Sector developments and company hires

STS amendments passed
The European Parliament has passed amendments to the existing STS Regulation and concomitant changes to the CRR, including allowing certain synthetic on-balance sheet securitisations to achieve STS status. PCS notes that to qualify for this status though, a synthetic securitisation will need to meet 145-160 criteria, depending on the type of transaction. The new rules also amend certain provisions around non-performing loan securitisations, correcting some unintended consequences in the original legislation.

These two legislative acts now need to be approved by the Member States and published in the Official Journal. While laws usually come into force 21 days following publication in the OJ, the Parliament accelerated this process by requiring only three days to pass after publication. This implies that these reforms may come into force before the end of April.

In other news…

Call for sustainability KPIs
ESG key performance indicators (KPIs) for the securitisation industry are achievable and necessary, according to members of ICMA’s Asset Management and Investors Council (AMIC). These metrics should be accessible, of sufficient quality and applicable to different jurisdictions.

As such, AMIC members are encouraging regulators to prioritise five objectives: disclosure of material and standardised ESG data for collateral asset pools; reporting of material ESG risks at least annually; support market participants to introduce ESG metrics; introduce specific ‘green’ securitisation metrics and standards; and collaboration between the structured finance industry and regulators in terms of collating and approving data transfers and embedding further market changes.

The EBA - in coordination with ESMA and EIOPA – has been tasked with creating a report on sustainable disclosure requirements for securitised assets by 1 November 2021, which should be followed by a legal proposal by the European Commission. AMIC members note that while KPIs are not a silver bullet, they are essential, since they can provide standardised raw information for further analysis by asset managers to improve comparability of performance.

“Adopting KPIs for each sub-asset class can also facilitate the reporting process and transparency on material sustainability issues to underlying investors. The characteristics of the asset class should reflect the choice of KPIs. The EU Taxonomy and SFDR reporting guidelines might not always be the most appropriate set of sustainability metrics,” the members observe.

CRE acquisition
Slate Asset Management is set to acquire Annaly Capital Management’s commercial real estate business – comprising a portfolio of performing real estate loans, debt securities and real estate equity positions - for US$2.33bn. As part of the transaction, Slate will add a US$400m portfolio of grocery-anchored real estate assets located in major US markets to Slate Grocery REIT, its pure-play grocery anchored business. Subject to customary closing conditions, the transaction is expected to complete by mid-2021.

Declining values hit aircraft collections
Aircraft ABS rent collections are down by 40%-60% in March 2021 compared with January 2020, driven by ongoing airline credit deterioration and declining asset values, according to Fitch. The agency notes that lessors trying to mitigate softening in collections have offered payment solutions to lessees, including power-by-hour schedules and lease deferrals - typically three to six months of reduced rent, followed by a six- to 12-month repayment period.

Nevertheless, weakened collections have resulted in almost all ABS note principal payments falling behind schedule - although transactions continue to pay timely senior interest payments. Several transactions drew on liquidity facilities last year, but these amounts have been repaid as of end-4Q20.

Further, almost all transactions tripped their DSCR triggers last year, resulting in early rapid amortisation events. Pre-pandemic DSCR levels were well above typical trigger levels of 1.1x-1.15x. But as of March 2021, DSCRs remained low, with most in the range of 0.40x-1x.

Currently, 70% of Fitch-rated transactions are below 1.15x, compared with only 5% pre-pandemic. Some DSCRs have spiked, driven by large end-of-lease payments, contributing to a short-term uptick in recent net collections.

MBS climate risk analytics offered
Climate risk analytics provider risQ and geospatial data provider Level 11 Analytics have launched a new climate and ESG analytics capability focused on MBS, including residential and commercial, as well as agency and non-agency securities. A common data platform of climate risk, socioeconomic and demographic data, and localised real estate performance is now being applied to municipal bonds and securitised mortgages at the CUSIP level, all linked to the underlying assets in any given security. The launch of the subscription-based MBS offering expands on an ongoing collaboration with Delta Terra Capital, which initially engaged with risQ to focus on climate risk to RMBS.