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Owen Sanderson

As some of the readers of this publication know, I used to run GlobalCapital’s European Securitisation Awards, which was a hugely interesting, if fraught process. It was a nice chance to lift the lid on certain market trends, and grill some investment banks about their activities, but there was a lot of downside and not that much upside when it came to picking winners (that’s why we mostly left it to Democracy).

9fin doesn’t have any awards, or any interest in running an awards ceremony, but as it’s Christmas I thought I’d hand out some of my own devising.

There’s no methodology, if you disagree I don’t care, and you can’t put this on your pitchbooks. But here we go. If you want to read even more words about securitisation, we’ve also just published our CLO Review and Outlook “Things can only get better”. Currently 9fin subscribers only but shoot us a message if you’d like a copy. We’ll put it in front of the paywall in a bit.

Wishing all Excess Spread readers, and particularly all the winners below, the happiest of holiday seasons.

Whether it was good luck or good judgement, we cannot ignore Investcorp’s print for Harvest XXIX, where the triple-A notes, thanks to Norinchukin, were massively through the market at 160 bps. Poor old Anchorage Capital coming just a week later had to pay 225 bps DM. Down the stack the deal was pretty much on market, so it is really NoChu doing the heavy lifting here, but if you can get triple-A investment >50 bps inside market levels you should do that trade all day long. NoChu appeared to get cold feet later in the year as the LDI sell off bit, so it was seemingly just a point in time, but certainly Investcorp seized the day. Being on the NoChu list can be a mixed bag, and the Japanese investor has notoriously tough stips, but…..just look at the level.

In similar vein, we have to appreciate the close shave and successful print from TwentyFour Asset Management, which managed to get the Hops Hill refi out and priced on the VERY DAY THAT KWASI KWARTENG BLEW UP THE UK ECONOMY. This one should really be an award for the 24AM buyer base as well; securitisation, thankfully, tends to be a market where buyers stand behind their orders even if the market is deteriorating, and even if, as was becoming clearer by Friday afternoon, buyers of the Hops Hill notes were going to be underwater in the very near future.

It wasn’t even a near-run thing, looking at the books — 1.6/2.5/4.7/6.5 times done on A/B/C/D at final levels. Whether good judgement or good luck is once again a fair question, but we appreciate and applaud the drama involved, and congrats too to arranger Santander and JLM BNP Paribas.

Arranger of the year for shipping product

Did the BNP Paribas securitised products group have a source at the heart of government, feeding them info on the dastardly schemes concocted at the top of Conservative Party? Realistically, no, but some wise and prudent instinct led to a flurry of deals in early-mid September, one of the best market windows since Russia invaded Ukraine and a window which slammed shut in horrible fashion at the end of the month.

Investment banks tend to have a structural bias to action — do the deal now, conditions are good, do the deal now, conditions could get worse — but the rollercoaster ride of 2022 has meant that for an awful lot of the year, the wise advice has been to sit tight, pre-place, de-risk transactions by any available means. Given the lead time to bringing a securitisation to market, it’s not like issuers or banks can just pivot to hit any open window, so it takes planning and conviction to get everything ready for a slim issuance opportunity and then HIT THAT BID AS HARD AS POSSIBLE.

Even JP Morgan CIO hasn’t been acting quite like it did in the CIO glory days of 2010-11, when it was pretty much propping open the whole primary market, but if there’s one bank that dug deep to keep primary flowing this year it was Citi.

We threw around a few numbers here, and got to nearly £2bn in consumer product loan notes, a fair chunk of which was probably Citi…..either the treasury or, more like the securitised products group balance sheet. Some of the real stalwarts in the specialist lender sector have leaned on this capital source, with the likes of Together, NewDay, Pepper Money, Oodle and Paratus including the characterisic class “AL” senior loan note.

Lots of other banks are now keen to buy seniors — Sonia and Euribor at decent levels, healthy credit spreads, and exactly the same risk-weighting as last year — but Citi has been early, sizeable, and helpful. Presumably Citi is getting paid for its efforts, but this has certainly helped the market keep going.

Farewell Credit Suisse, hello ApoLimco Securities (name as yet unconfirmed). You were too beautiful for this world. The securitisation business that DLJ built is heading into the unknown in the New Year, with an unprecedented partnership between the origination skills of one of the Street’s finest securitised products businesses and the balance sheet of one of its biggest alternative asset managers. We’ve written about it a bunch this year, so we’re not going to retread all of it here….just to say, pour one out for old Credit Suisse that once was. No more parties at the Arts, we presume….as Apollo partners the CS bankers are more likely to be honoured guests than hosts.

Investor of the year (if they actually did it)

Apollo, for allegedly buying a load of CLO seniors at 8%. There were definitely some pretty ropey levels shown in the first week of October, but this is impressive, especially as Apollo claims to have done it in size.

Still who are we to argue with SEC-approved disclosures on a widely followed investor call.

Whether or not it was 8%, Apollo reckons it took down €1.5bn, which is a real chunk of change. They’ve also been there as a back bid for other asset classes too….whether anyone has actually hit it or not is somewhat moot, the point is, they were expensive but present, at a crucial and difficult time for the market.

To the extent that the LDI sell-off actually shows securitised products in a good light (there was lots of trading, there was a bid there in difficult times, securitisations were sold because they were the highest cash price / most liquid credit instruments)….it’s thanks in part to Apollo.

Investor of the year (if they actually did it) runner up

Everyone else involved in active investment management. It’s strange, when you talk to people about the LDI selloff, how almost everyone seems to have been a buyer in those dark early October days. No doubt it’s been an excellent opportunity for active managers, but surely someone was ditching all those bonds at a loss? Well. I mean, Insight was. Some of the other real money funds seem to have been selling with one hand and buying with another, which probably makes sense given the difficulty of crossing bonds between funds at a fair price in early October.

The LDI sell-off is starting to take on something of the GFC about it — weird how you rarely meet someone who admits losing their shirt in 2008, but you meet a lot of people who apparently bought Granite single Bs PA for a song. Even weirder since you’d think the latter would be on a beach somewhere instead of still hustling in the securitisation business.

The CLO market-making community. It’s been a big year for movement on the CLO secondary desks, with departures from BNP Paribas, Barclays, Morgan Stanley, Citi, Jefferies, and SG, a veritable merry-go-round of CLO market maker movement.

Traders are price and incentive-focused individuals, who have been acutely aware that they’re trading a semi-liquid market that’s mostly being going wider. I’m sure some desks have done handsomely, there’s been an awful lot of volume going through this year, but there are probably some painful losses out there and some comp pools which are going to come up light.

So what better time to be out of the market for three months, crystallise some comp and swan into a new shop when things might be better? Or take a step into a new venture and follow your dreams?

The exit of Credit Suisse CLO trader Dan Bates and James Gray from securitisation sales might have been more of a case of jumping before being pushed, but as reported by Bloomberg this week, they’ve fetched up at Baird.

We weren’t aware of Baird existing in European securitised products really at all, so kudos to them both for unearthing a bid that might not have been obvious, and they are of course welcome to share in the career risk-management gong.

CarVal. Really this is an award for 2018 activities, but we’re still in awe of the option CarVal managed to extract from Intrum when the two firms went in together to buy Project Savoy from Intesa Sanpaolo. CarVal’s recent sale of its position for €10m, when the original mark was probably double digit hundreds of millions might not look like particularly skilled investing (the junior piece is still a few years from any actual cashflows).

But the real skill was coaxing a €92m termination payment out of Intrum to get the debt purchaser out of any clean-up call. Heads I win, tails Intrum loses.

Jefferies cemented its position as top dog in the European CLO arranging league tables with some belated deal announcements last week, confirming that it placed deals for Bridgepoint and Hayfin at the beginning of December.

The rise of Jefferies is kind of a fascinating topic in its own right, in that it seems to have been achieved mostly without actual balance sheet - Jefferies does not warehouse its own deals, and does not appear to have struck the kind of multi-deal equity arrangements agreed in the US.

As far as we can ascertain, the warehouse exposures basically go to some of the smarter European bank treasuries — if you like triple A bonds but don’t like the extension risk, perhaps a warehouse with a short WAL and step-up incentives to get it out could be just the exposure you need. This year many of the term deals are now also short WAL deals with strong call incentives, but perhaps these deals simply tapped into a latent desire for timing certainty which Jefferies was already using.

The basic story of the Jefferies rise is well told — literally hiring the top team in the market from Citigroup in 2020 and firing up from there — though this year Steve Taub made the Citi-Jefferies switch on the trading side.

But this year has probably been particularly helpful to the team. Difficult markets mean the incentives are different for managers and equity. It is wise to choose a bank that has a proven track record of handling difficult markets; it makes sense to hire the top CLO team out there, rather than shop around for a bargain basement offer on fees or warehousing. Of course, it also makes sense to hire a bank that can bring with it a fat triple A anchor, but conditions have undoubtedly been kind to Jefferies.

Anyway, onto the deals, of which the most interesting is Hayfin Emerald CLO XI. Hayfin was out pretty recently, with a deal this August, so it’s a fairly rapid turnaround, but the interesting part here is the placement strategy — all of the investment grade went to a single buyer.

But who could this mystery buyer be? Not a bank, most likely, given that it goes down the stack. An asset manager, but one which is active in size up and down the capital structure. An experienced CLO fund willing to take on concentrated positions and large exposures.

The securitisation market tends to view Pimco as a potential backer of every excessively large transaction — if there’s a large thing that can’t be definitively pegged to a particular account, it’s plausibly Pimco. Sure enough, the P word has also been mooted around the Hayfin trade. But other whispers suggest it’s European insurance money, which would tend to point to Axa Investment Management….it fits all the size/activity criteria at least. Any further thoughts, send em our way.

Has this account, whoever they may be, had a resting order out there to purchase full IG stacks in CLOs all year? Were they approached specifically by Jefferies to make this deal possible?

We’d think the kind of account willing to put on this trade is pretty arranger-agnostic — they must be a very active CLO player already buying deals from everyone, rather than a secret ace hidden up [Jefferies European securitisation co-head] Laura Coady’s sleeve. Were they only interested in Hayfin, or did they have a manager list, of which Hayfin was the first (only?) one to hit the bid?

One CLO investor pointed out to us that this kind of trade probably makes most sense for managers with an inclination to fixed rate. Hayfin certainly skews towards the bond-friendly end of things.

The argument is, bond deals still work better (if you can tolerate waiting for the pull to par), so there’s still an economic reason to issue. Loan-heavy managers are struggling with the arb and printing to clear out old warehouses or show their face in the market; with bonds, though, if you can get certainty of execution on the liabilities, it’s worth pushing ahead to print. Having an investor willing to do all of the IG basically turns a deal from a maybe to a certainty.

Also intriguing, as the year closes down, is the announcement from CVC Credit that it has closed “the Cordatus Opportunity Loan Fund, a long term financing facility structured similarly to a Collateralised Loan Obligation (CLO), with expected purchasing capacity of c.€400m notional of leveraged credit. To date the fund has ramped c.€175m of assets at an average price of 91.9%.

The fund was raised in partnership with Royal Bank of Canada and a strategic third party investor”.

Basically, if CLOs don’t really work, is there a better option? It’s not clear from the release exactly what the structure is — maybe RBC down to single-A, warehouse-ish levels of exposure, the “strategic third party” in the mezz and CVC’s own risk retention vehicle in the equity? Or maybe the “strategic” nature of the third party means it’s doing equity alongside CVC.

Can other managers do this? It’s not good for the CLO market, which needs, ideally, new and tradeable CLO liabilities….but it is helpful to keep the leveraged finance markets flowing.

One of our wisest readers wrote in response to last week’s discussion of the proposed UK securitisation regulation. The UK proposals are very early stage, but include the possibility of relaxing the blanket ban on resecuritisations.

Last week I wrote: “For some reason, resecuritisations may be allowed again, though pre-approved on a deal by deal basis….it’s not clear to me who might want this and why, but I guess there might be a few deals that become technically easier to do as resecuritisations…..a transaction like the US Texas Capital Bank SRT on mortgage warehouses looks much like securitising a bunch of securitisation exposures and I can see a bank like Barclays, Santander UK or Lloyds being interested. in SRT on their mortgage warehousing. Given the deal by deal approval hurdle, it’s not going to be much use for credit-enhancement repack-type arrangements, and I doubt whether the classic CDO of ABS structures are coming back.”

It seems that, even aside from the possibility of doing SRT deals against on-balance sheet securitisation exposures, another way relaxing the ban would help is for allocation of SRT exposures across different funds.

Our reader writes: “One of the reasons why having a blanket ban on resecuritisations is unhelpful is that it catches things that are not meant to be caught. For example, if you buy a 0-10% tranche and you then decide that you would like to split it into a 0-8% and an 8-10% mezz to allocate to different funds, this is technically a resecuritisation (the EU definition does not require retranching of a portfolio of assets, one ABS is enough). Obviously my example above is harmless and not what the legislators wanted to ban.”

Together announced a private ABS facility on Friday morning, after I’d already gone to print on last week’s Excess Spread — Fairway ABS.

It’s a bit of a departure from the usual split between flexible bank facilities with term ABS takeouts, in that it is an amortizing fixed term facility rather than a revolver like the CABS, DABS, HABS, LABS family…so it’s more akin to a fully private securitisation transaction than a new warehousing structure. Though it is indeed described as a new warehouse.

The size is decent — £467.4m — and the collateral is first charge owner-occupied and BTL, in line with the shift in Together’s funding over the last couple of years to separate different collateral types. The TABS brand of term securitisations now comes in first lien, second lien and CRE varieties, with the aim of improving overall funding terms.

Perhaps most excitingly, according to Gary Beckett, chief treasury officer, the new facility brings in “a new funding partner”. We need to dig a bit deeper before we can reveal the lucky addition to Together’s banking group, but it’s illustrative of the broader environment in securitisation — the execution backdrop for public securitisation might not be the greatest, but there’s still appetite and balance sheet out there from the securitised products banks.

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