Sector developments and company hires

Call for more risk-sensitivity in Sec Reg
The European Commission has launched a consultation on the Article 46 review of the Securitisation Regulation, seeking stakeholder feedback on a broad range of issues. The questionnaire covers: the effects of the regulation; private securitisations; the need for an equivalence regime in the area of STS securitisations; disclosure of information on environmental performance and sustainability; and the need for establishing a system of limited licensed banks performing the functions of securitisation special purpose entities (SSPEs).

In addition, the questionnaire seeks feedback on a number of other issues that have been identified and raised by stakeholders and by the Joint Committee of the ESAs as having an impact on the functioning of the securitisation framework. Responses to the consultation should be submitted by 17 September.

In response to the consultation, AFME states that the review needs to focus on introducing more proportionality and risk-sensitivity in the Securitisation Regulation, as well as in the treatment of securitisation in sectoral regulations governing bank capital and liquidity (CRR), insurance company capital (Solvency 2) and other areas.

In other news…

Collateral performance ‘surpassing expectations’
The collateral performance in European ABS and RMBS surpasses previous expectations as economies recover from the coronavirus crisis. Consequently, Moody’s has changed most of its collateral forecasts for the sectors from negative to stable for the next 12-18 months.

Economies are bolstering thanks to pandemic-driven relief measures from governments, lenders and sponsors, and accelerating vaccine roll-out in Europe. However, overall transaction performance in Northern European markets has recovered faster than in Southern Europe.

Moody’s forecasts a modest increase in unemployment in 2021, but it is not expected to weaken the performance of most ABS and RMBS securitisations materially. Nevertheless, non-performing loan and SME ABS deals - except for German SME ABS - have not yet recovered and are likely to remain under the greatest performance pressures.

Euro CMBS ratios ‘relaxing’
A European CMBS rating decomposition analysis undertaken by Scope reveals a relaxation of financial ratios across the capital structure year-on-year, albeit they remain within their historic ranges. The agency notes that LTV levels are now comparable to their 2019-issuance levels at 62%, while NOI ICR has decreased to 2.2x and debt yield has compressed to 8%.

By asset type, the analysis reveals: opposing trends for retail and logistics assets; tighter cashflow metrics across all asset types; and increasing risks for non-stabilised and secondary office and mixed-use CMBS. “Leveraged industrial is amplified by securitised logistics portfolios, which are now often valued with a roughly 5% premium compared to the sum of individual properties, resulting in a covenanted CMBS LTV 2% to 3% lower,” says Florent Albert, a director in Scope’s structured finance team. “Term and refinancing risk may rise if rental income were to dry up and rates were to increase for low-yielding CMBS.”

In particular, risks will be amplified for CMBS exposed to non-stable tenancy (such as Taurus 2021-3 DEU and ELoC No.38 (Viridis)) or assets in secondary locations (Taurus 2021-2 SP).

US rating agencies have downgraded a third of European CMBS classes since the start of the pandemic, including 75% of retail and all hospitality CMBS. Yet only one securitised loan has entered special servicing since 2Q20.