Sector developments and company hires

TALF subscription date announced
The New York Fed has scheduled the first TALF ABS loan subscription date for 17 June, with the first loan closing date to be 25 June. On fixed days each month, borrowers will be able to request one or more three-year TALF loans. The Fed has published a Master Loan and Security Agreement, which provides further details on the terms that will apply to TALF loans. Separately, the Fed intends to conduct four small value agency MBS coupon swap operations on 26 and 27 May. On these days, it intends to swap out of a number of unsettled June TBA positions for other readily available MBS - 30-year UMBS 3.0 and 3.5 percent coupons, 15-year UMBS 3.0 percent coupon and 30-year Ginnie Mae II 2.5 percent coupon. Each operation will have a face value of US$5m, for a total current face value of US$20m across the four operations. 

In other news…

GSEs set to hire financial advisors
Fannie Mae and Freddie Mac have commenced request for proposals processes to hire an underwriting financial advisor that will assist in developing and implementing a plan for recapitalising and responsibly ending their conservatorship. The financial advisor will work closely with the GSEs and the FHFA to consider business and capital structures, market impacts and timing, and available capital raising alternatives. Engaging a financial advisor is an important milestone in meeting the GSEs’ 2020 FHFA scorecard objective to prepare a responsible transition plan for a potential exit from conservatorship.

SIUGI upper mezz upgraded
Scope has reviewed its rated SRT tranches of the SME Initiative Uncapped Guarantee Instruments (SIUGI) issued under the EIB’s Spanish SME initiative. The agency has affirmed the €608.3m (as of 30 September 2019) SIUGI senior risk cover notes at triple-A and upgraded the €124.3m SIUGI upper mezzanine risk cover to triple-A from single-A plus. The rating actions are driven by an increase in the instruments’ credit enhancement, as a result of amortisation, and the solid performance of the reference portfolio. This is illustrated by the 90-days overdue assets in the portfolio which account for only 0.57% of ramped and outstanding portfolio balances; the cumulative default rate of 2.90% of the ramped-up portfolio’s original balance; and amortisation at 56.3%, as of the reporting date. Credit enhancement available to the senior risk cover and the upper mezzanine risk cover has increased to 56.7% and 47.9% respectively, compared with 47% and 39.7% at the last monitoring date. The upgrade reflects the deal’s expected resilience to the distressed Spanish macroeconomic environment caused by Covid-19, driven by the substantial increase in credit enhancement.

Standards Board guidance released
The Standards Board for Alternative Investments (SBAI) has published three memos on alternative credit fund management, focusing on fund structuring considerations, valuation and conflicts of interest. The memos aim to provide guidance to managers and investors on these topics and a framework of questions investors may wish to ask managers when conducting operational due diligence. The memos reaffirm the SBAI Alternative Investment Standards that were established over a decade ago and have been adopted by many of the largest managers in the alternative investment industry.

Subprime auto settlement
Attorneys General for 35 US states have agreed a settlement with Santander Consumer USA that includes approximately US$550m in relief for consumers, with even more relief in additional deficiency waivers expected. The settlement resolves allegations that Santander violated consumer protection laws by exposing subprime consumers to unnecessarily high levels of risk and knowingly placing these consumers into auto loans with a high probability of default. The agreement stems from a multistate investigation of Santander’s subprime lending practices, which began in 2015. Under the settlement, Santander is required to provide relief to consumers in the form of restitution payments and debt cancellation and, moving forward, is required to factor a consumer’s ability to pay the loan into its underwriting.