Sector developments and company hires

STS synthetics proposals published
The EBA has published its proposals for developing an STS framework for synthetic balance-sheet securitisations, which includes the criteria to be considered when labelling a transaction as ‘STS' and provides the pros and cons of a potentially differentiated capital treatment for this type of securitisation. Among the proposed STS criteria are requirements on simplicity, standardisation and transparency similar to those applied to true sale securitisation. The EBA recommends establishing a cross-sectoral framework for STS synthetics to inform the European Commission’s future legislative proposal for such transactions. The authority has also published its final guidelines on credit risk mitigation (CRM) in the context of the advanced internal ratings-based (A-IRB) approach, which aim to clarify the application of the CRM provisions currently laid down in the CRR applicable to institutions using the A-IRB approach. In particular, they clarify the eligibility requirements for different CRM techniques - namely funded and unfunded credit protection - available to institutions. For funded credit protection, the guidelines provide a mapping to the eligibility requirements of legal certainty and collateral valuation applicable to institutions using the standardised approach (SA) and the foundation internal ratings-based (F-IRB) approach. The guidelines also clarify how institutions may recognise the effects of different CRM techniques for capital requirement purposes. In particular, for unfunded credit protection, they clarify the set of compliant approaches that are available to institutions to recognise the effects of the credit protection by adjusting their risk parameter estimates. The EBA has granted one extra year, until 1 January 2022, to the final implementation date of these guidelines to align with its progress report on the IRB roadmap.

In other news…

Euro CLOs considered strong
European CLOs are generally showing strength in the face of Covid-19, according to a new S&P report.

The performance of CLOs during the crisis depends on various factors, the report says, so not all deals will undergo the same experience. For example, those with structural features such as higher credit enhancement, higher OC triggers or better economic arbitrage could outperform; whereas some continue to face challenges that existed prior to the crisis including high leverage ratios, EBITDA add-backs, and cov-lite loans.

So far, S&P has taken negative rating actions on only €8bn of European CLOs with few multi-notch downgrades. However, the report notes that the level of triple-C assets has increased to just below €59m, across 29 CLOs.

S&P’s recovery expectation is slightly lower than 60%, which is much lower than the historical average of 73%, but typically much higher than transaction documents pledge for triple-A rated tranches. Generally, the agency’s recovery ratings for CLOs have remained largely unchanged.

CRE restructurings completed
Restructuring Advisory Group has negotiated the restructuring of one CMBS loan and two conventional commercial real estate mortgages, as well as one major office lease for clients in Georgia, Texas and Massachusetts, as a result of the Covid-19 shutdown. The firm was retained in all three instances to analyse the financial viability of the companies, to determine the feasibility of loan and lease modifications and to negotiate loan and lease modifications tailored to the varied cashflows in each company. The negotiations required analysis of current cashflows and the formulation of proposals to the financial institutions to restructure the loans and lease based upon a gradual ramp-up in revenues over the next six-month period.

Mixed-pool RMBS prepped
Rabobank is prepping Strandhill RMBS, a €369m securitisation backed by Irish residential, buy-to-let, agricultural, commercial real estate, SME and other mortgage loans originated by its ACC BANK subsidiary. In assigning provisional ratings to the deal, Moody's notes it used a unified approach to analyse a 'mixed-pool' portfolio, comprising two equally-sized sub-pools of loans. The loans in one sub-pool were made to individuals and the loans in the other sub-pool were made to SMEs, enabling the agency to combine its standard EMEA rating methodologies for assessing RMBS and ABS SME loan portfolios.

Payment holidays reported
A number of UK RMBS issuers have started to report data on borrowers’ take-up of Covid-19 payment holidays, as of the April 2020 remittance period. JPMorgan international securitisation analysts note that thus far, data has been reported for 19 standalone transactions and two master trust programmes with an aggregate current balance of £15.5bn, showing that the cumulative balance of loans granted payment holidays stands at £1.5bn. Current take-up ranges from a minimum of 0.3%-0.4% of the pool (for CCMF 2017-1 and 2018-1) to a maximum of 14.1% (RMAC 2018-1). By collateral type, the four non-conforming RMBS that have reported data have the highest aggregate proportion of payment holidays at 11.7% (and all exceeding 10%), followed closely by prime master trust RMBS at 11%. The BTL sector has seen the highest number of deals (10) report payment holiday data, with an aggregate proportion of 8.2%, according to JPMorgan figures.

Portuguese green RMBS debuts
European DataWarehouse has registered the first green prime RMBS backed by Portuguese assets - the €385m RMBS Green Belém No. 1 deal issued by the UCI branch in Portugal. The deal is certified green by Sustainalytics and is STS verified by PCS. According to UCI, which retained the transaction, proceeds will be used to fund earmarked green building initiatives and sustainable finance projects on the Iberian Peninsula. UCI is one of the pilot financial institutions participating in the Energy Efficient Mortgages Initiative (EEMI), while European DataWarehouse is a key partner of the Energy Efficiency Data Protocol and Portal (EeDaPP), which aims to create a standardised energy efficient data protocol and portal for European mortgages.

Risk-sharing agreement inked
Swedish pension fund Alecta and PGGM have signed a co-investment agreement in relation to credit risk-sharing (CRS) transactions, whereby Alecta will purchase 30% and PGGM 70% of each co-investment transaction. The agreement will enable PGGM to continue growing its CRS portfolio, while allowing for further diversification at a faster pace with even more capital to invest. As part of its expansion into private market assets, Alecta has decided to build a sizeable CRS portfolio on its own book, on the same basis as PGGM has. PGGM’s track record with an average annual return of slightly above 10% since inception and outspoken focus on high-quality, sensibly structured transactions “hold a lot of value” for Alecta and formed the basis for the two firms’ partnership.