Sector developments and company hires

Blockchain mortgage ‘ecosystem’ prepped
Liquid Mortgage has raised capital from and entered into a strategic partnership with Redwood Trust, marking the culmination of a months-long engagement, in which Redwood Trust tested Liquid Mortgage's technology and developed an actionable strategy to build a future-ready mortgage ecosystem. The partners share a common mission of utilising blockchain technology within the current market infrastructure, rather than reinventing the mortgage ecosystem overnight.

Liquid Mortgage is built on a public blockchain and intends to make loan data reporting and delivery more efficient. Liquid Mortgage and Redwood Trust have placed nearly US$300m of loans on the Liquid Mortgage test platform.

Funds from the capital raise will allow Liquid Mortgage to further develop its technology and expand its team, in order to proliferate its solution to the broader mortgage ecosystem. The partners intend to engage with other market participants over the next several months.

Declining defeasance activity examined
Overall defeasance activity volume for US conduit and Freddie Mac CMBS decreased by 21% in 2020, according to Moody’s. The agency notes that this reflects slower activity for retail, hotel and office loans amid property value and cashflow uncertainty during the pandemic.

Defeasance activity fell to US$15.4bn across 1,200 loans last year from US$19.5bn in 2019. Meanwhile, the number of defeased loans only nudged down, reflecting low interest rates and the strength of the multifamily loan sector during the pandemic.

The multifamily sector accounted for 78% of the aggregate defeased loans by balance and 74% by loan count. Loans from Freddie Mac transactions made up most of the multifamily defeasance, reflecting strong asset performance and liquidity.

Loans with shorter terms to maturity accounted for over half of defeasance, while loans with less than three years to maturity accounted for 62%. Further, 2013 vintage loans represented the largest share of defeasance, at 29%.

Finally, defeased loan size contracted to its lowest average since 2012. The decline in defeasance volume and size among retail and office assets, which typically have larger loan balances, caused the average balance of defeased loans to decline to US$12.8m in 2020 from US$15.2m in 2019.

With a US$900m balance, the Grace Building was the only single-asset/single-borrower loan to defease last year.

EIF backs Alantra funds
The EIF and Alantra have joined forces under the European Guarantee Fund (EGF) to support European SMEs hit by the Covid-19 economic crisis. The EIF will assume up to 70% of the risk on a €110m portfolio of loans granted to SMEs by two Alantra funds - Alteralia Real Estate Debt FIL (real estate financing) and Alteralia SCA SICAR (direct lending).

The EIF uncapped guarantee under the EGF will allow the two Alantra funds to increase their lending capacity to European SMEs, mainly targeting Spanish companies, to support their sustainability and growth. A significant portion of the €110m financing is expected to be granted under the recently launched Alantra Real Estate Debt fund, which provides financing mainly for repositioning, development or acquisitions to real estate companies for all type of asset classes in Iberia and Continental Europe. The remainder of the guarantee will be dedicated to Alantra's direct lending business, which provides long-term, flexible financing mainly for capex investments, acquisitions and debt refinancings.

EMEA
BlueBay Asset Management has hired Tom Mowl as a portfolio manager within its structured credit and CLO management team. Based in London, Mowl reports to Sid Chhabra, head of structured credit and CLO management, and will focus on investing in US and European structured credit securities across the capital structure. Prior to joining BlueBay, Mowl was most recently a senior portfolio manager at CIP Asset Management, where he focused on US and European ABS, RMBS and CLOs.

Lower remediation costs for UK SLABS
Moody's has upgraded the ratings of two tranches issued by UK student loan ABS Honours Series 2. The rating action reflects lower costs of the remediation plan associated with the non-compliance with applicable consumer credit legislation (SCI 8 November 2016) and an increase in credit enhancement for the affected tranches.

From November 2006 to January 2016, Ventura and Capita were the servicers of Honours Series 2, during which time notices of arrears sent to a portion of borrowers were not in compliance with applicable consumer credit legislation. As a result of this non-compliance, the issuer had initially estimated in 2016 that the remediation plan would cost up to £22.5m of interest and charges to be refunded either via account book adjustments or by way of cash refunds. The remediation process was anticipated to cost an addition £5m-£10m for the services of third parties to complete the remediation plan.

In its previous rating action in February 2017, Moody's assumed that the costs of the remediation plan would be fully borne by the transaction, without any recoveries from a counterclaim against any third party, therefore reducing significantly future cashflow available to repay the notes. In December 2017, the issuer announced that it entered into a settlement agreement with Capita pursuant to which Capita would make a payment of £8m in relation to the non-compliance with consumer credit legislation.

Implementation of the remediation plan was completed in December 2019, using a total amount of only £5.9m to refund the borrowers. The remaining cash was set aside, including £640,000 for the UK government and £1.5m to be held for three years to be used for any potential future liability, costs, claims, expenses or losses in relation to the non-compliance with consumer credit legislation. Moody’s understands that the latter reserve has not been used to date and the agency now expects there to be no further erosion of cashflow arising from the remediation plan.

Finally, sequential amortisation from June 2018 onwards has resulted in an increase in the credit enhancement available in this transaction. For instance, credit enhancement calculated as subordinated notes minus unpaid PDL over the sum of all notes increased to 21.6% from 17.2% for class B and to 10.2% from 8.6% for class C, according to Moody’s.

The agency has upgraded the class B and C notes from B2 and Caa2 respectively to Baa2 and B2. The remaining classes of notes have been affirmed.