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Capital Relief Trades

Third Coast and EJF show the way

Novel CRT true sale offers template for slimming CRE exposure

The blueprint for the US$200m CRT securitization of a single revolving CRE loan originated by Third Coast Bank announced last week can, and should, be used repeatedly by banks seeking to reduce concentration risk, say sources.

Although the deal achieves the traditional objective of a reg cap deal – to reduce capital requirements – its principal purpose is to reduce CRE exposure.

This is a template which has applicability across the entire US regional bank network.

The initiative for the transaction, which was a year in the making, emanated from investor EJF, a Virginia-based alternative asset manager with US$5.4bn AUM. It provided the intellectual and financial impetus for the deal and made the initial contact with Third Coast Bank.

“This is the first ever deal of its kind to secure a reduction of CRE concentration. The model can run and run. It is the future for reducing CRE concentration and we’re thrilled we have this template,” says Matt Bisanz, a partner with Mayer Brown, which represented EJF.

Bisanz has worked closely with EJF over the past 12 months to get the deal over the line. The deal is secured by the assets of 11 residential planned communities in Houston, Dallas and Austin, all in Texas.

“Any bank that has a CRE problem should get EJF on the phone. They have the inclination to do more,” he says.

The structure of the deal is highly unusual. Firstly, the reference pool, containing a single loan, and the deal size are the same – US$200m.  Third Coast Bank originated the loan, which it then sold to an SPV and then took out an investment in the SPV.

Third Coast Bank created participation interests in the loan, one of which was sold to EJF as CRT 2025-1 who subsequently sold that participation interest to EJF CRT 2025-1 LLC as the depositor. Third Coast Bank retained the participation interests not sold to EJF.

The eventual note issue consisted of class A1 notes and class M1 notes.

The sale to the SPV is a true sale, which presented the first structural hurdle to be cleared but also makes it different to an orthodox SRT deal. Then, as the CRE loans were moved to the SPV, a lot of time was spent negotiating the sale price. Finally, the servicing rights needed to be put in place carefully.

The biggest hurdle, however, was presented by Third Coast Bank’s limited size. At the end of 2024, it had less than US$5bn in total assets, so the structurers of the deal frequently encountered credit limits for exposure, investment and regulatory capital.

But, having crossed the finishing tape, the deal now stands as a signpost for US banks seeking to reduce CRE exposure and for alternative asset managers seeking selected CRE exposure.

“I don’t know when we’ll do the next one but I’ve no doubt having done one we’ll do more. It’s such an appealing structure. I’ve had a lot of calls from potential clients,” says Bisanz.

• Simon Boughey

Capital Relief Trades

Expected pickup

SRT market update

The SRT market activity is set to pick up further by Q3 of this year, with at least six deals expected to close in the coming months, sources tell SCI. 

In the UK, the major banks are preparing to bring new trades to market, with Lloyds launching a consumer and retail-focused deal. The bank may also look to bring more granular portfolios through its corporate programmes, according to sources.  

Barclays also has plans to launch a couple of deals throughout Q2 and Q3, most likely under its Colonnade programme, add sources. Recurring issuers such as NatWest is expected to maintain regular SRT activity over the next quarters as well.

Elsewhere in Europe, attention is turning to the Nordic region, where a Scandinavian transaction, referencing consumer and auto risk is currently on the radar, with investors eyeing potential issuance as early as Q2, SCI learns.

“We have invested in consumer and auto risk in Scandinavia before, and we expect to do so again this year. We could close with them by the end of Q2, so not too far away now, but the rest of the deal flow will be Q3/Q4.” one investor comments.

Although the specific structures are still being ironed out, early-stage discussions with Nordic issuers suggest a positive outlook for the overall pipeline.

“Structurally, those trades will likely involve second-loss tranches with a retained first-loss position,” they explain.

In terms of asset classes, investor preferences could also see a shift. Despite lingering market volatility and ongoing tariff-related risks in the space, investor interest in granular portfolios is robust, with consumer credit and residential mortgages being highlighted as particularly attractive.  

Players witness a gradually increasing demand for smaller, disclosed opportunities, while large corporate loans often prove to be out of scope for many SRT players.

“We do not engage with large corporate SRTs. Our focus is on granular portfolios, such as consumer and residential mortgages, where the transparency is much more attractive,” one market participant shares.

Pricing uncertainty

While granular consumer portfolios remain opportunistic, the geopolitical backdrop will be vital for pricing and deal structuring.

A source who noticed recent widening in investment-grade deals, says SRT pricing could follow a similar trajectory. They add that talks about wider spreads will persist as the full effects of tariffs are yet to be determined, particularly for corporate SRTs.

Uncertainty around the tariffs’ impact on specific sectors has also created a pricing divergence between corporate and consumer-focused trades. Corporate portfolios – having a more direct exposure to macro risks – could experience more significant repricing and shifts in portfolio composition.

“Corporate risk will see more volatility, whereas granular consumer portfolios may see less impact from tariff-related risks. There will likely be a separation in pricing between the two,” the investor adds.

In other news

Despite some concerns around the PRA’s recent letter on leverage in SRT transactions, investors expect little disruption to upcoming issuance. 

“The PRA letter isn’t about questioning the validity of SRTs,” one investor confirms. “We still expect deals to move forward.”

Pricing dynamics remain under scrutiny in the senior mezzanine tranche, which typically represents around 2% to 3% of the capital stack. Some investors are pushing back on these tranches, citing their greater complexity and relatively limited returns.

“We are seeing more complexity around the senior mezzanine, and that is leading to some investor pushback. The structure still has value, but it is a trade-off between complexity and return,” a source comments.

Nadezhda Bratanova

ABS

Ratepay seals scalable BNPL securitisation

German white-label provider has closed its first STS-compliant ABS deal

Ratepay has completed its inaugural STS-compliant securitisation, raising €125m through a transaction backed by German and Austrian buy-now-pay-later (BNPL) receivables. The deal was arranged and financed by UniCredit Bank.

The transaction marks a strategic milestone for Ratepay, a Berlin-based white-label BNPL provider, as it seeks to scale its operations and diversify funding sources. The securitisation is backed by payment-on-invoice receivables – a core product in the DACH region’s e-commerce space, where one in four consumers prefers to pay after delivery.

Structured to meet the STS criteria under the EU Securitisation Regulation, the deal is expected to pave the way for future refinancings and portfolio expansions.

Baker McKenzie advised Ratepay on the transaction, with Frankfurt-based partner Sandra Wittinghofer leading the legal team. The firm has an established relationship with Ratepay and regularly advises on securitisations and complex financing structures across asset classes.

Ratepay, part of the Nexi Group, specialises in white-label BNPL services including invoice, instalment and direct debit payments. By focusing on white-label solutions, Ratepay enables merchants to retain control over the customer relationship while offering flexible payment options at checkout.

Selvaggia Cataldi

Structured Finance

Tariff tensions drive unease in European securitisation amid mounting volatility

CLOs, CMBS and SMEs flagged as first in line to feel the heat from Trump's trade war

Escalating trade tariffs from the second Trump administration are sending shockwaves through the global financial markets – and European structured finance is no exception. While immediate credit deterioration remains unlikely, the wheels of spread widening, shifting investor sentiment and heightened uncertainty are already in motion.

"It’s no secret that recent market turmoil has created quite a bit of volatility across all financial markets – and fixed income in Europe is not immune to this," explains Mudasar Chaudhry, svp and lead of European structured finance research at Morningstar DBRS.

According to Chaudhry, the impact of the tariffs is already visible in European structured finance, particularly in lower-rated tranches. "You’re already seeing some spread widening," he says. "The lowest spreads in the past few weeks in CLO triple-As were around 117bp to 118bp, and since then these transactions have priced around the mid-120s."

He emphasises that while the trade tariff situation is contributing to market volatility, the turbulence remains within the range of assumptions built into Morningstar DBRS’s structured finance rating methodologies - which typically work to capture performance across full credit cycles rather than serve as point-in-time analyses. “Trade wars create volatility – but this volatility isn’t beyond the confidence we have in our ratings analysis," he says. “It will stay within the range, but of course, things can go from bad to worse quickly, so we do continue surveilling our portfolio to see where the credit indicators are pointing.”

Chaudhry adds: “Within structured finance, we don’t necessarily rate for any political regime changes or one-off shocks, but generally include scenarios of rise in defaults and interest rates - among other variables – in our rating analysis.”

Early signs of stress emerging

The real impact of the tariffs is hard to assess at this early stage, as policies and countermeasures continue to adjust and emerge. “The goalposts keep moving,” Chaudhry says. “But we’re already seeing early signs of stress in the more exposed corners of the market.”

Typically, CMBS and structured credit deals – like CLOs and SME deals – are the first to see spread widening in times of volatility, Chaudhry notes. “SMEs have less pricing power – they might be a one-trick pony. If they’re lumped with tariffs, then that can be the business margins for them wiped out.”

CLOs backed by corporate credit are particularly vulnerable. “Some sectors within CLOs, corporate credit-backed transactions, would be the first to take the brunt if there was to be a bigger knock-on impact from the tariffs,” explains Chaudhry.

Nevertheless, the macroeconomic ripple effects of sustained tariffs could trigger more widespread issues across the securitisation market. “If this was to change, like international trade dependant sectors in SMEs or corporates where they have very little pricing power, and redundancies or unemployment creep up, that’s when it will start to seep into other asset classes like credit cards and RMBS,” Chaudhry warns.

Each European market is likely to be affected differently, given the nature of the tariffs, the differences between individual national economies and sectors and the fact not all countries are moving through the same stage of the economic cycle. “For example, Germany is an export dominated economy with a trade surplus with the US, so tariffs will have a different impact there than an economy which is a service-based economy and/or has a trade deficit with the US,” he says. “The pause in tariffs with a 10% base tariff gives all parties time to re-access, so the overall impact on European structured finance is something very difficult to ascertain.”

Delinquencies remain low

While delinquencies across European structured finance remain low – rising only slightly from a very low base – Chaudhry warns of the “lag effect” in the metrics. “Delinquencies and defaults are a backward-looking factor,” he explains. “They show you what was happening three months ago rather than today. The knock-on effects of the tariffs will likely first show on the US side of things, and you may see a spike in delinquencies there in the later part of the year.”

Indeed, a recent note from KBRA reported that approximately US$17.5bn in pending KBRA-rated deals in the US were put on hold following the tariff announcements. KBRA flagged consumer ABS, CMBS and CLOs as the most-exposed segments of securitisation to prolonged volatility and potential spread widening if tariffs persist or escalate. The rating agency warns that first-order, secondary and tertiary impacts of tariffs could result in CLO portfolio degradation, particularly in lower-rated exposures.

“It’s hard to say where Europe will be next year with these tit-for-tat tariffs,” continues Chaudhry. “European countries are yet to introduce countermeasures, and if they’re excessive, they could end up impacting their own consumers and borrowers.”

Despite the volatile market conditions, he remains hopeful that the situation will stabilise. “The European picture isn’t too bad for now, especially with low unemployment rates and the expectation that interest rates will come down, giving borrowers more breathing room in terms of affordability - which bodes well European structured finance portfolios. Generally, in the securitisation world, transactions are deleveraging over time anyway, so there are healthy cushions under the tranches – especially the senior tranches. So, we don’t expect any negative implications on the credit rating side, especially for senior bonds.”

Claudia Lewis

Asset-Backed Finance

Leumi UK strikes first CRE loan-on-loan deal for Martley Capital

Specialty lender's portfolio transaction supports multi-sector assets amid growing demand for back leverage solutions

Leumi UK has arranged its first loan-on-loan (LOL) transaction, leading a bespoke £42.9m facility to refinance a diversified commercial real estate (CRE) portfolio managed by Martley Capital Group. Co-lent with Cynergy Bank, the facility refinances an existing loan book secured against 20 assets spanning office, retail warehouse, retail, industrial and open shopping centres anchored by supermarkets.

“This strategic refinancing demonstrates Leumi UK’s expertise in underwriting back leverage and loan-on-loan transactions – an area of growing importance for debt funds in today’s market,” says Oliver Stenning, relationship director at Leumi UK.

Martley Capital, a full-service real estate investment management platform and existing client of Leumi UK, is acting as sponsor in the deal, for the underlying loan portfolio originated by its UK debt vehicle, Tunstall Real Estate Credit II Lendco.

This is the second transaction between Leumi UK and Martley Capital, following their collaboration on a £65m refinancing of Birmingham’s iconic Mailbox development last year.

"In our second transaction with Leumi UK, their support has once again been invaluable, demonstrating deep expertise in both complex financial structures and the commercial real estate market,” says Dan Boakes, md of debt capital markets at Martley Capital Group. “With our refinancing secured, this high-performing loan portfolio is now well-positioned and provides longer-term stability for our debt fund."

Mike Knox, head of financial institutions at Cynergy Bank, adds: “We’re delighted to have worked with Leumi UK and Martley on this refinance, which demonstrates our growing presence in the back leverage market.”

Marta Canini

Capital Relief Trades

Tariff tumult

Liberation Day effect on US CRT not easy to assess

It has been difficult to gauge the effect of the tumult unleashed by April 2 on the US CRT market as deals in this market are infrequent and spasmodic anyway, say analysts.

The European market continues to be lively, however. One veteran CRT investor in New York spoke of more than half a dozen deals passing across his desk in the last couple of weeks, but pricing was so aggressive he didn’t come close to any.

“Tariffs haven’t frozen the market,” says a source close to the market.

But the impact upon the US market is more difficult to ascertain.

"It’s hard to tell what the effect is. We rated deals with mortgage portfolios in 2021 and 2022 for two regional banks – PacWest and Western Alliance – but since that time it’s been somewhat quiet in that market. Other assets have been more active, such as car loans,” says Sharif Mahdavian, an md in KBRA’s RMBS group..

He adds that a ratings agency doesn’t necessarily see all the deals that are sold in the CRT market as it remains a primarily private, unrated area of the structured finance market.

Of course, tariffs might injure CRE performance, increasing pressure on regional banks to seek relief in the CRT market. “Tariffs can have an adverse effect on CRE, although the degree of effect will vary by property type. Demand for many CRE property types can be impacted when economic activity slows, which can cause consumers and corporations to pull back spending, and corporations to delay leasing plans,” according to a KBRA report on tariffs released at the end of last week.

On the other hand, if the Fed is forced to lower interest rates in the face of a recessionary climate, this will relieve pressure and may elicit a spike in origination of new deals and refinancing of older ones.

The RMBS market has jolted about 50bp-60bp wider after the tariffs were announced, but spreads have not snapped back after the 90-day pause was announced. Uncertainty remains the order of the day.

“There were a handful of deals that were meant to go to market last week. Some of them were pushed, some of them were in the market when everything went down. Spreads have definitely widened meaningfully. Non-QMs had spreads going to April 2 of plus 120bp/125bp, now they’re 170bp, 175bp, 180bp,” says Jack Kahan, global head of RMBS and ABS at KBRA.

“It doesn’t mean that the market has shut down, however we did observe issuers repricing and considering the pace of deals they want to do. It will slow issuance, but deals are still going out,” he adds.

• Simon Boughey

Capital Relief Trades

Dear CFO

PRA letter hinders repo-based financing

The PRA has warned banks about the use of illiquid assets in future SRT deals. In a letter to CFOs published on 9 April, the UK regulator raised concerns about misclassifying repackaged assets as trading book collateral and how it could lead to insufficient capital reserves.  

The PRA claims that certain financing portfolios, including SRTs and SFTs, are being structured in a way that may prompt imprudent capital treatment and pushed for banks to revisit their internal models and current control frameworks.  

“We consider that the repackaging of illiquid assets into a tradeable format, is not, without appropriate supporting evidence, sufficient to justify regulatory capitalisation under trading book rules for accompanying SFTs,” the letter states.  

The warning comes ahead of new Basel 3.1 rules set to tighten trading book eligibility criteria from next year. Under those reforms, banks will need to demonstrate that collateral can be sold easily even during market stress, and that it has a reliable daily valuation based on actual trading activity between buyers and sellers. 

The move could also limit the use of SRT tranches in repo transactions, a practice some funds rely on for short-term financing. 

“Tranches are given as collateral for repo transactions when funds are seeking financing from investment banks. In essence, this PRA letter is telling banks to account for this collateral as illiquid, as the secondary market for SRT tranches is almost inexistent,” says one market participant.  

Fundamentally, it begs the question whether banks will stop offering repo-based financing and whether they will be able to move to non-marked to market forms of financing (i.e. more NAV-based financing where valuation is either dependent on a lender’s mark or their ability to challenge the manager’s mark).

The PRA’s intervention is likely to curb the structuring flexibility banks have relied on in recent years, particularly in SRT deals backed by complex, structured or less-liquid asset pools such as CRE and SME loans. 

The letter also reminded firms of their Pillar 2A obligations and said it may consider using statutory powers if capitalisation gaps persist. 

While the concerns target mainly originators, they could also weigh on the investor side of the SRT market. Deals involving more complex collateral may slow or be repriced as banks work to comply with expectations. Assessing the potential impact on investors, another source concludes: “It might not spell a liquidity squeeze in SRT financing but more of a change in approach.  That will still have implications for managers because the likelihood is that they will have to provide a larger equity cheque.”

Nadezhda Bratanova, Vincent Nadeau

CLOs

ELFA guidelines set to spur CLO transparency

Trustee best practices and improved disclosures recommended

The European Leveraged Finance Association (ELFA) has released new guidance aimed at improving transparency in CLO reporting. Published at the end of March, the document outlines trustee best practices, but may meet some obstacles in its implementation.

Under the recommendations, ELFA suggests that trustee reports implement standardised reporting of trading gains and par flush metrics; detailed tracking of restructuring and repayments; enhanced identification of collateral (standardising the use of ISINs, FIGI and loan IDs across reports); and increased disclosure of long-dated obligations and maturity amendments. By following the guidelines, CLO managers can help improve transparency, thereby broadening the investor base and fostering confidence in the CLO asset class.

“Investors require clear, consistent and comprehensive information to make informed decisions. By addressing these gaps in trustee reporting, ELFA’s guidance aims to drive industry-wide improvements in data transparency, ultimately benefiting all market participants,” comments Ed Eyerman, ceo of ELFA.

For Elena Rinaldi, portfolio manager at TwentyFour Asset Management and a contributor to the report, the guidance is particularly a key recommendation to improve risk retention. “Documentation has evolved significantly. We’ve seen new clauses and better-defined language, but unless the data is accessible and standardised, we still can’t monitor risks effectively,” she explains.

On the next steps on ELFA’s objectives, the discussion falls within the reformulation of trustee reports to create a more transparent platform, as improving disclosure could potentially broaden the investor base. “If I were to buy a bond in secondary as a non-current investor and I need the data/trustee reports, I could not get access to that,” Rinaldi notes, pointing out that the lack of clarity keeps new investors away. “The objective is consistency - first of all, across all trustees - but also ability to access the data. It's a crucial point if you want to be an investor in the asset class.”

She says that improving transparency can help demystify CLOs and clear the stigma of the financial crisis on the asset class: “The reality is, CLOs have been an incredibly resilient asset class. Historical default rates have been very low across tranches, the investor base has grown significantly and it is resilient through stress periods. It's just about adding another tassel to the big picture of making it even more mainstream,” Rinaldi affirms.

Implementation challenges

On the other side, however, the recommendations could encounter challenges in being implemented by the market. Aaron Scott, a partner at Dechert, notes: “I think that that would be helpful for investors if you could directly compare across CLOs. But I also think it's slightly difficult to do because CLOs aren't a complete standardised or commoditised product. They all have very similar features and a lot of the terms are standardised across the market, but there is also variability manager to manager and deal to deal.”

According to Scott, the difficulty relies on implementing the changes in such a broad market. “I don't disagree with the fact that it would be helpful if you could just have a form of report that could be compared across all deals, but I do question whether it would be easily done in this market,” he says. “There are points in there that might not be standard across the market, but if asked from an investor, then it's probably an easy enough line item to add to the reports.”

He points to cash balances on a traded and settled basis, continuing: “Some other elements would require more buy-in from managers and there may be pushback.”

CLOs

CLOs face volatility test amid record start to the year

KBRA affirms confidence in structured credit resilience under strain

The structured credit landscape entered 2025 with significant momentum, as US CLO issuance - including both broadly syndicated loan (BSL) and middle market (MM) transactions - closed the first quarter near historic highs.

According to KBRA’s latest private credit research on MM CLOs, amid trade tensions, total Q1 issuance reached approximately US$45bn - just US$3bn short of the volume recorded during the same period in 2024.

Despite this strong start, the outlook for the remainder of the year appears more challenging. KBRA anticipates that elevated market volatility, waning investor confidence and a general shift towards negative risk sentiment will weigh on structured credit products, particularly private credit and MM CLOs, which are more reliant on market-based syndication. Recent new issue and reset activity has already begun to reflect these headwinds, with wider spreads becoming more prevalent.

While potential credit degradation within CLO portfolios is a concern, KBRA points to the structural resilience of the asset class. The sector and obligor diversification typical of CLOs - alongside portfolio constraints on concentrated exposures - may serve to buffer some of the risk. In particular, MM CLOs - which are predominantly buy-and-hold vehicles designed to fund direct lending strategies - are less exposed to the recent volatility and pricing dislocation observed in the more liquid BSL market.

Less liquid collateral could benefit deal flow

The divergence in market dynamics could, in fact, play to the strengths of private credit vehicles. With liquid credit demand under pressure, MM CLO managers may benefit from improved deal flow and more favourable pricing conditions, as borrowers increasingly turn to private capital.

Nevertheless, several headwinds remain. Should mergers and acquisitions or sponsor-backed activity slow, the pace of loan origination could decline, creating supply-side challenges for CLO managers. Additionally, further spread widening and broader credit deterioration could negatively impact CLO economics and hamper new issuance volumes.

Historically, MM CLOs and other private structured credit instruments have demonstrated resilience through economic cycles, bolstered by features such as enhanced internal credit support, active management and reduced correlation with public markets. However, KBRA notes that the current environment - marked by rising geopolitical tensions and tariff-related disruptions - will likely serve as another important test for the asset class.

Importantly, KBRA emphasises that its ratings for structured credit transactions, including MM CLOs, are calibrated through a range of stress scenarios that incorporate varying degrees of default and interest rate risk - providing a measure of confidence amid market uncertainty.

Ramla Soni

NPLs

EU NPL market sees ABF activity uptick amid forward flow surge

Forward flows, UTPs, and tail portfolios to drive secondary market revival

The European non-performing loan (NPL) market is experiencing a structural shift as forward flow agreements – once a niche tool – move to the centre of dealmaking, replacing traditional bulk sales with granular, recurring transactions. Driven by stricter regulatory frameworks, such as Basel III, IFRS 9, and ECB time-based provisioning rules, banks are increasingly offloading NPLs as they hit their books rather than accumulating them for large portfolio sales.

“These forward-flow agreements give banks a predictable pipeline to offload loans. They can lock in pricing and timelines, which is a significant advantage,” explains Rossella Ghidoni, director, structured finance at Scope Ratings. “Going forward, I would expect more tail portfolio deals, and also a widening of asset classes,” she adds.

Although forward flow agreements are not new, their increased prominence in recent years marks a clear evolution in the NPL market.

“We started seeing these structures some years ago” notes Ghidoni. “The agreements may have varying tenors and they may include a mix of secured and unsecured exposures.”

For instance, UniCredit and Deutsche Bank entered forward flow agreements with KRUK to transfer unsecured loans to the specialist investor in 2021 and 2022.

Notably, the move away from traditional big-ticket NPL sales toward smaller, more frequent trades is altering the due diligence and pricing landscape.

“Large, one-off sales generally require detailed asset-level analysis, especially for big tickets. For granular portfolios, the analysis is more statistical, based on historical data and portfolio-level characteristics,” says Paula Lichtensztein, senior representative, structure finance at Scope Ratings.

This statistical approach also suits forward flow deals, where buyers don’t yet know the exact composition of future portfolios.

Another emerging trend is the rise in activity around seasoned tail portfolios – leftover assets from older NPL transactions that are harder to service or less valuable.

These deals are increasingly being sold to specialised servicers better equipped to extract remaining value.

A notable example is the recent announcement by Hipoges and KKR to launch a €100 million fund to acquire smaller NPL and real-estate owned (REO) portfolios in Spain and Portugal, with deal sizes ranging from €5m to €25m.

“Tail portfolios often consist of more challenging or already-exploited loans, so selling them may be about scale and specialisation,” explains Lichtensztein.

This shift is further supported by an increasingly active secondary market, particularly in countries like Spain, where portfolios are more retail-focused and lend themselves to statistical modelling.

Servicer consolidation, origination partnerships, and investor competition

As regulatory demands grow and cost pressures rise, servicer consolidation is accelerating.

“Larger servicers are better positioned to comply with evolving rules and optimise operations,” notes Lichtensztein.

However, the trend could have mixed consequences. “While consolidation can bring scale and expertise, it may also reduce competition” adds Ghidoni.

Investor competition, especially in markets like Italy, has also intensified. The entry of new players and broader geographic strategies have pushed prices upward, balanced by the availability of more historical performance data.

This is driving new partnerships not just in servicing, but increasingly in origination as well.

“We already see partnerships expanding beyond servicing into origination, leveraging complementary capabilities to broaden client bases,” says Ghidoni.

Regarding risk, concerns around ABF structures and increased leverage remain. On the other hand, Ghidoni emphasises that well-structured forward flow deals with robust contractual protections mitigate some of the risk associated with ABF structures.

Expanding asset classes

Looking ahead, the Scope analysts predict increased activity in seasoned portfolios and a broader focus that includes not just NPLs but also UTP loans and other early-stage distressed assets.

“The market is mature, and investor interest has been expanding beyond traditional NPLs,” notes Ghidoni.

The secondary market will remain crucial, especially as primary NPL volumes decline.

“Secondary trades represented about 30% of total transactions last year in Italy. Efficient, transparent secondary trading is key,” adds Lichtensztein.

Regional variations also persist. Spain's granular, mortgage-backed portfolios are more suited for statistical models and securitisation, while Italy’s chunkier SME loans often require deeper due diligence.

Meanwhile, geopolitical and macroeconomic uncertainties – from inflation to trade tensions – could impact future NPL inflows. This is particularly the case in countries like Germany and France, where early signs of NPL upticks are emerging. Nonetheless, to date, Europe's NPL market has proved resilient and adaptive.

Marta Canini

RMBS

JPMorgan's latest prime RMBS blurs lines with non-QM

Innovative transaction adds non-QM-like protections with modified sequential payment waterfall and step-up coupon structure

JPMorgan’s latest prime US RMBS deal, JPMorgan Mortgage Trust 2025-3 (JPMMT 2025-3), presents structural features typically seen in non-QM or subprime transactions. Indeed, the recently announced US$418.41m deal features a senior step-up coupon structure and a modified sequential payment waterfall – used for the first time on a publicly rated prime jumbo transaction. 

The modified sequential structure will prioritise pro-rata payments to senior tranches and restrict principal payments to mezzanine and subordinate tranches until certain performance triggers are met. At the same time, if the deal isn’t called in four years (at the optional redemption date), the senior step-up feature will increase bond coupons.

In a recent report, Fitch Ratings highlights the main benefits of adopting modified sequential structures in publicly-rated prime deals: reduced principal leakage to subordinated notes, a waterfall mechanism prioritising interest payments and using principal to pay interest, and the creation of excess spread as credit enhancement – especially beneficial in structures holding large loans.

The pool consists of 309 fully amortising, fixed-rate loans – designated as Safe Harbor (APOR) Qualified Mortgages (SHQM), with a strong borrower profile (average FICO of 765, DTI ratio of 38.1%) and an 81.3% LTV ratio, according to Fitch’s presale report. KBRA has also assigned preliminary ratings to the transaction.

Notably, the pool comprises loans where the borrower maintains a primary (92.2%) or secondary (7.8%) residence. Of the pool, 215 loans are for over US$1m and the largest one is for approximately US$4.23m. Geographically, 37.1% of the loans are concentrated in California, followed by Florida and Arizona. United Wholesale Mortgage and PennyMac are the largest originators.

The JPMMT structure seems to reflect broader market sentiment, with housing affordability being the worst it has been in decades and investors increasingly more concerned about convexity and extension risks in a prolonged high interest rate environment. 

The transaction is expected to close by the end of the month.

Marta Canini

CLOs

Secondary US CLO triple-As trade at discount amid volatility

Poh-Heng Tan from CLO Research provides insights into the US BSL CLO market based on SCIs recent triple-A BWIC data

Primary CLO triple-A’s may be less sensitive to market fluctuations, as some of the pricing was likely set well before the official pricing dates, and those triple-A levels were also influenced to a degree by arbitrage discipline. In contrast, secondary triple-A’s are more influenced by market demand and supply, and active trading in the secondary market provides a clearer indication of where the market perceives US BSL CLO triple-A pricing to be.

Late last week, approximately US$240m of long-dated triple-A tranches (with reinvestment periods ending between 2029-2030) changed hands, as shown in the table below. Top-tier prints were mainly in the 150 DM area. For example, MAGNE 2024-42A A1 traded with a cover bid of 150 DM.

All of these tranches traded at a discount, which is compelling given the potential spread pickup upon refinancing in two-three years. MAGNE 2024-42A A1 could see an upside of 16-32 bps if refinanced in two-three years. Typically, the triple-A term structure curve is upward sloping, meaning that as a deal matures, the same triple-A would generally trade tighter, assuming other factors remain unchanged.

As anticipated, the range of long-dated US BSL CLO triple-A covers in today’s volatile market is wide, from 150 DM to 176 DM. The DM range for these triple-A bonds would be 161 DM to 182 DM if refinanced in three years’ time.

RMBS

ORDE breaks records with RMBS debut and eyes global expansion

ORDE Financial's ceo Paul Wells, debt capital markets executive director Dragan Jugovic, cfo Lisa Hood and md Ryan Harkness answer SCI's questions

Q: What were the key factors that contributed to the success of your inaugural A$1bn RMBS issuance?
A: Reflecting on our inaugural A$1bn RMBS transaction, ORDE Series 2024-1 – recognised as the largest inaugural non-bank RMBS issuance in Australian history – the success of the deal was the result of a deliberate, long-term strategy focused on building scalable, transparent and trusted relationships from day one of ORDE’s journey. ORDE commenced operations in late 2020 with a clear purpose: to build a non-bank mortgage lender that delivers better outcomes for Australian mortgage brokers and their clients.

We recognised a significant opportunity for a new entrant to make a meaningful impact in the Australian market – and we moved with intent. In less than five years, ORDE has achieved approximately A$7bn in settlements and currently manages A$3.7bn in AuM.

Although this was our inaugural transaction, we have been focused on the fundamentals of our funding programme since the beginning and therefore many investors have had the opportunity to follow our progress. This foundation played a pivotal role in positioning the transaction for strong investor support and market confidence.

For the ORDE Series 2024-1, we set two clear strategic objectives: limit joint lead-manager participation to less than 25% of the issuance; and broaden our investor base from seven participants in our warehouse programme to 14 or more. While the A$1bn issuance size was a headline achievement, we take even greater pride in meeting, and exceeding, our strategic goals.

JLM participation was kept below 10%, and we welcomed 21 investors into the transaction. These outcomes reflect the strength of the relationships we’ve built and the trust we’ve earned through consistent, strategic engagement.

Q: How did you approach structuring this issuance to ensure its appeal to investors?
A: Our inaugural programme, ORDE Series 2024-1, was primarily designed for the local investor base. While it did not meet European securitisation regulation or Japanese bank risk retention requirements, we were pleased to see that it still drew modest participation from Asia – which gave us confidence that our programme would be well received by international markets.

Our second issuance, the ORDE Series 2025-1 transaction, marked a significant milestone in the evolution of our funding strategy. The structure was designed to meet the risk retention requirements of the EU, UK and Japan – a critical step in broadening our investor base, positioning ORDE for future engagement in these regions and achieving our wider objective of building a robust, scalable RMBS programme.

Q: Could you share more about the investor mix? Was there a notable shift in appetite from domestic versus international investors?
A: For the ORDE Series 2025-1 transaction, the aim was to diversify the investor base to provide this transaction and our future programmatic RMBS programme with the strongest chance of success. A key element of this strategy is fostering engagement with both Australian and international investors.

To attract offshore investors, meeting risk retention compliance is a fundamental requirement. The final orderbook for the ORDE Series 2025-1 transaction totalled A$2.5bn in bids, with participation from 36 investors, including 21 new to the programme. The final allocation included 52% offshore accounts, with real money investors accounting for 71%.

Q: Can you share any challenges or unique aspects of executing an inaugural issuance of this scale?
A: ORDE was fortunate to have exceptional partner banks supporting the issuance, and thanks to the expertise of the deal team, the process unfolded seamlessly with no major hurdles. The key challenge was ensuring that investors who did the credit work on the transaction were adequately allocated bonds.

To address this, we took a proactive and transparent approach, engaging early with investors to set clear expectations regarding allocations before they began their work. These upfront conversations were instrumental in supporting a smooth and efficient allocation process.

Q: With this achievement, what are ORDE Financial's plans for future RMBS issuances? Are there specific markets or opportunities you’re eyeing next?
A: Our recent ORDE Series 2025-1 transaction was an important next step towards our goal of building a sustainable, scalable Australian dollar RMBS programme. We plan to increase the number of RMBS issuances to two transactions per year commencing in 2026. Additionally, we plan to execute a small-ticket CMBS transaction every alternate year.

Q: Should further RMBS transactions from ORDE be expected this year? Any plans to expand into other securitisation asset classes?
A: The aim is to raise the frequency of ORDE’s RMBS issuance to two transactions per year, beginning in 2026. We plan to bring to market our inaugural CMBS transaction in 2027.

Q: What differentiates ORDE from other players in the non-bank RMBS market?
A: ORDE’s success has been founded on partnership, trust and transparency. We firmly believe these principles have been essential to our achievements and provided confidence to investors to support our growth.

Q: In which ways do you plan to continue innovating within the RMBS space to maintain this standard of excellence?
A: While we don’t see a need to reinvent the transaction structure, which is already well established and well-received by investors, we remain committed to continuous improvement through openness, transparency and disciplined execution. Our focus is on enhancing the investor experience, strengthening long-term relationships and building a funding platform that remains resilient, scalable and respected in the market.

Q: How does ORDE’s Series 2025-1 Trust compare with other recent issuances by Australian non-bank lenders (e.g., Liberty Series 2024-2 or RedZed Trust Series 2024-3) in terms of risk profile, portfolio composition and credit enhancement strategies?
A: ORDE’s mortgage portfolio is heavily focused on lending solutions for self-employed borrowers, acknowledging their distinct financial circumstances. As a result, approximately 81% of the ORDE Series 2025-1 transaction involved self-employed individuals, aligning closely with issuers whose transactions are similarly weighted toward self-employed borrowers.

Q: Given ORDE's relatively short operational history since its inception, how do you plan to establish a longer track record of performance that can reassure investors and rating agencies?
A: We are acutely aware that few, if any, non-banks have grown this quickly when starting from a zero-dollar asset balance, and therefore we needed to take a very strategic approach to our funding programme. By fostering relationships early, we built a strong network of financiers and investors who joined us on our journey. This approach allowed investors time to understand our strategy, trust our management team and gain confidence in the asset programme we were developing.

While the ORDE Series 2025-1 transaction marked only our second issuance, our commitment to these core principles has been evident since the launch of ORDE. Consequently, our first issuance drew 21 investors and our second issuance attracted 36 investors, including 21 who were new to the programme.

Q: Given the forecasted GDP growth of 1.6% for 2025 and unemployment at 4.5%, how do you expect these economic conditions to impact the trust’s performance, particularly in relation to self-employed borrowers and high LVR loans?
A: Australian term transactions have shown a remarkable ability to perform well during times of economic uncertainty. For instance, during the GFC, unemployment reached 5.8%, yet the Australian securitisation market surpassed the performance of many global counterparts. This robust track record suggests similar resilience in ongoing transactions.

Further, the demonstrated ability of self-employed borrowers to meet mortgage commitments during the Covid-19 pandemic further highlights the financial strength of Australian borrowers, especially small business owners. Additionally, ORDE maintains a lending cap at a maximum LVR of 80%, with the transaction's weighted average LVR at approximately 70%.

Selvaggia Cataldi

Structured Finance

Job swaps weekly: 400CM promotes five as investment strategy heads

Securitisation people moves and key promotions

This week’s round-up of job swaps sees 400 Capital Management (400CM) beef up its securitisation strategy team with a handful of promotions. Elsewhere, Ares Management Corporation has named a co-head of Europe for alternative credit, while Taylor Wessing has strengthened its banking and finance team.

400 Capital Management has announced five new heads of investment strategy. Portfolio manager Quinn Barton is the new head of CMBS & CRE strategy, having joined the firm in November 2020 from Carmel Partners. Portfolio manager Emir Boydag is the new head of residential credit trading, having joined the firm in May 2014 from Amherst Securities.

Joe Regina has been named head of ABS strategy, having joined 400CM in November 2015 from Wells Fargo. Portfolio manager Dan Vazquez is head of corporate and distressed credit strategy, having joined the firm in April 2020 from BlueCrest Capital Management. Finally, Jeff Willoughby has been named head of residential credit strategy.

Additionally, Kevin McAdams and Meghan Munchoff have been named as new partners, with responsibility for business development and investor relations respectively.

Meanwhile, Ares Management Corporation has appointed Richard Sehayek as co-head of Europe for alternative credit. He will work alongside current co-head of Europe for alternative credit, Stefano Questa.

Sehayek joined Ares in 2023 as part of the alternative credit team, which focuses on asset-based finance (ABF). Prior to Ares, he was an md and global head of origination for fund financing at Credit Suisse for over a decade. Before that, he served as an executive director at KBC Financial Products, where he led origination and structuring in Europe for fund derivatives.

Matt Williams has joined Taylor Wessing as a partner in its banking and finance team in London. His experience covers buy- and sell-side transactions that occur through the active portfolio management activities of financial institutions, including loan sales, regulatory capital advice, litigation funding, sponsor side corporate work and private credit.

He was previously a partner at DWF, where he advised on distressed debt, structured finance and special situations. Before that, Williams worked at Womble Bond Dickinson (UK), Ashurst, Hogan Lovells and Slaughter and May. He also spent four years as a director at Lloyds, responsible for executing balance sheet deleveraging and capital management transactions.

Finally, Adam Gelder has joined FIS as the commercial director for its Loan Service Suite (formerly Virtus) business. Gelder brings a wealth of experience to the team, having spent 17 years at Deutsche Bank, where he played a pivotal role in establishing its European CLO servicing business. Most recently, he served as global head of financial institutions at BNY Mellon, which he joined in May 2015.

Corinne Smith, Simon Boughey