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Atlas SP Partners is a new thing in the world, and it’s been controversial since it was first carved out from Credit Suisse in early 2023 — not because of the people, which are generally reckoned first rate, but because of the whole idea.

Two main questions have hung over the business model, both relating to where Atlas SP sits in the competitive landscape.

Why would the ecosystem of specialist lenders and non-banks, mostly owned by private equity / alternative investment funds want to go to Apollo (the majority shareholder of Atlas) for their funding?

How would the bankers at Atlas succeed in carving out market share if they have a higher cost of capital than their peers?

These are sort of opposite worries — if Atlas had a ton of IG-type money from Apollo’s captive insurers to play with, it wouldn’t have to write business much wider than competitors, and if it mostly raised its own funds, it wouldn’t be “Apollo money”.

For the Atlas sceptics, the only thing that made sense was if Apollo was buying it as a (very large) trade, rather than an ongoing business — a unique opportunity to buy esoteric asset-backed financings in massive size from a motivated seller.

But since the deal closed, it’s been clear that its an ongoing business as it has raised further capital from some of the deepest pockets out there (MassMutual, ADIA, GIC), originated more than $20bn of new business, and put in place a series of massive debt facilities.

The latest, and the most public, is the $5bn facility from BNP Paribas, announced last Friday (20 September), but several other institutions have lent money in size, secured by different slices of the Atlas SP warehouses and lending facilities.

The structures are fund finance-like, neatly sidestepping the problems of resecuritisation treatment, but the leverage point is much higher than your average NAV line (most of the assets are investment grade).

Clearly if Atlas SP is funded by (say) BNP Paribas there’s no point competing head on for business with BNP Paribas on the basis of price. This goes to point two; how can you win share if your price for lending is (competitor lending price) plus a spread?

The answer has to involve doing different business. Be faster, more aggressive, with higher risk appetite. Do new asset classes from the unproven lenders at punchy advance rates. Don’t wait to be placed in a beauty parade, go out and find those who are desperate for capital.

This is hard. Lots of investment bankers are highly motivated smart aggressive people with high risk appetite, who want to move as fast as their institutional constraints allow. But this was the status quo pre Atlas as well, when the unit was under the CS roof.

I don’t know what the internal cost of capital for CS would have been, but it’s very likely higher than say, Barclays, BofA, BNPP, Citi, HSBC, RBC and the like. Credit Suisse did indeed manage to find issuers that others couldn’t (or sign financings on terms that others couldn’t agree) so this isn’t a totally new departure; the bankers working for Atlas have a proven track record of doing it (even if global CEO Jay Kim has walked).

For Atlas, the route to growing the business involves transcending this funding limitation, to which end, we understand, it is on the verge of obtaining a credit rating.

Bond markets might be less reliable and flexible than bank facilities, but they ask very little of an investment-grade borrower. And if, like Atlas, there’s a securities trading business in the pipeline, it’s a helpful designation for an aspiring counterparty.

Some of Atlas’s funding comes not from multi-billion cross-collateralised lines, but from syndicating participations in its warehouse positions.

For a counterparty, there’s an existential question associated with writing a cheque for Atlas. If the purpose of the institution is to get paid well for lending low risk money, do Atlas deals all day long. Atlas gives access to origination you’d never get near, at spreads that remain attractive.

But if you aspire to clip deal fees, or establish an own-label securitised products franchise doing Atlas-like deals…. you might be eating your own lunch.

The fund finance wrapper structure is also interesting. While I’m sure the legal tech is well understood by those at the coalface, it seems that “fund finance” is increasingly an umbrella way to lever interesting assets.

If you can raise a fund finance facility for middle market loans, it’s not a great leap to do fund financing (at spicier advance rates) for mezzanine warehouse loan, or SRT positions, or residuals, or ground rent income strips, or other fixed income exotica.

I’m heading to DealCatalyst’s US Asset Based Finance conference on Monday (30 September) and US SRT conference on Tuesday, and in town for the week — drop me a line if you’re US-based and want to grab a beer.

9fin’s US private credit editor has been doing some videos ahead of Monday’s event — here’s a discussion with Joel Magerman of Bryant Park Capital and here’s Boris Ziser of SRZ on litigation finance.

The British national identity has been a bit of a mess these past 80 years, and personally I don't like to get my news from TV channels called "GB" something.

But a bit of patriotic branding shouldn't count against new kid on the block GB Bank, which has been making a splash in development financing after an £85m capital raising over the summer.

That might not sound like a huge ticket, but banks are very levered! If we assume a 15% CET1 ratio and writing mortgages at 35% risk weight, that's more than £1.6bn of origination right there, more than enough to get the chequebook out and offer some forward flows.

It's a large enough capital injection to comprehensively transform the bank, which was until recently majority-owned by Teeside Pension Fund. At the end of 2022 (the last year for which accounts are available, and the year in which it received its proper banking licence, the TOTAL balance sheet was just £35m).

Coming in alongside Teeside as the new majority shareholder is Hera Holdings, a vehicle controlled by IndiaBulls founder Sameer Gehlaut.

We also note the long-term presence of Tom Graham, formerly a securitisation structurer at Santander, as an advisor, focused on "forward flow, risk transfer" etc, according to his LinkedIn.

The public face of the bank, though, has much more about bespoke bridging, development lending and the like. GB Bank can help you with “7 essential criteria for selecting a property management company for high-end London buy-to-lets”.

Sharing the same backer (Indiabulls Properties Investment Trust CEO Pankaj Thukral was on the board earlier this year) is SilverRock Bank, which acquired its licence this year, and is much more straightforwardly focused on mortgage portfolios.

The website promises “’Funding as a service’ through forward flow financing as well as portfolio acquisitions”.

Lots of challenger banks will do forward flow deals, Shawbrook’s “platform lending” offering for example, but it’s not usually the core of the business. Two of Shawbrook’s largest forward flow positions, Bluestone and TML, tipped over into outright acquisition, and there’s always a question about whether a bank should outsource origination — so it’s rare to see it so obviously front and centre of a bank’s declared business plan.

Per CEO Alan Jarman, “This is the first time that a bank has been established in the UK to focus support on non-bank lenders.”

Apparently the deadline to apply as treasurer was earlier this week. Scratch a new lending institution and you find a securitisation person, in this case Kawai Chung, formerly of Venn Partners and RBS, who established and ran the Cartesian RMBS shelf — so it will certainly be a knowledgable counterparty for all of your funding needs.

This might wax philosophical, but one could see Atlas SP and SilverRock (or indeed Chetwood Financial, much discussed in these pages) as different sides of the same story.

There are different ways to finance assets, using a different mix of banking, deposit-taking, wholesale capital markets, asset sales, and risk transfers. Can you build an asset-backed investment fund in a bank wrapper? Can you build an investment bank in a fund wrapper? Can you build an asset manager inside a mortgage originator? A lender in an insurer? Recreate a SIV? Legal form and economic substance are solvable problems, and there’s been a lot of solving going on, at the megacap scale of Atlas and in the startup world.

It’s easy to have a narrative that goes: banks vs non-banks, non-banks win, Basel something something. I’ve read a lot of ‘thought leadership’ along these lines.

But it’s not so much about banks vs non-banks as reimagining financial services, taking apart the lego bricks of broking, underwriting, funding, deposit-raising, trading, financing, payments and customer service and reassembling them in different configurations — hence the “funding as a service” idea at SilverRock.

It’s always a pleasure to see a debut issuer in the market, so a big hand please for Pollen Street-owned Tandem Bank, looking to place Fylde Funding 2024-1, a 100% second charge RMBS (the Fylde coast being the area around Blackpool, where Tandem is based).

One could argue it’s not really a debut, given that Oplo Home Loans, another Pollen Street portfolio company came to market in 2021 with Polo Funding 2021-1, which had its call date this week.

The issuer, in fact, had already been buying back some of the Polo deal, purchasing some of the class D and X notes in January.

Anyway, in the intervening period, Tandem Bank has bought Oplo, inheriting the Polo transaction, so it has (sort of) been in market before.

The coincidence of timings between the call and new issue would usually suggest a single transaction to take care of both situations — print a larger deal than the £300m Fylde and use it to fund the Polo call.

This might, however, lead to the Polo collateral dragging the deal wider. Both are second charge deals, but the quality is very different — all the Fylde Funding loans were originated since March 2022, on considerably tighter terms (67% LTV vs 91%, tougher credit scoring).

More importantly, they’re deals for very different purposes. Fylde Funding is a portfolio sale in securitisation clothing, and, prior to the public deal’s announcement this week, arranger Citi had marketed the equity to the usual suspects.

My friendly rival Stelios, who writes a lot of good stuff about SRT markets, reports the deal as a reworked synthetic transaction, which is theoretically possible, but unlikely. Various challengers are indeed mulling SRT transactions, but true sale was and remains the stronger execution route for mortgage portfolios.

Even for a book of debt consolidation seconds like this, the risk-density for mortgages doesn’t work well for a synthetic SRT in the UK. The best known UK mortgage synthetic, Co-Op’s Calico Finance, lost regulatory treatment and had to be called in 2017.

Mortgages fit well in cash structures, achieving attractive rating terms and leverage levels, while supply and demand also matters; much of the mezz / sub-IG RMBS investor base are happy to look at risk transfer-portfolio sale-deconsolidation type positions, while SRT-only investors generally find their sweet spot in corporate credit.

This deal seems to have been offered to the wider market, but in some cases, a synthetic structure can run into problems. The most natural buyer for a private bilateral SRT from a privately held bank is probably the shareholder themselves; if the bank wanted to raise AT1 it’d probably come from the shareholder.

But regulators frown on signing off a “risk transfer” to a significant shareholder, because it muddles the incentives for benefitting from the credit protection.

If a credit fund shareholder, however, wants to buy a bundle of mortgages from one of its portfolio companies, in securitised format or otherwise, that’s A-ok.

Tandem says it wants to be do the right stuff. Be “prudently managed around a clear allocation framework with the objective to become a regular issuer of RMBS” in other words. With the senior piece retained and the junior already sewn up, there’s only mezz to place, and as one lender put it, “if you can’t sell mezz right now just hang up your dealer board”. Let’s hope that allocation framework is clear!

The Cataluyna Banc portfolio has been on quite a journey, which illustrates something about the lifecycle of legacy assets in Europe.

First carved out and sold to Blackstone in 2014, it was one of the marquee trades of the first wave of disposals from “peripheral Europe”, as local banks staggered under the impact of the sovereign crisis. According to reporting at the time, Blackstone beat Oaktree to buy the book, which was €6.5bn notional acquired for €3.6bn.

The deal was part of the FROB (Fund for Orderly Bank Restructuring) mandate to sell CataluynaCaixa, which saw Alantra sell the rump of the bank to BBVA, shorn of the mortgage portfolio. Here’s Alantra’s account of the deal.

For our purposes, the important part is that the mortgage portfolio was split into performing loans, worth €2.5bn, sub-performing loans, worth €1.1bn and non-performing loans, worth €1.3bn.

The particular Blackstone entities were two of the Real Estate Partners funds, which isn’t always obvious; several pockets of the alternative assets monster are active in portfolio acquisitions, including Blackstone Credit and Blackstone Tactical Opportunities.

Financing for the acquisition was initially a giant loan-on-loan facility, arranged by Credit Suisse, another blast from the past, subsequently taken out into three securitisation SRF 2016-1, SRF 2017-1 and 2017-2.

Blackstone then sought to find exits for different parts of the portfolio. CarVal won the bidding for Project Castillo, the reperforming loans, in 2019, funded by a private securitisation facility taken out in Miravet 2019 and 2020, while Ellington Management bought another chunk, securitising it in Clavel Residential (and refi’d with another portfolio into Clavel 3)

Now CarVal’s reperformers have a new owner, in the shape of One William Street, which gave notice this week that it was exploring a refinancing via Barclays and Citi. Miravet 2019 is callable in November, and Miravet 2020 has been callable since last year — and presumably the porfolios will be recombined, as they’ve paid down to more manageable size.

This book has delivered plenty of business for the Street over the years, and it looks to be a gift that continues giving. When Pimco doesn’t get involved, there are plenty of bonds to structure, place and trade and plenty of refinancings to get done.

There’s decent size here as well — Miravet 2020 has €429m left, Miravet 2019 €229m. The original tranching gave about 35% triple-A credit enhancement, so there’s a good €400m+ of senior bonds to come.

So: reperforming loans for sale, three careful owners — take them for another spin?

There’s a bit of a buzz around the growth of non-bank lending in the Middle East, particularly buy-now-pay-later, whose ‘interest free’ offering has a natural appeal in a region where Islamic law frowns on the payment of interest.

Interest, and as much of it as possible, is very much the lifeblood of securitisation, the animating force which makes structuring work and provides precious excess spread. Islamic finance is the practice of pretending interest isn’t interest.

It’s a good business for the Islamic scholars that sign off these trades; it’s like being a credit rating agency but without the inconvenience of having to assess how a deal performs.

BNPL loans generally don’t have an upfront interest cost, with platforms making their money from retailer rebates, and selling the receivables into financing structures at a discount to create synthetic interest.

There aren’t a huge number of disclosed deals so far, but there’s a couple of decent tickets from well-recognised institutions.

At the end of last year, Tamara, a Saudi-based BNPL platform, closed a $250m increase in its warehouse facility, bringing Goldman’s total senior line up to $350m, with a $50m mezzanine tranche from Shorooq Partners. JP Morgan provided a $700m receivables securitisation to fund UAE-based Tabby, “the largest asset-backed facility secured by a fintech in the Middle East”, according to adviser Latham & Watkins. Prior to JP Morgan, Tabby had partnered with Atalaya Capital Management, among others, raising a $350m debt facility.

Some of this is driven by the same trends everywhere — less banks, more apps, ease-of-use — but there have also been regulatory movement, which helps give upstart business like BNPL platforms certainty. The Saudi regulator SAMA published BNPL regulations in December last year, following UAE, which reworked its finance company act in September.

Goldman and JP Morgan are the sorts of institution one might expect to push first into new frontiers, but who’s going to follow?

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