Sector developments and company hires

CLO manager transfers accelerate overlap
When managers acquire CLOs, the underlying portfolios become more like the existing portfolios of the acquiring manager, according to a new report from Fitch.

During 2020, Fitch noted four CLO contract changes, two platform sales and two ownership changes. The contract sales this year were Crestline Denali’s sale of CLO management contracts to Ares in February; Garrison Investment’s sale to Anchorage in March; and Assurant’s sale to Morgan Stanley in June 2020. Eaton Vance’s exit of its CLO, sold to Morgan Stanley, will also occur before year-end.

The report observes that overlap of portfolio assets in acquired CLOs generally increases over time with the other CLOs under the same management. “Some reasons for conformity include new managers selling obligors that their existing credit teams are not familiar with or comfortable holding, either because these obligors represent credit risk or are of a small position not worth assigning. The longer the new manager continues to manage the transaction, obligor overlap will likely increase, since the new manager will be assigning new allocations across all the CLOs it manages,” it explains.

In January 2020, prior to the Crestline Denali funds coming under Ares management, the pairwise overlap between two CLOs based on obligor count was between 8% and 27%, depending on the funds. For example, Fitch notes: “25% of obligors in the Crestline Denali XIV portfolio (based on its obligor count) were also in Ares XXXVR CLO before Ares stepped in to manage these deals. By November 2020, under Ares management, the overlap was primarily in the low 60% range. At that time, 61% of the obligors held in the Crestline Denali XIV portfolio (based on its obligor count) were also in the Ares XXXVR CLO.”

North America
Josh Eisenberger, md at Sculptor Capital Management, has been promoted to co-head of Sculptor’s US CLO management business, with a focus on portfolio management and fundamental credit analysis. He oversees credit underwriting, monitoring and fundamental CLO portfolio construction. Peter Polanskyj is the firm’s other co-head of US CLO management.

Social impact securitisation debuts
Freddie Mac has closed its debut social impact M-Deal, a first-of-its-kind multifamily securitisation secured by 27 mission-focused properties for low-income residents, many of whom are disabled, seniors with disabilities or homeless veterans. Affordable housing investment firm Arc70 Capital sponsored the US$359m deal, which involved transferring long-term capital, tax-exempt and related taxable bonds and loans to Freddie Mac in exchange for certificates securitised by Freddie Mac and bought by investors. The underlying properties are located across 15 states and comprise 3,289 rental units, 63% of which are affordable for very low-income residents at 50% area median income or lower.

STS issuance almost doubles
ESMA-listed STS securitisations have seen a year-on-year increase of 90%, according to PCS figures. The organisation notes that 273 transactions have been listed as STS so far this year, compared with 143 in 2019.

PCS suggests that these figures imply the STS standard is achievable for most traditional types of securitisation. “Originators issuing in all asset classes that can achieve STS in a straightforward manner have universally elected to do so when publicly placing paper in the markets. The only exception remains buy-to-let RMBS – almost entirely a UK and now Dutch product – where STS is not sought. This is usually attributed to the fact that BTL RMBS is not eligible for the LCR pools of bank investors,” the organisation observes.

Further, PCS data shows that 100% of STS securitisations publicly placed with investors in 2020 elected to be verified by a third-party verification agent, with a number of retained transactions also electing to do so.