Sector developments and company hires

Loyalty programme financing prepped
American Airlines is prepping an unusual US$7.5bn secured financing backed by license-payment obligations from American and cashflow generated by the AAdvantage Loyalty programme. AAdvantage Loyalty IP is an SPV incorporated under the laws of the Cayman Islands and has a maximum programme capacity of US$10bn.

As part of the financing structure, the intellectual property (IP) assets associated with the AAdvantage loyalty programme and AAdvantage agreements - including co-branded agreements with Citi and Barclays Bank Delaware - are transferred to the AAdvantage IP SPV, which grants a worldwide license to American and its subsidiaries to use the IP to operate the loyalty programme. In return, the licensee – American - will pay a monthly license fee equivalent to all the cash collections generated by the sale of miles to American, under an intercompany agreement.

Fitch has assigned preliminary double-B ratings to the class A and B notes, as well as a term loan. The proceeds of the issuance will be used to pay down a US Treasury loan under the CARES Act and to fund the reserve account.

In other news…

Acquisition
Ocorian has acquired Emphasys Technologies, a capital markets service provider specialising in tax reporting and calculation agency services to asset-backed transactions. The move marks Ocorian’s entry into the US and provides a foundation for the development of its capital markets services suite in the country. The deal is expected to complete later this month and provides for the Emphasys Technologies business to continue to be led by Jeff Stone and David Anthony.

Report addresses AMC preconceptions
The European Parliament’s Economic Governance Support Unit has published a study on Asset Management Companies (AMCs) that examines the opportunities and risks presented by such vehicles, with the aim of exploring potential solutions for the expected Covid-related surge in non-performing loans (NPLs) at an EU level. The report, entitled ‘Non-performing loans – new risks and policies?’, was prepared at the request of the European Parliament’s Committee on Economic and Monetary Affairs.

The main finding of the report is that the conceptual framework to assess AMCs is relatively compartmentalised; in other words, AMCs are perceived as a mechanism “opposed to” or “alternative to” securitisation or the handling of NPLs by single banks. They are also seen as “microprudential” (focusing on individual bank behaviour), short-to-medium term in terms of returns - with little data to calibrate recovery rates - and focused on rates of recovery and disposal, with less attention paid to social impact or side-effects.

The study indicates that a more comprehensive approach to the sector is possible. This could include: key principles to provide clarity in AMC design; a role for AMCs that exploits their advantages, such as centralisation and lower funding costs; combining synergies with other mechanisms, such as securitisation pooling and tranching to facilitate NPL distribution; and inserting the vehicles within a more comprehensive NPL strategy. The report suggests that ultimately such a strategy could reconcile the emergence of EU-sized secondary NPL markets with a technically sound approach, in order to maximise economic and social returns and focus on long-term value.

US dollar Libor retirement postponed
ICE Benchmark Administration has finalised the delay of Libor retirement until mid-2023 (SCI 7 December 2020), covering all US dollar Libor tenors aside from one-week and two-month US dollar Libor. ICE's announcement represents a ‘pre-cessation trigger’ for some contracts that will serve to lock in the spreads between Libor and other benchmarks, a step that provides more clarity and encourages further transition progress, according to Moody’s. These spreads will be used in transitioning the contracts to new rates.

Moody’s expects the delay in US dollar Libor transition to allow a greater share of outstanding Libor instruments to mature or otherwise pay off. The delay will also provide extra time for issuers and transactions with more challenging longer exposures to address the risks or benefit from developments, such as legislative action.

Nevertheless, the rating agency notes that potential remains for negative effects from changes in cashflows, litigation costs or other disruptions, especially in areas exposed to tough legacy exposures. However, the creation of synthetic Libor rates may lessen those risks.