Spotlight on the securitisation markets
Spotlight on the securitisation markets
Sonal Patel, Managing Director, Head of Sales - Americas, Bermuda and Caribbean, and Sinead McIntosh, Business Development Director, talk to Structured Credit Investor to highlight how structured finance solutions are coming to the fore across securitisation markets. *
How is the securitisation industry responding to the Covid-19 fallout and how is it impacting securitisation structures?
Securitisations are typically structured to withstand varying levels of disruption to cashflows and that is why they have fared better than unsecured debt and equity in these relatively early days of fallout from the pandemic. We are seeing a number of products being resilient both in terms of their structuring and the quality of their underlying portfolios. Structural protections built into deals such as liquidity support, reserves, cash trapping and diversion of cash are all being utilised.
Throughout March and April 2020, the US government passed three main Covid-19 relief packages and one supplemental one, totalling US$2.8trn, making it the largest stimulus package in US history. For most securitisations linked to consumer receivables, the stimulus should help soften the pressure on securitised cashflows over coming months, but to what extent is yet to be seen.
Early on in the crisis in Europe, the ECB policy changes to stimulate bank lending have significantly helped to retain the appeal of structured finance and despite primary issuance levels decreasing, it remains a robust and attractive source of funding. That being said, the disruption has obviously impacted the loan repaying capability of retail borrowers in particular. Naturally, this has caused investors to stay clear of pools with irregular cashflows and if payment deferrals fall into actual delinquency and default, deals are going to become increasingly distressed.
What is the role of the corporate services provider in the current securitisation market?
This is an uncertain time and the securitisation market continues to evolve at pace. Corporate services providers have a key role to play in the survival of securitisation products, sectors and businesses during this crisis, so we need to be at the forefront of regulatory and industry developments.
Methods of financing are changing and independent corporate service providers like Ocorian are perfectly positioned to implement bespoke structuring solutions and services for our clients quickly and efficiently. We support the full range of capital markets players and activities, from unsecured corporate and institutional clients, to some of the most complex structured finance and structured credit vehicles in the marketplace, enabling them to quickly seize opportunities and utilise new structures and products.
Have communication, reporting and documentation requirements changed as a result of the pandemic?
Yes, the speed at which entrenched market practices have been overhauled during the pandemic is incredible. Entire financial institutions have been working remotely and long-established practices - such as physical due diligence, signings and bondholder meetings - were replaced overnight near-perfectly with virtual equivalents. Globally, our teams continue to prioritise communication with our clients to understand how their internal processes and governance methods are adapting to the ever-changing landscape, so that we can best provide solutions to meet upcoming regulatory and industry requirements.
Where are you seeing opportunities in terms of restructuring, distressed debt and non-performing loan ABS?
Restructuring and insolvency proceedings are the inevitable trends arising and therefore funds, especially the distressed players, are eager to get going. There has been some increase in activity and workouts in the form of restructuring and non-performing assets, whether that be loans or other considerations. However, while robust government support remains in place, the torrent of restructures and defaults is being kept at bay.
In our roles as trustee and agent, we are seeing an increasing level of scrutiny from creditors on waiver and amendment requests, as they try to assess what the landscape will look like at the next payment date and their forbearance begins to diminish.
How is Ocorian facilitating solutions to Covid-19-related stress?
As the impact of Covid-19 continues to be felt across all jurisdictions and sectors, we are uniquely positioned to provide bespoke, client-led solutions to the full spectrum of securitisation structures, including ABS, CLOs, RMBS, CMBS, ILS, ABCP and transportation financing. In our role as trustee on stressed and distressed debt, our independence and solution-focused approach ensures that our clients are given the benefit of our profound asset-specific expertise and leverage our experience in navigating creditor-led restructuring, defaults and amendments.
Ultimately, our clients rely on us for the partnership we create and a huge part of that is staying closely connected with the market to monitor volatility and assess windows of opportunity, so they can take appropriate action.
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