irish spv report

Irish SPV ReportQ2-2020

15th September 2020© Atlantic Star Consulting

Atlantic StarC O N S U L T I N G

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Atlantic Star ConsultingIrish SPV Report: Q2-2020

Executive Summary 2

Web: astarconsulting.netEmail: [email protected]

• There were 2,665 Irish-resident SPVs at the end of Q2-2020, consisting of 1,194 FVCs (securitisation SPVs) and 1,471 Other SPEs (non-securitisation SPVs).

• These vehicles collectively held €850bn in assets at the end of Q2-2020, split between FVCs (€428.5bn) and Other SPEs (€421.8bn).

• Total vehicle numbers were up by 33 SPVs (+1.3%) this quarter, with FVCs seeing no change and Other SPEs contributing the entire gain.

• Total assets held by SPVs fell by €21.8bn (-2.5%) during Q2-2020, with FVC assets falling by €22.6bn (-4.9%) and Other SPE assets rising by €0.8bn (+0.2%).

• The largest move in the SPV sector during Q2-2020 appears to be the exit of a state-sponsored resolution vehicle from the population (most likely NAMA), with the effect of a 25.4% drop in securitised loan assets with an Irish borrower during the quarter.

• While this loan asset drop appears severe, it is likely outsized due to the fact that loans are recorded at nominal value even if they are severely impaired. When these loans are sold on or worked out, the nominal values decline in the statistics.

• CLO activity appears to be continuing at pace, with €5.2bn in new debt issuance recorded during Q2-2020 despite the volatile market backdrop.

• Debt security issuance by Irish SPVs rose by €13.1bn (+2.8%) during Q2-2020, despite the overall drop in assets.

• This was entirely driven by FVCs, accounting for a €14.8bn (+4.9%) increase, while debt issuance by Other SPEs declined by -€1.7bn (-1.0%).

• Ireland’s share of euro area FVC numbers stood at 26.8% at the end of Q2-2020, down -0.2% from Q1-2020.

• In terms of FVC assets, Ireland represented 21.1% of the euro area total in Q2-2020, down by -0.9% from Q1-2020.

Data: Total Irish SPVs, by reporting quarter; Source: European Central Bank, Central Bank of Ireland, Atlantic Star Consulting

Chart 1: Total SPV Vehicles

Data: Total Irish SPV assets, by reporting quarter; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 2: Total SPV Assets

The total number of Irish SPVs hit an all-time high in Q2-2020 with 2,665 SPVs now active, up 33 (+1.3%) from Q1-2020.

Executive Summary

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ContentsExecutive Summary ................................................................................................................................................................... 2

Latest Analysis ........................................................................................................................................................................... 5Vehicle Numbers ......................................................................................................................................................................................6Assets ..........................................................................................................................................................................................................7COVID-19 Forecast Update ....................................................................................................................................................................8Activity Types .............................................................................................................................................................................................9SPV Sponsors ..........................................................................................................................................................................................10Geographic Exposures ..........................................................................................................................................................................11Asset Types ..............................................................................................................................................................................................12Liability Types ..........................................................................................................................................................................................13

Further Information ................................................................................................................................................................ 14Reference Population ............................................................................................................................................................................15Background .............................................................................................................................................................................................16

AcknowledgementsSpecial thanks to Gary Palmer of the Irish Debt Securities Association for his valuable contribution towards the creation of this report.


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Latest Analysis


Latest Analysis Vehicle Numbers 6


Data: Total Irish SPVs, by reporting quarter; Source: Central Bank of Ireland, European Central Bank, Atlantic Star Consulting

Chart 3: Total Numbers of Irish SPVs

There were 2,665 Irish-resident SPVs at the end of Q2-2020, consisting of 1,194 FVCs (securitisation SPVs) and 1,471 Other SPEs (non-securitisation SPVs).

SPV numbers were revised higher by +19 from previously reported numbers in Q1-2020, lifting the overall number of active vehicles and reducing the decline observed from Q4 to Q1.

Total FVCs were flat during Q2-2020 with a total of 1,194 vehicles, despite the overall rise in SPVs.

Other SPE rose by 33 (+2.3%) during Q2-2020, following on from a drop of 15 (-1.2%) in Q1-2020.

The annual growth rate in the Irish SPV sector came in at +7.1% during Q2-2020. This was below the +8.4% annual rate seen last quarter, however this is mostly due to base effects from strong vehicle growth throughout 2019.

The annual growth rate of FVCs stood at +5.7% in Q2-2020, while for Other SPEs this figure was +8.3%.

Irish FVCs represented 26.8% of FVCs in the euro area at the end of Q2-2020, down by -0.2% from Q1-2020.

The total number of Irish SPVs hit an all-time high in Q2-2020 with 2,665 SPVs now active, up 33 (+1.3%) from Q1-2020.

Vehicle Numbers

Data: Total Irish FVCs, by reporting quarter; Source: European Central Bank, Atlantic Star Consulting

Chart 4: Total FVCs

Data: Total Irish Other SPVs, by reporting quarter; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 5: Total Other SPEs




Latest Analysis Assets 7



Assets

Data: Total assets of Irish SPVs, by reporting quarter; Source: Central Bank of Ireland, European Central Bank, Atlantic Star Consulting

Chart 6: Total Assets of Irish SPVs

Irish SPV assets started to decline in Q1-2020, with a €3.7bn reduction from the prior quarter. This was the first drop since a population change in Q1-2018 saw several larger vehicles drop out of the sample.

The decline in assets during Q1-2020 appears to have been primarily caused by revaluations stemming from the market volatility in March due to the coronavirus pandemic.

Assets continued to fall into Q2-2020, albeit for different reasons. The largest component of the Q2 drop was due to a large state-sponsored asset resolution vehicle (likely NAMA) exiting the population, causing nominal assets to fall substantially.

FVC assets have declined sharply in recent quarters with Other SPEs conversely rising. This may be due to entities being re-classified from one population to another (see Reference Population for more details).

Ireland represented 21.1% of the euro area total in Q2-2020, down by -0.9% from Q1-2020.

Assets held by Irish SPVs fell by €21.8bn (-2.5%) during Q2-2020, primarily due to single-entity effects.

Data: Total assets of Irish FVCs, by reporting quarter; Source: European Central Bank, Atlantic Star Consulting

Chart 7: FVC Assets

Data: Total assets of Irish Other SPEs, by reporting quarter; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 8: Other SPE Assets





Latest Analysis COVID-19 Forecast Update 8


Our survey, launched in May 2020, was designed to assess the outlook for the Irish SPV sector given the significant market impacts of the COVID-19 pandemic.

Our modelling of the responses in this survey produced these projections for total Irish SPVs by Q1-2021:

Average Estimate: A weighted average of all responses. Estimate: 2,477 SPVs (-5.2%)

High Estimates: A weighted average of the top one-third of responses. Estimate: 2,757 SPVs (+5.5%)

Low Estimates: A weighted average of the bottom one-third of responses. Estimate: 2,208 SPVs (-15.5%)

Q2-2020 Update

With the first quarter of data now available after this survey was launched, we can now assess how SPV numbers are trending relative to survey forecasts.

An average of survey responses suggested that total SPV numbers would drop by approximately 135 SPVs (5.2%) by Q1-2021, or around 33 per quarter.

In Q2-2020 we saw the reverse of this, with 33 vehicles added (net) to the Irish SPV population. This is in line with the High Estimates from survey respondents, i.e. the weighted average of the top one-third of responses.

Chart 9: Projections of Total Irish SPVs over the next 12 Months

COVID-19 Forecast Update

Source: COVID-19 Irish SPV Industry Survey - Atlantic Star Consulting (May 2020)

Read the full survey findings here:

https://astarconsulting.net/latest/2020-05-17/irish-spv-industry-covid-19-survey/




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Latest Analysis Activity Types 9



While the Central Bank data on vehicle activity types is somewhat limited, with two of the largest categories classified as ‘other’ (i.e. Other Securitisations and Other SPEs), data from Atlantic Star Consulting breaks these categories down, with the the largest components of each as follows:

Other Securitisations include Repacks (Multi-Issuance Vehicles), CMBS, Auto ABS, Consumer ABS, Corporate ABS, Receivables Securitisations and Synthetic ABS.

Other SPEs include NPLs (held by funds), leasing companies, loan origination SPVs, royalty investments, and other vehicles used in private equity or investment structures.

Excluding these figures, we can see that the largest single category of vehicle is investment-fund linked SPVs.

These vehicles collectively held €132bn in assets at the end of Q2-2020, which is up €2.0bn from the previous quarter, likely due to market valuations rebounding after severe volatility in March.

CLOs are the second largest category with €107bn in assets. These vehicles grew marginally during the quarter as CLOs that were in warehousing exited this phase by issuing €5.2bn of new debt securities, according to Central Bank commentary. There was also some positive revaluation of CLO assets, adding €0.3bn to valuations.

Activity Types

Data: Total assets of Irish SPVs, by vehicle type, at end-Q2 2020; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 10: Total Assets by Vehicle Type

Data: Change in total assets of Irish SPVs, by vehicle type, from Q1-2020 to Q2-2020; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 11: Change in Assets by Vehicle Type During Q2-2020





Latest Analysis SPV Sponsors 10


The primary sponsor category of Irish SPVs are asset managers and investment funds, collectively accounting for 41.8% of all SPVs in asset terms.

This is primarily due to the large number of CLOs and investment-fund linked SPVs domiciled in Ireland.

Banks sponsored 31.3% of Irish SPVs, a segment which has been declining in relative terms in recent years alongside the rise in asset manager-sponsored structures.

Sponsors located in the United Kingdom account for 30.5% of all Irish SPVs in asset terms, owing to the large number of investment managers and asset managers located in London which use Irish structures.

The United States accounted for 24.7% of Irish SPV sponsors in terms of assets, mostly relating to asset managers domiciled in this jurisdiction.

SPV Sponsors

Data: Total assets of Irish SPVs, as a percent of total, split by sector of sponsor, at end-Q4 2019; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 12: Total Assets of Irish SPVs - by Sponsor Sector

Data: Total assets of Irish SPVs, as a percent of total, split by country of sponsor, at end-Q4 2019; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 13: Total Assets of Irish SPVs - by Sponsor Country

NB: Q2-2020 data unavailable for this section - most recent available data is used (Q4-2019).




Latest Analysis Geographic Exposures 11



AssetsInformation relating to the geographic exposure of SPV assets is available for loan and deposit claims, securitised loans, and debt securities held.

Within these segments, the largest geographic exposure is to entities located elsewhere in the euro area (€221bn).

50.9% of these other euro area exposures relate to debt securities, and much of this relates to the holdings of European CLOs domiciled in Ireland.

Ireland accounts for the next largest geographic exposure with €149.6bn, but this is inflated by structures where multiple vehicles within Ireland are used.

Geographic Exposures

Data: Total assets of Irish SPVs, split by country of exposure, at end-Q2 2020; omitted: no geographic information available for €309.4bn; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 14: Total Assets of Irish SPVs - by Country Exposure

Data: Total liabiliities of Irish SPVs, split by country of exposure, at end-Q2 2020 omitted: no geographic information available for €639.7bn; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 15: Total Liabilities of Irish SPVs - by Country ExposureLiabilitiesInformation relating to the geographic exposure of SPV liabilities is available only for loans and deposits received.

No geographic information is currently available for the holders of debt securities issued by Irish SPVs.

Within the deposit and loan liabilities segment, the largest geographic exposure is to entities located Ireland (€109.7bn).

As noted above, this is the counterpart of many of the large asset exposures to other entities in Ireland, as several multi-vehicle structures exist which inflate gross assets.





Latest Analysis Asset Types 12


Asset Types

Assets held by Irish SPVs primarily consist of three categories:

• Debt securities held (29.4%)

• Securitised loans (23.6%)

• Deposit and loan claims (23.7%)

These categories can be broadly segmented into the types of vehicles which commonly hold these instruments:

Debt securities - CLOs, CDOs, MIVs.

Securitised loans - RMBS, CMBS, ABS.

Deposit and loan claims - Multi-vehicle structures (intra-vehicle loans), cash holdings of all SPVs (deposits).

During Q2-2020, a large decrease was seen in the securitised loan segment, which dropped by €20.5bn (-9.0%).

Securitised loans with Irish borrowers accounted for a €24.3bn drop (-25.4%) this quarter. This is likely due to the impacts of one or more NAMA-linked structures exiting the FVC population, as a similar move was observed in other liabilities (discussed on next page).

Securitised loans with other euro area borrowers rose by €5.7bn (+7.5%) over the same period.

Debt security assets were seen rising by €4.2bn during the quarter, primarily due to increases in assets with borrowers located elsewhere in the euro area.

Data: Total assets of Irish SPVs, split by instrument type, at end-Q2 2020; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 16: Assets of Irish SPVs - by Instrument Type

Data: Quarterly change in total assets of Irish SPVs, split by instrument type, at end-Q2 2020; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 17: Change in Liabilities of Irish SPVs - by Instrument Type




Latest Analysis Liability Types 13



Liability Types

Liabilities issued by Irish SPVs primarily consist of three categories:

• Debt securities issued (56.1%)

• Deposits and loans received (27.8%)

• Other liabilities (12.6%)

These categories can be broadly segmented into the types of vehicles which commonly issue these instruments:

Debt securities issued - Most FVCs, some Other SPEs such as external financing. Includes PPNs, LPNs, structured notes, etc.

Deposit and loans received - Most Other SPEs including vehicles funded by PPLs.

Other liabilities - All vehicles, includes derivative liabilities, interest accruals, valuation adjustment for securitised loans (market value below par).

During Q2-2020, the largest decrease was seen in the other liabilities segment, which dropped by €35.2bn. This movement is very likely related to the large decrease in securitised loan assets also seen this quarter.

Impaired loan assets that are bought by FVCs are recorded at nominal value with a valuation adjustment to bridge the gap between this figure and the market value of debt securities, which is reduced down to zero when the vehicle finally ceases activity or sells on the loans.

Data: Total liabilities of Irish SPVs, split by instrument type, at end-Q2 2020; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 18: Liabilities of Irish SPVs - by Instrument Type

Data: Quarterly change in total liabilities of Irish SPVs, split by instrument type, at end-Q2 2020; Source: Central Bank of Ireland, Atlantic Star Consulting

Chart 19: Change in Liabilities of Irish SPVs - by Instrument Type





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Further Information

Further Information Reference Population 15



Chart 20: SPV Reference Population - Simplified Diagram

Does vehicle meet definition of ECB/2013/40

Not required to

report

SPEReportingPopulation

Retained Securitisation

by Bank

Is vehicle fully funded by sponsor/

related party

NoDoes

vehicle avail of Section 110

TCA 1997

FVCReporting Population

YesYes

No

Vehicle in Warehousing

Phase

Multi-Vehicle Securitisation

Does vehicle meet any

of the three exceptions

No

Yes

Start

Yes No

Yes

Yes

Source: Atlantic Star Consulting analysis of Central Bank of Ireland SPE Guidance Notes for Reporting Agents, last updated August 2020.

Is the vehicle Irish domiciled

No

YesOther

Reference PopulationThe term ‘special purpose vehicle’ (SPV) can mean several different things, depending on the sector and the context that the term is used in.

In this report, SPV is taken to mean a corporate entity domiciled in Ireland that is either part of the ECB’s Financial Vehicle Corporation (FVC) population, or the Central Bank of Ireland’s Other Special Purpose Entities population (Other SPE).

FVCs: The definition of an FVC is contained within Regulation ECB/2013/40, and while there is some nuance to this definition, the simple answer is that an FVC is an entity which engages in securitisation activities.

Other SPEs: these are entities which avail of Section 110 of the Taxes Consolidation Act 1997, but do not form part of the FVC population. Section 110 defines several categories of ‘qualifying assets’ that a company must hold in order to elect into the tax regime, with the vast majority of FVCs using Section 110 alongside many Other SPEs.

Recent Population Changes

In early 2020, the Central Bank of Ireland issued unilateral guidance introducing exceptions into the definition of an FVC, with the effect that certain entities were excluded from the FVC population retrospectively.

Many, if not all of these entities will avail of Section 110 tax status, and so there has been an ongoing process of re-registering as Other SPEs to account for this change in definition.





Further Information Background 16


About the ReportThis report was produced by Atlantic Star Consulting and is intended primarily for those working in the Irish SPV sector.

The report is published quarterly, and provides a broad macro analysis of the SPV sector in Ireland, detailing the size, scope and composition of the sector along with trend analysis to examine how the sector is changing over time.

The report primarily uses data published by the Central Bank of Ireland and the European Central Bank, but also draws on proprietary research and other sources.

Background

ContactEmail: [email protected] Web: astarconsulting.net Tel: +353 (0) 85 1227077

To follow Atlantic Star Consulting on LinkedIn, please visit https://www.linkedin.com/company/atlantic-star-consulting/.

To connect with the author on LinkedIn, please visit https://www.linkedin.com/in/dominick-barrett-8ba921154/.









https://www.linkedin.com/in/dominick-barrett-8ba921154/



Further Information Background 17



Disclaimer & Legal

This report is published by SPV Reporting Services Limited t/a Atlantic Star Consulting (the “Company”) © 2020. The photos used in this report are licensed from Adobe Stock.

SPV Reporting Services Limited is a company limited by shares and registered in Ireland (No.626417).

The author has taken great care in order to produce accurate information in this report, but errors can and may occur. The Company makes no guarantees as to the accuracy of this data or any of the estimates provided here, as they are primarily derived from third party sources over which the Company and the author has no control.

Information in this report is provided as-is and the Company accepts no liability arising from actions undertaken by any party as a result of this report. Nothing in this report constitutes ‘legal advice’, ‘tax advice’, ‘investment advice’ or any other advice of any sort.

You are free to redistribute or share this report or part thereof, so long as you clearly attribute the content and ownership to Atlantic Star Consulting.




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