Sector developments and company hires

APAC
Frontier Advisors has appointed Joe Clark as senior consultant in its alternatives and derivatives research team, based in Melbourne, Australia. Clark was previously senior portfolio manager in QIC’s global multi-asset team and has also worked at Suncorp Investment Management. He has experience in ILS manager and investment research.

North Dock debuts
Barclays Private Bank has closed North Dock No. 1, its first UK prime RMBS. A 24-month revolving securitisation, the loans have been granted to prime borrowers, high net-worth individuals and their corporate entities, secured over properties predominantly located in London and south-east England. Moody’s notes that the portfolio consists of loans extended to 658 borrowers with a total principal balance of £1.78bn and can ramp up to a total portfolio level of £1.9bn.

PBSA asset exposure identified
With nearly all on-campus activity cancelled or paused and all face-to-face teaching suspended due to social distancing requirements, it is likely that many UK students currently residing in student accommodation will vacate these premises and return home to continue studies online. KBRA has reviewed UK CMBS with exposure to purpose-built student accommodation (PBSA) assets and identified one loan with PBSA exposure, which serves as the collateral for the Taurus 2019-3 UK transaction. The loan is secured by 21 PBSA properties across the UK that are generally operated by Student Roost, an affiliate of the loan sponsor Brookfield Strategic Real Estate Partners II. KBRA says that while it has yet to be apprised of the sponsor’s plan, there is little doubt that the collateral underlying the loan will experience a meaningful decline in occupancy and operating performance. A total of 19 properties (90% of the allocated loan amount) are entirely or partially let to students directly by the sponsor and are operated by Student Roost. Regarding the two remaining properties, one (6.7%) is wholly let to a third party through 2027, who in turn operates the asset on a direct-let basis; the other (3.3%) operates pursuant to a nominations agreement with Bournemouth University through 2027. As of 25 March, Student Roost plans to keep all of its properties open and will continue operating pursuant to its landlord obligations. However, in response to the coronavirus pandemic, it has made an exception to its normal cancellation policy and will allow students to cancel their leases effective 1 May 2020, with students who have paid the entire year upfront being reimbursed for all rent payments due from 1 May onwards. Nearly all (99.6%) of the directly let bed spaces have a lease expiry date beyond 1 May.

Prudential framework clarified
The EBA has issued a statement explaining a number of additional interpretative aspects on the functioning of the prudential framework in relation to the classification of loans in default, the identification of forborne exposures and their accounting treatment. In particular, the EBA clarified that generalised payment delays due to legislative initiatives and addressed to all borrowers do not lead to any automatic classification in default, forborne or unlikeness to pay. It also highlighted that when applying IFRS 9, institutions are expected to use a certain degree of judgement and distinguish between borrowers whose credit standing would not be significantly affected by the current situation in the long term and those who would be unlikely to restore their creditworthiness. Additionally, as part of its decision to support banks’ focus on key operations, the EBA has reviewed all ongoing activities requiring inputs from banks in the next months and decided: to extend the deadlines of ongoing public consultations by two months; to postpone all public hearings already scheduled to a later date and run them remotely; to extend the remittance date for funding plans data; and in coordination with the Basel Committee, to extend the remittance date for the Quantitative Impact Study based on December 2019 data.

UK WBS hit expected
S&P expects the COVID-19 pandemic to result in a material negative turnover impact for many UK whole business securitisation issuers. The UK response to the virus has included a mandatory closure of all pubs, restaurants, cafes and other non-essential businesses, which came into effect on 22 March, with three-week-long restrictions put in place. S&P notes that although it is too early to measure the impact of COVID-19 on transaction cashflows, it has identified transactions that will be directly affected. These include WBS with exposure to the pub sector (Mitchells & Butlers Finance, Greene King Finance, Marston’s Issuer, Spirit Issuer and Unique Pub Finance), holiday accommodation (Center Parcs – CPUK Finance) and sporting events (Arsenal Securities). The ability of the borrowers to withstand the pending liquidity stress will come down to their current level of headroom over their financial covenants and readily available sources of liquidity, the rating agency suggests.