Capital Relief Trades
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Risk transfer round-up - 29 May
CRT sector developments and deal news
ABN AMRO is rumoured to be readying a corporate capital relief trade that is expected to close in 3Q20. The transaction would be the lender’s first post-crisis synthetic securitisation.
....... News 29 May 2020
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Pan-European guarantee fund launched
Sector developments and company hires
Pan-European guarantee fund launched
Market Moves 27 May 2020
The EIB board has approved a €25bn Pan-European Guarantee Fund (EGF) - which will be funded by EU member states pro rata to their shareholding in the bank – as part of its overall response to the Covid-19 crisis. By guaranteeing parts of portfolios, operations under the guarantee fund will free up capital for financial intermediaries .......
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Lift off
Francesco Di Costanzo, head of structured credit at Hoist Finance, answers SCI's questions
Q: How and when did you become involved with securitisation?
A: We are a licensed credit market institution, regulated as a bank, which gives us the advantage of low cost and consistent funding. However, this means, of course, that we are subject to bank capital requirements.
Over the years we have bought unsecured non-performing loan portfolios, to .......
The Structured Credit Interview 27 May 2020
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Risk transfer round-up - 22 May
CRT sector developments and deal news
Santander is rumoured to be readying its fourth SME significant risk transfer deal from the Magdalena programme for the second half of the year. Magdalena Three was finalised in June last year. The €342m ticket referenced Spanish SME loans (see SCI’s capital relief trades database).
....... News 22 May 2020
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Moratoria mulled
Payment holidays set to test CRT provisions
Portfolios referencing loans subject to payment holidays may create a new sub-asset class within the capital relief trades market. Nevertheless, it remains to be seen whether provisions in outstanding synthetic securitisations will prevent lenders from being paid due to the implementation of moratoria.
Roberto Savina, head of structured risk solutions at AmTrust International, confirms that he has been .......
News Analysis 21 May 2020
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SRTs eyed
Pension funds target risk transfer
Pension funds are targeting capital relief trade opportunities as the coronavirus crisis renders pricing more attractive and other credit opportunities become scarcer. However, access remains a challenge, with some new pension fund investors using joint ventures with established investors as an alternative way for overcoming entry barriers.
According to IACPM data, pension funds represent 30.6% of the investors in .......
News Analysis 21 May 2020
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TALF subscription date announced
Sector developments and company hires
TALF subscription date announced
Market Moves 20 May 2020
The New York Fed has scheduled the first TALF ABS loan subscription date for 17 June, with the first loan closing date to be 25 June. On fixed days each month, borrowers will be able to request one or more three-year TALF loans. The Fed has published a Master Loan and Security Agreement, which provides further details on the terms .......
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SME CLO, SRT PD adjustments mooted
Sector developments and company hires
SME CLO, SRT PD adjustments mooted
Market Moves 18 May 2020
DBRS Morningstar is considering additional adjustments to reflect expectations of a higher probability of default (PD) for borrowers underlying SME CLO and significant risk transfer deals operating in economic sectors considered to have a ‘mid-high’ or ‘high’ risk of experiencing higher levels of default, due to the coronavirus fallout. For borrowers in the ‘mid-high’ .......
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Conflict of interest charge settled
Sector developments and company hires
Conflict of interest charge settled
Market Moves 15 May 2020
The US SEC has charged Morningstar Credit Ratings for violating a conflict of interest rule designed to separate credit ratings and analysis from sales and marketing efforts. Morningstar has agreed to pay US$3.5m to settle charges including that from mid-2015 through September 2016, credit rating analysts in Morningstar’s ABS group engaged in sales and marketing .......
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Unknown unknowns
Covid-19 modelling challenges persist
Banks are running simulations in an effort to address the credit risk modelling challenges of the coronavirus crisis (SCI 8 April). However, this is yet to clarify whether lenders can use both through-the-cycle (TTC) and point-in-time (PIT) modelling or merely point in time.
According to Martin Zorn, president and coo at Kamakura: “Stochastic modelling and stress testing is .......
News Analysis 15 May 2020
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SRTs unlocked
BMO launches capital relief trade
Bank of Montreal has finalised a US$132m five-year financial guarantee dubbed Manitoulin Muskoka Series 2020-1. The trade is the first transaction to close in the SRT space following the coronavirus outbreak.
The portfolio is believed to reference mid-market corporate loans, which wouldn’t be the first time BMO ventured into the asset class, after expanding its exposure to it .......
News 15 May 2020
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TALF CLO rules clarified
Sector developments and company hires
TALF CLO rules clarified
Market Moves 13 May 2020
The US Federal Reserve has clarified its CLO eligibility rules for TALF. It defines its stipulation that all or substantially all of the leveraged loans underlying CLOs must have been “newly issued” as those originated or refinanced on or after 1 January 2019. The Fed also announced additional CLO portfolio requirements: maximum second lien loan concentration .......
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Risk transfer round-up - 13 May
CRT sector developments and deal news
Bank of Montreal is rumoured to be prepping a corporate loan capital relief trade for 3Q20. The lender’s last risk transfer trade was completed in January and was called Manitoulin Algonquin 2020-1 (see SCI’s capital relief trades database).
....... News 13 May 2020
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SFSF investments disclosed
Sector developments and company hires
SFSF investments disclosed
Market Moves 12 May 2020
The AOFM has disclosed the recent investments it has made under the Structured Finance Support Fund. In the primary market, the fund was the sole third-party investor in the A2 tranches of FirstMac 2020-1 (it also invested in the A1 through D tranches) and Liberty Series 2020-1 on 27 March and 8 May respectively. It has also .......
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Drafting issues
Assia Damianova, special counsel at Cadwalader, Wickersham &...
CRTs typically consist of a credit transfer instrument entered into between the credit institution and an SPV, with notes issued by the SPV to investors, the payments in respect of which are linked to payments on the credit transfer instrument. Most CRTs use a financial guarantee (“FG”) as the credit transfer instrument (instead of a CDS that requires daily .......
Talking Point 11 May 2020
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EC decision awaited
Preferential capital treatment mooted for STS synthetics
The EBA’s framework for STS synthetic securitisations (SCI 6 May) is broadly in line with those of the discussion paper that was published in September 2019 (SCI 25 September 2019). Notably, the authority seems to endorse preferential capital treatment for such transactions, subject to certain conditions - albeit the final decision on this now rests with the .......
News Analysis 7 May 2020
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CRM tool
CBILS guarantees eligible for CRR recognition
The UK PRA published at the end of April a statement clarifying whether Coronavirus Business Interruption Loan Scheme (CBILS) and Coronavirus Large Business Interruption Loan Scheme (CLBILS) guarantees are eligible for recognition as unfunded credit risk mitigation (CRM) under the CRR. The move is seen as a helpful step towards motivating banks to lend under the schemes.
“It’s a tough .......
News 7 May 2020
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Risk transfer round-up - 7 May
CRT sector developments and deal news
BBVA is rumoured to be readying a capital relief trade for 2Q20. The lender has completed a total of three risk transfer trades since 2017 and all of them have been in conjunction with the EIF (see SCI’s capital relief trades database).
....... News 7 May 2020
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STS synthetics proposals published
Sector developments and company hires
STS synthetics proposals published
Market Moves 6 May 2020
The EBA has published its proposals for developing an STS framework for synthetic balance-sheet securitisations, which includes the criteria to be considered when labelling a transaction as ‘STS' and provides the pros and cons of a potentially differentiated capital treatment for this type of securitisation. Among the proposed STS criteria are requirements on simplicity, standardisation and transparency .......
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Romanian SRT inked
Uncapped guarantee completed
The EIF and nine Romanian banks have completed an uncapped guarantee agreement from the SIUGI programme that covers 60% of a €1.368bn portfolio of Romanian SME credit rights. The banks originating the SME credit rights under this initiative are Banca Transilvania, Banca Comercial Romana, BRD – Group Societe Generale, ING Romania, ProCredit, Raiffeisen Bank Romania, Libra Internet Bank, UniCredit .......
News 5 May 2020
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Ratings resilience
Shorter pro-rata periods to benefit SRTs
A sharp deterioration in asset performance due to the coronavirus fall-out may lead to sequential pay triggers in predominantly pro-rata paying significant risk transfer deals being breached earlier than initially assumed. Shortened pro-rata periods may, in turn, increase the resilience of note ratings to declining asset performance and the associated upward revision of default base cases.
As part .......
News 5 May 2020