Sector developments and company hires

Surge in refi SLABS predicted
The US Supreme Court is expected to render its decision regarding the legality of President Biden’s student loan forgiveness programme (SCI 31 August 2022) by the end of June. A resolution will provide borrowers with more clarity about their federal student loan debt balances and obligations - which is anticipated to spark further refinance activity, in turn benefitting the refi student loan ABS sector by increasing the collateral eligible to securitise.

“With more than US$100bn of federal student loans originated per year and the strong likelihood that the fixed interest rate for federal student loans disbursed for the next academic year (2023-2024) will exceed the current rate, the addressable market of refi borrowers should continue to grow,” notes Jon Riber, svp, US ABS at DBRS Morningstar.

If the forgiveness programme goes ahead as planned, borrowers with federal student loans will receive debt cancelations of up to US$20,000. Additionally, federal student loan payments - which were frozen in March 2020, due to the Covid-19 crisis - are expected to resume 60 days after the court’s ruling or after August. DBRS Morningstar anticipates that the resumption of interest and principal payments should result in a significant portion of federal borrowers seeking more favourable terms via the private student loan refinance market.

“As interest rates have increased, we have observed a significant supply of newly originated private student loans and federal loans that carry relatively high interest rates. These underlying borrowers are beginning to make up a large pipeline of potential customers that that the refi lenders will target,” Riber observes.

The student loan refinancing market has suffered from sharply higher interest rates, which have eroded the value proposition between the rates on the loans that borrowers currently hold and the latest rates offered by refi lenders. Additionally, weak investor sentiment against the backdrop of economic uncertainty has resulted in increased securitisation cost of funds, further dampening refi ABS volumes. Refi ABS issuance dropped to three transactions in 2022 from 11 transactions in 2021, according to DBRS Morningstar.

“While there are several factors that influence origination volumes for consumer loans in general - including the economic environment, interest rates and the availability of credit - we have identified several converging events specific to the student loan market that bode well for the refi sector and will benefit those holding federal student loans. Furthermore, if market conditions and general ABS investor sentiment improve, DBRS Morningstar anticipates a surge in refi ABS new issuance volume,” the agency concludes.

In other news…

EMEA
Arrow Global Group has appointed Gabi Cohen as md, Nordics, client and product solutions (CPS). The CPS team is responsible for setting Arrow’s capital formation strategy and broadening the firm’s investor set by enabling global capital pools to access the opportunities presented by a growing investor landscape.  
Cohen joins Arrow Global from ICG, where she worked for 10 years as part of its business development function, including leading the firm’s Nordic investor activities. She also spent two years at ESO Capital, as well as in various banking roles at UBS and HSBC.
Based in London, Cohen will report to Charlotte Gilbert, md, CPS.

Greg Campbell has joined O’Melveny’s London office as a partner in its corporate finance practice group, strengthening the firm’s cross-border capabilities while also expanding its capacity in London and across the European market. Campbell brings more than 25 years of experience advising on leveraged finance, real estate finance, restructuring, distressed and special-situations transactions. He was previously a member of Gibson Dunn’s global finance and business restructuring practices.

North America
Cadwalader has appointed Ryan McNaughton as a partner in its securitisation and structured finance practice in New York. He joins from King & Spalding, where he was a partner. McNaughton has a particular focus on esoteric ABS, including whole business and other operating asset securitisations, music and media royalty transactions and specialty real estate lending transactions.

PacWest synthetic downgraded
Fitch has downgraded the class M1 and M2 notes issued by PacWest 2022-1 from triple-B minus to double-B plus. The agency’s ratings watch negative has been removed and a negative ratings outlook has been assigned.

The move follows its decision to place the CLN on ratings watch negative on 20 March, in the wake of the collapse in confidence in a number of US regional banks.

The deal represents PacWest’s single foray into the capital relief trades market.

The long-term issuer ratings of Pacific Western Bancorp and Pacific Western Bank were downgraded from triple-B minus to double-B plus at the end of last week. The short-term rating were also downgraded from B to F3.

The decision was taken, says Fitch, due to the “bank’s funding and liquidity profile, specifically reliance on non-core funding in the wake of the failure of Silicon Valley Bank.” The agency notes that the performance of PacWest 2022-1 has been stable over the last six months and 30-day delinquencies remain below 1%. There have been no losses incurred within the pool, which has paid down by about 2.5%.

RFC issued on NPL servicer guidelines
The EBA has launched a public consultation on its draft guidelines on the assessment of adequate knowledge and experience of the management of credit servicers under the Non-Performing Loans Directive. The objective of the guidelines is to ensure that management is suitable to conduct the business of the credit servicer in a competent and responsible manner, including that it has adequate knowledge and experience.

The guidelines specify the criteria for assessing collective knowledge and experience, taking into account the principle of proportionality. They also set out the main requirements of the credit servicer assessment process and specify when such an assessment has to be performed. Where shortcomings are identified, the credit servicer must take appropriate corrective measures, including to provide training or to replace members of the management body.

The consultation runs until 19 July and a public hearing will take place on 12 June.