Swift and decisive action by the Fed and the structural prudence in securitisation have helped contain the damage due to the pandemic in sub-investment grade notes. As markets begin to calm down and issuances picks up pace, there are pockets of opportunity, although caution is necessary.
This paper analyses how structured finance in the US is dealing with the impact of the pandemic, summarises key Fed/government announcements that have helped stabilise the market and illustrates the opportunities arising from the TALF 2.0 programme. The paper also identifies some key trends that will shape the future of credit landscape and their potential impact on securitisation.
* TALF 2.0 could provide attractive returns on AAA investments, subject to good entry and exit points
* Lifestyle changes associated with the pandemic are going to alter demand for household credit, and commercial-credit trends — such as accelerated adaptation of internet, redeployment of supply chains, increased ESG concerns — are going to create unique opportunities and challenges for various structured-finance asset classes
* We expect elevated levels of uncertainty around the social, economic and political environment, at least in the short run.
* Capital-market participants should be prepared to break old moulds and adapt to the changing landscape
The authors are grateful to Chamara Gunetileke and Shankar Shivakumar for their invaluable contributions and guidance.
Originally published at https://www.acuitykp.com.
About the Authors
Aditya Arora, Assistant Director, Specialised Solutions, has over 9 years of experience in securitisation spreads across modelling, valuation, portfolio management and risk analytics. At Acuity Knowledge Partners, he is responsible for managing and developing our Structured Finance offerings. Aditya started his career as a Fixed Income Analyst and has a proven record of setting up and up-scaling analyst teams, facilitating knowledge transfer from onshore locations and enabling development of tech solutions. He is an alumnus of BlackRock, Deloitte and UBS. He is a CFA Charterholder and also holds a master’s degree in Management and a bachelor’s degree in Technology from the Indian Institute of Information Technology and Management.
Vikram Kumar R, Delivery Manager, Specialised Solutions, is a management postgraduate with over 10 years of work experience. At Acuity Knowledge Partners (Acuity), he has worked with two bulge-bracket sell-side clients in managing their bespoke data management, research and publication requirements for US and EMEA securitisation markets. Prior to Acuity, he worked with Accenture Credit Services (formerly Zenta Knowledge Services Pvt Ltd) and Silverskills Pvt Ltd on US commercial lending-related bespoke services.
Vikram completed a Post Graduate Program in Management (Finance and Marketing) at Indus Business Academy and holds a Bachelor of Commerce from Loyola College.
Ramakrishna Reddy, Delivery Lead, Specialised Solutions, has over 6 years of experience in financial services, spanning research and portfolio analytics and risk reporting. At Acuity Knowledge Partners, he has worked with multiple clients, supporting them on critical tasks including sector research and outlook publication, performance data monitoring, attribution analysis, and factor-based risk/return analysis.
Ramakrishna holds a master’s degree in management from Christ University and a bachelor’s degree from Aurora’s Technological & Research Institute.
B P Sunil, Associate, Specialised Solutions, has over 5 years of experience in the structured products space, spanning portfolio management and risk analytics. At Acuity Knowledge Partners, he has worked on multiple client engagements, supporting both the sell-side and buy-side functions. He previously worked at Thomson Reuters.
Sunil holds a master’s degree in business administration and a bachelor’s degree in management from M S Ramaiah Institute of Technology in Bangalore.