Sector developments and company hires

Aussie green RMBS bags Nochu support
Firstmac has closed a groundbreaking A$750m green RMBS, backed by the Clean Energy Finance Corporation (CEFC) and Norinchukin. The underlying properties will be among the most energy efficient in Australia, meeting or exceeding a seven-star rating under the Nationwide House Energy Rating Scheme (NatHERS). The seven-star rating materially exceeds the minimum standards of the current National Construction Code and homes built to this rating require less energy for heating and cooling.

The issued notes either conform to the pre-issuance requirements of the Climate Bonds Standard for Green Bond issuances or will comply with the Firstmac Green Bond Framework that is aligned with ICMA’s Green Bond Principles 2018. Sustainalytics has provided a report covering the pre-issuance verification and Second Party Opinion covering Firstmac’s Green Bond Framework.

Under the transaction, qualifying green home loans will enable borrowers to benefit from a 0.4% finance discount for up to five years on loans of up to A$1.5m. Construction loans will receive an interest rate discount of up to 1.58%.

The securitisation attracted investment support of A$637.5m from Norinchukin and A$108.5m from the CEFC, investing on behalf of the Australian government. Firstmac will make available the full US$750m of finance to offer its first Green Home Loan product, tied to NatHERS. The initial seed pool will include existing Firstmac home loans valued at around A$520m, where these comply with the residential Low Carbon Buildings Criteria created by the Climate Bonds Initiative.

The property sector accounts for nearly a quarter of Australia’s greenhouse gas emissions, with about half of those emissions coming from residential buildings. CSIRO research has found that just 10% of new homes built in 2020 achieved a NatHERS rating of seven stars or more, with more than nine million existing homes not meeting this standard.

The transaction was arranged by JPMorgan.

Covid hit for CMBS appraisal valuations
US CMBS property appraisal valuations received for specially serviced loans across sectors since the start of the coronavirus pandemic have declined 34% from valuations at issuance, Fitch reports. Assets already in special servicing before March 2020 saw greater average declines than those that transferred since then, as the pandemic amplified existing performance concerns.

Fitch reviewed updated appraisal values reported between 1 March 2020 and 31 March 2021 for 732 specially serviced loans in its rated US CMBS 2.0 universe. The bulk of loans transferred to special servicing during the period were primarily hotel and retail assets.

Retail properties saw value declines averaging 38.9%, with the largest declines to Class B/C regional malls. The rating agency believes retail valuation declines incorporate a more permanent impairment to property-level cashflows.

Hotel valuations declined by 32.5% and are expected to have reached a trough for properties without pre-pandemic performance concerns. Fitch notes it may not rely on the current low appraisal valuations in determining long-term hotel value, as it expects cashflows to rebound as the sector recovers in 2H21.

In other sectors, lower valuations are mostly limited to student housing and assets that have already transitioned to REO.

Reps repeal true lender rule
The US House of Representatives yesterday voted 218-208 along a largely party line vote to approve Senate Joint Resolution 15, which invokes the Congressional Review Act (CRA) to repeal the OCC’s 2020 True Lender Rule. The SFA has responded by stating that while it believes the True Lender Rule should be revised to include explicit guardrails to prohibit high-cost lending partnerships, the association opposed Congress’ use of the CRA to address it.

The SFA remains concerned that the use of the CRA could lead to unintended consequences and costly uncertainty regarding foundational aspects that national banks and the capital markets rely on to provide consumers and small businesses access to affordable, responsible credit. It also removes the OCC’s full authority to address it, as the CRA prohibits a regulator from issuing a substantially similar rule. Instead, the SFA called on the OCC to expeditiously modify the rule and to have the Senate confirm a permanent Comptroller that makes this a priority.

The bill now heads to President Biden, who has indicated that he intends to sign it into law. Meanwhile, the OCC stated that moving forward it will consider policy options - consistent with the CRA - that protect consumers, while expanding financial inclusion.