Sector developments and company hires

SOFR ABS model presented
The Alternative Reference Rates Committee (ARRC) has published a white paper that outlines a model for using SOFR in ABS products. The paper describes how new securitisation issuances could use 30-day average SOFR, with a monthly reset, set in advance of the interest accrual period. This methodology uses the actual SOFR rates from the 30-day period before the applicable reset date, which the ARRC determined to be preferable to the alternatives for operational ease.

Although the paper does not include a discussion on how ABS products could use SOFR set in arrears, the ARRC says it has invested significant effort in discussing such a possibility. It acknowledges that an in arrears methodology may be preferred by some market participants in certain transactions, depending on the asset class and structural features of the transaction, and therefore expects to continue to work with market participants to explore an in arrears methodology.

Further, the paper does not include considerations for how new CLO issuances could use SOFR because related discussions continue within the ARRC and dedicated workstreams are being undertaken to produce separate observations for corporate CLOs.

In other news…

APAC capital advisory formed
Guy Carpenter has launched a Capital Advisory Group in the Asia Pacific region, tasked with providing clients with bespoke structures designed to help manage financial volatility and address capital challenges. Michael Owen and Hussain Ahmad have been appointed to lead this new operation.

Owen is chief actuary for Asia Pacific, while Ahmad joined Guy Carpenter in 2019 as head of structured reinsurance solutions for Asia Pacific. The pair will maintain their current positions in addition to their new roles.

Auditor replaced
LendingPoint has replaced BDO USA with Ernst & Young as outside auditor, following receipt of a letter from BDO in stating that a BDO employee had issued to the company, without proper authorisation, documents purporting to be separate audit reports relating to the 31 December 2019 and 2018 comparative consolidated and standalone financial statements. BDO informed LendingPoint that these audit reports are not BDO’s audit opinions and should not be relied upon by LendingPoint or any third party. The company is targeting the receipt of audit reports from E&Y by end-May 2021, according to KBRA.

CRA regulation breached
ESMA has fined five entities in the Moody’s Group - based in France, Germany, Italy, Spain and the UK - a total of €3.7m for breaching the Credit Ratings Agencies Regulation (CRAR) regarding independence and the avoidance of shareholder conflicts of interest. The breaches relate to: violating the ban on issuing new ratings on entities where a credit rating agency (CRA) shareholder exceeds the 10% ownership threshold and/or is a board member of the rated entity; failure to disclose conflicts of interests related to the 5% ownership threshold; and inadequate internal policies and procedures to manage shareholder conflicts of interest. All the breaches were found to have resulted from negligence on the part of Moody’s.

Real estate fund closed
Cerberus has closed approximately US$2.8bn of new commitments for its flagship global opportunistic real estate strategy, Cerberus Institutional Real Estate Partners V (CIREP V). The fund surpassed its initial fundraising target of US$2bn and will invest in direct assets, real estate companies, entities with significant real estate exposure and real estate-related debt, including non-performing loan portfolios. In recent months, Cerberus has also established joint ventures to build large-scale institutional platforms of industrial service facilities, logistics centres and self-storage and cold-storage assets.

STS synthetics checklist offered
The straightforward grandfathering provision contained within the STS synthetics framework passed last week (SCI 26 March) means that protection buyers can structure significant risk transfer transactions now, with a view to them becoming STS-eligible as soon as the new law comes into force, PCS notes. The organisation can provide a two-step STS verification, with the preliminary STS checklist available at closing and the final checklist provided at the time of notification of the transaction to ESMA.