Sector developments and company hires

Euro CLO payment mismatch grows
The payment frequency mismatch between underlying loans and European CLOs is growing as loan issuers switch to semi-annual payments to manage risks in the Covid crisis, according to Fitch. The agency reports an increase in the share of semi-annual obligations among quarterly-paying Fitch-rated CLOs to around 50% of the portfolio balance in July 2020, from less than 20% in December 2019.

Fitch notes that unlike 1.0 CLOs that typically address such mismatch via a liquidity facility reserve, 2.0 CLOs manage it through either a frequency switch event (FSE) - when the frequency migration is quick - or the maintenance of an interest smoothing amount (ISA), for more gradual transactions.

“So far, none of the Fitch-rated European CLOs have triggered an FSE,” Fitch says. “We would expect managers to set aside some reserves as ISA in the next few months to mitigate the widening payment frequency mismatch.”

In other news…

Agency CMBS counterparties sought
The New York Fed is seeking to expand the approved counterparties for the Open Market Trading Desk’s purchases of agency CMBS. The aim of widening the eligibility criteria for agency CMBS counterparties is to increase the operational capacity and reach of agency CMBS purchases, as well as furthering its commitment to support equal opportunity and diversity and complement the ongoing efforts to expand agents for the Commercial Paper Funding Facility (CPFF), the Secondary Market Corporate Credit Facility (SMCCF) and the TALF programmes.

CLO manager tiering examined
In order to examine whether the Covid crisis has changed pre-conceived manager tiering, JPMorgan CLO research analysts have undertaken a case study to compare par build in year-to-date 2020 to prior years for 102 US CLO managers.

The study finds that five managers are consistently better than +1 standard deviation (sigma of the distribution) pre-Covid and year-to-date: CarVal, CSAM, Greywolf, King Street and Symphony. Two moved up to better than +1 sigma: PineBridge and Sculptor.

None better than +1 sigma fell to below -1 sigma. Regardless of pre-Covid performance, the top 10% year-to-date are: Greywolf, Fortress, Elmwood, Golub, Neuberger, Anchorage, New York Life, Invesco, King Street, CIFC and Credit Suisse Asset Management.

The JPMorgan analysts concede that there are many ways to tier performance and that it may even be too early to weigh CLO par loss as focus shifts from liquidity to solvency in corporate credit. But they add: “Our par build study is a reasonable measure of a manager’s ability to continue to reinvest and/or discretionary trade assets in the environment of defaults and distress.”

EMEA
Kartesia has hired Lizeth Bonilla. Based in London, she will report to Sharif Anbar-Colas, head of structured credit. Bonilla joins Kartesia from BNP Paribas, where she worked as a credit structurer and CLO modelling analyst.

Partial refi for CPUK
Center Parcs has issued £250m class B5 notes via its CPUK Finance whole business securitisation, with the aim of partially refinancing the outstanding £480m class B3 notes. Fitch and S&P have assigned single-B and single-B minus ratings to the notes. Fitch notes that the terms and conditions of the class B5 notes are somewhat different from the rest of the class B notes, notably in the absence of a financial covenant that would trigger a share enforcement event at a ratio of less than 1x DSCR.

The transaction was preceded by a consent solicitation process, which granted a covenant waiver until February 2022 on the existing class A and B notes to avoid a potential technical default amid pandemic-induced demand stress. The borrower also received approval from class A noteholders for the possibility of making class B payments if the class A FCF DSCR is below 1.35x. For the period in which the waiver and amendments apply, the issuer will not make any shareholder distributions.

WeWork lease restructured
The TAURS 2018-UK2 borrower last month informed the loan facility agent that it has restructured the lease of the WeWork tenant that primarily reduces the various rights of the tenant. The aim of the lease restructuring is to enable the borrower and asset manager to pursue a comprehensive direct leasing strategy, with gradual delivery of buildings across the Devonshire Square estate over the next two years, with a focus on third-party leasing. The property is part owned by WeWork and the company will remain a significant tenant, accounting for 34% of the lettable area.