economies and industries in which companies operate, while good governance forms the foundation of all resilient businesses,” he said. “All of this ultimately goes back to management skills, experience and behaviour.”

Reynolds added that he also reviews borrower ESG statements and third-party databases and employs an independent sustainability coordinator to assist.

"There is a lot to consider when building a CLO platform,” said Reyonolds. “We need a steady flow of new primary assets and on this I remain optimistic for the year ahead."

Camilla Vitanza

Capital Relief Trades

Rates rupture

AOCI distress opens door to reg cap for regionals

With this week’s significantly stronger than expected CPI data, the “higher for longer” rate outlook is reinforced, and with that AOCI difficulties at US regional banks loom larger. This, in turn, suggests that reg cap trades will become more attractive to these institutions, suggest analysts.

Year-on-year CPI came in at 0.3% while month-on-month (MoM) the increase was 0.5%, and both readings were a lot more robust than analysts had predicted. Moreover, the inflationary surge was visible not only in the historically volatile food and energy segment (up 0.4% and 1.1% MoM respectively) but also in the so-called core components (up 0.4% MoM, the highest for almost a year).

There is no evidence here that inflation is moving “sustainably” towards to 2% target, and rate cuts are now off the table for the foreseeable future. Indeed, it is now possible that the next move may be a hike. Several market watchers suggest that the Fed has botched its policy and introduced unwelcome jitters into the market.

“The Fed's previous H2 2024 rate cuts appear to be a policy error” said Seeking Alpha this week, while Ethan Heisler, author of Bank Treasury Newsletter, did not mince words two weeks ago, and before the latest CPI report: “The Fed bungled this easing cycle.”

While the yield curve has resumed a more customary positive upward slope as a result of the rate cuts last autumn, it has not steepened as sharply as has been customary in previous bull-steepening situations. Three-month bills currently yield 4.34% while 10-year notes yield 4.52% - a spread of only 18bp.

Indeed, the market is now bear steepening in an easing cycle for the first time in 40 years, notes Heisler.

Short term rates have not come down as much as had been hoped as inflation remains a near and present danger, while longer term rates are buoyed by general economic uncertainty and the prospect of a large deficit plus voluminous Treasury issuance.

It is a troubling development for regional banks, who have a more limited range of assets and income earning opportunities than the top tier institutions. They now contemplate a worsening AOCI position as longer-term assets depreciate while shorter-term liabilities swallow more and more income. To add to the difficulties, deposits are going down as customers are squeezed harder by the cost of living.  

A couple of months ago, things looked considerably rosier. “Heading into 2025, we remain very encouraged by the direction of regional banks in the new year. Our optimism for the sector is not only driven by the prospects of improving fundamentals next year in areas including loan growth, deposit growth, and NIM expansion,” according to JP Morgan’s equity research outlook for small and midsized banks, published on December 17 2024.

Regionals are a fix they didn’t expect to be at the end of last year when they felt no obligation to look to reg cap trades.  “Banks had been counting on - and they said this in my many conversations with them – ‘We don’t need to worry about AOCI and we don’t need to do SRT because once the Fed brings down rates that will reverse all our unrealized losses and then we can sell them,’” says Matt Bisanz, a partner at Mayer Brown and a leading expert on bank use of CRT.

But risk sharing transactions are ideal for the current situation as banks can hedge exposure without selling assets and being forced to realize the market loss. Other mechanisms designed to take losses off the books, such as cash securitizations and true sales, are not as suitable as they require sales of assets.  

The situation could become even worse if Basel III Endgame proceeds as was originally designed, as a provision of the new rules is that banks with over US$100bn in assets must include AOIC losses and gains in calculations of capital requirements. The previous threshold was US$250bn, which includes only the top seven or eight US commercial banks.

However, it is thought likely that B3E has now been kicked into the long grass and though some form of it may yet surface it will be more benign than the original iteration.

Nonetheless, the issues for US regionals, many of whom sit on piles of currently under water commercial real estate assets, are real enough. Indeed, SEC filings  may understate the problems, according to recent research SCI highlighted several weeks ago.

It remains to be seen whether this means more regional banks will hit the reg cap market this year, but the reasons for staying out are growing fewer. “I think SRT will stay a theme and hopefully grow as banks try to find a management solution to interest rate risk,” says Bisanz.

Simon Boughey

Capital Relief Trades

Potential new player identified for SRT issuance

SRT market update

Financial sector research firm Autonomous Research (Autonomous) has identified a major European bank as a prime candidate for future SRT issuance.

A well-known fact in the SRT market is that transactions referencing portfolios of large corporate loans comprise the majority bulk of issuance. For the leading investment banks, SRT has now become an integral part of their “originate to distribute” models in corporate lending. 

In this context, a research paper compiled by Autonomous screens for potential new players and opportunities for SRT usage.  

In terms of methodology, it makes use of the EBA transparency dataset to screen for regulatory risks around RWAs by comparing the IRB risk densities on banks’ loan portfolios (by sub-portfolio and geography) to industry average benchmarks (focusing on cases where the density for individual banks was below average). 

Through this method and analysis, the paper notably identifies Dutch bank ABN AMRO (ABN) as a prime candidate for future SRT issuance. Autonomous’ data (for Dutch corporate IRB books) shows and highlights that ABN has an above average risk density on large corporate exposures, at 63% versus an aggregate across equivalent portfolios of 46%. Additionally, ABN’s specialised risk density is somewhat high compared to its Benelux peers (including ING and KBC).

In its 3Q24 investor call presentation last year, ABN management officially acknowledged and confirmed opportunities in this sector, with Serena Fioravanti, cro at ABN, noting: “On risk-weighted assets optimisation, I think we already commented in Q2. It can be expected that we will make more use of instruments such as SRT or other risk transfers. We'll include also potentially CDS or insurance sales, as we said before, we maintain this approach.”

Vincent Nadeau

Capital Relief Trades

Greek synthetic

SRT market update

The European Bank for Reconstruction and Development (EBRD) and Greek commercial lender Piraeus Bank (Piraeus) have, it has emerged, closed a synthetic securitisation.

Piraeus confirmed that the multilateral development bank acted as a co-investor in its €1.8bn Corporate & SME SRT transaction, which closed at the end of last year. Structured as a CLN, the EBRD participated with investment of €50m covering the credit risk of the senior mezzanine tranche.

The SRT boosts the resilience of a systemic bank in Greece, and subject to receipt of the ordinary terms and approvals by the competent authorities, will allow Piraeus to achieve a RWA relief and optimise its regulatory capital requirements, while the anticipated RWA relief will be redeployed to new on-lending to the real economy.

The project also supports the Green transition quality and EBRD's Green Economy Transition ("GET") approach in Greece through Piraeus allocation of a multiple of EBRD investment towards projects, which meet strict GET-eligibility criteria.

Vincent Nadeau

Capital Relief Trades

EIB inks transaction targeting gender equality

SRT Market Update

The EIB, the EIF, Santander Bank Polska and Santander Leasing have closed a synthetic securitisation targeting Polish SMEs, with a particular focus on financing businesses that meet gender equality criteria. The transaction is set to mobilise up to PLN5bn in new funding, at least a third of which will benefit companies owned or led by women, those promoting inclusive employment or offering products designed to tackle the gender gap.

Under the agreement, the EIB Group will assume a significant portion of the risk from a PLN4bn lease portfolio. Specifically, the EIB Group will guarantee a senior tranche of around PLN3.4bn and a mezzanine tranche of approximately PLN560m, with Santander retaining the junior tranche. The underlying portfolio consists of leases to SMEs, originated by Santander Leasing.

Through a retrocession agreement, Santander has committed to using the additional lending capacity freed up by the guarantees to create a new portfolio of eligible loans and leases over the next three years in an amount of PLN5bn that align with the EIB Group’s policy objectives. The transaction includes a two-year replenishment period, during which Santander can add new leases to the transaction to offset amortisation across the portfolio. 

Women-led SMEs face disproportionate challenges accessing credit. Diversity and inclusion activities are an important part of Santander Bank Polska Group strategy. In addition to financial products and solutions that boost women's entrepreneurship, Santander Bank Polska Group implements numerous training projects that improve the professional competencies of women in business.

“The share of companies run by women among Santander Leasing clients is 25% and we are pleased that this indicator is steadily growing,” comments Krzysztof Kowalewski, vp of Santander Leasing Poland. “Just six years ago it was 10% percent. Our female clients most often operate in industries that drive the economy and innovation: wholesale and retail trade, healthcare, but also professional and scientific activities.”

This transaction is the EIB Group’s largest synthetic securitisation to date and its fifth undertaken with Santander. Since 2013, the group has invested €12bn in securitisations in Poland and Central-Eastern Europe. Meanwhile, its financing for gender equality amounted to €3bn last year.

Corinne Smith

Capital Relief Trades

Fools rush in...

GSE exit from conservatorship needs careful handling, says SFA

The US government should tread warily in any efforts to free the GSEs from conservatorship, Structured Finance Association (SFA) ceo Michael Bright said yesterday (February 11).

Since the November election the return of Fannie Mae and Freddie Mac to private hands has jumped back to the top of GSE talking points. Last week new Housing and Urban Development (HUD) secretary Scott Turner said that HUD will be part of a task force that will explore privatization.

President Trump well-publicized cost-cutting drive is now in full swing and selling off the GSEs could garner the federal government more than US$300bn, say some estimates.

But, says Bright, the path is littered with land mines. “The private U.S. securitization market is the envy of the world. But for ‘reform’ and ‘privatization’ of GSEs to be more than buzzwords, barriers to private capital must be center stage. Otherwise GSE reform would be an accounting gimmick that would put Washington DC behemoths at the helm of our nation’s housing market,” he warned.

The SFA has issued six key principles which it says must be at the heart of any privatization. One of these is that credit risk transfer (CRT), which the GSEs pioneered in the US market over a decade ago, should be retained. Bonds issued under the CRT banner are pre-funded, clearly defined forms of insurance that are often cheaper than equity, it says.

Indeed, CRT could play an enhanced role in both the preparation of the GSEs for an exit from conservatorship and during their life in private hands, say observers.

But GSEs free from government restraint would be free to pursue high credit quality loans while leaving poorer credit borrowers with only the Federal Housing Finance Authority (FHFA), “which is notorious for exposing taxpayers to excessive risks,” said Bright.

The GSEs' central role of making housing more affordable should not be imperilled by an exit from conservatorship, he stressed. Lower loan limits and "sensible restrictions" should restrict pursuit of “million dollar homes”  and second-lien properties – for which Freddie Mac sought permission last year - says the SFA.

Emergence from the government umbrella would also raise question marks about the credit quality of the new entities, potentially raising mortgage costs and disrupting the liquid and well-functioning TBA market.

However, the GSEs are in a considerably better place for a return to the private market than when it was last contemplated during the first Trump administration. Fannie Mae currently has a market capitalization of just over US$8bn compared to US$2.35bn in October 2020. It was worth almost US$100bn at the start of the 21^st century before going bust in the financial crisis.

Freddie Mac has shown even more impressive improvement and now has a market capitalization of over US$60bn compared to less than US$10bn in July 2021. Its shares change hands for US$19.

It issued US$3.4bn in the STACR market in 2024 (while tendering US$3.5bn), and predicts slightly higher volumes in 2025, said a spokesperson for the GSE at the SCI Risk Sharing and Synthetics Seminar in New York last week. It is also it will try sell further up the stack, which not only aligns more sweetly with capital requirements but is also where (re)insurers show buying interest.

Fannie Mae issued US$4.3bn in the CAS market in 2024 and expects broadly similar issuance in 2025.

Simon Boughey

Capital Relief Trades

Regional views from New York

Conference roundup

SCI’s ninth annual risk transfer and synthetics seminar took place last week in New York, and the agenda covered a broad array of topics currently impacting the US CRT/SRT market. These ranged from regulatory reforms, the latest developments in the GSE market (including whether a release from conservatorship is on the table), new assets in the region, relative value, and what was dubbed ‘lessons from afar’.

A particularly arresting discussion centred on the US regional banks. While these have the same – if not greater – need for capital enhancement as the G-SIBs, there is perhaps more opacity regarding operational challenges. For example, the choice of either direct CLNs and eligible CDS structures – which may or may not include the issuance of SPV CLNs – can prove intimidating, as can navigating any subsequent regulatory interrogations.

Addressing the motivation for a trade, Ally Financial said that “capital optimisation is paramount and developing that tool and then perpetuating that for an optimisation trade was the primary driver for our rationale.” Overall, capital efficiency and pricing leverage were widely regarded as key drivers for CRT issuance by the regionals.

Last year, Valley Bank and Ally Financial both completed trades in the same asset class (auto loans), yet utilised different structures and attendees were given a deeper structural understanding of these transactions.

Ally Financial said a direct bank CLN allowed them to leverage an existing auto cash securitisation programme, thus affording cross-organisational support. It added that this structure also provided broader investor syndication and a more optimal price discovery, lowering cost of capital.

On the other hand, Valley Bank – not a regular ABS issuer – opted for a bilateral CDS structure, arguing that this allowed easier negotiations, a bespoke solution and, for it, a lower cost of capital. Overall, it appears direct CLNs make more sense for a regular ABS issuer.

The panel was in overall agreement that the main driver for trades referencing CRE assets would be not only to provide capital relief but also hedge credit exposure and concentration. However, CRT trades are ideally homogeneous and capital intensive, which CRE loans are generally not, so predicting a potential pipeline remains an unpredictable exercise.

However, participants confirmed we should expect two or three new issuers to join the market this year in the category IV to the super-regional banks segment. The forecast for banks with total assets below the US$100bn threshold is still uncertain, but one market source reported: “Banks in that space don’t want to be the first to issue but certainly don’t want to be the last.”

Vincent Nadeau

Capital Relief Trades

Ever closer

Norwegian SRT market gets further boost

Last week, the Norwegian government has submitted its proposal for SecReg implementation to the Parliament for formal approval.[1]

Coincidentally or not, such announcement matches quite closely the Centre Party's exit from the ruling coalition, leaving the Labour Party to rule alone eight months before parliamentary elections. To bring added context to such shift, Norway’s Centre Party has historically been a Eurosceptic force within the local political spectrum.

Setting politics aside, such decision (finally) opens the door more widely for discussions around the potential future and shape of the Norwegian SRT market.

While last year the EIB and DNB completed a landmark SRT transaction, highlighting the EIB’s historical and strategic role as a “first mover” in broadening SRT jurisdictions, we asked Markus Nilssen, partner at BAHR, his views regarding key features for this prospective SRT market.

In terms of local idiosyncrasies (and notably following the EIB-DNB deal), Nilssen identifies EV loans as a potential asset class for future issuance. He notes: “EV sales account for 97-98% of new car sales in Norway. Therefore, it is easy to imagine local banks leveraging decently-sized portfolio into SRT deals.”

Another local expertise concerns the shipping industry, where Nilssen equally expects Norwegian banks to benefit from SRT issuance.

Nilssen also points to “commercial banks, retail and consumer finance banks” as prime candidates for synthetic issuance, noting it would be an ideal tool for “capital release in order to increase their RoE and optimise their capital situation to finance further growth.”

Regarding a potential upcoming pipeline, it is equally hard to imagine SRT giant Santander not looking into its Norwegian consumer subsidiary, with the Spanish issuer publicly claiming to move €60bn in risk-weighted assets off its balance sheet this year.

Vincent Nadeau

Asset-Backed Finance

SABL 'mutually beneficial' for private credit funds and banks

Cadwalader partner Jeffrey Nagle and special counsel Michael Lynch outline the significant benefits that single-asset back-leverage (SABL) facilities can provide to both private credit funds and banks

The rise of private credit has been one of the biggest stories in finance in the last decade, and some observers forecast that by 2028 the private credit market once again will double in size. This continued growth, as well as other market and regulatory forces affecting bank lenders, has promoted innovation in the space. Increasingly, and perhaps out of necessity, banks and private credit funds are often coming to view each other as mutually beneficial partners rather than competitors. 

While there are a number of other structures that can provide private credit funds with back-leverage for their portfolios of loan assets, SABL structures – which are at the intersection of fund finance, structured finance and leveraged finance/private credit – increasingly have become an option as well.

There are a number of reasons for a growing focus on this type of leverage structure, starting simply with the continued growth of the private credit market. As more and more private credit loans are originated, a number of these loans may lend themselves to a single-asset structure.

Another reason is that the evolving regulatory landscape, including any potential changes related to the implementation of Basel 3 Endgame (which is a constantly moving target), have resulted in banks remaining very interested in maintaining favourable treatment of their assets within the risk-weighted asset (RWA) framework.

Single asset drives structuring

A key distinguishing feature of SABL facilities is that only one underlying asset is being financed. Generally, this is a funded term loan interest, although other asset types may also be funded this way.

By contrast, for most types of financing facilities that provide fund-level leverage – e.g., traditional NAV facilities, subscription lines, asset-based lending facilities/CLOs and secondaries facilities – there is typically a focus on the diversity of the assets that are being financed, in order to mitigate various risks. So, the ‘single asset’ nature of this product drives many of the structuring considerations.

In a widely dispersed collateral pool, there is typically less focus on detailed diligence or consideration of each asset. There is safety in large numbers.

By contrast, in an SABL facility, one asset is the entire ballgame. Therefore, there is a greater emphasis on performing diligence on the loan documents for the underlying loan asset, since any non-performance – or unintended or unforeseen action under – the underlying loan asset would more directly, significantly and immediately impact the back-leverage facility.

Another distinguishing feature of SABL facilities, when compared to standard loan syndications or participations, is that these facilities may be structured to give the bank lender a senior position in the underlying loan, rather than a pro rata position that a simple loan assignment or participation would provide. In other words, the SABL structure may be designed to give the private credit fund the ‘first loss’ piece of the underlying loan under certain circumstances.

Because of this structure, the bank may be able to receive exposure to an underlying private credit loan from a relatively conservative senior position (which is reflected in margin), while the private credit fund could enhance its return either through arbitraging margins between underlying loan and the SABL facility and/or engineering a higher effective coupon (through deleveraging). Indeed, there are many ways to structure this trading of risks and rewards in order to benefit both parties.

Similar to other limited-recourse and non-recourse financings involving loan assets, lenders will typically look to isolate the underlying asset in a special purpose entity (SPE). The SPE will serve as the borrower under the SABL facility, and the credit support for the back-leverage facility will normally be limited to the underlying loan (although other credit support, such as bad actor guaranties, full guaranties or other credit support may be appropriate given the structure).

Following the mechanics of structured finance, SABL facilities often contain a cash sweep mechanism, whereby payments from the underlying loan will be swept into a controlled account and applied at agreed intervals according to a payment waterfall. The waterfall is typically an area of keen negotiation among the parties.

Another key area of discussion is the SABL borrower’s control rights over changes to the underlying loan agreement. The private credit fund’s preference is generally to retain flexibility to deal with the underlying borrower (for economic, as well as relationship reasons), while the bank’s interest is to make sure that the sole asset constituting its credit support is not modified in a way in which the bank does not approve. Depending on the nuances of the transaction, various solutions are utilised to address both parties’ interests.

Finally, both parties should carefully consider the terms of the underlying loan when agreeing on terms in the SABL facility. Borrowers will look to align payment dates and amounts on the SABL facility with payments on the underlying loan to minimise the need for capital injections. Lenders may look for the maturity of the SABL facility to be well inside the maturity for the underlying loan, in order to minimise refinancing risk. The contours of the underlying loan directly shape the contours of the SABL facility.

Flexibility facilitates competitive pricing

SABL structures can provide significant benefits to both private credit funds and banks that are distinguishable from traditional, diversified back-leverage and from other direct participation by a bank (such as being a co-lender on a syndicated facility).

An obvious benefit to the private credit fund is the ability to enhance its returns. The private credit fund also may be able to form a stronger relationship with its underlying borrowers without the direct involvement of any competitor funds or banks that might otherwise be part of the lending syndicate, as the underlying borrower may not have any direct interaction with (or even knowledge of) the bank lender’s existence. And without a long syndication process, the private credit fund may be able to provide quick loans to underlying borrowers on favourable terms.

In addition, the use of a single-asset structure allows the fund to more easily match its leverage terms to a specific asset; for example, timing of payments, prepayments and other cashflows on the applicable underlying loan. Finally, the SABL structure has a great deal of flexibility: as with all things fund finance, having a Swiss army knife in the proverbial back pocket helps to address the tricky knots that can appear.

The benefits from the bank side are also numerous. Importantly, this product allows banks potential access to the rapidly growing asset class of private credit loans.

An SABL facility can be tailored and structured to give banks a relatively conservative position in the capital stack, allowing for favourable pricing and opportunities with underlying loans that may be structured more aggressively than standard bank loans. In addition, it is possible to structure an SABL facility to allow banks to receive more favourable capital treatment for its position, and this in turn may allow it to offer more competitive pricing to private credit lenders seeking back-leverage.

Conclusion

Each SABL facility tends to be somewhat unique, and structures differ among different banks, different private credit funds and even deal-by-deal with the same participants. There is no one set ‘market standard’, and so practitioners and market participants should be flexible and creative. Because SABL facilities exist at an interesting junction between fund finance, structured finance, leveraged lending and bank regulatory matters, it is important to understand each of these angles when considering a deal.

Structured Finance

Job swaps weekly: ARC promotes two and appoints APAC chair

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees ARC Ratings making a number of senior structured-credit-focused appointments spanning Europe and Asia. Elsewhere, Cadwalader has added three fund finance partners in London, while CIFC Asset Management has named a new md overseeing CLO tranche investing in its New York office.

ARC Ratings has promoted two Lisbon-based structured finance executives and appointed a new chair of its APAC division. The agency has named Stefan Augustin head of relationship management (EU) and promoted Cesar Horqque to head of structured finance for the EU, both based in Lisbon, as well as appointing Dr Stan Ho as APAC chair.

Augustin was previously head of structured finance (EU) at the agency, which he joined from ACRA Rating Agency in March 2021. He began his career as a structured finance credit analyst at Commerzbank in August 2004 and has also worked at Moody’s, Rothesay Life and Funding Circle since then.

Horqque joined the agency in 2021 as a senior structured finance analyst and is promoted from vice president. He previously spent four years at ACRA Rating Agency and four years at Moody's.

Based in Hong Kong, Ho has also been appointed to the advisory board of ARC Risk Group, the parent group of ARC Ratings and ARC Analytics. In his capacity as chair, he will be responsible for obtaining regulatory licences and approvals required by the group to operate in the APAC region, overseeing regional group strategy and will work alongside Joyce Chi, ceo of the APAC division. Ho has held a number of senior positions at global and Chinese credit ratings agencies, and was previously senior director and head of non-Japan Asia structured finance at Fitch, where he spent 10 years.

Meanwhile, Cadwalader has added UK fund finance lawyers Bronwen Jones, Douglas Murning and Matthew Worth as partners in its London office. Jones was previously a partner at Reed Smith, while Murning was a partner and Worth was counsel at Ashurst. All three each have over 20 years’ experience in fund finance, debt finance and private credit, acting for financial institutions and fund managers on a broad range of complex transactions.

CIFC Asset Management has promoted Jamie Goldstein to md, CLO tranche investing, based in New York. Goldstein joined the firm’s structured credit team in September 2019 from Goldman Sachs, where she had been a structured finance investment banking associate. Before that, she worked at American Express and EY.

Lockton Re has recruited Mark van der Does as a senior broker in its mortgage and structured credit team. He brings 12 years of experience in the credit insurance industry, advising banks and non-bank financial institutions that use credit insurance for credit risk and capital management purposes. He was previously vp, credit specialties at Marsh, which he joined in January 2015 from Starr Insurance.

Asset-backed focused private investment firm Veld Capital has appointed EJF Capital’s Adeeb Ahmed as md and head of investor relations and business development. Ahmed leaves EJF after four years with the firm, during which he focused on European and Asian business development, mainly focusing on fundraising activities for specialist and opportunistic credit strategies. Prior to EJF, he spent nine years at Ironshield Capital Management and 11 years at Morgan Stanley.

UBS has promoted Vojtek Sereiskij to executive director, structured financing, based in London. His remit includes SRT, structured credit and private credit. Sereiskij joined UBS as an associate director in August 2018, having previously been an associate at RBS, where he was involved in structuring and executing SRT trades.

Climate First Bank has appointed Scott Frederick as vp, business development officer for the bank’s structured finance division, where he’ll focus on factoring and asset based lending. Frederick is a seasoned commercial finance professional, with a career spanning over 30 years. Most recently, he served as vp, business development officer at Goodman Capital Finance, but he spent the majority of his asset based lending career with Crestmark, a division of Meta Financial Group.

And finally, Priya Nazran has transitioned into a new role as an associate in the securitisations team at Scotiabank. Nazran joined Scotiabank in 2024 as an associate in trade floor risk management and has focused on CLO warehouse and fund finance to date. Prior to joining the bank, she spent 3 years at Morgan Stanley.

Corinne Smith, Marta Canini, Kenny Wastell, Ramla Soni

Asset-Backed Finance

Tech to streamline funding solutions

AI meets ABF in new strategic partnership

Encina Lender Finance (ELF) and securitisation fintech Cardo AI have formed a strategic partnership aimed at improving efficiency, transparency and accessibility across the burgeoning ABF market. The two firms hope to “revolutionise” ABF transactions by combining Cardo AI’s expertise in AI analytics with ELF’s expertise in structuring and credit risk management.

The agreement highlights the increasing role that technology – and especially AI – is playing across the structured finance industry, lowering the barriers to entry for new players and offering non-bank speciality finance firms greater access to and control over capital. Indeed, the new partnership intends to better support both the buy-side and sell-side by streamlining funding solutions for originators and increasing the number of capital deployment opportunities for institutional investors.

The pair aim to do so by leveraging ELF’s expertise on the structuring and credit risk management side to ensure the seamless integration of technology with investment processes. Meanwhile, Cardo AI’s AI-powered risk monitoring and predictive analytics aims to enhance transaction workflows, execution speeds, risk monitoring and market transparency, as well as reduce inefficiencies.

“As we strengthen our presence in the US market, we are excited to collaborate with ELF to redefine the way structured credit operates,” comments Altin Kadareja, co-founder and ceo of Cardo AI. “With our intelligent technology and the ELF team’s expertise in structuring asset-backed credit facilities and forward flow purchase programmes, we are creating a more transparent, scalable and investor-friendly ABF ecosystem."

The alliance is set to establish new standards in ABF by demonstrating the potential of AI-driven solutions to accelerate transactions and propel the growth of the broader structured finance universe. “By integrating technology-driven solutions into our investment and surveillance processes, we are accelerating transactions and enhancing overall market efficiency,” adds Geoff Beard, ELF ceo and cio.

As technological innovations continue to transform the structured finance sector, the ELF-Cardo AI collaboration offers a glimpse into a more automated, efficient and scalable future for asset-based lending.

Claudia Lewis