Sector developments and company hires

US CLO recovery continues
US CLO OC cushions are continuing to recover, according to the latest quarterly US manager report from JPMorgan CLO research.

It says: “In the upcoming final quarterly October payment (majority of CLOs), we estimate as much as circa 92% equity will pay a cashflow compared to circa 89% in July and circa 40% during the GFC. When examining double-B OC from end-Feb to end-May (when OC recovery began), only three managers increased cushions: Elmwood, NY Life, Pacific. Currently, the top 10% double-B OC cushion consists of Elmwood, New York Life, King Street, CarVal, Partners Group, Palmer Square, Kayne Anderson, AIG, Allstate and York.”

The JPMorgan analysts also highlight the shift in triple-C loan exposure away from their previous forecast of 10.3%. As of 5 October, the average Moody’s Caa exposure stands at 8.4% and S&P CCC at 9.6% respectively.

In the last three months, by manager, 60% decreased Moody’s Caa by an average 1.28%, while 40% increased by an average 0.73%. Similarly, Moody’s WARF factor spiked from 2860 in March to a high of 3319 in July, and has since recovered slightly to 3214. Average default exposure is up 0.22% to 1.58% in the last three months, but the 2019 vintage has only 0.70% and there is dispersion across managers (25th percentile 0.74% and 75th percentile 2.06%).

In other news…

Acquisition
Morgan Stanley is set to acquire Eaton Vance for an equity value of approximately US$7bn. The acquisition advances Morgan Stanley’s strategic transformation with three businesses of scale - institutional securities, wealth management and investment management – and means Morgan Stanley Investment Management (MSIM) will have approximately US$1.2trn of AUM and over US$5bn of combined revenues. The firm says that Eaton Vance fills product gaps and delivers quality scale to the MSIM franchise, as well as enhancing client opportunities. The acquisition is subject to customary closing conditions and is expected to close in 2Q21.

Cepal transfer underway
Alpha Bank has begun transferring its non-performing exposure management operations to Cepal (SCI 29 May), a key pillar of its Project Galaxy securitisation, which the firm says continues to progress as planned. Cepal will become the first licensed third-party servicer operating in the Greek market according to the provisions of Law 4354 and one of the leading players in Southeast Europe. The carve-out of the NPE management operations is expected to be concluded by end-November 2020.