Capital Relief Trades
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Recovery boost
Weatherford revolvers fully repay amid negative outlook
A new case study from SCI has revealed that oil and gas firm Weatherford International is referenced in a capital relief trade following the company’s successful emergence from bankruptcy in December 2019. The revolvers that backed the SRT deal have fully recovered after the chapter 11 restructuring, although the factors that led the company into bankruptcy - including low .......
News Analysis 24 April 2020
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Forbearance risks
Pre-2015 GSE deals could suffer losses
As the coronavirus spreads and servicers offer mortgage forbearance plans to struggling obligors, certain pre-2015 credit risk transfer (CRT) fixed severity deals are set to sustain losses without action from Fannie Mae and Freddie Mac. In contrast, actual loss CRT deals do not automatically suffer losses from credit events, but are exposed to risks from rate reductions, permanent principal .......
News 17 April 2020
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Discounted opportunities
Insurers target SRT secondary market
Insurers are now targeting the capital relief trades secondary market in search of discounted opportunities with an attractive risk profile following the coronavirus crisis. Secondary trades offer diversification and an existing track record of performance, although insurers are primarily eyeing mezzanine and senior tranches jointly with hedge funds, who will be in a position to gain junior exposure.
News 16 April 2020
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Bilateral activity
Opportunistic capital redeployment underway
The European ABS market appears poised to diverge between central bank-eligible issuance and opportunistic capital. Risk-off sentiment dominates, but pockets of bilateral activity are occurring.
“It's an interesting market at the moment. But quite different to the early global financial crisis in that because the central banks reacted so quickly and strongly, there is a sense that some .......
News Analysis 15 April 2020
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Risk transfer reboot
Large corporate SRTs prepped
Capital relief trade issuance is set for a comeback in 2Q20 as a handful of banks are readying large corporate transactions. The reboot in issuance is largely driven by government and central bank programmes and the need to manage bank capital as companies draw down their revolvers.
According to one SRT investor: “Large corporate deals are easier to .......
News Analysis 14 April 2020
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EIF calls for guarantee applications
Sector developments and company hires
EIF calls for guarantee applications
Market Moves 8 April 2020
The European Commission has unlocked €1bn from the European Fund for Strategic Investments (EFSI) that will serve as a guarantee to the EIF and allow it to issue special guarantees to incentivise lenders to provide liquidity to at least 100,000 European SMEs and small mid-cap companies hit by the economic impact of the coronavirus pandemic, .......
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Modelling delinquency deluge
Mortgage market advisers and consultants are struggling to f...
“Our clients are modelling a range of scenarios but are preparing themselves for the worst case including sustained levels of unemployment. Hopefully it won’t be that bad, but they need to prepare themselves,” says Bernadette Kogler, chief executive officer of RiskSpan, a Washington, DC-based analytics and modelling firm which has particular expertise in mortgage markets.
Riskspan clients include .......
News 8 April 2020
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Stochastic modelling
IFRS 9 challenges persist amid pandemic
Supervisors have advised banks to embed the effects of government programmes, such as payment moratoriums, when determining whether assets can be moved from stage one to stage two under IFRS 9. The move has been welcomed by capital relief trade issuers, since it means that payment holidays may not necessarily translate into credit events in transactions. Nevertheless, accounting and .......
News Analysis 8 April 2020
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ESG catalyst?
Positive impact SRTs gaining traction
Significant risk transfer is primarily associated with achieving favourable capital treatment. However, the utility of the instrument as a catalyst for ESG/positive impact financings - by enabling banks to redeploy capital from legacy ‘dirty’ assets into new ‘clean’ assets - is gaining traction, according to SCI’s latest CRT Research Report.
“The capital relief trade market has a .......
News Analysis 3 April 2020
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Breathing space?
EU banks benefit from Basel 3 delay
The Basel Committee's decision last week to delay implementation of the final Basel 3 rules by a year (SCI 30 March) gives banks and supervisors some breathing space to respond to the coronavirus crisis. However, the delay is expected to be more beneficial for EU banks compared to US banks.
Fitch, for one, notes that the delay .......
News 2 April 2020
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CECL delayed
EU banks await IFRS 9 relief
The US Fed, the FDIC and the OCC last week approved an extension of the new credit loss accounting standard CECL until 2022. No equivalent action has been taken for IFRS 9 on the EU side, however.
According to the US regulators’ joint statement, banking organisations that are required under US accounting standards to adopt CECL this year .......
News 31 March 2020
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Capacity constraints
Covid-19 not yet posing solvency issues
Government and central bank actions have kept both the financial system and the real economy afloat in the short-term, amid the coronavirus disruption. The severity of this crisis for company and household finances will depend on the length of the current outbreak and political will, however.
According to Rabobank credit analysts: “Covid-19 is now an imminent issue for .......
News Analysis 30 March 2020
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Closing the gap
Audentia Global investor relations head Sophia Vanco and chi...
Q: How and when did Audentia Global become involved in the capital relief trades market?
The Structured Credit Interview 26 March 2020
NM: Audentia was founded 2.5 years ago by its co-chief investment officers Fasil Nasim and Chris Newman, who had previously worked together in commodity finance at BNP Paribas, in response to the global trade finance market’s US$1.5trn funding gap (as per Asian Development Bank figures). Their .......
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Call for TALF expansion
Sector developments and company hires
BlackRock hired
Market Moves 25 March 2020
The New York Fed has retained BlackRock Financial Markets Advisory as a third-party vendor to operationalise its purchases of agency CMBS and transact with primary dealers on behalf of the SOMA. BlackRock was selected on a short-term basis to serve as an investment manager after considering its expertise in trading and analysing agency CMBS in the secondary market, .......
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CRT deals disclosed
Intesa publishes capital management strategy
Intesa Sanpaolo has released details of its capital management strategy, following the release of its 2019 annual report on Friday (20 March). The lender has revealed the details of four capital relief trades that were completed last year.
Intesa Sanpaolo’s 2018-2021 business plan includes initiatives for credit portfolio management that fall within the remit of the active credit portfolio steering .......
News 23 March 2020
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Economically efficient
Study supports reduction of PD estimates
A new study undertaken by Open Source Investor Services (OSIS) suggests that capital relief trades are a good alternative to traditional issuance of new capital in the majority (75%) of cases reviewed and in 40% of cases the instrument works well during a downturn scenario, even if investors are compensated for higher losses. The research investigates whether and when .......
News Analysis 20 March 2020
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Credit event definitions
UTP category brings less uniformity
The EBA’s guidelines on default definitions have brought less uniformity to credit event determinations in synthetic securitisations, despite the benefits of subsequent procedures such as principal adjustments for investors. However, from an issuer perspective, the key concern is maintaining protection for restructured loans.
According to David Wainer, partner at Allen & Overy: “We have observed a shift away from the relative standardisation of Article 216 of .......
News Analysis 20 March 2020
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Close relationship
CRT documentation should evidence intentions
When structuring a capital relief trade, the documentation should evidence the intentions of the parties. Given the risk-sharing nature of such transactions, investors benefit from forming a close relationship with the originating bank and being comfortable with its governance, risk management and flow of assets.
“To really share the risks of the underlying assets’ and the overall bank’s .......
News 20 March 2020
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Short-term volatility
SRTs on hold, although 2H20 rebound expected
Capital relief trade issuance has been postponed until the second half of the year due to the coronavirus crisis, as market participants expect disruption to be relatively short-lived. Nevertheless, more targeted government and central bank action towards consumers and SMEs is desired.
According to one SRT investor: “In the near term, it’s going to be very difficult to .......
News Analysis 19 March 2020
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EIB mulls SME ABS purchase plan
Sector developments and company hires
Dealer credit facility launched
Market Moves 18 March 2020
The US Fed has established a Primary Dealer Credit Facility (PDCF) available from 20 March, which will offer overnight and term funding with maturities up to 90 days. The facility will be in place for at least six months and may be extended as conditions warrant. Credit extended to primary dealers under the facility may be .......
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Pandemic response
DNB lowers bank buffers amid outbreak
Dutch central bank DNB has lowered the capital buffers for Dutch banks and postponed the introduction of the risk weight floor for mortgages, following ECB action on the Coronavirus crisis. Combined, these measures will free up €8bn in capital and will allow banks to continue their lending activities in the face of rising losses.
According to a DNB .......
News 18 March 2020