Sector developments and company hires

Euro CLO par burn rises
After a relatively stable Q1, European CLO managers burnt an average -19bp of par in Q2 (compared to -3bp in Q1), according to JPMorgan’s latest report on the sector. Among 44 European managers, 14 managers built par in 2020 YTD by an average +19bp, while the remaining 30 managers burnt par by an average -41bp. Of the 14 managers who built par, only three – Apollo/Redding Ridge, ICG and Commerzbank – also increased WARF YTD by less than 373 (which is the lowest 25th percentile; WARF deteriorated across all managers YTD by an average 428).

Nevertheless, the report notes European CLO credit deterioration is less onerous than in the US and has stabilised recently. The average junior (double-B or single-B) OC cushion is 3.77% across 52 managers, ranging from 1% to 5.71%. Nearly all (48) are passing all of their individual junior OC tests, and only four managers are failing at least one transaction. Therefore, JPMorgan expects most European CLO equity will be paid a cashflow in the July quarterly payment date.

In other news…

ABCP STS notifications up
At 165, year-to-date STS notifications already outstrip last year’s total (143), thanks to the substantial influx of ABCP notifications. Accounting for only 30 for the whole of 2019, the latter had reached 113 as of 6 July, according to PCS.

To make sense of this data, the organisation suggests that three aspects need to be understood. First is that ABCP sponsors did not “come late to the party”.

Having an ABCP transaction notified as STS allows the conduit’s sponsor to obtain better CRR capital requirements for the liquidity facility it provides to the conduit. However, the new CRR requirements for conduits only came into force on 1 January 2020 – one year later than the rules for bank investors in STS securitisations.

Second, few ABCP STS notifications represent new financings: almost all notified ABCP transactions are for financings in place before STS came into force. “These transactions are reviewed, amended and updated at regular intervals and the market is seeing conduit sponsors using these reviews to adapt their transactions to the STS rules,” PCS explains.

Finally, the number of notifications substantially overstates the number of ABCP financings that are becoming STS because many involve one borrower syndicating a facility across a number of conduits. The way the STS Regulation is drafted though requires each sponsor separately to disclose their conduit’s share of the transaction.

Aussie vehicle prices jump
Wholesale used-vehicle prices rose to all-time highs across Australia in June, up 11% from May to 23% from the lows reached in April, according to the Datium Insights-Moody’s Analytics Price Index. Demand for vehicles remained high last month as the economy re-opened and public transportation remains an unattractive option. Additionally, both new and used vehicle supply remains low, pushing up prices of available inventory. However, Moody’s Analytics anticipates price decreases over the next two quarters as more vehicles reach the market and labour market concerns sap consumer demand.

North America
First Eagle Alternative Credit has expanded into asset-based lending solutions, with the appointment of Larry Klaff and Lisa Galeota to lead this initiative. The pair join the firm from Gordon Brothers Finance Company and will be based at First Eagle’s Boston office, reporting directly to its president Chris Flynn. Klaff, who joins the firm as a senior md and head of asset-based loans, will serve on the investment committee of the direct lending platform. Galeota joins as an md.

Owl Rock Capital Partners has appointed Alexis Maged as head of credit and Jeff Walwyn as head of non-tech underwriting. In his newly created role, Maged will oversee Owl Rock's credit underwriting, portfolio management and workout functions across the firm. He joined the firm at its inception as an md and head of underwriting and portfolio management. Maged has and will continue to sit on the investment committees of all of Owl Rock funds. In his role, Walwyn will oversee the day-to-day credit underwriting of non-technology investments at Owl Rock. He joined the firm in 2017 as a principal on the firm's underwriting team and was promoted to md in 2019. Prior to Owl Rock, Walwyn was an md at Guggenheim Partners, where he focused on evaluating credit investments. Walwyn will continue to report to Maged.

SLABS hit by maturity risk
Fitch has downgraded the ratings of all outstanding classes of Navient Student Loan Trust 2014-1. The outlook for the class A3 notes (downgraded to triple-B from triple-A) remains negative, while the outlooks for the class A4 (downgraded to double-A from triple-A) and B notes (downgraded to triple-B from double-A) have been revised to negative from stable. The actions are due to increased maturity risk in the transaction, stemming from increasing remaining loan term and a reduction in payment rate. The weighted average remaining term has increased to 164 months, up from 155 months at issuance. The negative rating outlook reflects the possibility of further negative rating pressure in the next one to two years, if the remaining term continues to increase or if payment rates persist at the recent lower levels. Meanwhile, Fitch has affirmed the ratings of all outstanding classes of Navient Student Loan Trust 2014-8 and 2015-1, with stable outlooks.

Structural tweaks
A number of forbearance covenant waivers for Ribbon Finance 2018 have been agreed. The waivers have been granted until 13 July 2021 in exchange for a £28m deposit into the equity cure account, among other things.

Newday has reset the interest rate on the A1 dollar-denominated notes of Newday Funding 2018-1 and extended the scheduled redemption date to August 2021. The new rate is equal to SOFR plus 110bp, which steps up to 210bp. 

Volcker warning
The LSTA has warned that the amended Volcker Rule (SCI passim) might be subject to invalidation under the Congressional Review Act (CRA), should the US government change hands at this November’s elections. But the LSTA concedes invoking CRA, which was created in 1996 to provide a mechanism for Congress to review new rules issued by federal agencies, is not certain even in the event of a Democrat President, House and Senate.

It says: “Importantly, the new rule included many changes impacting asset classes other than CLOs. Perhaps most visibly, the new rule now permits banks to invest in venture capital funds and credit funds. These changes could provide more motivation for Democrats to invoke the CRA, but because the rule must be considered in its entirety, action on VC and credit funds would also invalidate the changes affecting CLOs. On the other hand, a Democratic Congress may focus on other, unrelated, regulations that have priority over the Volcker Rule.”