With the Federal Reserve tightening monetary policy, mortgage rates are up considerably. Although higher rates challenge affordability nationwide, they are also associated with periods of strong economic growth, low unemployment, and higher inflation. These latter effects have historically outweighed the affordability effect, and home prices have generally risen, albeit at a slower rate, during periods of increasing interest rates. Although affordability is even more challenged now than it was just prior to the Global Financial Crisis, the housing supply shortage and solid labor market conditions provide a cushion for home price appreciation. Higher rates will reshape the housing and mortgage markets, however: Rate/term refinances are largely choked off, cash-out refinances are likely to continue at much lower levels, and purchase activity will be lower, as there will be fewer buyers and sellers. Higher rates will also lead to the expansion of the second-lien market.
{"title":"The Impact of Higher Mortgage Rates on the Housing and Mortgage Markets","authors":"L. Goodman, Michael Neal, Daniel Pang","doi":"10.3905/jsf.2022.1.152","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.152","url":null,"abstract":"With the Federal Reserve tightening monetary policy, mortgage rates are up considerably. Although higher rates challenge affordability nationwide, they are also associated with periods of strong economic growth, low unemployment, and higher inflation. These latter effects have historically outweighed the affordability effect, and home prices have generally risen, albeit at a slower rate, during periods of increasing interest rates. Although affordability is even more challenged now than it was just prior to the Global Financial Crisis, the housing supply shortage and solid labor market conditions provide a cushion for home price appreciation. Higher rates will reshape the housing and mortgage markets, however: Rate/term refinances are largely choked off, cash-out refinances are likely to continue at much lower levels, and purchase activity will be lower, as there will be fewer buyers and sellers. Higher rates will also lead to the expansion of the second-lien market.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"11 - 27"},"PeriodicalIF":0.4,"publicationDate":"2022-12-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46081539","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Use of structured financings for balance sheet management by multilateral development banks (MDBs) is still in its infancy. Three path-breaking deals by the African Development Bank (AfDB) and International Finance Corporation (IFC) are leading the way, however. The two AfDB deals are both synthetic, with the loans remaining on the balance sheet despite substantial risk transfers. The IFC transaction allows co-funding of private sector loans with other lenders. New insights and opportunities will certainly emerge with rising experience in MDB loan deals. A few imperatives for a robust MDB collateralized loan obligation (CLO) market are already evident: (i) public disclosure of the relevant parts of proprietary historical MDB loan performance data; (ii) more-transparent rating agency criteria for MDB securitizations, and (iii) greater management, investor, banker, and MDB expertise in this asset class.
{"title":"MDB Loans: A New Asset Class for CLOs","authors":"Mahesh Kotecha","doi":"10.3905/jsf.2022.1.151","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.151","url":null,"abstract":"Use of structured financings for balance sheet management by multilateral development banks (MDBs) is still in its infancy. Three path-breaking deals by the African Development Bank (AfDB) and International Finance Corporation (IFC) are leading the way, however. The two AfDB deals are both synthetic, with the loans remaining on the balance sheet despite substantial risk transfers. The IFC transaction allows co-funding of private sector loans with other lenders. New insights and opportunities will certainly emerge with rising experience in MDB loan deals. A few imperatives for a robust MDB collateralized loan obligation (CLO) market are already evident: (i) public disclosure of the relevant parts of proprietary historical MDB loan performance data; (ii) more-transparent rating agency criteria for MDB securitizations, and (iii) greater management, investor, banker, and MDB expertise in this asset class.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"28 - 39"},"PeriodicalIF":0.4,"publicationDate":"2022-12-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45092878","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Major academic research related to cryptocurrencies has been developed by technologists who mainly focus on feasibility and security. Research in the area of economics and finance has provided limited insight in guiding investors to profit from cryptocurrencies, however, this article proposes a framework that depicts how rational investing can be achieved with the help of historical information published by cryptocurrency projects. Trading strategies based on fundamentals can generate economically significant gains relative to a buy-and-hold position.
{"title":"A Fundamental Framework for Identifying Profitable Cryptocurrencies","authors":"Dimple Bhojwani, Samik Shome","doi":"10.3905/jsf.2022.1.150","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.150","url":null,"abstract":"Major academic research related to cryptocurrencies has been developed by technologists who mainly focus on feasibility and security. Research in the area of economics and finance has provided limited insight in guiding investors to profit from cryptocurrencies, however, this article proposes a framework that depicts how rational investing can be achieved with the help of historical information published by cryptocurrency projects. Trading strategies based on fundamentals can generate economically significant gains relative to a buy-and-hold position.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"41 - 58"},"PeriodicalIF":0.4,"publicationDate":"2022-12-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44555592","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The recent 28th Annual ABS East Conference at the Fontainebleau in Miami Beach attracted roughly 4,500 attendees. The conference started on Monday, October 17, 2022, and ran through Wednesday, October 19. Key themes at the conference included higher interest rates, inflation, the prospect of a recession in 2023, stagnating home prices, the transition from LIBOR to SOFR, NAIC initiatives, student debt relief, and ESG issues. The overall mood was slightly negative. This article covers 12 sessions from the event, including the general sessions on Tuesday and Wednesday, as well as breakout sessions covering residential MBS, autos, CLOs, CMBS, and student loans. Sessions Covered Monday Sessions RMBS Auto ABS Tuesday Sessions Market Overview Investor Roundtable Economic & Political Assessment CLOs CMBS Non-QM RMBS Student Loan ABS Wednesday Sessions ESG Legal and Regulatory LIBOR Transition to SOFR
{"title":"ABS East 2022 Conference Notes","authors":"Mark H. Adelson","doi":"10.3905/jsf.2022.1.149","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.149","url":null,"abstract":"The recent 28th Annual ABS East Conference at the Fontainebleau in Miami Beach attracted roughly 4,500 attendees. The conference started on Monday, October 17, 2022, and ran through Wednesday, October 19. Key themes at the conference included higher interest rates, inflation, the prospect of a recession in 2023, stagnating home prices, the transition from LIBOR to SOFR, NAIC initiatives, student debt relief, and ESG issues. The overall mood was slightly negative. This article covers 12 sessions from the event, including the general sessions on Tuesday and Wednesday, as well as breakout sessions covering residential MBS, autos, CLOs, CMBS, and student loans. Sessions Covered Monday Sessions RMBS Auto ABS Tuesday Sessions Market Overview Investor Roundtable Economic & Political Assessment CLOs CMBS Non-QM RMBS Student Loan ABS Wednesday Sessions ESG Legal and Regulatory LIBOR Transition to SOFR","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"71 - 101"},"PeriodicalIF":0.4,"publicationDate":"2022-11-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41370126","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
India is taking steps to decarbonize its economy and set a target of building 450 gigawatts of renewable energy capacity by 2030. Project finance has a critical role to play in enabling this transition to a carbon-resilient economy. The opportunity has attracted diversified institutional investors but has not resulted in a lower project cost of capital. To address this problem, this article presents a qualitative risk assessment model. The results show that risk drivers such as high debt-to-equity ratios (D/Es), technology disruptions, and inherent information asymmetry in the contractual bundles that plagued thermal power financing still remain unaddressed. Rethinking how project finance is applied is thus necessary. The author provides three suggestions: D/Es need to be optimized by sculpting them against cash flows; projects need the discipline of global capital markets and institutions over their life cycle; and financial institutions need to actively incorporate climate risk into their internal rating models to price credit risk.
{"title":"Project Finance for Green Renewable Energy Assets: Does It Solve the Higher Cost of Capital Conundrum?","authors":"Vikas Srivastava","doi":"10.3905/jsf.2022.1.148","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.148","url":null,"abstract":"India is taking steps to decarbonize its economy and set a target of building 450 gigawatts of renewable energy capacity by 2030. Project finance has a critical role to play in enabling this transition to a carbon-resilient economy. The opportunity has attracted diversified institutional investors but has not resulted in a lower project cost of capital. To address this problem, this article presents a qualitative risk assessment model. The results show that risk drivers such as high debt-to-equity ratios (D/Es), technology disruptions, and inherent information asymmetry in the contractual bundles that plagued thermal power financing still remain unaddressed. Rethinking how project finance is applied is thus necessary. The author provides three suggestions: D/Es need to be optimized by sculpting them against cash flows; projects need the discipline of global capital markets and institutions over their life cycle; and financial institutions need to actively incorporate climate risk into their internal rating models to price credit risk.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"59 - 69"},"PeriodicalIF":0.4,"publicationDate":"2022-11-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44270547","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The 11th Annual Investors’ Conference on CLOs and Leveraged Loans attracted more than 800 market participants and was held on May 23–24, 2022, at the Marriott Marquis hotel in New York City. Key themes at the conference included: 1) the ability of collateralized loan obligation (CLO) managers to deal with evolving conditions, 2) headwinds from inflation, rising interest rates, and the prospect of recession, and 3) the incorporation of environmental, social, and governance (ESG) considerations into CLOs. On the legal/regulatory front, the development that received attention in multiple sessions was the SEC’s proposed rule for private funds. The panels generally conveyed a cautiously optimistic outlook for the CLO sector, but they expect that issuance for 2022 will be below last year’s levels. Sessions Covered Monday, May 23 Sessions KEYNOTE: Economic Outlook for Financial Markets Mark, Set…CLO: Market Recap and Outlook ESG CLOs: Moving from “Sustainable” to “Conscious” Middle Market CLOs and the Role of Private Credit: Where Are We Headed? CLO Manager Roundtable: Fundamentals and Technicals Tuesday, May 24 Sessions Credit Fundamentals: The Leveraged Loan Market Outlook Securing Yield: Investor Strategies and Opportunities across the Capital Stack The Evolving Manager Landscape: Evaluating Manager Tiers and Performance Out of the Mist: Emerging Middle Market Trends “The Price is Right!”: Secondary Market Trading CRE CLOs: Expanding Momentum More than Plain Vanilla: CLO Structural Evolution “What’s up Docs?”: CLO Documentation Trends The Innovation Game: Technology and the Future for CLOs
{"title":"CLO Conference Notes 2022","authors":"Mark H. Adelson","doi":"10.3905/jsf.2022.1.143","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.143","url":null,"abstract":"The 11th Annual Investors’ Conference on CLOs and Leveraged Loans attracted more than 800 market participants and was held on May 23–24, 2022, at the Marriott Marquis hotel in New York City. Key themes at the conference included: 1) the ability of collateralized loan obligation (CLO) managers to deal with evolving conditions, 2) headwinds from inflation, rising interest rates, and the prospect of recession, and 3) the incorporation of environmental, social, and governance (ESG) considerations into CLOs. On the legal/regulatory front, the development that received attention in multiple sessions was the SEC’s proposed rule for private funds. The panels generally conveyed a cautiously optimistic outlook for the CLO sector, but they expect that issuance for 2022 will be below last year’s levels. Sessions Covered Monday, May 23 Sessions KEYNOTE: Economic Outlook for Financial Markets Mark, Set…CLO: Market Recap and Outlook ESG CLOs: Moving from “Sustainable” to “Conscious” Middle Market CLOs and the Role of Private Credit: Where Are We Headed? CLO Manager Roundtable: Fundamentals and Technicals Tuesday, May 24 Sessions Credit Fundamentals: The Leveraged Loan Market Outlook Securing Yield: Investor Strategies and Opportunities across the Capital Stack The Evolving Manager Landscape: Evaluating Manager Tiers and Performance Out of the Mist: Emerging Middle Market Trends “The Price is Right!”: Secondary Market Trading CRE CLOs: Expanding Momentum More than Plain Vanilla: CLO Structural Evolution “What’s up Docs?”: CLO Documentation Trends The Innovation Game: Technology and the Future for CLOs","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"54 - 72"},"PeriodicalIF":0.4,"publicationDate":"2022-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44376049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-10-31DOI: 10.3905/jsf.2022.28.3.095
{"title":"Highlights from the Structured Finance Association (SFA)","authors":"","doi":"10.3905/jsf.2022.28.3.095","DOIUrl":"https://doi.org/10.3905/jsf.2022.28.3.095","url":null,"abstract":"","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"95 - 99"},"PeriodicalIF":0.4,"publicationDate":"2022-10-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45899858","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Structured finance can be defined as the strategic reorganization of financial assets and liabilities for a targeted optimal outcome, be it the cost of funds, taxes, or property disposition. For example, corporate entities raise working capital by monetizing their on-balance sheet receivables in bankruptcy-remote Special Purpose Entities (SPEs). This process and its elements constitute the core of mainstream “structured finance.” But SPEs have been used in other financial optimizations, such as tax avoidance, or to isolate intellectual property from corporate bankruptcy risk. In this article, we seek to classify the use of financial sanctions against Russia in 2022 as a kind of structured finance. From a mainstream structurer’s perspective, expanding the definition to include political outcomes may seem odd. Free-market is taken to mean “free of politics.” By construction, financial outcomes take place in a realm where prices are directed by economic forces of supply and demand, and isolated from direct political or policy interference. However, finance does not belong to capitalism or any other system of economic thought. The notion of finance as a pure economic construct is a capitalist artifact. The communist world does not think in this way. As a trained Cuban lawyer now studying finance and public policy at Columbia University’s School of International and Public Affairs, I do not think in this way. From my perspective, the model of Cuban and Russian economic interdependency can be described only as structured finance. And in practice, structuring and valuation are not ringfenced from political or policy factors, not even in capitalist economies. In this article, I frame the 2022 sanctions against Russia as a form of structured finance, designed by a senior US financial system engineer to target and inflict maximal pain on Russia for declaring war on the Ukraine.
{"title":"Sanctions in the Modern Structured Finance Market","authors":"E. González","doi":"10.3905/jsf.2022.1.147","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.147","url":null,"abstract":"Structured finance can be defined as the strategic reorganization of financial assets and liabilities for a targeted optimal outcome, be it the cost of funds, taxes, or property disposition. For example, corporate entities raise working capital by monetizing their on-balance sheet receivables in bankruptcy-remote Special Purpose Entities (SPEs). This process and its elements constitute the core of mainstream “structured finance.” But SPEs have been used in other financial optimizations, such as tax avoidance, or to isolate intellectual property from corporate bankruptcy risk. In this article, we seek to classify the use of financial sanctions against Russia in 2022 as a kind of structured finance. From a mainstream structurer’s perspective, expanding the definition to include political outcomes may seem odd. Free-market is taken to mean “free of politics.” By construction, financial outcomes take place in a realm where prices are directed by economic forces of supply and demand, and isolated from direct political or policy interference. However, finance does not belong to capitalism or any other system of economic thought. The notion of finance as a pure economic construct is a capitalist artifact. The communist world does not think in this way. As a trained Cuban lawyer now studying finance and public policy at Columbia University’s School of International and Public Affairs, I do not think in this way. From my perspective, the model of Cuban and Russian economic interdependency can be described only as structured finance. And in practice, structuring and valuation are not ringfenced from political or policy factors, not even in capitalist economies. In this article, I frame the 2022 sanctions against Russia as a form of structured finance, designed by a senior US financial system engineer to target and inflict maximal pain on Russia for declaring war on the Ukraine.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"31 - 38"},"PeriodicalIF":0.4,"publicationDate":"2022-10-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"42802711","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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