Sector developments and company hires

The EBA has launched a public consultation on its draft regulatory technical standards (RTS) on the determination by originator institutions of the exposure value of synthetic excess spread (SES) in securitisations. The aim of the proposals is to contribute to a more risk-sensitive prudential framework in the area of synthetic securitisation.

The capital markets recovery package (CMRP) set out a preferential treatment for senior tranches retained by originator institutions in STS on-balance sheet securitisations under certain conditions, based on the qualitative requirements under the Securitisation Regulation. This reduction in capital requirements was accompanied by a capital charge on SES, due to concerns related to regulatory arbitrage opportunities.

Such arbitrage opportunities can occur when an originator provides credit enhancement to the securitisation positions held by protection providers by contractually designating certain amounts to cover losses of the securitised exposures during the life of the transaction. These amounts - which encumber the originator’s income statement in a manner similar to an unfunded guarantee - were not previously risk weighted.

The consultation paper specifies how originator institutions should determine the exposure value of SES, taking into account the relevant losses expected to be covered by it. In particular, the focus is on the exposure value of SES of future periods and on the ‘trapped’ and ‘use-it-or-lose-it’ mechanisms.

Responses to the consultation should be received by 14 October. A public hearing will take place on 6 September. 

In other news…

APAC

Apollo has entered into a joint private credit venture in Korea with Belstar Group to offer a wide array of private credit solutions to the region. The 50/50 venture will see the global alternative asset manager, Apollo, combining its capabilities with Belstar’s extensive expertise in investing and partnering with corporates and institutions in Korea. The joint venture will work to provide large corporations, mid-sized enterprises, and sponsors in the region with asset-backed capital solutions, corporate lending, as well as acquisition financing. Apollo and Belstar hope to also address the liquidity gap facing borrowers in the market at the moment, and follows the recent launch of Apollo’s Asia Pacific Credit Strategy. As an extension of Apollo’s credit investment franchise in the Asia Pacific region, it will be anchored to Apollo’s funds and internal affiliated insurance balance sheets and will focus on offering differentiated and flexible capital in terms of both duration and yield.

North America

Cadwalader welcomes New York-based partner, Jon Brose, to join its tax group and advise on tax issues for CLOs and other structured finance and securitisation products, as well as working on investment funds and cryptocurrencies. Brose brings his experience representing managers, underwriters, issuers, and placement agents to the firm from Seward & Kissel, where he served as partner. Brose marks the latest in a string of many new partners to join Cadwalader, as the firm works to enhance its structured finance and securitisation work to meet demand after a very busy year.

Carlyle has announced several senior leadership changes following the departure of ceo and member of the board of directors, Kewsong Lee. With the close of Lee’s five-year employment agreement coming up at the end of this year, Lee has agreed to step down, with both Lee and the board agreeing to immediately initiate a search committee to identify a permanent successor. In the interim, co-founder and current non-executive co-chairman and former co-ceo, William Conway, will serve as ceo – with Lee on hand to assist the transition. Additionally, to assist Conway in his duties as interim ceo, the firm has established an office of the ceo, which will be comprised of several senior members of staff. This will include: the firm’s cio for corporate private equity and chairman of Americas private equity, Peter Clare; head of global credit, Mark Jenkins; the firm’s coo, Christopher Finn; and cfo, Curtis Buser.

Freddie Mac yesterday (August 8) launched a $540m high LTV CRT bond, designated STACR 2022-HQA3, via lead managers Wells Fargo and Barclays. The trade consists of a $285m M-1A tranche priced at SOFR plus 230bp, a $146m M-1B tranche priced at SOFR plus 146bp and a $109m M-2 tranche priced at SOFR plus 535bp. The co-managers are Amherst Pierpoint, BNP Paribas, JP Morgan and Nomura. Freddie issued $15bn in the CRT market in H1 2022 in the STACR and ACIS market.