Sector developments and company hires

SME CLO, SRT PD adjustments mooted
DBRS Morningstar is considering additional adjustments to reflect expectations of a higher probability of default (PD) for borrowers underlying SME CLO and significant risk transfer deals operating in economic sectors considered to have a ‘mid-high’ or ‘high’ risk of experiencing higher levels of default, due to the coronavirus fallout. For borrowers in the ‘mid-high’ risk sectors, the adjustment will generally correspond to lowering the borrower rating by one notch or the equivalent increase of the one-year base case PD for SME CLO transactions. For borrowers in the ‘high’ risk sectors, the adjustment will generally correspond to lowering the borrower rating by two notches or the equivalent increase of the one-year base case PD for SME CLO transactions. The agency notes that exposures to ‘mid-high’ or ‘high’ risk sectors vary significantly across transactions, the main drivers of which are the originators' regional and sectoral focus or specialisation. Meanwhile, DBRS Morningstar’s analysis indicates that the Colonnade UK transactions are the SRTs most exposed to the ‘high’ risk sectors, with an average 42% of the portfolio notional referencing borrowers in those sectors. The transactions under the Colonnade Global programme, on the other hand, show exposure that on average is 22% to the same ‘high’ risk sectors. Exposure to the ‘mid-high’ risk sectors is limited in both groups, averaging 2% in total.

In other news…

Cofina financings inked
FMO has closed two transactions with microfinance group Compagnie Financiere Africaine (COFINA): €7.5m is issued to Cofina’s subsidiary in Senegal and €5m to Cofina Côte d'Ivoire. The majority of this funding will specifically support lending to women and youth-owned businesses, in countries where nearly half the population still lives below the national poverty line. The aim is to drive financial inclusion, which is critical in reducing poverty and achieving inclusive economic growth. The funding will be provided by the Dutch government’s MASSIF fund, which is designed to take early investment risks and catalyse the growth of the private financial sector, while stimulating financial inclusion in developing countries. Cofina provides tailor-made financial products and services to the ‘missing middle’ - SMEs whose needs are too large for smaller MFIs and whose structure is too informal or risky for commercial banks.

ELIZA 2018-1 standstill
The special servicer has entered into a standstill agreement with the borrowers behind the Maroon loan, securitised in Elizabeth Finance 2018, until the loan’s initial maturity date in January 2021, pursuant to which the obligors acknowledge the suspension of their right to operate the working capital account, borrower general accounts and the holdco general account - all of which will now be operated by the special servicer. In addition, the obligors are required to submit to the special servicer before 1 October 2020 a repayment plan to ensure the repayment of all amounts due by the loan’s initial maturity date (SCI 30 March). Meanwhile, a mezzanine payment stop event has occurred, meaning that payments to the mezzanine lender have stopped.

Rent relief strategy
The borrowers behind the DECO 2019-Vivaldi and Pietra Nera Uno CMBS have suspended April rent invoicing and deferred payment of 50% of the service charges they levy on the underlying properties (SCI 14 April). The rent relief strategy may be further extended during 2Q20, depending on the extent of the coronavirus fallout. As of 29 April 2020, 64% and 81% of rental revenue for the respective securitisations due from tenants in respect of the quarter ended on 31 March 2020 was collected.