Sector developments and company hires

SES RTS a ‘sensible result’
The EBA has published its final draft RTS specifying the determination by originator institutions of the exposure value of synthetic excess spread (SES). These draft RTS clarify the calculation of the components that should be included in this exposure value, taking into account the relevant losses expected to be covered by SES.

The components should include the SES designated for past and current periods that is still available to absorb losses and any SES contractually designated for future periods. A derogation is included from that exposure value in the specific case of the SES designated for future periods that does not encumber the originator institution’s income statement in a manner similar to an unfunded guarantee, subject to certain conditions. This derogation aims to align the treatment of the excess spread generated in synthetic and traditional securitisation, where this does not pose prudential concerns.

PCS suggests that the derogation is a “sensible result”, given that if excess spread is less than or equal to the excess cash generated by the assets, there can be no disguised credit support since the issuer is only providing the investor with the benefit of cash it actually receives. “By exempting synthetic excess spread below actual cash received from capitalisation (up to one year expected loss) but capitalising anything above, the EBA has provided - in our opinion - the right balance between meeting legitimate prudential principles and not unduly punishing equally legitimate uses of actual excess spread. In our estimation, this sophisticated and grounded approach should allow synthetic issuance to grow while avoiding the possibility of abuse.”

Finally, in order to ensure a continuation of existing securitisation transactions, a grandfathering provision has been introduced for synthetic transactions featuring SES, where the originating institution fulfilled the requirements of Article 248(1)(e) of the CRR in accordance with the supervisory practice adopted by the relevant competent authority.

In other news…

CAS tender offer, transaction marketing
Fannie Mae has announced its latest tender offer for CAS notes, which will expire at 5pm Eastern Time on 28 April. There are 14 notes on offer, issued between 2014 and 2018, for a face value of US$4.235bn.

All are either M2 or B1 notes. The largest original principal is US$625m for the CAS 2015-C02 M2 notes and the smallest is US$70m for the 2018-C06 B1s.

Bank of America is the lead manager and Wells Fargo the dealer manager for the offer.

The GSE is also in the market with CAS 2023-R03, its third CAS transaction of the year so far. The deal, a high LTV offering with LTVs between 80% and 97%, is worth US$621.77m and is comprised of an M1 tranche, an M2 tranche and a B1 tranche. The M1 tranche is US$342.7m, the M2 for US$216.4m and the B1 for US$62.5m.

The reference pool consists of 112,666 residential mortgage loans with an outstanding principal balance of approximately US$38bn. The loans were acquired between January and 31 May last year.

Within the pool, borrowers have a weighted average (WA) credit score of 746 and a WA debt to income ratio of 38%. In common with CRT deals, this transaction exhibits considerable geographic diversity. Loans emanate from 10 states, with California providing the largest (13.5%) share.

Nomura is the structuring lead and Morgan Stanley the co-lead.

Loan trading platform launched
Octaura has launched its syndicated loan trading platform, after announcing the completion of its first entirely electronic syndicated loan trade earlier this year (SCI 2 February). The platform will bring together trading protocols, real-time data and analytics all into one place, and marks a major step in Octaura’s efforts to offer market participants the ability to trade efficiently, transparently and conveniently through the digitisation of the trading process. With more than 90 asset managers actively trading and onboarding on the platform, the firm will now be able to continue to work on two-way integration and implement trading solutions for further asset classes.

North America
Paul Hastings has poached a team of structured credit lawyers from Allen & Overy in New York, led by Nicholas Robinson. Robinson joins the firm as a partner, alongside fellow partner Tracy Feng and a team of associates. The pair represents financial institutions, asset managers and investors in CLOs and other structured credit transactions, including in the private credit and middle market loan space.

Oxford launches CLO fund
Oxford Funds has launched a closed-end tender offer fund, called Oxford Park Income Fund, which will primarily invest in CLO equity and junior debt tranches. Oxford Park Income Fund’s investment strategy may also include warehouse facilities.

The fund has completed its first two portfolio investments: a portion of a CLO equity tranche with approximately four years remaining in its reinvestment period; and a portion of a CLO double-B rated debt tranche. Additionally, the fund – which expects to offer securities through financial advisors in both the independent broker dealer and registered investment advisor channels - has entered into an agreement with CoastalOne Capital Markets to act as its dealer manager.

Real asset partnership formed
Real asset fund manager Flexam Asset Management has formed a strategic partnership with Kartesia Management, involving a related acquisition of a majority stake in the firm. Terms of the transaction - which are subject to certain customary closing conditions - were not disclosed, but the transaction is anticipated to close before the summer.

Flexam focuses on sale-and-lease back and financial lease transactions in the lower mid-market segment and has a strong emphasis on energy-efficient assets. The firm is based in Paris, with offices in London and Luxembourg.

Under the partnership, Flexam will retain its existing management and investment autonomy, while benefiting from the operating and financial resources, distribution network and scale of Kartesia to enter a new phase of development.