Awards for Excellence 2014: Best global securitization house

Best global securitization house:

Credit Suisse

As the securitization markets continue their slow but steady rehabilitation, the changed nature of the asset class is becoming ever clearer. What was once a mass funding tool for the banking sector has been changed beyond recognition by post-crisis financial regulation. What it now represents is a big opportunity for banks with the insight and structuring capability to see past the obvious. The bank that best fits that bill this year is Credit Suisse.

“We have proactively adapted to the changing environment,” explains Jay Kim, head of global asset finance at Credit Suisse, who joined the Swiss bank from Barclays, along with 13 members of his team, in 2011. “Securitization is not just focused on capital markets anymore,” he says. “You need to come up with a corporate finance strategy.”

Perhaps the best example of this in the last year is STACR 2013-DN1 for Freddie Mac, a recipient of a Euromoney Deal of the year award earlier this year. Credit Suisse was sole advisor, structuring lead and sole bookrunner on the trade, which was the inaugural credit risk transfer trade by a GSE. The deal was given the ultimate accolade when Fannie Mae largely copied it, with the launch of its Connecticut Avenue Securities credit risk transfer programme later in the year. 

“It is very important to take a corporate finance approach to the market,” says Michael Dryden, co-head of residential mortgage finance at Credit Suisse in London. “This is a different approach to one of just funding. STACR was all about coming up with different ways to think about risk. Freddie Mac and Fannie Mae were traditionally risk takers and now they are conduits of risk. We now have $10 billion of this risk trading in the market and it is a benchmark for the securitization market at this point in time.”

Freddie Mac’s was just one of several new platforms that Credit Suisse launched during the year; others include those for CarFinance and M&T Bank. The latter builds on the bank’s strong track record for capital allocation optimization. It has now structured balance sheet management advisory and capital optimization strategy transactions for seven banks and expanded the asset class to captive financials as well with the $1.5 billion Hyundai Capital Auto Receivables deal in June.

“Some 80% of ABS issuance volume in the US is autos and credit cards while 60% of total assets reside in banks who have historically underutilized the market. We are focused on where that 60% of assets resides. This is a massive market opportunity,” says Jon-Claude Zucconi, co-head of consumer finance.

Strong focus

Credit Suisse restructured its securitization business in 2011 and it is now run as a global franchise under one roof. While continuing its strong focus on innovation it has made steady progress up the league tables, being ranked number three in the US for 2013 and number one for the first quarter of this year. It was ranked seventh in 2011 and fifth in 2012. In Europe it has moved from 23rd in 2011 and 14th in 2012 to ninth for 2013. It is clear that the business is a priority for the bank. “Post Basle III, investment banks continue to reevaluate their strategies and to decide where to deploy scarce resources,” says Kim. “Credit Suisse is very supportive and investing in the practice. It has defined its future around securitization.” Acutely aware that it cannot compete in flow ABS with other banks such as those shortlisted, the bank is focusing on niche asset classes in addition to the GSE and bank regulatory capital trades such as private student loans, timeshare loans, Swiss auto leases, servicer advances, triple-net leases, agency CMBS, railcars and unsecured consumer loans. It was also joint bookrunner on Blackstone’s debut rental cashflow REO securitization in November.

“We are less about low-cost balance sheet and more about intellectual capital,” says Kim. “We want to increase market share and innovation and to become the structuring adviser of choice.” The SolarCity deal in November was the first ABS transaction for a portfolio of distributed solar energy assets and a good example of not only structuring but distribution capability. “We can take securitization technology and mould a solution for our clients, but we also have to sell it,” says Stephen Viscovich, managing director in the securitized products group in New York. “We can take a very complex structure and distil it into simple structures to sell to investors.”

That innovation is also in force in Europe, most recently with the Credit Foncier CFHL-1 deal – the first French RMBS deal since September 2006. “We spent nine months developing this deal as there was no French RMBS market,” says Matthew Gahr, director in the securitized products group in London. “We understand the nuances of the underlying securitization regime and French mortgages, and we worked very closely with the regulators to get it right. The client’s goal was derecognition and we structured it with a view to where the market was going with a remarketing note on the A2A class, a highly structured equity piece and long duration mezzanine bonds. This attracted over 120 orders.”

The focus on innovation and niche asset classes has served Credit Suisse well this year and delivered an impressive performance. “The competitive landscape has changed dramatically; what differentiates us is our ability to penetrate and dominate with clients that don’t need financing,” says Kim. “We can deliver better solutions and advice and execute efficient transactions and structuring capability for these clients.”