Sector developments and company hires

REMIC revenue procedure
The US Internal Revenue Service has issued a revenue procedure that permits loans subject to certain forbearances and related modifications as a result of the Covid-19 pandemic to be contributed to, and held in, REMICs and grantor trusts without jeopardising the tax status of these vehicles. Cadwalader notes that under the revenue procedure: a mortgage loan’s LTV does not have to be retested as a result of a qualified forbearance to determine whether the loan is REMIC-eligible; a qualified forbearance before a loan is contributed to a REMIC does not restrict the vehicle from later foreclosing on the loan; and interest shortfalls and special servicing fees incurred as a result of a qualified forbearance do not cause a REMIC’s regular interests to fail to qualify as such. For these purposes, qualified forbearances are: forbearances granted under the Coronavirus Aid, Relief and Economic Security (CARES) Act; and forbearances of up to six months that are provided to borrowers experiencing financial hardship due to the Covid-19 emergency and are requested or agreed to between 27 March and 31 December 2020.

In other news…

DGO closes second ABS
Orrick has advised the noteholders in the third rated securitisation of oil and gas wellbore interests, this transaction being the second for Diversified Gas & Oil. Fitch has assigned a triple-B rating to the US$200m 5.25% notes issued by Diversified ABS Phase II. In November 2019, Orrick advised the noteholders on the first securitisation by Diversified Gas & Oil of its operated oil and gas wellbore interests (SCI 22 November 2019) and in September 2019, the firm advised the noteholders on the first rated securitisation of oil and gas on non-operated wellbore interests, issued by Raisa Energy.

Final PEFF trigger awaited
All conditions necessary to trigger the World Bank’s Pandemic Emergency Financing Facility catastrophe bonds have been met, except for a positive growth rate of Coronavirus cases in International Development Association and International Bank Reconstruction and Development countries. The third-party calculation agent for the pandemic bonds last week confirmed that the positive growth rate trigger had not been met, as of 23 March 2020. But DBRS Morningstar anticipates that this final condition can be met by late May, when the 12-week rolling period for the calculation (24 February to 18 May) will be mostly driven by the growth of cases in countries other than China. For instance, the slight growth in the number of cases in China during March contrasts with the rapid increases witnessed in Iran, Brazil, Turkey, Russia and Ecuador - all of which are IDA/IBRD countries.

PTAP expanded
Ginnie Mae has introduced a new version of the existing Pass-Through Assistance Program (PTAP) for use by issuers facing a temporary liquidity shortfall directly attributable to the Covid-19 national emergency (SCI 31 March). The programme allows issuers to apply for assistance in meeting their contractual obligation to make timely and in-full principal and interest payments due to MBS holders without being held in default under the Ginnie Mae guaranty agreement. Funds advanced by Ginnie Mae will bear a fixed rate of interest.