Company hires and sector developments

BUMF 6 claim filed

Business Mortgage Finance 6 has issued a claim against Roundstone Technologies (RTL) in the London High Court of Justice stating, among other things, that the purported sale and purchase agreement between the issuer and RTL is void and that RTL has acquired no right to act for or on behalf of the issuer pursuant to a Power of Attorney (SCI 16 August). The issuer is also seeking a final injunction restraining RTL from acting as if it has acquired any interest in any of the issuer's property or authority to act on its behalf. Additionally, it has made a Court application seeking an order expediting the trial of the claim, while considering whether it is necessary to apply for interim relief pending the outcome of the claim.

CMBS trends to negative

DBRS has changed the trend on the class B, C, D and E notes issued by Elizabeth Finance 2018 to negative from stable. DRBS notes that the change is a result of the further deterioration of the UK retail sector, which could affect the performance of the Maroon loan by increasing: (1) the re-letting risk for the upcoming lease break options of some of the largest tenants in the portfolio and (2) the number of retailers entering into company voluntary arrangements or deciding to consolidate their space across the country.

DBRS comments further that the current challenging UK retail environment coupled with an increased possibility of a hard Brexit are expected to maintain a strong downward pressure on the loan’s performance, hence the negative trends. Conversely, the upcoming opening of an H&M at the Vancouver Shopping Centre (the asset registering the highest value decline since origination at -22%) as well as a weighted-average unexpired-lease-term-to-break of over four years as at 2Q19 are expected to stabilise the performance of the portfolio and reduce the cash flow volatility in the near future.

GSO co-founder to depart

Bennett Goodman, co-founder of GSO Capital Partners, intends to step down from his full-time role with Blackstone and its board of directors at the end of the year. He will remain chairman of GSO’s BDC, however, and serve as a senior advisor to the firm. Dwight Scott, who was appointed president of GSO in 2017, will continue to oversee the management of the business. Separate from his role with Blackstone, Goodman plans to establish a new Goodman family office.

Market value study

A new Fitch study shows that there is a wide range in trustee reported market values for defaulted loans held by US middle market CLOs, highlighting the illiquidity of the sector. For example, term loans of Dimensional Dental Management are held in eight MM CLOs of four managers, with reported marks for the same loan varying from 70 to 97. Another example is Hollander Sleep Products term loans, which are held in six CLOs of two managers with marks in the range of 75-98. Further, the rating agency notes that MM CLOs managed by Bain and Guggenheim have the highest percent of obligors with an IHS Markit bid depth, due to greater exposure to broadly syndicated loan assets than peers, while Deerpath MM CLO has the least coverage - reflective of the smaller issuers in the portfolio. Nevertheless, Fitch points out that substitution provisions are observed in most MM CLOs it rates, enabling managers to provide a backstop to illiquid distressed or defaulted assets and work out a resolution outside of the CLO structure with fewer limitations.

Positive outlook

In its recent report on funding plans, the EBA predicts that activity in the securitisation market should pick up in 2020 and 2021. The largest issuance volumes in 2019 are expected in the Netherlands, amounting to close to €7bn. Banks in France, Spain, the United Kingdom and Italy plan to substantially increase issuance volumes in 2020 and 2021.

Issuance volumes in those four countries are expected to increase in 2020 to more than double the volume reported for 2019. Plans for ABS issuance volumes were also adjusted significantly compared with those reported in December 2017. Planned issuances for 2019 were adjusted to 64% of what banks had planned the previous year. Planned issuances for 2020 were reported as €37bn, an increase of 30% compared with plans reported in December 2017.

Structured credit head steps down

The head of the structured credit and CLO team at Barings, Matthew Natcharian, is stepping down. Following that, Taryn Leonard and Melissa Ricco have been named as co-heads of the structured credit investments group.