Sector developments and company hires

CLO equity defies predictions
US CLO equity cashflow performance is defying pessimistic predictions, according to a new report from JPMorgan CLO research analysts. As of 23 July reporting, US CLO equity on average paid 8% cashflow year to date (based on 842 tranches or circa 70% of the universe) and the report estimates 89% of equity is paying, compared to a low of circa 40% in 2009.

“We refrain from speculative annualising, given uncertain October payments, but with three of four quarterly payments already in the bag, the annual cashflow for 2020 may well maintain double-digit returns,” the JPMorgan analysts suggest. “To be clear, CLO equity has suffered price volatility, liquidity is challenging and while tough to observe, the data at hand suggests minimal recovery.”

Indeed, the report notes that Covid-19 risks and uncertainty around company forward guidance are weighing on valuations. However, it adds: “On balance, CLO equity may take some succour from second-order effects (reinvesting into wider loan spreads during stress) and this week’s EU Recovery Fund and potential US fiscal stimulus may help risk appetite. In conclusion, cashflow performance so far seems reasonable, even if there are risks around default and triple-C migration into 2021.”

Hertz agreement inked
Hertz has entered into an agreement with VFN and MTN noteholders, whereby it will make US$650m in total payment towards base rent in six equal installments starting in July through December 2020. The missed payments from April will continue to be a pre-petition unsecured claim against Hertz, while those missed in May and June will be a post-petition claim, according to JPMorgan.

In addition, Hertz will reduce its fleet size by disposing of at least 182,521 lease vehicles from 1 June to 21 December 2020 to a maximum of 310,000 vehicles by 31 December 2020 on a target schedule and will make true-up payment on liquidations not completed on schedule. All disposition proceeds will continue to flow through to the ABS holders, while all pre-existing pre-petition letters of credit can be drawn to pay interest to VFN and MTN noteholders and other applicable fees and amounts payable.

During a forbearance period of 1 July through 31 December, ABS lenders will not compel Hertz to assume or reject the master lease, seek payment of administrative claim or take any action as a result of Hertz’s failure to make payments (in excess of the ones stemming from this agreement) and Hertz will continue to be in control of the fleet. In exchange, Hertz will not file a motion to seek relief with respect to the master lease trust and/or modify its obligations under the existing master lease trust until 15 January 2021.

North America
AllianceBernstein has hired Gary Zhu as portfolio manager, based in its New York office. Zhu was previously a director, structured products research at Wells Fargo, where he had worked since April 2015. Before that, he worked at Genworth Financial in a number of roles - including fixed income trader – and at American Realty Capital Markets.

RFI on fintech certification
The FDIC is seeking the public's input on the potential for a public/private standard-setting partnership and voluntary certification programme to promote the efficient and effective adoption of innovative technologies at FDIC-supervised financial institutions. The request for information asks whether the proposed programme might reduce the regulatory and operational uncertainty that may prevent financial institutions from deploying new technology or entering into partnerships with technology firms, including fintechs. For financial institutions that choose to use the system, a voluntary certification programme could help standardise due diligence practices and reduce associated costs. Comments from interested parties should be submitted by 60 days from publication in the Federal Register.