Sector developments and company hires

TALF 2.0 eligibility expanded
The US Fed has expanded the range of assets that are eligible collateral for TALF 2.0 to include the triple-A rated tranches of both legacy conduit CMBS and newly issued static CLOs. The size of the facility will remain US$100bn and it will continue to support the issuance of ABS that fund a wide range of lending, including student loans, auto loans and credit card loans. Separately, the New York Fed has opened the registration process for the Commercial Paper Funding Facility (CPFF), which will begin funding purchases of commercial paper on 14 April. Eligible issuers must pay a facility fee in order to sell CP to the SPV and are required to register at least two business days in advance of their intended participation.

In other news…

CMBS DQ spike projected
Fitch expects US CMBS loan delinquencies to start rising and peak between 8.25% and 8.75% by end-3Q20, having steadily declined to 1.31% as of March 2020. Delinquency rates hit 9.01% in July 2011 during the great recession. Fitch's projection assumes not only a significant spike in defaults over the next few months, but also declining new issuance volume during Q2 and Q3, fewer maturing loans and fewer resolutions by special servicers. The agency expects hotel and retail delinquency rates will increase to approximately 30% and 20% respectively in the near term, up from 1.44% and 3.51% as of March 2020. Both the projected rates will surpass their prior peaks of 21.31% and 7.67%.

Flexibility for BDCs
The US SEC is providing temporary, conditional exemptive relief for BDCs to enable them to make additional investments in SMEs. The aim is to provide additional flexibility for BDCs to issue and sell senior securities in order to provide capital to such companies, and to participate in investments in these companies alongside certain private funds that are affiliated with the BDC. The Commission has also voted to adopt rule amendments to implement certain provisions of the Small Business Credit Availability Act and the Economic Growth, Regulatory Relief and Consumer Protection Act relating to BDCs and other closed-end funds. The rules will allow such entities to use the securities offering rules that are already available to operating companies, thereby streamlining the registration, offering and investor communications processes.

Mortgage prisoner warning
DBRS Morningstar warns that the number of ‘mortgage prisoners’ in the UK could rise, as lenders withdraw products and increase interest rates for new lending. The impact of this could potentially prevent borrowers from switching to a new deal at the end of their current product term, according to the rating agency. Faced with higher rates and more restrictive criteria, many borrowers may find themselves unable to switch products, leading to more mortgage prisoners.

North America
Pretium has appointed Jennifer Strickland as co-head of business development. Strickland has two decades of business development experience, most recently with PIMCO, where she served as evp since 2012. Before that, she worked at BlueMountain Capital Management and HBK Capital Management.

Swiss auto ABS prepped
AMAG Leasing is prepping what is anticipated to be the first publicly distributed European ABS following the outbreak of Covid-19 volatility. Fitch has assigned expected triple-A ratings to the class A notes of the deal, dubbed Swiss Car ABS 2020-1, which is revolving until February 2022. The transaction is backed by a €366m pool of auto lease receivables extended to Swiss private and commercial borrowers. Residual value risk currently stands at 42.9% of the pool and can increase up to a maximum of 50% during the revolving period.

Triple-C buckets double
S&P reports that triple-C buckets in US BSL CLOs have reached close to 10% as of 5 April, versus 4.1% at the start of March. As of 5 April, 10.7% of US BSL CLO loans came from an obligor with a rating on creditwatch negative, versus 9.9% the previous week and 1.6% at the start of March. S&P observes that the increase in loans from triple-C rated obligors, combined with a significant drop in loan prices will likely reduce the cushion for US CLO junior OC ratio tests as CLO trustee reports are issued in the coming weeks. The agency notes separately that as of the trustee reports available to it on 6 April, five CLO 2.0 transactions are passing their junior OC test with less than 25bp of cushion.