Sector developments and company hires

Italian market developments ‘positive’ for ABS

Recent market developments in in the Cessione del Quinto (CDQ) and Delegazione di Pagamento (DP) loan market are credit positive for ABS, according to structured finance analysts from Moody’s. The analysts add that increasing regulatory scrutiny limits the risk of poor underwriting, while lower capital requirements support further loan growth. Both developments support market consolidation with smaller entities merging with larger operators, with 2019 having seen smaller market operators merge into larger market players.

The analysts add that the new Capital Requirements Regulation (CRR II), approved in June 2019, reduces the capital requirements for CDQ/DP loans to a 35% risk-weighting from 75%, increasing banks’ excess capital available to support loan growth. Most market players, Moody’s comments, have already increased their origination volumes during the last year - a number of them with double-digit growth rates.

The rating agency adds that CDQ/DP loans are becoming a more mainstream product, rather than solely being a fallback product to consumer loans, a credit positive for the CDQ/DP market as originators' will be less incentivised to take on higher risks to grow their businesses.

Madden clarification proposed

The US OCC and Federal Deposit Insurance Corporation are proposing a rule to clarify the law around interest rates state banks may charge their customers, still unresolved since the Madden vs Midland case. The rule would help to provide clarification when a national bank or savings association sells, assigns or otherwise transfers a loan, interest permissible prior to the transfer continues to be permissible following the transfer.

The proposed rule would apply to all national banks and state and federal savings associations. The OCC is soliciting comments on the proposed rule and comments will be accepted for 60 days after publication in the Federal Register. The FDIC is also issuing a proposal that will address this issue.

RTS on homogeneity finalised

Following publication of the Delegated Regulation (EU) 2019/1851 in the Official Journal of the European Union on 6 November 2019, it is now entering into force as of 26 November 2019. The overarching objective of the homogeneity requirement is to enable investors to assess the risks of the underlying pool of assets on the basis of common points of comparison.

Structured finance lawyers at Latham and Watkins note that the Homogeneity RTS sets out four conditions for the underlying pool to be considered homogeneous. The underlying assets must be: underwritten according to similar underwriting standards; serviced according to similar servicing procedures; placed within the same category of asset type; considered homogeneous with a reference to at least one “homogeneity factor”, provided that the assets fall within a category of asset type to which the homogeneity factor applies.

The Homogeneity RTS includes a non-exhaustive list of common types of assets that typically back securitisations in the EU. Originators and sponsors may treat underlying assets falling outside of the prescribed categories as a single asset type, provided that the other three conditions are satisfied.

Swedish equity release deal prepped

Nodax Bank subsidiary, Svensk Hypotekspension, has prepared a 48-year, non-call 4-year, SEK-denominated senior secured bond for the purpose of refinancing of Svensk Hypotekspension Fond 3 AB (publ), subject to market conditions. The bond will be issued through subsidiary Svensk Hypotekspension Fond 4 AB (publ) and will be backed by a portfolio of equity release mortgages originated by Svensk Hypotekspension. The transaction will be governed by Swedish law and will be listed on the Nasdaq Stockholm corporate bond list. Barclays Bank and DNB Bank, Sweden branch have been mandated as joint lead managers in the transaction.