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News
News in brief
Barr’s signal of reduction in bank capital requirements may hit US SRTs
Investor interest in significant risk transfer (SRT) trades is growing fast, but one of the expected drivers of activity in the US looks to be weakening after a speech to the Brookings Institution from the US Federal Reserve vice chair for supervision Michael Barr. In the speech on 10 September, Barr said regulators will reissue drafts of the “Basel Endgame” rule, watering down capital charge increases.
European banks have become increasingly large users of SRTs for capital relief over the past few years, but US banks have been slower to take up the approach. That began to change a year ago. The Fed opened a clearer path for US banks to use SRTs with written clarification released in its September 2023 FAQs that specified which banks could engage in the transfers, and acknowledged that CLNs can be an effective way to transfer credit risk.
But the big driver market participants have been waiting for was the implementation of the Basel III Endgame. US proposals from the Fed in 2023 suggested bank capital requirements could increase by as much as 19% for the largest banks. Banks didn’t like that and have been furiously lobbying ever since.
In his speech, Barr said: “Taken together, the re-proposals would increase aggregate common equity tier 1 capital requirements for the G-SIBs, which are the largest and most complex banks, by 9%.”
He estimated that for large banks that are not G-SIBs, the impact from the re-proposal would be equivalent to a 3 to 4% increase in capital requirements. For non-GSIB firms the figure would be just 0.5%.
Restaurant failures push up consumer services bankruptcies
The consumer services sector has seen a significant uptick in chapter 11 bankruptcies in recent months, driven largely by filings from restaurant and bar companies. Overall, a dozen chapter 11 cases have been filed in the consumer services sector in 2024, with 11 occurring in the past six months. Half of these cases involve businesses tied to restaurants and bars.
This activity has made consumer services the second most active sector for chapter 11 bankruptcies, accounting for 10% of all cases in 2024. The sector is surpassed only by healthcare, leading the way with 22% of filings, according to Debtwire’s restructuring database.
Consumer spending patterns have shifted since the pandemic. As inflation and interest rates soared, many consumers cut back on eating out. At the same time, rising labour costs have strained restaurant budgets, with 22 states hiking the minimum hourly wage for workers at the start of this year.
Two restaurant chains to file for bankruptcy this year have pinpointed rising wages as a key reason for their insolvency: Tex-Mex group Tijuana Flats and coastal Mexican cuisine specialist Rubio Restaurants. The companies also blamed soaring food and utility costs, as well as shifts in consumer spending habits.
Casual dining seafood chain Red Lobster, a company with over 64 million customers annually, blamed macroeconomic factors before filing for bankruptcy in May.
Other debtors in the restaurant industry to file for bankruptcy this year include Buca di Beppo, WOB Holdings, and One Table Restaurant Brands.
Top stories on creditflux.com: from Japan’s investment appetite to an SEC shock ruling
5 September July 2024
Blackstone’s head of liquid credit Rob Zable moves on
Rob Zable, one of the biggest names in the CLO world, is leaving Blackstone by the end of the year. Zable helms the liquid credit business, which he helped grow to one of the largest in the world, with USD 110bn in assets under management.
Zable: after his departure, he plans to spend more time with his family before “ultimately returning to [his] roots in the CLO market”. London-based Dan Leiter will replace him
2 August
Apollo picks up two hires from Bank of America
Investment bankers Tomasz Gruszka and Murad Khaled have joined Redding Ridge and Apollo, both from Bank of America.
9 August
Japanese investors signal commitment to CLO market
The dramatic spike in the yen had raised concerns that Japanese buyers would retreat from the CLO market. But the islands’ investors relayed to managers that they will keep buying.
14 August
Wells Fargo signals return to CLO investing
Wells Fargo is preparing to purchase CLOs again, in a return for the US bank that was one of the largest buyers of triple As in the market. It is the last of the big four US banks to return, joining Bank of America, Citi and JP Morgan.
15 August
CLO ETFs ring alarm bells after record outflows
The leveraged finance world got its first look at how CLO ETFs can fuel volatility in the CLO market. Global stock market declines triggered a day of record outflows, with USD 240m leaving triple A CLO ETFs.
15 August
European CLO issuance rides high, but some managers remain cautious
Although European CLO issuance is close to a record pace, almost a fifth of managers with at least one active European CLO have not priced a deal this year.
21 August
PIMCO and Fidelity boost investing in CLOs
Two finance heavyweights have become even bigger buyers of CLO liabilities. In a notable shift, Fidelity has also been investing in longer-dated CLO liabilities.
23 August
Antares plans unit buying private credit loans from other lenders
A new vehicle from the CPPIB-backed direct lending firm will target individual investors rather than institutions, with the Antares Private Credit Fund structured as a non-listed BDC.
23 August
Canyon Partners fundraises for its fourth CLO equity fund
The Los Angeles-based credit specialist is raising a captive CLO equity fund with a target of at least USD 300m.
30 August
CIFC raises almost USD 100m for its CLO investing fund
CIFC’s latest fund will invest across the CLO capital structure, including mezzanine and equity tranches, and CLO warehouses.
3 September
Clearlake Capital agrees to buy MV Credit
Clearlake Capital agreed to purchase European credit manager MV Credit Partners from Natixis Investment Managers, adding USD 5.1bn of assets under management.
9 September
CLO managers scramble to update policies after SEC ruling
In fining Sound Point USD 1.8m, the SEC sent shockwaves through the US CLO market.
Past returns
Risk retention beats Volcker
Ten years ago, US risk retention came into force, and although it ended a few years later, the risk retention vehicles set up in response to it were the forerunners of the captive equity funds that dominate the market today.
Paul Volcker’s rule has no such legacy in our market. It came into effect at the end of 2013 and soon a new wave of ‘loan only’ CLO 3.0s were pricing without bond buckets. But as Creditflux readers will know, the regime was soon over for CLOs, and bond buckets crept back into US structures. The average US CLO bond bucket has now risen to 5.08%.
Points up front
Come on, show us the real deal CLOs
With the announcement of Chatham Asset Management’s CLO ambitions there are now a wide range of potential debutants on both sides of the pond. But it also feels like we’ve been talking a lot more about potential new managers, than about actual new managers.
So come on guys, will one of you throw some salivating journalists a bone and get your deal priced?
Thank heaven for US private credit at least, where Comvest and Willow Tree both joined the CLO market over the summer without fanfare.
We’re not saying talk of new CLO managers is hot air — we just want to see one get off the ground
Illiquid ETFs may be music to someone’s ears
What will they think of next? If you still harbour some skepticism about whether CLO tranches really have the liquidity to belong in a dedicated ETF, then you’ll want to turn off the news. Apollo and State Street have upped the stakes by launching a private credit ETF.
This isn’t just an illiquid asset class. It’s one that’s so illiquid Apollo is having to build out a secondary trading desk.
So what’s left? Are there assets too illiquid to stick in an ETF and hope that outflows never happen? We’d suggest music royalty securitisations, but that’s probably just given someone an idea.
