Sector developments and company hires

Taxonomy Delegated Act adopted
The European Commission has adopted what it describes as an “ambitious and comprehensive” package of measures to help improve the flow of money towards sustainable activities across the EU. The measures – which include the EU Taxonomy Climate Delegated Act - are expected to be instrumental in making Europe climate-neutral by 2050.

The EU Taxonomy creates a common language that investors can use when investing in projects and economic activities that have a substantial positive impact on the climate and the environment. It will also introduce disclosure obligations on companies and financial market participants.

The Delegated Act introduces the first set of technical screening criteria to define which activities contribute substantially to two of the environmental objectives under the Taxonomy Regulation - climate change adaptation and climate change mitigation. These criteria are based on scientific advice from the Technical Expert Group on sustainable finance. It covers the economic activities of roughly 40% of listed companies, in sectors which are responsible for almost 80% of direct greenhouse gas emissions in Europe.

The EU Taxonomy Delegated Act is a living document and will continue to evolve over time, in light of developments and technological progress. The criteria will be subject to regular review, ensuring that new sectors and activities - including transitional and other enabling activities - can be added to the scope over time.

The Act will be formally adopted at the end of May, once translations are available in all EU languages.

The package of measures also includes a proposed Corporate Sustainability Reporting Directive (CSRD), which aims to improve the flow of sustainability information in the corporate sector. It will make sustainability reporting by companies more consistent, so that financial firms, investors and the broader public can use comparable and reliable sustainability information.

Finally, six amending Delegated Acts on fiduciary duties, investment and insurance advice should ensure that financial firms include sustainability in their procedures and their investment advice to clients.

In other news…

Argentine economic fallout eyed
The fallout from severe economic constraints - including rising inflation and the government-backed freeze of the Unidad de Valor Adquisitivo (UVA) value for UVA-denominated mortgage loans - is driving asset-liability mismatches that could reverse years of progress in Argentina's mortgage market, according to S&P. The agency rated the first Argentine securitisation backed by UVA-denominated residential mortgage loans three years ago.

Such loans were created in 2016 to provide mortgage credit amid an inflationary environment and are linked to a coefficient that varies with the Argentine Consumer Price Index (CPI). They gained popularity because the initial installment the borrower pays is lower than it would be for fixed- or adjustable-rate loans.

S&P notes that subordination levels for the rated transaction, Fideicomiso Financiero Cedulas Hipotecarias Argentinas UVA Serie I, remain high at around 70%. However, the asset-liability mismatch means that cashflow may eventually fail to meet the requirements of bondholders.

The extended UVA freeze - which began in August 2019 as a temporary measure - or a change of the UVA reference variable could potentially discourage banks from making UVA loans and investors from entering into UVA-related transactions, including RMBS. “This would further contract the already limited supply of consumer credit that is available in the system, resulting in a reversion to the economic conditions prevalent in the 2001-2002 housing market crisis. For now, we believe the Argentine mortgage market will continue to shrink as political and economic challenges and risks persist,” S&P concludes.

EMEA
WhiteStar Asset Management has opened a London office to drive its European expansion and demonstrate the firm's commitment to its European investors. The office will be led by Gordon Neilly, who has joined the firm as executive chairman of WhiteStar Asset Management, Europe.

Neilly was previously chief of staff at Standard Life Aberdeen, where he acted as advisor to the ceo and was also responsible for developing the group's strategy and overseeing its implementation. Neilly joined Standard Life Aberdeen in 2016 from Cantor Fitzgerald Europe, where he was co-ceo. His prior positions include serving as md, corporate finance at Canaccord Genuity, as well as founder and ceo of Intelli Partners.

Stable outlook for ETD ABS
The continued steady repayment of electricity tariff deficit (ETD) debt through 2021 by the Spanish and Portuguese electricity systems should, in turn, facilitate steady payments to related securitisations. Moody’s expects the cumulative ETD debt-to-regulated revenues ratio for both Spain and Portugal to remain at historically low levels - at roughly 70%-80% - through the end of 2021.

Similarly, cumulative outstanding ETD debt as a percentage of GDP is anticipated to drop to 1.1% in 2021 from 1.4% at year-end 2020 for Spain and to 1.4% from 1.5% for Portugal. This is the result of deleveraging and the current stable regulatory framework, which was designed in the two countries to ensure system sustainability.

The Spanish electricity system has reduced its outstanding debt by more than 50% since 2013 and the Spanish energy sector regulator, Comision Nacional de los Mercados y la Competencia, expects the cumulative stock of debt in Spain to continue declining - despite a 5.6% reduction in electricity demand in 2020 from the 2019 level amid the Covid-19 pandemic.

The Portuguese electricity system's outstanding debt has declined by roughly 45% since 2015. However, according to the Portuguese energy sector regulator Entidade Reguladora dos Serviços Energeticos, the Portuguese debt level will likely remain flat in 2021, despite a decline in electricity consumption in 2020 by 3.7%. Moody’s notes that the lower-than-expected revenue led to an increase in access tariffs for 2021, which limits further deleveraging capacity this year.