Sector developments and company hires

Conflict of interest charge settled
The US SEC has charged Morningstar Credit Ratings for violating a conflict of interest rule designed to separate credit ratings and analysis from sales and marketing efforts. Morningstar has agreed to pay US$3.5m to settle charges including that from mid-2015 through September 2016, credit rating analysts in Morningstar’s ABS group engaged in sales and marketing to prospective clients. According to the order, Morningstar’s head of business development instructed analysts to identify business targets and pursue them through marketing calls, meetings and offers to provide indicative ratings. The order further finds that Morningstar issued and maintained ABS ratings for certain entities where an analyst who participated in determining or monitoring the credit rating also participated in the sales or marketing of a Morningstar product or service. In addition, between at least June 2015 and November 2016, Morningstar failed to maintain written policies and procedures reasonably designed to sufficiently separate the firm’s analytical and business development functions. 

In other news…

Deferral waivers ‘credit neutral’
The impact of the Italian government’s Rilancio Decree – which was introduced this week and allows for a temporary waiver of deferral triggers on servicing fees under the GACS scheme - is credit neutral for Italian non-performing loan securitisations, Scope Ratings notes. As a response to the Covid-19 outbreak, the government has suspended court activity and legal proceedings, with a consequent slow-down in servicers’ judicial recovery strategies. The aim of the decree is to prevent servicers being disincentivised from collection activity as a result of a temporary reduction in their total compensation if deferral triggers are hit. The agency notes that fees subject to deferral are typically only 20% of total servicing fees, while cash reserves should mitigate short-term liquidity shocks.

EMEA
Paul Petkov has joined Texel Finance's structured and bespoke solutions group in London. He was previously head of securitisation advisory at Qbera Capital. Before that, Petkov held various senior roles in structured portfolio management, balance sheet optimisation and credit risk management at Tier 1 banks, including Deutsche Bank, HSBC, JPMorgan, Lloyds and RBS.

Key persons solicitation
The Staniford Street CLO issuer is soliciting noteholder consent to designate James Fellows, Robert Hickey and Michael Herzig as key persons - succeeding Andrea Feingold, Timothy Conway and Scott D'Orsi respectively – under the collateral management agreement. The CMA states that a key persons event occurs upon the departure of two of the three key persons from the collateral manager. Fellows is cio of the collateral manager, First Eagle Private Credit Advisors (formerly known as NewStar Capital, which was formerly known as Feingold O'Keefe Capital), while Herzig and Hickey are senior mds. The collateral manager intends to effect the key person succession on the first date on which consent is received from the holders of at least a supermajority of the aggregate principal amount of the class BR notes and a majority of the aggregate principal amount of the class F and subordinated notes, voting together as a single class. The solicitation will expire on 25 June.

TCA receiver appointed
The US SEC has appointed a receiver over TCA Fund Management Group Corp, its affiliate TCA Global Credit Fund GP (TCA-GP) and several funds managed by TCA to protect investors from a fraudulent scheme allegedly conducted by TCA (SCI 27 January). The SEC’s complaint, filed in the US District Court for the Southern District of Florida, alleges that TCA improperly recognised revenue in order to fraudulently inflate net asset values and performance for several funds it managed, resulting in the funds always reporting positive returns. TCA allegedly distributed promotional materials to current and prospective investors that included the inflated asset values and false performance results. According to the complaint, the funds’ reported NAV of US$516m, as of November 2019, was inflated by at least US$130m. TCA and TCA-GP also allegedly distributed monthly account statements to investors falsely representing monthly returns and investment balances based on the inflated asset values. The complaint further alleges that the funds paid inflated management fees to TCA and inflated performance fees to TCA-GP.