The world is facing a pivotal moment when the interconnectedness of crisis anticipation and crisis management needs to be formalized in financial policy planning. The onset of COVID-19 demonstrated the across-the-board lack of preparedness of economic actors public and private. While the private sector mostly looked at the short-term profitability, the public sector dragged their collective feet on investing in public works without the usual political motivations. As both a banker and public policy professional, I am struck by the high degree of dependence on taxation to fund public good infrastructure in 2022. I see an urgent need to change our dialogue around public-private investment, to begin to address simultaneously the financial goal of profitability and political goals for the public good. This article explores a range of solutions available to capital markets with the elasticity to address and absorb the future shocks to which we must face up.
{"title":"Can Structured Finance Support New Ways of Anticipating and Managing Crisis?","authors":"Kamel N. Haddad","doi":"10.3905/jsf.2022.1.146","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.146","url":null,"abstract":"The world is facing a pivotal moment when the interconnectedness of crisis anticipation and crisis management needs to be formalized in financial policy planning. The onset of COVID-19 demonstrated the across-the-board lack of preparedness of economic actors public and private. While the private sector mostly looked at the short-term profitability, the public sector dragged their collective feet on investing in public works without the usual political motivations. As both a banker and public policy professional, I am struck by the high degree of dependence on taxation to fund public good infrastructure in 2022. I see an urgent need to change our dialogue around public-private investment, to begin to address simultaneously the financial goal of profitability and political goals for the public good. This article explores a range of solutions available to capital markets with the elasticity to address and absorb the future shocks to which we must face up.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"23 - 30"},"PeriodicalIF":0.4,"publicationDate":"2022-10-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45899948","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}
Modified duration and average life are financial measures belonging to the mathematics of discounting. They are frequently confused, even by financial experts. The likely source of confusion is the failure of quantitative credit studies to have developed in tandem with market risk studies. Instead, mathematical ideas have been imported wholesale from trading and used in credit engineering without sensitivity to their different risk polymorphisms. But while market risk is short-term, credit is a long game where the key determinants of value are time and quality. A good incentive for building an authentic quantitative credit layer is the capital value and risk that remain buried in the mathematics of discounting.
{"title":"The Hidden Connection of Duration to Average Life and Financial Crisis","authors":"Ann Rutledge, S. Raynes","doi":"10.3905/jsf.2022.1.145","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.145","url":null,"abstract":"Modified duration and average life are financial measures belonging to the mathematics of discounting. They are frequently confused, even by financial experts. The likely source of confusion is the failure of quantitative credit studies to have developed in tandem with market risk studies. Instead, mathematical ideas have been imported wholesale from trading and used in credit engineering without sensitivity to their different risk polymorphisms. But while market risk is short-term, credit is a long game where the key determinants of value are time and quality. A good incentive for building an authentic quantitative credit layer is the capital value and risk that remain buried in the mathematics of discounting.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"40 - 53"},"PeriodicalIF":0.4,"publicationDate":"2022-09-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44617299","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}
In 2005, the SEC promulgated CFR§229.1100-1125 (Reg AB) requiring public disclosure of the type of data used to make structured ratings. This was a milestone in reducing asymmetrical information. Reg AB has since been further enhanced and expanded (Regulation AB II and Exchange Act Rules 15Ga-2 and 17g-10) to include loan-level static pool data. Yet, as the authors report, even a decade after the Financial Crisis, large differences exist between consumer ABS prepayment and default seller data purchased from a commercial data provider and that residing in the US government’s EDGAR data base. The commercial data had much larger numbers of prepayments and fewer defaults, a pattern suggesting that defaults have been classified as “involuntary” prepayments. Given that asymmetrical information persists in the structured market, the authors recommend moving the focus from data disclosure to establishing more consistent informational standards in order to realize the full transparency potential of the US ABS disclosure framework. Specifically, the authors recommend that the classification of the data type be required by regulation to match its implementing algebra for purposes of cash flow modeling.
2005年，美国证券交易委员会颁布了《联邦法规》第229.1100-1125条（Reg AB），要求公开披露用于进行结构化评级的数据类型。这是减少不对称信息的一个里程碑。此后，Reg AB得到了进一步的增强和扩展（Reg AB II和Exchange Act Rules 15Ga-2和17g-10），以包括贷款水平的静态池数据。然而，正如作者报告的那样，即使在金融危机发生十年后，从商业数据提供商处购买的消费者ABS预付款和违约卖家数据与美国政府EDGAR数据库中的数据之间也存在很大差异。商业数据中的预付款数量要多得多，违约次数更少，这一模式表明违约已被归类为“非自愿”预付款。鉴于结构性市场中存在不对称信息，作者建议将重点从数据披露转移到建立更一致的信息标准，以实现美国ABS披露框架的完全透明潜力。具体而言，作者建议，出于现金流建模的目的，法规要求对数据类型进行分类，以匹配其实现代数。
{"title":"Default or Prepayment? When the Answer Depends on the Data Source","authors":"Changlin Wu, Ann Rutledge, Byron Cormany","doi":"10.3905/jsf.2022.1.144","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.144","url":null,"abstract":"In 2005, the SEC promulgated CFR§229.1100-1125 (Reg AB) requiring public disclosure of the type of data used to make structured ratings. This was a milestone in reducing asymmetrical information. Reg AB has since been further enhanced and expanded (Regulation AB II and Exchange Act Rules 15Ga-2 and 17g-10) to include loan-level static pool data. Yet, as the authors report, even a decade after the Financial Crisis, large differences exist between consumer ABS prepayment and default seller data purchased from a commercial data provider and that residing in the US government’s EDGAR data base. The commercial data had much larger numbers of prepayments and fewer defaults, a pattern suggesting that defaults have been classified as “involuntary” prepayments. Given that asymmetrical information persists in the structured market, the authors recommend moving the focus from data disclosure to establishing more consistent informational standards in order to realize the full transparency potential of the US ABS disclosure framework. Specifically, the authors recommend that the classification of the data type be required by regulation to match its implementing algebra for purposes of cash flow modeling.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"12 - 22"},"PeriodicalIF":0.4,"publicationDate":"2022-09-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48706405","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 1st Annual Middle Market CLOs and Direct Lending Conference attracted more than 700 registrants and was held on June 15, 2022, at Chelsea Piers in New York. Panelists generally expressed cautiously optimistic views for the sector. Key themes at the conference included uncertainty about inflation, the potential for a recession, the rapid growth in middle market (MM) lending, the increasing size of loans originated through private-credit/direct-lending channels, and the strong performance of MM collateralized loan obligations (CLOs) (and their underlying loans) during the COVID-19 pandemic. In addition, several sessions discussed new regulatory initiatives and the growing importance of environmental, social, and governance (ESG) considerations in MM CLOs. Sessions Covered Middle Market Finance Primer Co-Hosts’ Welcoming Remarks Middle Market Finance Strategies and Trends The Direct-Lending Landscape: Opportunities and Threats on the Horizon Key Regulatory Developments for CLOs and Private Credit Health Check: Taking the Temperature of the Middle Market Sector Key Considerations for Investing in Middle Market CLOs: Equity and Debt Investor Roundtable Middle Market CLO Manager Roundtable: Poised for Growth Middle Market Private-Credit Investing: Why are LPs Allocating to the Sector? Emerging Middle Market CLO Trends, Strategies, and Structures
{"title":"Middle Market CLO Conference Notes 2022","authors":"Mark H. Adelson","doi":"10.3905/jsf.2022.1.142","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.142","url":null,"abstract":"The 1st Annual Middle Market CLOs and Direct Lending Conference attracted more than 700 registrants and was held on June 15, 2022, at Chelsea Piers in New York. Panelists generally expressed cautiously optimistic views for the sector. Key themes at the conference included uncertainty about inflation, the potential for a recession, the rapid growth in middle market (MM) lending, the increasing size of loans originated through private-credit/direct-lending channels, and the strong performance of MM collateralized loan obligations (CLOs) (and their underlying loans) during the COVID-19 pandemic. In addition, several sessions discussed new regulatory initiatives and the growing importance of environmental, social, and governance (ESG) considerations in MM CLOs. Sessions Covered Middle Market Finance Primer Co-Hosts’ Welcoming Remarks Middle Market Finance Strategies and Trends The Direct-Lending Landscape: Opportunities and Threats on the Horizon Key Regulatory Developments for CLOs and Private Credit Health Check: Taking the Temperature of the Middle Market Sector Key Considerations for Investing in Middle Market CLOs: Equity and Debt Investor Roundtable Middle Market CLO Manager Roundtable: Poised for Growth Middle Market Private-Credit Investing: Why are LPs Allocating to the Sector? Emerging Middle Market CLO Trends, Strategies, and Structures","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"73 - 87"},"PeriodicalIF":0.4,"publicationDate":"2022-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46518476","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 : 2022-07-31DOI: 10.3905/jsf.2022.28.2.111
{"title":"Highlights from the Structured Finance Association (SFA)","authors":"","doi":"10.3905/jsf.2022.28.2.111","DOIUrl":"https://doi.org/10.3905/jsf.2022.28.2.111","url":null,"abstract":"","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"111 - 115"},"PeriodicalIF":0.4,"publicationDate":"2022-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47463662","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 : 2022-07-31DOI: 10.3905/jsf.2022.28.2.104
Tom Lemmon
{"title":"Highlights from Global Capital","authors":"Tom Lemmon","doi":"10.3905/jsf.2022.28.2.104","DOIUrl":"https://doi.org/10.3905/jsf.2022.28.2.104","url":null,"abstract":"","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"104 - 110"},"PeriodicalIF":0.4,"publicationDate":"2022-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45120460","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}
Companies structured for project finance can be prematurely failed by European insolvency laws, where there is a strict obligation to file for insolvency if the required solvency tests have been failed. Using two technically insolvent windfarm projects in Poland and Romania, this article analyzes why each debtor continued to trade in breach of the law and why the lenders permitted such continued trading. Although facing liability, the directors of the debtors could see that through continued trading the debtors would eventually pay off the secured debt, and the project and the profits could be returned to the shareholders. The debtor had this confidence because of the project finance nature of infrastructure where there is good long-term visibility of cashflows. This article critically analyzes the national insolvency laws for infrastructure projects in Poland and Romania and considers whether the lenders in each case, by allowing the debtors to trade, should share some of the potential liability.
{"title":"When Pan-European Insolvency Twilight Lasts for Years: Are Controlling Lenders Liable?","authors":"S. Woodroffe","doi":"10.3905/jsf.2022.1.140","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.140","url":null,"abstract":"Companies structured for project finance can be prematurely failed by European insolvency laws, where there is a strict obligation to file for insolvency if the required solvency tests have been failed. Using two technically insolvent windfarm projects in Poland and Romania, this article analyzes why each debtor continued to trade in breach of the law and why the lenders permitted such continued trading. Although facing liability, the directors of the debtors could see that through continued trading the debtors would eventually pay off the secured debt, and the project and the profits could be returned to the shareholders. The debtor had this confidence because of the project finance nature of infrastructure where there is good long-term visibility of cashflows. This article critically analyzes the national insolvency laws for infrastructure projects in Poland and Romania and considers whether the lenders in each case, by allowing the debtors to trade, should share some of the potential liability.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"89 - 103"},"PeriodicalIF":0.4,"publicationDate":"2022-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"41670285","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 conflict between Russia and Ukraine has resulted in additional burdens on the aviation industry, compounding the impact of the COVID pandemic. Airline manufacturers and operators are suffering extra costs due to the steep rise in commodities prices, especially those linked to energy costs, and the decline in the supply of crucial manufacturing materials like titanium, as a result of supply chain issues and sanctions. The sanctions, led by the United States and the European Union, impacted Russia multilaterally. They included prohibiting the transfer of maintenance materials and technologies; forbidding aircraft leases to Russian operators; airspace closure; and suspension of airworthiness certificates. Russia responded to the sanctions by suspending bilateral agreements and unilaterally re-registering leased aircraft in Russia. Russia’s responses have impeded aircraft lessors seeking to repossess their assets and forced an inevitable write-down of asset values, leading lessors and financiers to file insurance claims. This has dampened the global aviation finance and ABS markets.
{"title":"The Ukrainian Conflict: Impact on the Aviation Finance and Leasing Industry","authors":"David Yu, Tasos Michael","doi":"10.3905/jsf.2022.1.141","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.141","url":null,"abstract":"The conflict between Russia and Ukraine has resulted in additional burdens on the aviation industry, compounding the impact of the COVID pandemic. Airline manufacturers and operators are suffering extra costs due to the steep rise in commodities prices, especially those linked to energy costs, and the decline in the supply of crucial manufacturing materials like titanium, as a result of supply chain issues and sanctions. The sanctions, led by the United States and the European Union, impacted Russia multilaterally. They included prohibiting the transfer of maintenance materials and technologies; forbidding aircraft leases to Russian operators; airspace closure; and suspension of airworthiness certificates. Russia responded to the sanctions by suspending bilateral agreements and unilaterally re-registering leased aircraft in Russia. Russia’s responses have impeded aircraft lessors seeking to repossess their assets and forced an inevitable write-down of asset values, leading lessors and financiers to file insurance claims. This has dampened the global aviation finance and ABS markets.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"33 - 41"},"PeriodicalIF":0.4,"publicationDate":"2022-07-23","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44079561","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 world is currently facing an unprecedented energy crisis that is contributing to an increase in coal use in power production. The geopolitical crisis in Ukraine and the reliance of Europe on Russian gas has motivated the leaders of the Group of Seven to support public investment in gas projects. Energy security has motivated this position, but it is not the only reason. Energy reliability going forward will require that the push to a global reduction of the carbon footprint include natural gas as the long-term fuel necessary toward this goal. Renewables and natural gas energy production working together are not without challenges. However, together they can answer the questions of energy security and reliability, while significantly reducing the global carbon footprint.
{"title":"Natural Gas—Demand for Security, Energy Transition, and Reliability","authors":"Robert K. Simmons","doi":"10.3905/jsf.2022.1.139","DOIUrl":"https://doi.org/10.3905/jsf.2022.1.139","url":null,"abstract":"The world is currently facing an unprecedented energy crisis that is contributing to an increase in coal use in power production. The geopolitical crisis in Ukraine and the reliance of Europe on Russian gas has motivated the leaders of the Group of Seven to support public investment in gas projects. Energy security has motivated this position, but it is not the only reason. Energy reliability going forward will require that the push to a global reduction of the carbon footprint include natural gas as the long-term fuel necessary toward this goal. Renewables and natural gas energy production working together are not without challenges. However, together they can answer the questions of energy security and reliability, while significantly reducing the global carbon footprint.","PeriodicalId":51968,"journal":{"name":"Journal of Structured Finance","volume":"28 1","pages":"25 - 32"},"PeriodicalIF":0.4,"publicationDate":"2022-07-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"47241418","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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