Robert Bradbury, head of structured credit execution and advisory at Alvarez & Marsal (A&M), answers SCI's questions

Q: A&M’s structured credit offering is a core component of the firm’s portfolio advisory group, which acts for both the buy-side and the sell-side in respect of portfolio and credit opportunities across asset classes, including core lending books, non-performing loans, aviation, shipping and specialty lending, as well as all structured finance opportunities relating to these segments. What does your current role and mission at Alvarez & Marsal entail?
A: My mandate at A&M is to focus on all the different layers of structured credit, with a particular expertise and emphasis on securitisation. On one hand, this includes risk transfer - both synthetics and cash, as well as private and big banks - and it extends into a couple of other core pillars, such as warehouse financing for non-bank lenders (but also anything securitisation-related for non-bank lenders) and securitisation as it relates to buy-side or sell-side. And the third pillar in the structured credit world is anything that does not fit into a traditional mold of what a consultant would do or what A&M already does. It might be helping with valuations for SRT paper or it might be helping our debt advisory group with the repo of a retained unrated junior note, for example.

Having this expertise and skillset within the portfolio advisory team is really quite helpful and allows us to be further active on a broad range of matters, including emerging market project finance, export credit agency financing, media, music rights and shipping.  Essentially, anything that has a contractual revenue or future revenue - securitisation or not - is really something that falls into my work. In that sense, it is a fairly unlimited mandate within the securitisation framework.

Q: What can you reveal about your recent advisory involvement with Vehis, on the first-of-its-kind warehouse facility transaction in Poland?
A: Alvarez & Marsal was retained by Vehis - a car leasing business in Poland - to advise on securitisation financing to facilitate the company’s growth over the medium term. Our mandate was effectively, as advisor, to help them structure the entire transaction. Vehis had been successfully expanding - using a combination of private equity sponsorship, factoring and bank financing - and it needed a sizeable institutional debt structure in place to avoid limitations on growth.

Of course, there were a few challenges: it was the first warehouse facility transaction in Poland and the transaction had to be structured with the requirements of STS. In this specific context, the value of the company is dominated by the securitisation.

Therefore, the mezzanine needed a lot of control features that are not necessarily compatible with STS. I think it is a brilliant example of where a completely independent third party can bring a huge amount of value to a transaction.

Q: Generally speaking, what trends are currently impacting the sector?
A: One of the trends that we are seeing at the moment - because of several factors, such as interest rates having gone through the roof, inflation, funding costs going up and macro stress on defaults - is that quite a few banks are looking to exit the space of lending and providing senior loans to platforms. We are acting on a few book sales in the secondary market and we have a number of live platform financing warehouse mandates all across Europe.

There is actually a lot more than we could take on, because people are desperate for the financing. For example, we have a situation where we have been approached by a lender with an existing financing in place which is fully performing, but linked to mid-swaps. All of a sudden, they are facing strong difficulties just because of the way their financing was originally structured.

We can assist them through setting up a new structure, new capital, new tranching, new reference assets and changing the origination. But part of the problem lending platforms are facing is they can’t just pass on the rate increases the same way a bank would.

The other big theme we are seeing, with the securitisation market being largely closed, is that there is a huge boom in the private market (SCI 12 August). For the very best, highest quality, short-duration issuers, they have market access for their consumer products (such as prime autos).

It is really anyone below that level that has been shut out and, as a result, everything is either preplaced or done privately. I feel the market will be somewhat dislocated well into next year.

But there is a large demand from banks to provide private format financing because it is one of their remaining reliable sources of revenue. They need to deploy lending somewhere and they are still keen to lend if the asset class is right and the amount of equity is right. It is less aggressive than it was before, but the pricing hasn’t necessarily moved as much as one would have thought.

Vincent Nadeau