Sector developments and company hires

CMBS hedging agreements eyed
DBRS Morningstar has raised concerns that the current DSCRs of three European CMBS it rates - Sage AR Funding No 1, Sage AR Funding 2021 and Taurus 2021-4UK - will be insufficient to enable the borrowers to use excess cash to purchase new interest rate cap agreements, without cash injections from the sponsors, as the respective facility agreements require new interest rate cap agreements to be purchased in 2022 or 2023. These transactions have a five-year loan term, where the borrower purchased an interest rate cap that expires prior to the loan maturity date. Further, there is an obligation in the facility agreements for the borrower to purchase a new interest rate cap agreement every year for the remaining term of the loan, following the expiry of the initial interest rate cap agreement.

The facility agreements provide that all costs incurred by the borrowers in connection with purchasing a new hedging agreement must be funded from the proceeds of investor debt, subordinated loans, equity contributions and/or amounts standing to credit in the general account. However, premiums for interest rate caps increased five times between January and July 2022 in both the euro and sterling markets, given the increase in interest rates this year. Increased hedging costs may result in some borrowers being unable to purchase new interest rate cap agreements and consequently triggering a loan EOD.

Generally, given lower leverage levels since the financial crisis, DBRS Morningstar suggests that there may be greater capacity for borrowers to absorb increased hedging costs when required. “Ultimately it is [our] view that if there is still equity in the structure, the sponsors are unlikely to allow the loan to default, lest the sponsors lose control of their assets. Hence, they are incentivised to provide equity to the borrowers, allowing them to enter into new hedge agreements,” the rating agency concludes.

In other news…

APAC strategic partnership inked
KKR and UAE sovereign wealth fund Mubadala Investment Company have signed a strategic partnership that will see the two firms co-investing across performing private credit opportunities in the Asia Pacific region. The partnership aims to deploy at least US$1bn of long-term capital, providing bespoke credit solutions to companies and sponsors. Mubadala will deploy its capital alongside KKR’s existing pools of capital, including the recently raised KKR Asia Credit Opportunities Fund, a US$1.1bn vehicle focused on performing, privately originated credit investments in the region.

EMEA
Santander has formed a pan-European structured finance platform, bringing together over 110 professionals under three sectoral clusters across Frankfurt, Lisbon, London, Madrid, Paris and Warsaw. The objective is to refocus the firm’s resources to embed sectoral specialisms across its core geographies in Europe, while maintaining what it describes as a personal pan-European service for its clients.

As such, the firm has named Bart White European head of energy structured finance, based in London. He was previously md and head of structured finance, UK, at the firm.

Santander has also appointed Gonzalo Acha as head of infrastructure and transportation structured finance, based in Madrid. He previously led the firm’s Latin American and continental European structured finance team.

Finally, Marcos García has been named head of real estate, TMT and fund finance, based in Madrid. He was formerly head of LBO, real estate and TMT-Infra, continental Europe and the Andean region.