Sector developments and company hires

Jamaica in cat bond first
The World Bank/IBRD has priced a catastrophe bond that will provide the government of Jamaica with financial protection of up to US$185m against losses from named storms for three Atlantic tropical cyclone seasons ending in December 2023. The government of Jamaica is the first government in the Caribbean region, and the first of any small island state, to independently sponsor a cat bond.

Jamaica was one of the 16 countries in the Caribbean Catastrophe Risk Insurance Facility that benefitted from IBRD’s first-ever cat bond in 2014 (SCI 3 July 2014). This latest bond – dubbed CAR 130 - was issued under IBRD’s capital at risk (CAR) notes programme. The margin on the notes is 4.40%.

Payouts to Jamaica will be triggered when a named storm event meets the parametric criteria for location and severity under the bond terms. The transaction includes an innovative reporting feature resulting in a quick payout calculation, within weeks of a qualifying named storm. It is also the first cat bond to use an innovative cat-in-a grid parametric trigger design for tropical cyclone risk.

The cat bond received financial support from the US through the United States Agency for International Development, the World Bank’s Disaster Protection Program funded by the UK and the Global Risk Financing Facility (GRiF). The GRiF, implemented by the Global Facility for Disaster Reduction and Recovery (GFDRR) and the World Bank’s Disaster Risk Financing and Insurance Program, is supported by Germany and the UK to provide grants to strengthen the financial resilience of vulnerable countries through establishing or scaling-up pre-arranged risk financing instruments.

ILS funds accounted for the majority (66%) of investors in the CAR 130 cat bond, with re/insurers (17%), asset managers (14%) and pension funds (3%) making up the remainder. By geography, the majority of investors (60%) were based in Europe, with the remainder based in North America (24%), Bermuda (15%) and Asia (1%).

Aon Securities and Swiss Re Capital Markets were joint structuring agents and bookrunners for the transaction.

In other news…

‘Cambiali’ plans boost Marathon performance
Moody's has upgraded the ratings of the class A and B notes issued by the Marathon SPV non-performing loan ABS from Baa2 to Baa1 and from B1 to Ba2 respectively. The rating action reflects better-than-expected collateral performance, which has boosted credit enhancement for the notes.

Moody’s notes that the Marathon SPV securitisation has overperformed its original business plan, with the cumulative collection ratio standing at 102.42% as of the most recent IPD and consistently above 102% since the transaction closed. The servicer has updated its original projections twice around December 2020 and March 2021, with total gross expected recoveries at respectively around +1.6% and +2.1% when compared to their original expectations. The pace of collections has shown resilience even during the height of the coronavirus pandemic, with gross collections consistently above €20m per quarter.

The main recovery strategy put in place by the servicer to collect recoveries from the securitised pool of assets has been to swap defaulted positions for ‘cambiali’ plans (akin to promissory notes). As at the March 2021 interest payment date, over 65% of gross collections recorded since deal closing came from cambiali plans, contributing to the resilience and stability observed in the pace of cash collections.

The advance rate on the class A notes decreased to 3.39%, as of the April 2021 interest payment date, from 5.70% at closing. A lower advance rate translated into higher protection against credit losses for the notes.

Euro CMBS issuance ‘oligopolistic’
Three US bank underwriters account for 67% of issued European CMBS volume year-to-date, while Blackstone dominates the sponsor side with a 49% market share, according to Scope figures. The rating agency notes that the domination of US arrangers and sponsors has spurred the emergence of US underwriting standards in Europe.

“For example, cov-lite securitised CRE loans characterised by the absence of financial default covenants prior to a permitted change of control represent 50% of issuance and have become the norm for CMBS sponsored by Blackstone. The share of securitised interest-only loans has also grown, increasing refinancing risk,” it observes.

Meanwhile, originate-to-distribute lending models dominate European issuance, with agency-style CMBS characterised by single asset/single borrower deals accounting for up to 90% of 2021 volume. In 1H21, 10 public European CMBS transactions were issued for €3bn (SCI 30 June), compared to 46 transactions worth €15.3bn issued since 2018.

Before Covid, originators offloaded pro-cyclical assets by issuing retail and hospitality CMBS. “Arrangers reopened the market in 2H20 with assets perceived to be winners of the outbreak, such as logistics and residential,” comments Florent Albert, a director in Scope’s structured finance team. “They have continued to issue logistics CMBS in 2021, as well as deleveraging out of non-prime assets and sectors with an unclear future, such as office or UK retail. We expect affordable housing and UK buy-to-let CMBS to be issued soon.”