Sector developments and company hires

PEFF set to pay out
The calculation agent on the World Bank’s CAR 112 catastrophe bond is expected to report by 9 April, with the A and B tranches likely to pay out in the next two to three weeks (SCI 3 March). Lane Financial estimates that the B tranche will likely pay out in full for US$95m, while the A tranche will pay out US$37.5m, or a sixth of its par value (US$225m). Against this, the bank will have paid an accumulated US$72.7m in premiums for a net gain of US$59.8m on its bonds. Additionally, US$105m of private swap arrangements will generate another estimated US$71.8m for the bank’s Pandemic Emergency Financing Facility (PEFF).

In other news…

Call for TALF expansion
A bipartisan group of lawmakers from the US House Committee on Financial Services has sent a joint letter to the Fed urging it to expand the TALF 2.0 programme to include unsecured consumer loan ABS as eligible collateral. The move would support the availability of responsible consumer credit at a time when bank funding lines are not being extended to non-bank lenders and fintech platforms. The letter notes that since 2008 and the establishment of TALF 1.0, the market for consumer and small business credit plays a “much more vital role in the economy” than it did 12 years ago.

CRE relief requests
Over 2,600 commercial real estate borrowers - representing US$49.1bn of mortgage loans - have sought potential debt relief during the first two weeks of the US coronavirus outbreak, according to Fitch. These figures include borrowers in 42 single-asset/single-borrower CMBS secured by hotel and retail assets. Hotel assets represent approximately 47% of relief inquiries, followed by retail assets at 30%. While these inquiries are not directly linked to default, 87 CMBS loans totalling US$2.8bn have already transferred to special servicing. More material transfers to special servicing are expected in May and June, as servicers respond to missed loan payments and additional relief requests. The most common relief requests to date include payment forbearance, reallocation of reserves to pay debt service or fund operating expense shortages, and waivers of default for closed businesses. Borrower hardship inquiries cite non-payment notices from tenants and closed businesses due to government restrictions.

EMEA
Together has appointed Steven Harrison as securitisation manager in its loans, mortgages and finance unit in London. He was previously sector head - European ABS at LibreMax Capital in New York, which he joined in September 2015. Harrison has also worked at Cairn Capital and UBS.

First SFSF investment inked
The AOFM intends to invest the first tranche of US$250m under its Structured Finance Support Fund investments in securities issued by a warehouse vehicle sponsored by Judo Bank, subject to satisfactory completion of the documentation process (SCI 30 March). The AOFM also intends to invest a further US$250m in a different security class issued by the same warehouse facility on a temporary basis. Challenger Investment Partners and Herbert Smith Freehills acted as advisers to the AOFM on the Judo Bank warehouse transaction. Société Générale acted as structurer and arranger of the transaction. The AOFM had intended to announce a call for a second round of SFSF proposals prior to 1 July, but will make an assessment of market conditions in early July before proceeding.

‘Modest increase’ for Chinese delinquencies
S&P reports that the delinquency rates for the Chinese ABS and RMBS it rates increased modestly from a low base in February. For the 11 auto ABS the agency rates, the weighted average 1-30 days past due (dpd) ratio rose to 1.5% in February from 1.1% in January - higher than 0.9% over the Lunar New Year (LNY) break in 2019, which fell in February 2019. The weighted-averaged 31-60 dpd ratio increased to 0.13% in February from 0.04% in January, compared with rates that went no higher than 0.03% throughout 2019. With respect to the five RMBS S&P rates, the weighted-average 1-30 dpd ratio rose to 0.8% in February from 0.3% in January - and also 0.3% over the LNY break in 2019. The weighted-average 31-60 dpd ratio increased to 0.14% in February from 0.04% in January, the range it averaged throughout 2019. “The data for February are especially critical as they reveal a full month's impact from Covif-19 on securitised portfolios, as well as the effects of financial relief measures provided to obligors who have applied and been accepted. Nonetheless, we expect asset quality of the auto ABS and RMBS we rate to remain under pressure over the next three to six months,” the agency notes.

Moratoria requirements clarified
The EBA has published more detailed guidance on the criteria to be fulfilled by legislative and non-legislative moratoria applied before 30 June, with the aim of clarifying the requirements for public and private moratoria to help avoid the classification of exposures under the definition of forbearance or as defaulted under distressed restructuring. In this context, the guidelines clarify that payment moratoria do not trigger classification as forbearance or distressed restructuring if the measures taken are based on the applicable national law or on an industry or sector-wide private initiative agreed and applied broadly by the relevant credit institutions. In addition, the guidelines recall that institutions must continue to adequately identify those situations where borrowers may face longer-term financial difficulties and classify exposures in accordance with the existing regulation, with the requirements for identification of forborne exposures and defaulted obligors remaining in place. 

Servicer communication guide
CRE Finance Council has issued a guide for CMBS borrowers on how to communicate with servicers, which urges borrowers to contact their servicer directly to open the line of communication regarding interruptions to cashflow as a result of Covid-19. The guide provides tips and best practices for streamlining a challenging process, including highlighting operational capability, disclosing any significant issues and offering a detailed plan for moving forward. Requests must be reasonable and fit the circumstances of the property, loan structure and borrower, as well as meet the credit requirements of the lender and the terms of the PSA for the specific CMBS trust, according to the association.

Volcker RFC extended
The CFTC, FDIC, OCC, SEC and US Fed have extended by a month the comment period on their proposal to modify the Volcker rule’s general prohibition on banking entities investing in or sponsoring hedge funds or private equity funds, known as ‘covered funds’ (SCI 31 January). As such, they will consider comments submitted before 1 May to provide more time to analyse the issues in light of potential disruptions resulting from the coronavirus.