Sector developments and company hires

The US SEC has charged Angel Oak Capital Advisors and its portfolio manager Ashish Negandhi for misleading investors about the firm’s fix-and-flip loan securitisation’s delinquency rates. Angel Oak and Negandhi have agreed to pay a penalty of US$1.75m and US$75,000 respectively.

According to the SEC’s order, in March 2018, Angel Oak raised US$90m through a securitisation backed by loans to borrowers for the purpose of purchasing, renovating and selling residential properties (known as ‘fix-and-flip’ loans). The deal included a provision that would accelerate Angel Oak’s obligation to return funds to certain investors if delinquencies reached a predefined threshold.

Shortly after the deal closed, loan delinquency rates increased unexpectedly. This led to Angel Oak and Negandhi artificially reducing delinquency rates by improperly diverting funds ostensibly held to reimburse borrowers for renovations made to the mortgaged properties to instead pay down outstanding loan balances. Because Angel Oak and Negandhi did not disclose these actions, the performance data regularly disseminated to investors provided an inaccurate view of the actual delinquency rates on the mortgages in the securitisation pool, as well as the securitisation’s compliance with the early repayment trigger.

The SEC’s order finds that Angel Oak and Negandhi violated the antifraud provisions of the Securities Act of 1933 and that Angel Oak violated, and Negandhi caused Angel Oak’s violation of, the antifraud provisions of the Investment Advisers Act of 1940. Without admitting or denying the SEC’s findings, Angel Oak and Negandhi agreed to a cease-and-desist order, a censure and the imposition of civil monetary penalties.

In other news….

ABS CDO transferred

Dock Street Capital Management has replaced Dynamic Credit Partners as collateral manager for the Lenox CDO transaction. The firm has agreed to assume all of the duties and obligations pursuant to the collateral management agreement, the collateral administration agreement and the applicable terms of the indenture. Moody’s has confirmed that there will be no adverse rating impact on the notes as a result of the move.

EMEA

Oxane Partners has received its first primary servicing rating from S&P Global Ratings with a stable outlook. Additionally, the firm was included on S&P’s select servicer list having entered the loan servicing market with Loan Servicing 2.0 at the start of 2020. The rating from S&P reflects the firm’s expertise and technological capabilities demonstrated by its Loan Servicing 2.0 solution, which works to offer lenders data accuracy, digital access to investment data and reports, and a responsive servicing team dedicated to proactive surveillance and risk monitoring.

North America

Lakemore Partners has appointed a new chair of its audit committee. Paul Gyra will assume the role of independent chair of the Lakemore Partners Audit Committee and will offer expertise to help serve the firm and support the maintenance and building of its partnerships with clients and top-tier CLO collateral managers worldwide. Gyra has more than 30 years of experience in investment banking and asset management, and currently holds roles on Lakemore’s advisory board and as a managing partner at the Thompson Family Office. Prior to this, Gyra served as coo, head of strategy, and managing partner at Safanad Limited, where he was responsible for the firm’s business operations and strategy across its Dubai, New York, and London offices.

Upstart CND ratios eyed

Upstart securitisations issued after April 2021 that have large concentrations in collateral with longer original terms and lower Upstart credit grades are experiencing higher-than-anticipated cumulative net default (CND) rates, with some approaching or breaching their respective CND ratio triggers. According to KBRA, UPSPT 2021-ST7 breached a trigger in May, cured a month later as the trigger threshold stepped up and then re-breached a trigger last month. As of the July 2022 distribution date, UPSPT 2021-ST6 is also in breach of its CND ratio triggers.

KBRA estimates that another six Upstart transactions may breach their respective CND ratio triggers in the coming quarters. For the UPSPT and USPTT pass-through securitisations, the rating agency warns that if the CND ratio exceeds the applicable CND ratio trigger level for a specific transaction, an amortisation event will go into effect on such distribution date causing the transaction to enter full amortisation. If the CND ratio trigger is subsequently cured, the overcollateralisation from the distribution date immediately preceding the cure of the breach will be the new required OC percentage.

Upstart has recently updated its underwriting policies, increased its pricing and amended its loan modification policy to allow borrowers that have experienced a temporary reduction in income, unexpected increase in expenses or a job loss to apply for a forbearance or extension - providing they have made at least two full payments. KBRA expects the changes in underwriting and pricing to contribute to future performance improvement.