Sector developments and company hires

Grandfathering for Dutch CLO issuers
The Dutch tax authorities have provided written confirmation to CLO issuers domiciled in the Netherlands that their recently revised position on the VAT exemption (SCI 10 March) will not apply with retroactive effect. Further, the VAT exemption will continue to apply to transactions for a grandfathering period until 1 January 2021. Issuers are continuing a dialogue with the authorities on the application of a VAT exemption in respect of collateral management and administration fees for the period after the grandfathering period expires.

In other news…

Pub WBS ratings hit
Moody's has downgraded the ratings of the class A3, A6 and A7 notes issued by Punch Taverns Finance B from Ba3 to B1 (affecting approximately £444.1m of securities), as well as the ratings of the class A1N, A2, A3N and A4 notes issued by Mitchells & Butlers Finance from A1 to A3. Additionally, the AB notes of the latter securitisation were downgraded from A3 to Baa2 (to bring the aggregate amount of securities affected to £944.1m). The rating actions follow the complete closure of the companies’ pub and bar estate in compliance with Covid-19 government regulations, and the resulting potential adverse impact on their operations and financial profile in the near and medium term. Meanwhile, Marston's Issuer has disclosed it has taken the precautionary measure of securing a waiver of a breach that might arise under the 30-day suspension of business and operations provision under the terms of the Group's secured funding platform. The waiver has been granted until 29 May 2020, with an automatic extension to 15 June 2020 in certain circumstances.

RFC on ESG disclosure standards
The three European Supervisory Authorities (EBA, EIOPA and ESMA) have issued a consultation paper seeking input on proposed ESG disclosure standards for financial market participants, advisers and products. These standards have been developed under the EU Regulation on sustainability-related disclosures in the financial services sector (SFDR), which empowers the ESAs to develop Regulatory Technical Standards on the content, methodology and presentation of ESG disclosures, both at entity level and at product level. In addition, the consultation paper contains proposals under the recently agreed Regulation on the establishment of a framework to facilitate sustainable investment (Taxonomy Regulation) on the ‘do not significantly harm’ (DNSH) principle. Feedback is welcomed on the consultation by 1 September 2020, after which the draft RTS will be finalised and submitted to the European Commission. 

Supervisory flexibility clarified
The EBA has provided further clarity on how additional flexibility should guide supervisory approaches in relation to market risk, the Supervisory Review and Evaluation Process (SREP), recovery planning, digital operational resilience and ICT risk and securitisation (SCI passim). At the same time, the authority notes the need for stringent attention by supervisors and financial institutions in relation to key risks in these areas. To mitigate the impact of exceptional volatility triggered by Covid-19 on the prudential requirements for market risk, the EBA is proposing to adjust the capital impact by amending its standards on prudent valuation. In particular, it may introduce the use of a 66% aggregation factor to be applied until 31 December 2020 under the core approach. Furthermore, acknowledging the increased operational challenges faced by banks in the area of reporting, the EBA also intends to delay reporting for the first FRTB-SA figures to September 2021. Finally, the EBA provides further clarity on the prudential application of the definition of default and forbearance, as well as how the EBA guidelines on legislative and non-legislative moratoria on loan repayments apply to securitisations.