Company hires and sector developments in structured finance

Acquisitions

Lennar Corporation has agreed to sell its Rialto Investment and Asset Management business to investment funds managed by Stone Point Capital for US$340m. The transaction is scheduled to close on 30 November, subject to consent by the funds managed by Rialto and customary closing conditions. Lennar will retain its Rialto Mortgage Finance business, which it expects to move into its financial services business at the beginning of fiscal 2019, as well as its fund investments (representing US$294m, as of 31 August) and carried interests in various Rialto funds and legacy Rialto balance sheet assets. The Rialto Investment and Asset Management business will continue to be led by its current management.

RenaissanceRe is to acquire Tokio Marine’s reinsurance platform, which includes Tokio Millennium Re AG and Tokio Millennium Re (UK). If closing tangible book value is unchanged from 30 June, 2018, Tokio Marine would receive approximately US$1.5bn in total consideration, consisting of cash and RenaissanceRe common shares. The agreement has been unanimously approved by the boards of directors of both companies and is expected to close in 2H19 subject to customary closing conditions and regulatory approvals. No shareholder approval is required.

SOFR windfall projected

SOFR could potentially create a US$2.5bn-US$5bn annual windfall for forward mortgage holders and an equivalent loss for investors, according to Urban Institute research. By comparing historic Libor and SOFR rates and comparing one-year Libors with one-year Treasuries (as a proxy for SOFR), the organisation estimates that a one-year SOFR will be 25bp-50bp lower than a one-year Libor and that substituting SOFR for Libor could change cumulative borrower payments and investors an increased cost of US$15bn-US$30bn on a present-value basis over the entire US$1trn forward ARM market. Meanwhile, in the US$50bn Libor HECM market, the likely beneficiary of the switch – which is projected to represent about US$125m a year, or a present value of US$2bn - is the FHA for any paid insurance claims, while Ginnie Mae investors would face increased costs. Overall the Institute believes that Fannie Mae and Freddie Mac - although they play a small role in the Libor market for adjustable-rate mortgages (representing 20% by loan count) - will decide under FHFA guidance how they want to handle GSE adjustable-rate mortgages and the expiration of Libor and the rest of the market will follow suit.

US

Callidus Capital has appointed Patrick Dalton as interim ceo, effective 5 November 2018, and Jim Hall has re-joined the firm as svp. Dalton has over 25 years of investment leadership experience and was most recently co-president of Fifth Street Asset Management and president and ceo of Fifth Street Finance Corporation and Fifth Street Senior Floating Rate Corporation. Hall was previously vp at Callidus and will oversee underwriting and management of Callidus’ loan portfolio.

Ellington Management has hired Hekeani Mathieu as a portfolio manager specialising in European corporate credit. She will run the leveraged loan effort in Europe and will be responsible for sourcing, analysing, tracking and managing Ellington’s loan portfolio in Europe and will be based in London. She will work alongside Dan Turner, md and Mark Heron, portfolio manager, who are based in London and Connecticut, respectively. Prior to joining Ellington, Mathieu worked at Morgan Stanley and Bank of America Merrill Lynch as a credit analyst in their distressed and special situations teams. According to a person familiar with the matter, the hire comes as Ellington looks to expand its CLO business in Europe.