Sector developments and company hires

‘Dual-track’ approach touted for SRT
The EBA is finalising its report on significant risk transfer and hopes to be able to publish it by year-end, according to Pablo Sinausia, policy expert at the authority. He disclosed during a TSI Congress 2020 panel today that the report builds on the EBA’s recent report on STS synthetics and will address structural features that may hinder SRT, including – for example - which call options are detrimental and which are allowed in the context of SRT.

The report will also introduce what Sinausia described as “safeguards” in terms of structural features that are beneficial for SRT. The aim is to standardise the SRT assessment process by developing a dual-track approach, whereby simpler transactions that incorporate the safeguard features will be fast-tracked and more complex transactions will take longer to assess. Further, quantitative tests for features such as excess spread will be recommended in order to make the assessment process more objective.

In other news…

Increased oversight for SLABS servicers
California's governor last month signed into law bills establishing additional standards for student loan servicers operating in the state and allowing borrowers to bring legal action against them. The governor also approved the creation of a state consumer protection agency that will increase oversight for a variety of financial services providers, including student loan servicers, with the power to bring administrative and civil actions and promulgate regulations.

Moody’s notes that state laws generally include clearer standards than existing consumer protection rules and could lead to fines for servicers outside of the litigation process, but that clearer standards can also help servicers to manage compliance. The agency suggests that servicers have enough financial resources to enable them to absorb subsequent costs and are also likely to streamline processes and leverage economies of scale. Nevertheless, if regulatory damages reduce the ability of sponsor servicers to provide on a timely basis liquidity to FFELP SLABS with maturity risk, the probability of noteholders not being repaid at the notes' legal maturities would increase.

North America
Churchill Asset Management has hired Kelli Marti as md and CLO portfolio manager, responsible for the growth of the firm’s middle market CLO platform. Based in its Chicago office, she will report to Mathew Linett, head of underwriting & portfolio management, senior lending. Marti previously spent 18 years at Crestline Denali Capital, most recently serving as chief credit officer, where she was responsible for overseeing the firm’s credit underwriting, research and portfolio management activities on behalf of its CLO portfolio. Prior to that, she served in a loan underwriting capacity at Heller Financial and First Source Financial.

Spanish RV risk highlighted
Auto ABS Spanish Loans 2020-1, which is due to price tomorrow, is notable for being the first Spanish auto loan securitisation exposed to residual value (RV) risk and the fact that RV risk is introduced by loan instead of leasing receivables. Over a third (35%) of the portfolio comprises balloon loans and Fitch notes that the SPV will be exposed to losses if the sale price of an underlying car is lower than the balloon instalment.

The agency adds that unlike in comparable European balloon loan securitisations, the contractual right of the borrower to deliver the vehicle and be discharged of the final balloon payment persists, even in scenarios in which the originator PSA is no longer operative. Accordingly, the transaction's servicer has a duty to provide an option to the borrower and coordinate the delivery and subsequent sale of the car.

In Fitch's base case scenario analysis, an RV loss has been calibrated assuming car sale proceeds of 85% of the final balloon instalments, based on market data and its forward-looking assessment of used car prices.