Sector developments and company hires

HATS 2016-1 redeemed

KBRA has withdrawn its ratings from Honor Automobile Trust Securitization 2016-1, after the notes were paid in full on 17 June. Given the remaining pool factor was less than 20% of the cut-off date pool balance, the servicer exercised its option to purchase the trust property and redeem the notes. Westlake took over servicing of the troubled auto ABS, following Honor Finance’s resignation as servicer (SCI 21 November 2018).

ILS restructured

The implementation of the restructuring of Ballantyne Re has been completed and distributions were made to noteholders on 17 June (SCI 15 April). In addition, DTC has allocated escrow CUSIPs to the scheme notes to facilitate the distribution of the deferred consideration (expected to represent up to approximately 1% of the par value of the scheme notes) to the scheme noteholders and the Assured Guaranty financial guarantees trust interests to the Assured Guaranty guaranteed noteholders. Ballantyne has executed an assignment agreement for the purpose of ensuring that any residual assets are available for distribution as deferred considerations.

Madden plea

Three Capital One cardholders have filed a putative class action in the Eastern District of New York alleging the rates of interest they paid to a securitisation trust unlawfully exceed the 16% threshold in New York’s usury statutes. As such, the plaintiffs are seeking to recoup the allegedly excessive interest payments and an injunction to cap the interest rates going forward. Additionally, the plaintiffs are looking to leverage the Second Circuit’s decision in Madden v Midland Funding and argue that, despite the loans being credit card receivables from otherwise performing loans deposited into securitisation trusts, the holders (securitisation vehicles) do not have the originating national bank’s right to collect interest rates above the limits of New York’s usury laws.

In a note on the case from Cadwalader, the firm states that “in many corners, Madden is viewed to be ‘bad law’” but add that it has still to be reversed and so cases such as this one continue to crop up, despite performing credit card receivables originated by a bank being a structure unrelated to the bank origination model used by marketplace lenders. However, until Madden is reversed, Cadwalader states that firm should exercise caution when acquiring, securitising or accepting as collateral consumer loans, or ABS backed by such loans, when they were originated in the Second Circuit states (New York, Connecticut and Vermont) and carry a rate above the applicable general usury rate – generally 16% in New York, 12% in Connecticut and 18% in Vermont.

Reinsurance consolidation

AIG has formed AIG Re, which consolidates its assumed reinsurance operations - including Validus Re, AlphaCat and Talbot Treaty - into one global business. Christopher Schaper has been appointed ceo of AIG Re, effective 1 July 2019, with responsibility for implementing AIG’s assumed reinsurance strategy. Based in Bermuda, he will report to Peter Zaffino, president and ceo, AIG General Insurance, and global coo of AIG. Schaper was previously ceo of Marsh’s managing general agent businesses and has also worked at Montpelier Re, Endurance Specialty Insurance, Gerling Global Financial Products, Employers Reinsurance Corporation, CIGNA and USF&G.