For a decade now, the German True-Sale-Initiative has organised the annual TSI Congress in Berlin. This year more than 600 representatives of banks, investors – mainly from Germany – law firms, audit and consulting companies, service providers (including TMF Group), banking supervision, ECB, rating agencies and politicians attended.
The overarching topic was "The future of the securitisation and structured finance market in Germany and Europe". Various panels discussed a range of regulatory and structural issues.
European CLO – A useful alternative to loan funds?
TMF Group's Global Business Development Director for Structured Finance Services Huub Mourits participated in this panel session which addressed recent regulatory developments such as the STS and the proposed European Parliament amendments to raise the 'skin-in-the-game' from 5% to 20%.
"There was a wide consensus that such proposed amendments are harming the Structured Finance and Capital Markets in general, by creating ongoing uncertainty and continuous re-interpretations of already existing regulations" Mourits commented.
Euro CLOs, since their inception in 1999, have proven to be resilient and survived remarkably well during the economic crisis. Mourits said "the CLOs issued in Europe before the crisis, marked as 'CLO 1.0' have not experienced a default in their AAA-rated notes in their entire existence, which we regretfully cannot state for Corporates, Financials and even Sovereigns. CLOs are actually one of the best, if not the best, performing fixed income instrument and that is also why investors are getting more interested in this paper."
The panel discussed that Loan funds and CLOs can happily live together forever despite the fact they ramp themselves up with the same credit or names. The issued securities in the form of equity (NAV driven) and tranched Bonds (Fixed income) have different investor types and appetites, and might compete for the collateral - but not so much for the different Investor types.
The panel's closing remarks were fairly united; that regulatory uncertainty and shortage of loan supply seems to hinder the markets, but that both Loan Funds and CLOs are performing quite well and are relatively cheap.
The role of the Trustee operating under German and English law
TMF Group's UK Director - Structured Finance and Loan Services David Bell participated on this panel which first looked at the origins of the Trustee concept, which dates back to the Middle Ages where Knights departing for the Crusades would leave assets to 'trusted friends' to manage in their absence.
The panel then highlighted the differences in modern Trustee functions on debt transactions with regards to German and English Law – the primary difference being the concept of a trust arrangement is not recognised under German Law, but is operated in a different manner. The session concluded with some lively discussions around examples of certain public transactions and the challenges a Trustee may encounter.
Bell commented "Where TMF Group acts as Bond Trustee we are protecting the interests of noteholders and assist the Issuer with amendments, waivers etc – our experience and ability to understand the commercial and legal aspects are fundamental points in delivering an efficient service."
Structured finance outlook
The outlook of the Structured Finance market this year appears to be driven by the economic situation in Germany and the rest of Europe; additional regulatory requirements to be fulfilled as well as the consciousness of high liquidity in the market, with less investment opportunities that meet investors' criteria. Continuing the trend of previous years, the outlook was seen as stable with a more positive forecast observed than in the past.
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