Best global securitization house:
Credit Suisse
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Also shortlisted: |
Securitization remains an asset class in transition, buffeted both by market volatility and regulatory headwinds. Navigating the market requires both deep expertise and smart ideas. Credit Suisse exhibited both in the last year and once again wins the global securitization house award.
Given how hard it was hit by the financial crisis it is of little surprise that the securitization market’s recovery has been steady rather than spectacular. Standard & Poor’s anticipates US ABS issuance of $215 billion for 2015, up from $206 billion in 2014. Non-agency RMBS is forecast to be just $25 billion in 2015 – from a high of $1.2 trillion in 2006. CLO issuance is expected to fall this year from $124 billion in 2014 to $90 billion as the US Volcker Rule starts to bite. In Europe the market managed its first annual increase since 2011 to €73 billion last year and its further growth is now a key target of the Capital Markets Union initiative.
In markets such as these, experience is all-important. “The key thing is to adapt to the changing market and to continue to be innovative,” says Jay Kim, head of securitized products asset finance group at Credit Suisse in New York.
Reputation
The bank built on its reputation for innovation last year with the further development and refinement of structural technologies it had already been responsible for. This included SolarCity 2014-2, which was the first ever securitization to incorporate leverage onto an existing tax equity structure, and a $6.5 billion prime auto CDS deal which evolved from the bank’s FAS 166/167 capital relief programme for US regional banks.
“We were able to work as a team to determine what structural aspects the market required for a securitization of solar assets already financed in a tax equity transaction,” explains Stephen Viscovich, managing director in securitized products at the bank. “We try to work on asset classes that other banks are not focused on yet and try to be one or two years ahead of everyone else in our thought process. Having all of this expertise allows us to be leaders in the asset classes we work on. There are plenty of banks out there but I don’t believe they have the flow of information across teams that we have regarding market dynamics and structural innovation.”
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Banks need to continue to delever and there is a growing need for non-bank financial companies
Jay Kim, |
One of the most headline-grabbing developments of the year was BlackRock’s CCOLT 2015, the first rated securitization of peer-to-peer consumer instalment loans. The deal, a $326.7 million ABS trade that closed in February this year, was backed by consumer unsecured instalment loans originated by the Prosper platform. Credit Suisse was structuring agent and joint bookrunner.
“The BlackRock deal was particularly important for the market,” says Jon-Claude Zucconi, managing director at Credit Suisse in New York. “It had 19 disparate investors and opened up the investor universe for that product. We were working with capital markets investors that are very comfortable with consumer credit.” The bank also worked as structuring agent on the first ever market securitization of online consumer instalment loans in July 2014.
Credit Suisse now has an enviable presence in these markets, not only in terms of structural innovation, but also in terms of sheer involvement. It has arranged deals in 17 different asset classes and structured 57 ABS transactions last year. This with a much smaller balance sheet than many of its competitors. It also re-entered the CMBS business last year in anticipation of the $225 billion maturity wall in 2015 and 2016.
Many of the most challenging deals last year were structured in the third quarter, which followed a summer of volatility and spread widening. These included Northpoint Commercial Finance’s $216.5 million inaugural diversified equipment floorplan ABS, which priced in late October. It also structured deals for sub-prime auto issuers GM Financial and First Investors at the height of headlines surrounding subprime lending practices and inquiries and fines from the DoJ and CFPB.
Deleveraging
The awards period was once again characterized by bank deleveraging, and Credit Suisse was front and centre of this, both in the US and in Europe. In the UK it was sole sale adviser to the UK’s Asset Resolution holding company, which was established to hold the closed mortgage books of Bradford & Bingley and Northern Rock. It managed the sale of a large portfolio of performing mortgages to a consortium led by JPMorgan for £2.7 billion, which included a £55 million premium over book value. This was the largest portfolio sale since the formation of UKAR and the holding company is now investigating another large sale of assets from the Northern Rock RMBS master trust programme, Granite.
“Banks need to continue to delever and there is a growing need for non-bank financial companies,” says Kim. “The biggest change is who the market participants have become. Financial sponsors are providing capital in areas that banks are no longer able due to growing regulatory constraints. Banks continue to review their balance sheets and operating businesses and are constantly evaluating whether or not these are accretive. There is a need for non-core asset sellers to have advisory services.”
The requirement for new investors to provide this capital will continue to be a defining theme of the market in the years ahead. “Originators of assets are now rethinking how they are operating in the new world,” says Zucconi. “They need to finance in the securitization market and need to finance residual cashflows. There is a different type of securitization investor and a different product for investment banks.”
