Sector developments and company hires

Issuance forecasts lowered on TFSME extension
The Bank of England has extended by six months the TFSME, covering both the drawdown period and the reference period of the scheme. The former will now run until 31 October 2021, while the latter will run from 31 December 2019 to 30 June 2021.

JPMorgan international ABS analysts expect eligible banks and building societies to continue to avail the cheaper funding provided by the scheme throughout the majority of 2021, including refinancing outstanding TFS drawings. As such, they have substantially lowered their full-year 2021 forecasts for distributed UK benchmark covered bond and UK prime RMBS issuance to €6bn and €3bn respectively, suggesting that secured funding primary activity from TFS-eligible institutions will be rather sporadic throughout the year.

“Taking into account these revisions, our FY 2021 global benchmark covered bond issuance forecast drops to €123bn from €130bn previously, while our distributed European ABS issuance forecast declines to €62bn from €65bn previously (including €26bn of UK supply),” the JPMorgan analysts observe.

In other news…

CRT DQs, ELs on the rise
Fitch has taken various rating actions on 1427 classes of notes from 67 GSE credit risk transfer RMBS issued between 2013 and 2020. Of the affected notes, 103 have paid in full; 116 were placed on rating watch positive; 726 classes were affirmed; three classes were removed from rating watch; 108 classes had their rating watch maintained; 372 classes were placed on rating watch negative; and two classes were downgraded. Additionally, the rating outlooks for 113 classes have been revised to negative from positive or stable.

Fitch notes that delinquency rates have risen since March 2020, with the average 30-day DQs rising by 0.31%, the average 60-day DQ by 0.44% and the 90-day delinquency bucket by 4.14% from 0.29% in March to 4.43% in October. However, pool factors decreased by an average of 14% as compared to March.

On average, expected losses have increased across all cohorts since pre-pandemic levels. As of the October remittance date, compared to March, average base case losses are up 50bp; 90bp in the triple-B stress scenario; and 130bp in the triple-A stress scenario. The largest increases were observed in the actual loss 2019 and 2020 cohorts.

Divisional structure revealed
S&P and IHS Markit have unveiled the future divisional structure of the combined company, effective upon completing their pending merger. The ratings business will be led by Martina Cheung, currently president of S&P Global Market Intelligence. Effective immediately, she will also lead the S&P ESG team, consolidating cross-divisional ESG assets with a leadership group designed to scale quickly and accelerate growth.

John Berisford, currently president of ratings, will lead the integration management office (IMO), in partnership with Ewout Steenbergen, cfo. Comprising leaders from S&P and IHS Markit, the IMO will develop and execute plans to bring together the two companies.

Meanwhile, S&P Global Market Intelligence will be combined with IHS Markit's financial services business, led by Adam Kansler, currently president of financial services at IHS Markit.

The combination remains on track to close in 2H21.

Ex-Nomura trader sentenced
Michael Gramins has been sentenced by US District Judge Robert Chatigny to two years of probation, after defrauding MBS customers of Nomura Securities International during his employment there (SCI 16 June 2017). He will spend the first six months of the sentence in home confinement. He has also been ordered to perform 300 hours of community service.

Between 2009 and 2013, Gramins and others fraudulently inflated the purchase price at which Nomura could buy an RMBS bond, so their victim-customers would pay a higher price for the bond. They also fraudulently deflated the price at which Nomura could sell an RMBS bond, so their victim-customers would sell bonds at cheaper prices.

Rating actions after auto update
Following an RFC issued in July, Moody's has updated its methodology for rating auto loan and lease ABS, which will result in rating actions for approximately 162 tranches across 100 transactions backed by auto loan pools. The majority of the rating actions are upgrades.

The upgrades are a result of a decrease in Aaa stress loss levels under the new methodology and/or a build-up in credit enhancement, owing to structural features, including a sequential pay structure, non-declining reserve account and overcollateralisation. The downgrades resulted from a decrease in excess spread benefit and/or an increase in Aaa stress loss levels under the new methodology.

RFC issued on GSE liquidity NPR
The FHFA is seeking comments on a notice of proposed rulemaking regarding liquidity requirements for Fannie Mae and Freddie Mac, which build on existing FHFA guidance and the experience gained from managing the enterprises' liquidity positions in conservatorship. The proposed rule seeks to implement minimum enterprise liquidity and funding requirements, daily management reporting of the GSEs’ liquidity positions, monthly public disclosure reporting requirements and other liquidity-related requirements.

The proposed rule has four liquidity requirements designed to ensure that the enterprises are a source of strength for the mortgage market during downturns in the economy and to incentivise them to issue an appropriate and stable mix of debt over the long term. Currently, the GSEs would meet or exceed all requirements of the proposed rule.

The liquidity requirements are: a short-term 30-day requirement that, similar to the banking framework's LCR rule, is based on a cumulative net cash outflow analysis, plus an additional US$10bn cushion requirement that must be met by highly liquid assets; a 365-day requirement extending the short-term cumulative cash outflow analysis to a full year; the ratio of long-term unsecured debt to less-liquid assets must be greater than 120%; and the ratio of the spread duration of unsecured debt to the spread duration of retained portfolio assets must be greater than 60%. The FHFA invites comments on the notice of proposed rulemaking within 60 days of its publication in the Federal Register.