Sector developments and company hires

Call for urgent review of SA output floor
AFME has published a study, commissioned from Risk Control, examining the impact on the European securitisation market of the introduction in 2025 of the Standardised Approach output floor. The study finds that securitisations of large corporate and SME loans are likely to be severely negatively impacted by the rule change, while securitisation of consumer loans may be boosted because the increase in capital for loans held on-balance sheet will exceed that of securitised assets. Given the contradictory effects that this change is expected to have, with no clear rationale based on policy priorities, AFME suggests that the rules are “not soundly rooted in an understanding of the relative riskiness of different asset classes” and is therefore calling on policymakers to urgently review them.

Another key conclusion of the analysis is that existing corporate transactions undertaken for risk management purposes are likely to fail the significant risk transfer test applied by European supervisors and therefore will have to be terminated. However, AFME notes that some of the negative effects of the SA output floors on existing transactions would be substantially mitigated if internal ratings-based (IRB) approach banks were required to evaluate SRT tests only at an IRBA level, even if the SA output floor is binding.

Overall, the study underlines the significant miscalibration of the SEC-IRBA and SEC-SA for mezzanine tranches and a misalignment of senior tranche risk weights in comparison to pool risk weights. As such, the findings contribute to the case for reconsidering the level of capital charges for such tranches.

AFME strongly supports proposals by MEPs for a transitional arrangement, until a wider review of the framework is undertaken. “This transitional measure is critical for the economic viability of synthetic on-balance sheet transactions, the main instrument used to share risk and redeploy capital into lending to SMEs, corporates and project finance, as they are the most severely impacted by this rule change,” the association argues.

In other news…

Cypriot NPL ABS closed
PIMCO affiliate B4 Galium Holding has completed a securitisation backed by a portfolio of Cypriot non-performing loans with a €1.02bn GBV and REO properties with a real estate valuation of €146.5m, as of 31 August 2022. Dubbed Titan Financing, the transaction envisages a double SPV structure: the assets are owned by a bankruptcy-remote Cypriot Credit Acquiring Company (CyCAC); and all collections - net of some structural costs - are passed through to the issuer, a Luxemburg SPV. The assets supporting the notes were originated by Bank of Cyprus Public Company (BOCY). The assets were transferred to the CyCAC via a court-sanctioned scheme of arrangement, which was executed on 13 November. Within the next six months, servicing of the portfolio will migrate from BOCY to Themis Portfolio Management, an affiliate of the sponsor and the CyCAC.

In terms of portfolio composition, loans representing 92.4% of the GBV are secured loans and 86.7% are backed by a first lien mortgage. However, the weighted average LTV ratio is around 140% - higher than in comparable deals – and 74.7% of the loans by GBV are still in an initial workout stage.

DBRS Morningstar and Moody’s have rated the €265m class A notes triple-B and Baa3 respectively. There are also €753m unrated class X notes.

EMEA
HIG Capital has recruited Daniel Rosenthal Ayash, Bernice Berschader and Micael Hagelin to its capital formation group, based in London.

Ayash joins the firm as an md and is responsible for managing HIG’s European client partnerships for the firm’s global private equity platform. He was previously an md in Eaton Partners’ EMEA private funds group.

Berschader joins as a principal and is responsible for managing HIG’s European client partnerships for the firm’s global credit platform. She was previously head of EMEA capital formation at Castlelake, where she was responsible for capital raising activities across the firm’s private credit, private equity and real asset strategies.

Hagelin joins as an md and is responsible for managing HIG’s European client partnerships for the firm’s global credit platform. He was previously a managing partner at New End Associates, where he was responsible for the capital formation of primary funds and direct investments covering institutional clients across the Nordics and the Netherlands.

Life settlement platform founded
Fifth Season Investments has formed a new life settlement investment platform, with backing from the Owl Rock BDCs. The move follows the acquisition of the life settlement business assets of Fifth Season Financial, as well as substantially all of the life settlement investment positions and loans secured by life insurance policies owned by Chapford Capital II and Chapford Diversified Fund.

As a result of the transaction - which is valued at US$220m - all of the employees of Fifth Season Financial, including its founding partners Adam Balinsky and Scott Rose, have moved to Fifth Season Investments' affiliate Fifth Services. The new platform will manage and invest in life insurance-backed assets, including secondary and tertiary life settlements.

Ludlow Re debuts
Hildene Capital has launched a new Class B(iii) insurance company, Ludlow Re, which will offer reinsurance to the global insurance market. The Cayman Islands-based Ludlow Re will reinsure around US$1bn of fixed index annuity reserves through its entry into a quota shared agreement with a US-based life insurance carrier.

Hildene, the US$12bn asset manager, hopes Ludlow Re will help to strengthen its asset management capabilities and provide better returns for its investors, as it believes the duration and liquidity profile of life and annuity insurance liabilities aligns well with the firm’s structured credit assets – particularly TruPS CDOs. The firm ultimately hopes both insurers and asset managers can benefit from a symbiotic relationship by having money managers gain access to insurers’ expansive capital base, while insurers in return receive access to more sophisticated investment opportunities.

Sculptor exploring sale
The board of Sculptor Capital Management has formed a special committee, comprised solely of independent directors, to explore potential interest from third parties in a transaction with the company that maximises value for shareholders.

The special committee has retained PJT Partners as its financial advisor and Latham & Watkins as its legal counsel. JPMorgan has been retained as financial advisor to the company.

The special committee has also reached out to Daniel Och and the four other former executive mds that had filed a books and records action in the Delaware Court of Chancery (SCI 3 November) and the parties agreed that the resolution of that action would be beneficial to the process initiated by the special committee for the benefit of shareholders. The parties therefore have reached a settlement to provide an agreed set of additional company books and records and dismiss the action with prejudice.

UK servicing platforms acquired
Intrum is set to acquire two consumer loan servicing platforms from Arrow Global Group, along with 50% of Arrow UK’s back book consumer portfolios, subject to customary closing conditions. The transaction is expected to be completed in 2Q23 and includes outsourcing contracts with major financial institutions, as well as the continued servicing of Arrow’s UK unsecured consumer portfolios. It marks a significant development in Intrum’s UK growth plans, following the company’s expansion in third-party servicing over the recent years.

The acquisition consists of a £36.5m consideration for the Capquest platform (for servicing unsecured consumer loans) and the Mars UK platform (for servicing residential consumer mortgage loans), along with a £121.25m investment for 50% of Arrow’s UK unsecured consumer portfolios. In total, the acquisition includes approximately 800 roles, as well as two Glasgow servicing centres and premises in Manchester.