Sector developments and company hires

OC ratios examined
Drivers behind and expectations for European CLO OC ratios have been examined in a new report from S&P. It finds that average senior and junior OC cushions declined between February and May by 1% to remain healthy at over 8% and 3% respectively.

However, S&P says: “We are seeing a wider dispersion of OC cushions across transactions, with one transaction breaching its junior OC test and an increasing proportion of transactions with a junior OC cushion of less than 1%... Triple-C haircuts explained 39% of the average OC numerator decline and, together with par changes, were the main reasons behind the evolution in OC cushions in the European CLOs that we reviewed.”

The agency’s analysis shows that an increase in triple-C holdings by 5% would lead to 13% of S&P’s rated European CLO universe breaching their most junior OC tests. However, it notes that not all OC tests are the same and the lack of breach does not necessarily mean that a transaction is outperforming one that has breached its OC test.

“First, not all transactions have junior OC tests or if they do, they may only apply after the end of the reinvestment period,” the report says. “Second, there is a range of OC triggers. A transaction that has an OC trigger set at a higher level will breach quicker than another transaction with a lower trigger, even if its performance could be better than the other transaction.”

In other news…

ABSF on hold
The Australian Office of Financial Management has suspended its call for investment proposals for the ABSF. The design of a data template has progressed, but the ASF-sponsored working group undertaking this work with the AOFM was temporarily suspended in March. As such, the AOFM believes that in the current environment, this work should remain on hold. It says it will provide an update on its deliberations with regard to the ABSF by no later than end-September.

Conduit CMBS on review
KBRA has placed 146 classes of certificates across 41 conduit CMBS on watch downgrade that are susceptible to negative credit drift owing to the economic effects of Covid-19. The transactions were issued from 2012 through 2018 and have a median delinquency rate of 16.8%. Most of the certificates (119) are currently rated below investment grade, while the remaining certificates are currently rated in the triple-B (26) and single-A (one) rating categories. The move follows KBRA’s evaluation of 3,793 certificates across 255 CMBS with a cumulative balance of US$231bn to determine the securities which are currently most at risk from economic disruption and comes after the agency’s 7 May watch downgrade announcement for 45 classes across 14 CMBS. Collectively, these placements amount to 21.6%, 5% and 1.6% of the KBRA-rated conduit universe by deal count, certificate count and deal balance respectively.

Data guidelines finalised
ESMA has published its final report detailing its guidelines on securitisation repository data completeness and consistency thresholds. The aim is to provide clarity for market participants and securitisation repositories (SRs) on the accepted levels of No-Data (ND) options contained in the securitisation data submitted to SRs. Following a public consultation, ESMA has drafted final guidelines which explain how securitisation repositories should verify that the ND options - included in the data it receives from securitisation parties - are only used where permitted and do not prevent the data submission from being sufficiently representative of the underlying exposures in the securitisation. The majority of feedback received during the public consultation was supportive of the data completeness and consistency thresholds.

North America
Renaissance Re ceo Kevin O’Donnell will assume responsibility for the firm’s Ventures business on an interim basis, following the departure of Ventures svp Aditya Dutt to pursue a new opportunity.

Receivables SPA amended
The receivables SPA for the Orbita Funding 2020-1 auto ABS has been amended to grant the seller (Close Brothers) a call option over delinquent receivables exercisable during the revolving period. As such, the seller can reacquire all or some delinquent receivables at its election. The purchase price payable to the issuer on completion of any repurchase is an amount equal to the outstanding principal balance of the receivables, including accrued but unpaid interest.

RMBS payment holidays up
The June reporting period saw a wave of new transactions reporting Covid-19 payment holiday information, with 112 standalone UK RMBS deals and four master trust programmes now represented in JPMorgan’s UK RMBS Covid-19 payment holiday tracker at an aggregate outstanding balance of £89.8bn. The cumulative current balance of loans that have been granted payment holidays has jumped to £16.7bn across around 116,600 loans. The range of payment holiday take-up now stands at between 3.6% (for TRINI 2016-1) to 52.7% (CCMF 2017-1). By collateral type, both the non-conforming and non-standard prime sectors are reporting the highest aggregate payment holiday concentrations at 25.5% and 25.3% respectively, according to JPMorgan figures.