Sector developments and company hires

TALF CLO rules clarified
The US Federal Reserve has clarified its CLO eligibility rules for TALF. It defines its stipulation that all or substantially all of the leveraged loans underlying CLOs must have been “newly issued” as those originated or refinanced on or after 1 January 2019. The Fed also announced additional CLO portfolio requirements: maximum second lien loan concentration of 10%; maximum debtor in possession loan concentration of 7.5%; maximum covenant lite loan concentration of 65% for BSL CLOs and 10% for middle market CLOs; and a maximum single underlying obligor concentration of 4%. In addition, eligible CLOs must include at least one OC test redirecting cashflow from the equity and subordinated tranches to the TALF-eligible senior tranche in the event of deterioration in the underlying loan portfolio.

In other news…

CLO supervisory concerns raised
ESMA has published a thematic report on CLO credit ratings in the EU, which identifies the main supervisory concerns and medium-term risks in this asset class, including credit rating agencies’ (CRAs) internal organisation, interactions with CLO issuers, operational risks, commercial influence on the rating process and the need for proper analysis of CLOs. The report also highlights the impact that Covid-19 may have on CLO methodologies. ESMA says it expects CRAs to continue to perform regular stress-testing simulations and to provide market participants with granular information on the sensitivity of CLO credit ratings to key economic variables affected by the pandemic.

Data partnership
Dv01 has partnered with Andrew Davidson & Co (AD&Co) to provide investors with access to AD&Co’s LoanDynamics Model to forecast prepayment, delinquency, default and loss severity for non-QM and prime jumbo RMBS available on the dv01 platform. Access to credit risk transfer data will be available in the coming weeks.

Microcredit guarantee inked
The EIF has signed a Skr200m guarantee agreement with Aros Kapital to provide loans of up to Skr275,000 for micro-enterprises in Sweden. Loans under this agreement – which will be guaranteed up to 80% under the EaSI Guarantee - will be available to companies with a maximum of nine employees and whose annual turnover or annual balance sheet total does not exceed €2m.

Rental payments deferred
The borrower under the Bel Air facility, securitised in the Taurus 2018-1 IT CMBS, has received requests for deferral of rental payments from a majority of the tenants of the underlying properties. Given the impact of Covid-19 on the real estate market, the borrower says it wishes to accommodate these requests to support tenants facing financial difficulties and to avoid termination of the leases. It has therefore approached CBRE Loan Services to facilitate a number of amendments to the lease agreements, including a deferral of payments due in April until Q4, without constituting a breach of the provisions of the transaction. The servicer has been provided with cashflows from the Bel Air borrower showing sufficient cash reserves to cover operational expenses and debt service until end-December 2020.