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Weekly Wrap: Bioscience CMBS comes to life amid pandemic

Two of the four single-asset, single-borrower (SASB) commercial mortgage transactions launched or priced this month involve life sciences lab properties, which analysts believe are increasingly crucial (and ulstra-stable) CMBS pool assets because of long-term healthcare research needs that will be crucial for the world after COVID-19.

This week, ratings agencies published presale reports for a $410 million securitized loan for the newly constructed centerpiece of a planned biosciences campus in the Kendall Square submarket of Cambridge, Mass. A nine-story, 429,869-square foot LEED-certified office tower is the new home for Philips NV and Cerevel Therapeutics, LLC, which have long-term leases comprising 94.8% of net rentable area of the building at 222 Jacobs Street.

The building is the first component of a planned five-million square foot mixed-use development, known as Cambridge Crossing, that will include office and residential properties amid R&D lab buildings within a 43-acre site owned by real estate investor/operator Divco West.

COMM 2020-CX Mortgage Trust has preliminary AAA senior-note ratings from DBRS Morningstar and Moody's Investors Service.

Moody's also assigned its highest bond rating (Aaa) to VLS Commercial Mortgage Trust 2020-LAB, a $415 million large-loan CMBS transaction pricing Wednesday. The REMIC-structured deal is secured by the first-lien mortgage of two Class A lab-office towers totaling 710,792 square feet in the south San Francisco submarket. As of August, the buildings were 94.3% leased to 21 tenants with an average remaining lease terms of 7.3 years.

The deal is sponsored by Ventas Life Science & Healthcare Real Estate Fund, a real estate investment trust focused on life science, medical office and senior housing real estate assets in North America.

San Francisco and Boston are considered the two most "prominent clusters" for the life sciences industry which has "strong tailwinds" of increasing healthcare expenditures in prescription drugs and research and development, according to Moody's. R&D, for example, is expected to have a compound annual growth rate of 3.2% through 2026. Employment in the biotechnology sector has experienced "outsized" employment growth as well, growing at a CAGR of 8.2% between 2015 and 2020.

DBRS Morningstar, in its COMM 2020-CX report, also noted expectations for increased growth in healthcare spending, particularly in a "post-coronavirus world."

"With this rise in spending, much of which is already devoted to disease prevention, cancer treatments, and other chronic conditions, companies focused in these fields will continue to thrive."


Investors step up pressure on private credit to hire more women

A specialized set of asset managers, responsible for investing $850 billion in higher-yield credit worldwide, is at risk of losing business unless it fixes its glaring shortage of women, especially in top jobs.

Pressure to increase diversity is largely coming from those who oversee the big pools of institutional capital that fund the private-credit industry, made up of lenders that finance companies too risky to get conventional loans. Some investors are making their position crystal clear: If you’re asking for our money, there better be women sitting across the table from us when we strike a deal.

“We want our money to be managed and invested in entities that share our values and our priorities,” said Kim Thomassin, executive vice president of stewardship investing at pension fund Caisse de Depot et Placement du Quebec, which has C$333 billion ($254 billion) in assets, including C$35 billion invested in private credit. “When the stewards of large sums of capital, the institutional investors like us, all get together, it’s billions and billions of dollars and, frankly, money talks.”

Women now hold about a fifth of the industry’s jobs and just 10% of the senior positions as of last year, according to London-based research firm Preqin. By comparison, women on average hold 52% of the management jobs in U.S. industry and 22% of the leadership roles in financial services, according to the Bureau of Labor Statistics and Deloitte, respectively.

In theory, the sector’s rapid growth should create opportunities for private lenders to bring more women on board. Private credit has surged threefold since the 2008 financial crisis. Analysts expect assets to reach $1 trillion in the next several years.

“Whenever you have growth there are always going to be more seats available at the table,” said Sylvia Owens, global private credit and real assets strategist at New York-based portfolio advisory firm Aksia.

In spite of private credit’s past expansion, female employment has changed little in recent years, suggesting that hiring more women won’t simply happen on its own: It takes someone pushing from the outside.

“If the clients drive it and demand it, and they are very committed to it, then it tends to happen,” said Theresa Shutt, the chief investment officer at Laval, Quebec-based Fiera Private Debt, where women hold more than 15% of the higher positions.

Some big asset managers such as Bain Capital Credit and Barings – both count private credit among their large investment offerings – say they are trying address the lack of gender diversity in the industry by putting measures in place to boost women in the early stages of their careers. They also are offering boot camps on credit and alternative assets for college students or establishing support groups for women already in the industry.

Those in the private-credit business say the outside pressure is intensifying.

“We do see this request more and more," said Cecile Mayer-Levi, head of private debt for European alternative-asset manager Tikehau Capital, based in Paris.

New York-based Caspian Capital, which invests in a type of private credit considered distressed debt, earlier this year started a diversity initiative aimed at increasing the ranks of women and minorities. “The events this summer reiterated the urgency and focus,” said Kathryn Murtagh, general counsel at the firm. Caspian’s staff of two dozen is now more than 40% female, she said.

Meanwhile, alternative investment shop Varde Partners in the past five years has boosted its female investment professional headcount to 22%, from 9%. The Minneapolis-based firm, which invests in corporate debt, including private credit, has overhauled its hiring processes, including how it screens resumes and reviews promotions.

“Investors are increasingly focused on diversity, and rightly holding managers to a higher standard,” Varde co-founder Marcia Page said in an email.

Robotic Hand with Cylinder and Shape Sorting Toy Closeup. Machine Learning and Recognition Concept 3d Illustration

Pagaya launches its first publicly rated MPL securitization

Pagaya Investments, an analytics-driven asset manager of unsecured consumer loans culled from major marketplace lending platforms, is sponsoring its first publicly rated securitization in a $423.94 million transaction.

Pagaya AI Debt Selection Trust (PAID) 2020-3 will include three classes of notes, including a $282,220 Class A tranche with a preliminary A- rating from Kroll Bond Rating Agency.

Instead of gathering loans through preselected portfolios of collateral compiled by lenders, Pagayauses its own artificial-intelligence platform to select individual loans from the managed portfolios of those marketplace lenders including LendingClub, Prosper, Avant, and Marlette.

The deal is entirely prefunded.
See story here.

Big choices about who will lead financial regulators after 2020 election

WASHINGTON — Neither President Donald Trump nor Democratic nominee Joe Biden has made banking policy a cornerstone of their presidential campaigns. Yet whoever wins in November will face a task of utmost importance to financial institutions: selecting new heads of the financial regulatory agencies.

The new presidential term could start with a vacancy atop the Office of the Comptroller of the Currency if Trump fails to name a nominee who is then Senate-confirmed by January. The administration would also face a decision early on about whether to reappoint Federal Reserve Chair Jerome Powell, whose term ends in February 2022, or select a new head of the central bank.

“At some level, it’s just like with wars and everything else: the victor gets to write the story,” said Greg Lyons, a partner at Debevoise & Plimpton.

But if Biden wins, he could move more aggressively to change the leadership of the Consumer Financial Protection Bureau following a Supreme Court ruling allowing the president greater discretion to fire the head of the CFPB, currently Kathy Kraninger. An upcoming Supreme Court case involving the Federal Housing Finance Agency could give a Biden administration similar standing to remove Director Mark Calabria.
The CFPB's Kraninger was confirmed for a five-year term in December 2018. But the Supreme Court decision in Seila Law v. CFPB determined that the president is able to fire the director at will, a decision that some speculate could also apply to Calabria's standing at the FHFA.
Lyons said whoever gets appointed to the run the agencies in the new presidential term will help set the future of tech in banking, supervisory policy and other important matters.

“Who is there is really going to matter a lot,” he said. “We know what kind of people Trump appoints. You would think that that would lead to ongoing integration of banks and fintech, more tailoring for certain types of banks, perhaps more flexibility on exams and fewer enforcement actions and so forth.”

But the profile of regulators Biden might appoint is less clear.

While Biden took consistently moderate positions compared to some of his former Democratic rivals for the nomination, it remains to be seen the kind of influence more progressive figures like Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vt., have on financial regulatory policy.

- Hannah Lang
Dealer Vehicles in Stock. Brand New Cars Awaiting Clients on the Dealer Parking Lot. New Cars Section.

Auto loan extension rates have fourth consecutive monthly decline

The share of securitized auto loans with COVID-19-related extensions fell by more than 30% in August, reported S&P Global Ratings on Friday.

In an ABS Insights report, S&P reported that the extension rates for prime auto loans held in asset-backed portfolios fell to 0.63% from 0.86% (or a 42.1% decline), while for subprime levels the drop was to 3.22% from 5.29% (representing a 33.8% decline).

It was the fourth consecutive month of declines in extensions that were granted in the early months of the onset of the coronavirus pandemic in March, as tracked by ABS loan-level data filed by certain issuers with the Securities and Exchange Commission.

The total volume of prime loans in extension status in August was $653 million, and $1.64 billion in subprime.

Of public prime issuers, only Ally Financial saw an increase in extensions for August, shifting to 0.83% from 0.64% in July. The loan-level data indicates, however, these extensions with Ally included the receipt of at least a partial payment, says S&P.

And while all public subprime issuers – AmerCredit (GM Financial), Santander Consumer USA and World Omni Corp. – had lower extension rates in August, S&P noted that five of 10 144a nonpublic issuers of nonprime auto ABS actually saw increases during the month.

For example, Consumer Portfolio Services’ extensions rose to 3.49% from 2.86%; Exeter Finance increased to 4.55% from 4.01% the month prior; and Westlake Financial Services increased to 4.35% from 3.86%.

Domino pieces standing in a row. 3D illustration
Domino pieces standing in a row. 3D illustration.

New issue pipeline

Issuers filing ABS-15G registrations for new-issue U.S. ABS for the week of Oct. 19-22 (per Finsight.com)

CMBS Home Partners of America 2020-2 Trust Investment Managers Series Trust
ESOT OPTN 2020-1 Oportun Inc
CMBS BAMLL Commercial Mortgage Securities Trust 2020-JGDN Bank of America
CMBS MF1 2020-FL4 Ltd. & MF1 2020-FL4 LLC MF1 REIT II LLC
RMBS CSMC 2020-RPL1 Credit Suisse First Boston
CMBS BFLD Trust 2020-OBRK Morgan Stanley Capital
RMBS JPMMT 2020-8 JPMorgan
RMBS LVII Trust 2020-1 Vista Point Assets
RMBS Tricon American Homes 2020-SFR2 Trust Tricon SFR 2020-2 Depositor LLC
CMBS FREMF 2020-K739 Mortgage Trust Freddie Mac
ESOT Freddie Mac Seasoned CRT Trust, Series 2020-3 Freddie Mac
ESOT LPSLT 2020-3 Loanpal
EQIP DEXT 2020-1 Dext Capital, LLC
CRDT CWN 2020-1 CardWorks, Inc.
CMBS BX Commercial Mortgage Trust 2020-FOX JPMorgan
ESOT PEQ 2020, LLC PEQ Calvert, LLC
CMBS DNZN Commercial Mortgage Trust 2020-DNZN Citigroup
ESOT VZOT 2020-C Verizon Communications