Gearing up

Gearing up

Related stories

Category: Capital Relief Trades ABS

Friday 23 August 2024 17:30 London/ 12.30 New York/ 01.30 (+ 1 day) Tokyo

SRT Market Update

Heading into the autumn months, the SRT market is gearing up for a bustling end to the year, in spite of the volatility seen earlier this month. While the timelines for a couple of European transactions have been extended, Canadian and US bank activity is picking up pace.

Following a dramatic start to August, with a significant volatility spike, one SRT investor notes little to no impact on the SRT or broader private credit markets. He says: “From an investment perspective – as opposed to fundraising perhaps – the period of volatility was over pretty quickly. In the SRT market, you generally tend to see a two- to three-month lag. However, given all of this happened and reversed within days, we don’t expect any impact at all - unless it comes back in a more pronounced manner in September.”

He continues: “Especially given that year-end is getting closer and that spreads have tightened throughout the year, there will be more of a push to widen spreads again into the year-end. And with a lot of deals coming to market, that's easier to do.”

Reflecting on market activity and volumes during August, the investor describes a “busy summer”. While club or broadly syndicated deals generally do not tend to price in August, he points to a restart in Canadian issuance.

He says: “While it has been a slow to start for Canadian banks this year, there are two trades in the market at the moment. And the expectation is that there will be at least another two before year-end.”

In terms of the deals currently in the market, the investor indicates that BMO and another “usual” issuer are behind them and that both reference corporate loan portfolios. Regarding execution, he adds that pricing indications will be out “next week or in early September.”

Similarly in the US, the investor understands that the large banks will execute corporate loan deals before year-end. He says: “Away from the smaller, regional banks, we haven't really seen any momentum out of the US. There is currently one trade that has just launched out of the US by one of the bigger banks. However, I am aware of Goldman Sachs, Citi, JPMorgan, Wells Fargo and Bank of America all having plans for Q4 this year.”

Back in Europe, French banks are also targeting Q4 for their corporate programmes. Analysing the French pipeline, the investor notes: “We expect CACIB to return with another CEDAR transaction. Societe Generale’s Junon is also expected but has not come to market yet. Meanwhile, BNP Paribas’ latest Resonance deal was initially launched but has been pushed back to Q4.”

Additionally, Piraeus Bank is understood to have extended the timeline for its planned transactions (SCI 13 May). The €1.8bn corporate and SME trade that was originally scheduled for June has been moved to the end of the year, while the €500m consumer loan trade is expected to be re-examined during 2025.

Finally, in Italy, Intesa Sanpaolo is believed to be closing a corporate and sponsor-led loans transaction next month.

Vincent Nadeau

NAIC unveils ‘helpful’ guidance
At its Summer National Meeting in Chicago last week, the NAIC unveiled guidance relating to the statutory accounting treatment of insurance company investments in bank CRT transactions. In a new client memo, Cadwalader highlights a couple of points under the guidance that it notes are “helpful”.

First is that although the new principles-based bond definition (SSAP No. 26) refers to ABS as being repaid with cashflow produced by collateral ‘owned’ by the issuer, the term ‘owned’ as used for this purpose is not necessarily intended to align with a legal view of ownership, but rather, all economic value to which the creditor has recourse. Second is that although the new bond definition requires a ‘creditor relationship’ which generally requires that interest and principal payments do not vary based on a ‘non-debt variable’, an ABS issuer that owns derivatives in the structure - such as a CDS or total return swap - that solely transfers the performance of the referenced pool into the ABS structure does not automatically disqualify ABS classification, but the assessment of derivatives within a structure must be closely considered.

The Cadwalader memo concludes: “Although this guidance is not authoritative and remains subject to public comment and subsequent change, it is helpful in providing assurance that CRTs can qualify for bond treatment.”

×