Sector developments and company hires

SME ABS debut for Italian fintech
Banca Valsabbina has supported fintech BorsadelCredito.it as arranger, account bank and subscriber - together with other institutional investors – of ABS notes in a €100m securitisation backed by trade receivables granted to SMEs and guaranteed by the Central Guarantee Fund for SMEs. This is the first unrated securitisation operation listed on Borsa Italiana’s ExtraMOT-PRO market, following a recent modification of its listing regulations. The initiative is part of the ‘Slancio Italia’ project that BorsadelCredito.it - ​​an entirely digital Italian provider of credit to SMEs - has launched, with the aim of providing liquidity to Italian companies.

In other news…

AMR auction DNT
The Mountain View CLO XIV auction - which was scheduled to be facilitated on KopenTech’s AMR platform yesterday (29 September) – did not clear, as there were insufficient bids submitted to refinance each tranche (SCI 21 September). Spread widening across the CLO market over the last two weeks caused the transaction to go from being in the money when the auction was initiated to out of the money on the auction day. Nevertheless, market participants will continue to monitor market conditions for a future opportunity to refinance Mountain View XIV, given that an auction can be called and held in as few as five days. KopenTech does not charge for auctions that do not clear, unlike regular syndication.

ILS perils, geographies continue to expand
US$9bn of catastrophe bonds was placed in the year to 30 June 2020, bringing new sponsors along with repeat issuers and the expansion of perils and geographies, according to Aon Securities’ latest annual review of the sector. The report cites the World Bank’s Philippines US$225m earthquake and cyclone ILS from 4Q19 and Bayview Asset Management’s US$225m Sierra Re 2020-1 from 1Q20 as particular highlights.

The World Bank utilised the new ILS framework available in Singapore for the Philippines transaction, demonstrating the value that an Asian domicile can provide certain sponsors that might have difficulty connecting promptly with a domicile like Bermuda or the Cayman Islands, according to Aon. “This transaction was also unique in their use of a modelled loss trigger. Using data provided by sources like the USGS and Japan Meteorological Agency, AIR provides a view of industry losses that trigger each note in a scaled fashion. Both classes of notes had the same expected loss at 3% and priced in similar ranges – the Earthquake at 5.50% for US$75m of coverage and the Typhoon at 5.65% for US$150m of coverage,” the firm notes.

Bayview Asset Management, on the other hand, is focused on mortgage credit investments. Because of this pool of risks, some of Bayview’s mortgage assets may be susceptible to earthquakes potentially delaying the uninsured borrowers repaying their mortgage loans on time.

As such, the parametric coverage provided by Sierra Re 2020-1 will help provide unallocated recoveries to Bayview that can be used in the event of an earthquake driving losses to its NAV. The transaction has two classes: a 0.79% and 2.71% expected loss that priced at 3.25% and 5.75% respectively for west coast and South Carolina earthquake risk.

Ratings charges settled
KBRA has agreed to pay more than US$2m to settle separate US SEC charges relating to the rating of CMBS and CLO combo notes. According to the order pertaining to CMBS ratings, KBRA permitted analysts to make adjustments that had material effects on the final ratings but did not require any analytical method for determining when and how those adjustments should be made. Further, the order finds that there was no requirement for recording the rationale for those adjustments and that KBRA’s internal control structure failed to prevent or detect the ambiguity in the record of its methodology for determining the CMBS ratings.

The SEC’s order relating to CLO combo notes finds that KBRA’s policies and procedures were not reasonably designed to ensure that it rated these securities in accordance with their terms. The combo notes included a defined ‘rated balance’ amount and also directed that noteholders were entitled to receive cashflows from the underlying components of the securities after the rated balance was reduced to zero. KBRA’s ratings of CLO combo notes were limited to repayment of the rated balance amount of each security and did not reflect the risk associated with any cashflows payable to noteholders over the rated balance, even though such amounts could materialise and would be payable to noteholders.

Without admitting or denying the SEC’s findings, KBRA agreed in the CMBS case to pay a civil penalty of US$1.25m and in the combo notes case to pay a US$600,000 civil penalty, as well as more than US$160,000 in disgorgement and prejudgment interest, and to establish a fair fund for the benefit of victims. The rating agency also agreed in both actions to review and correct its internal policies and procedures relating to the charged violations.