THE IRISH SPV REPORT Q2-2018

Transcription

1 THE IRISH SPV REPORT Q Research and analysis by Dominick Barrett, Managing Director at Atlantic Star Consulting. Visit our website at astarconsulting.net. Subscribe to future reports at astarconsulting.net/subscribe. 0

2 CONTENTS EXECUTIVE SUMMARY... 3 Authors foreword... 3 Summary of estimates... 4 KEY DATA THIS QUARTER... 6 Vehicle numbers... 6 Asset and liability breakdown... 6 Country exposures... 7 Sponsor data... 8 ECONOMIC CONTRIBUTION...10 Estimates of GDP contribution Job creation and employment Contribution to the Irish financial services sector SECURITISATION VEHICLES...13 Headline data Asset and liability breakdown Ireland s comparison with other jurisdictions Analysis of Irish FVC administrators Analysis of vehicle types Estimated impact of NAMA vehicles OTHER SPECIAL PURPOSE VEHICLES...20 Headline data Asset and liability breakdown Analysis of vehicle types Aircraft leasing SPVs ADDITIONAL INFORMATION...24 Acknowledgements About Atlantic Star Consulting About the Irish SPV Report About the author Notes on data Subscribe to the Irish SPV Report Contact Atlantic Star Consulting References & sources Updated 12/11/2018 See page 25 for details 1

3 1. EXECUTIVE SUMMARY 2

4 EXECUTIVE SUMMARY AUTHORS FOREWORD I would like to begin by welcoming you, the reader, to this first full publication of the Irish SPV Report. The aim of this report is to provide comprehensive analysis and insights into the Irish Section 110 industry. Having been close to the data on this sector since it was first collected, I felt that there was a lot more that could be offered than was currently available to those in industry. I was encouraged by the positive response to the first version of the Irish SPV Report, which was an infographic publication focusing on Q data. The feedback I received made clear that new data was of huge interest to everyone involved in the various subsectors of the financial economy that make up Section 110. The Central Bank of Ireland chose to lead from the front by collecting this information back in Along with an obligation to uphold its regulatory responsibilities, the reporting allowed the Central Bank to fill various data gaps in the financial sector that very little information was previously available for. Nowadays, SPV & FVC reporting (or CBI reporting as it is sometimes known) has wide industry support, and is an integral part of the administration of Section 110 companies in Ireland. Thanks to this move by the Central Bank, a clearer picture of the sector can now be constructed to better inform investors, service providers, and policy-makers. This sets Ireland apart from any other jurisdiction in the world, and is a win-win for all sides. The Irish SPV Report addresses substantial demand for key data and analysis of this sector. This report will be published on a quarterly basis, and will provide interesting reading for those in the professional services industry, users of Irish SPVs, as well as those who may be considering using Ireland as a location for a new special purpose vehicle. The true value of this report comes from the synergy achieved through combining multiple authoritative datasets and sources to create entirely new insights and data on the sector. After this summary, the report is divided into a further five parts: Part 2 examines headline data, and identifies key trends and developments in the overall Section 110 sector. An analysis of the economic impact of Section 110 is undertaken in Part 3, which looks at the significant contribution to Irish GDP and the jobs market, as well as a look at how this industry plays a crucial part in the growth of Ireland s world class financial services sector. Securitisation companies (also known as FVCs) are the focus of Part 4. These companies make up about half of Section 110. Here we examine how Ireland compares with other European jurisdictions, and look for trends in Irish administration of FVCs. Part 5 looks at other SPVs, encompassing a highly diverse range of activities including intra-group financing, aircraft leasing, and the holding of investment fund assets. Additional information on the report, including details about the author, the publisher, and data sources/references are available in Part 6. Whether you are the managing director of a corporate services firm, an accountant servicing SPV clients, or an investor who uses Irish SPVs, there are new insights here that will help you understand developments in the sector. I hope this report brings you, the reader, value in whatever capacity you hold. Dominick Barrett Managing Director, Atlantic Star Consulting 26 th October

5 SUMMARY OF ESTIMATES Quarterly Change Annual Change Total Assets of Section 110 Companies 686.1bn 10.6bn (+1.6%) bn (-7.1%) Of which FVCs 416.9bn 14.2bn (+3.5%) 24.0bn (+6.1%) Of which other SPVs 269.2bn - 3.2bn (-1.3%) bn (-22.1%) Total Number of Active Section 110 Companies 2, (+2.0%) 241 (+12.4%) Of which FVCs 1, (+6.3%) 145 (+16.0%) Of which other SPVs 1, (-1.7%) 96 (+9.3%) Estimated Current Jobs Created by Section 110 2, (+1.0%) 186 (+8.0%) Of which part of the aircraft leasing industry 1,325-8 (-0.6%) 41 (+3.2%) Of which not part of the aircraft leasing industry 1, (+2.8%) 145 (+14%) Estimated Annualised GDP Contributed by Section m 6m (+1.6%) 37 (+10.4%) By S110s which are part of the aircraft leasing industry 146m - 1m (-0.6%) 5m (+3.2%) By S110s which are not part of the aircraft leasing industry 244m 7m (+2.9%) 32m (+15.1%) Euro Area FVC Assets 1,929bn Irish Share of Euro Area FVC Assets 21.5% Euro Area FVC Vehicle Numbers 4,058 Irish Share of Euro Area FVC Vehicle Numbers 25.4% Average Total Assets of Section 110 Companies 315m Average total assets of FVCs 397m Average total assets of other SPVs 238m 4

6 2. KEY DATA THIS QUARTER A look at the latest trends and developments using aggregated data on all Section 110 companies 5

7 KEY DATA THIS QUARTER VEHICLE NUMBERS Numbers 1 of active Irish Section 110 companies are now at their highest level since the Central Bank began collecting detailed statistics on the sector in 2015 Section 110 companies are growing at an annualised rate of +12.4%, with 241 net new vehicles 2 active since this time last year On average, about 65 net new Section 110 vehicles are launched each quarter 2,300 2,180 2,200 2,137 2,071 2,100 1,995 2,000 1,939 1,876 1,900 1,774 1,800 1,737 1,720 1,688 1,700 1,643 1,600 Number of Active Section 110 Companies ASSET AND LIABILITY BREAKDOWN Securitised Loans, 158.5bn Other Securitised Assets, 33.9bn Equities, 75.6bn Other Assets, 63.9bn Debt Securities, 350.0bn Capital & Reserves, 15.5bn Other Liabilities, 127.1bn Debt Securities, 174.4bn Deposits and Loans, 180.0bn Deposits and Loans, 193.6bn Assets of all Section 110 companies at end-q Liabilities of all Section 110 companies at end-q Total assets of Section 110 companies increased by 10.6 billion during Q2-2018, a change of +1.6% over the quarter, however asset figures were 7.1% lower than a year ago The large drop in assets during Q was influenced strongly by a small number of companies exiting the Section 110 regime 780bn 760bn 740bn 720bn 700bn 680bn 660bn 640bn bn Total Assets of Section 110 Companies 1 Data from Central Bank of Ireland SPE Statistics 2 Data unavailable on gross numbers of new/liquidating vehicles for other SPVs so net figures are used when talking about changes in vehicles 6

8 COUNTRY EXPOSURES No Geographic Info, 173.1bn Ireland, 159.0bn No Geographic Info, 492.4bn Other Countries, 92.1bn United States, 57.3bn United Kingdom, 77.7bn Other Euro Area, 126.9bn ASSETS: Counterparty country of Section 110 companies at end-q Other Countries, 17.9bn United States, 29.0bn United Kingdom, 20.5bn Other Euro Area, 28.0bn LIABILITIES: Counterparty country of Section 110 companies at end-q Ireland, 98.3bn Detailed data on the geographic location of assets and liabilities of Section 110 companies is restricted to certain categories, creating large gaps in coverage. The categories that influence this on the asset side are equities, other securitised assets and other assets, where the Central Bank does not collect geographic counterparty information. DEBT SECURITY HOLDINGS United States, 35.2bn Other, 26.8bn Ireland, 11.0bn Interest accruals on both sides of the balance sheet are not reported with a geographic value, nor are prepayments or receivables. The gap is far larger on the liabilities side due to other liabilities, and debt securities issued by S110 companies. The difference between nominal and market value of securitised loans is reflected as a balancing figure in other liabilities, which does not have a geographic value. This issue is described in further detail in Part 4 of this report. Most debt securities issued by Section 110 companies are settled through clearing systems where counterparty data is not available to the SPV. Large exposures to Ireland on both sides of the balance sheet are concentrated in deposit and loans, likely due to multi-vehicle structures within Ireland. United Kingdom, 29.5bn Other Euro Area, 71.9bn Issuer country of debt security assets held by Section 110 companies at end-q The geographic profile of debt securities held by Irish Section 110 companies is quite broad based. Recent quarters have seen significant increases in holdings of debt securities issued by other euro area entities, up 20.4% over the past year. 3 Published data from the Central Bank includes a breakdown of securitised loans by Issuer Country. It is possible that these loans were issued by entities in one jurisdiction to entities in another, but for the purposes of this graph the Issuer Country is taken as the country of exposure 7

9 SPONSOR DATA Financial Auxilliaries, 235.7bn Non-Financial Corporations, 90.6bn Banks, 207.1bn Other, 326.7bn Insurance Corporations, 6.9bn Government, 44.4bn Households, 5.4bn Other Sectors, 37.3bn Financial Vehicle Corporations, 12.2bn Other Financial Intermediaries, 46.6bn Sponsor sector of Section 110 vehicles by total assets at end- Q Aggregated sponsor data is published by the Central Bank each quarter, but as a percentage figure only. Therefore, some estimation and rounding of the data must be applied to obtain euro amounts. Within sponsor sectors, it is understood that Financial Auxiliaries for the most part refers to fund managers and these would have previously been classified under the OFI (Other Financial Intermediaries) sector 4 in a previous Central Bank publication 5. The Government sector sponsors around 44bn, and this is thought to be focused mostly in the NAMA vehicles. Ireland, 60.9bn United States, 96.6bn United Kingdom, 201.9bn Sponsor country of Section 110 vehicles by total assets at end-q The true extent of sponsor country linkages cannot be shown with this chart as the published data focuses on a small number of countries where concentrations are large. From previous Central Bank publications, we know that there are entities in at least 35 different countries that sponsor Section 110 vehicles 7. Concentrations in the UK and US seem to be focused on fund managers resident in these countries. Irish sponsors are thought to consist mostly of NAMA and the Irish banks who use FVCs for securitisation purposes. Financial Vehicle Corporation sponsors may also be mostly NAMA-related, as indicated by prior Central Bank publications 6. 4 Financial Auxiliaries are a subset of OFI, so this is more of a clarification rather than a reclassification. 5 These sponsors were classified as OFI in the Barrett, Godfrey & Golden QB article, page Barrett, Godfrey & Golden QB article, page 78 7 (see footnote 6) 8

10 3. ECONOMIC CONTRIBUTION Estimates of GDP contribution and job creation by the Section 110 industry 9

11 ECONOMIC CONTRIBUTION ESTIMATES OF GDP CONTRIBUTION Given that the business model of an SPV is essentially based on outsourcing, there are significant challenges in estimating the amount of final economic output created by these companies. CENTRAL BANK ESTIMATES The Central Bank of Ireland estimated 8 in 2016 that fees of approximately 100m were paid by Section 110 companies to Irish service providers in 2015 for accounting, legal, administration and other services that year. The Central Bank s more recent estimates are significantly higher, clocking in at 225m for 2016 and 284m for This is likely due to two factors: 1) the initial figures have been found to significantly underestimate fees paid by SPVs, and 2) the number of Section 110 entities has grown since these estimates first emerged 9. AIRCRAFT LEASING DATA We can now go a step further in estimating the true contribution of Section 110 to the local economy. To produce these estimates, we must look at what is said to be the fastest growing component of Section 110 the aircraft leasing industry. Ireland is widely credited with inventing the aircraft leasing industry in 1975 with the establishment of Guinness Peat Aviation, and today Irish leasing vehicles account for over 60% of the world s leased aircraft. indicate that 550m is contributed to the local economy by aircraft leasing each year. Estimates in this report 11 find that roughly 36% of Section 110 companies are involved in aircraft leasing, and these aircraft leasing SPVs represent about 26.5% of all Irish aircraft leasing companies in terms of vehicle numbers, and 30.4% in terms of assets. 450m 400m 350m 300m 250m 200m 150m 100m 50m 0m COMBINED ESTIMATES Combining Central Bank SPE data with the information from Aircraft Leasing Ireland and these additional estimates allows for a further estimation of the economic impact of Section 110 on the Irish economy. The graph above shows that the combined economic contribution of Section 110 is now estimated 12 at 390m per year, as of Q Est. Yearly Fees (Aircraft Leasing S110s) Est. Yearly Fees (Non-Aircraft Leasing S110s) Total Estimated Yearly Fees Paid by S110 Companies Recent estimates 10 by Aircraft Leasing Ireland, the new industry lobby group which is part of the IBEC family, 8 Barrett, Godfrey & Golden - New Data Collection on Special Purpose Vehicles in Ireland: Initial Findings and Measuring Shadow Banking, Central Bank Quarterly Bulletin Q4-2016, p.78 9 Given that S110 vehicles grew by 26% from 2015 to 2017, and CBI fee estimates grew by 184% over the same time, the author believes that it is reasonable to conclude that the initial estimates were far too low. An examination of a select number of S110 CRO accounts confirms this. 10 Ireland s Aircraft Leasing Industry at a Glance, Aircraft Leasing Ireland, July Estimates are discussed further in Part 5 12 Aircraft Leasing Ireland data explicitly states that their figures of 550m in GDP and 5,000 jobs are a combination of direct and indirect impacts, which we are also applying here. The use of Section 110 allows for these indirect activities such as administration, accounting or vehicle maintenance to take place and so forms part of the overall economic impact estimation. 10

12 JOB CREATION AND EMPLOYMENT BUSINESS MODEL As alluded to in the previous section, the business model of an SPV relies heavily on outsourcing. This means that instead of employing staff directly, the day to day administration and other requirements are contracted to third-parties. In estimating job creation by Section 110 companies, we are not trying to estimate employment by SPVs, but rather employment as a result of SPVs. These estimates include indirect employment that is created due to the formation of Section 110 companies in Ireland, and includes legal, accounting, aircraft maintenance, directorships, and numerous other lines of work. ESTIMATES OF JOB CREATION The Irish Debt Securities Association (IDSA) is an industry organisation formed in 2012 to promote and develop Ireland as a premier location for structured finance. In a detailed publication about the Irish securitisation and SPV industry 13, the IDSA estimated that approximately one job is created for every 1.5 SPVs set up in Ireland. This estimate forms the basis for our own calculations. 3,000 2,500 2,000 1,500 1, ,870 1, ,959 1,968 1, , ,123 Aircraft Leasing Ireland estimated 14 earlier this year that the aircraft leasing industry supports around 5,000 Irish jobs. 1, ,266 2,319 2,352 2,418 Using estimates of the proportion of Section 110 in the Irish aircraft leasing industry from the previous section, we can combine this data with existing sources to create a more complete estimate of job creation by Section 110 companies. As seen in the chart above, these estimations show that Section 110 supports around 2,500 jobs in Ireland today, an amount which has steadily been increasing over the past three years as the industry continues to grow. This is an increase of almost 200 new jobs over the year, which is evidenced by the announcement of expansion plans by several companies in the sector 15. 1,267 1,000 1,284 1,035 1,284 1,069 Est. Jobs Created (Aircraft Leasing S110s) 1,306 1,112 Est. Jobs Created (Non-Aircraft Leasing S110s) Total Est. Jobs Created by S110 Industry 2,481 2,505 1,333 1,148 1,325 1,180 CONTRIBUTION TO THE IRISH FINANCIAL SERVICES SECTOR The Government s IFS2020 Strategy aims to create 10,000 jobs in Ireland s international financial services sector over the course of the period, equating to around 2,000 high-value new jobs every year. In his foreword to the 2018 Action Plan, Minister of State Michael D Arcy TD outlined the Government s commitment to continue to grow Ireland as a specialist international financial services hub, Our estimates demonstrate that Section 110 is already a key driver of this growth - the rate of job creation by the Section 110 industry may be contributing as much as 10% of the growth targets set by the Government for the international financial services sector. 13 Special Purpose Vehicles and the Securitisation Industry in Ireland Q&A, Irish Debt Securities Association 14 (see footnote 10) 15 Notable announcements in the SPV administration subsector in recent months include the plan by Intertrust Ireland to create 60 new jobs in Dublin, and the plan by DMS Governance to create 50 new jobs in Cashel. 11

13 4. SECURITISATION VEHICLES A detailed look at data and analysis of Irish Financial Vehicle Corporations

14 SECURITISATION VEHICLES HEADLINE DATA 1,150 1,100 1,051 1, , Number of Active Securitisation Vehicles Total Assets of Securitisation Vehicles Securitisation vehicle numbers continue to climb substantially, growing at a rate of +14.7% over the year to Q Vehicle numbers were impacted by the switch of 40 vehicles from SPV to FVC reporting during the quarter Underlying FVC numbers grew by 22 during the quarter, reflective of past quarterly trends Assets of securitisation vehicles increased by 14.2bn (+3.5%) over the quarter, to 416.9bn. This is primarily due to 8bn moving over from SPV reporting, and positive FX movements in USD denominated securitisation vehicles The average size of an FVC now stands at 397m, down from a year ago when it was 434m. This is likely due to older, larger vehicles being replaced by a larger volume of new, smaller vehicles 16 INFLOWS & OUTFLOWS Net inflows into securitisation vehicles were positive for the fourth straight quarter at 5.7bn, totalling 6.1bn year to date Around 2bn net short-term debt securities (<2yrs) were issued during the quarter, while 0.8bn in longer-term issuance was redeemed Around 3.6bn in new loan liabilities were drawn down by FVCs this quarter, the highest amount in a single quarter since bn in new deposit and loan assets were also created, this may indicate increasing use of multivehicle FVC structures Billions Q3 2014Q4 2015Q1 2015Q2 2015Q Transactions in securitised loans with Irish debtors 17 continued a trend of decline, reducing by 2.7bn during the quarter Net Quarterly Flows This was indicated by the Central Bank in their Q SPE release, noting also that the activities of FVCs were becoming more diverse 17 This includes both household and non-financial corporate debtors resident in Ireland 13

15 ASSET AND LIABILITY BREAKDOWN Debt Securities, 115.6bn Securitised Loans, 140.2bn Debt Securities, 242.7bn Deposits and Loans, 79.1bn Other Assets, 23.8bn Equities, 35.3bn Other Securitised Assets, 22.9bn Deposits and Loans, 75.0bn Other Liabilities, 99.2bn Capital & Reserves, 0.0bn Assets of all securitisation vehicles at end-q Liabilities of all securitisation vehicles at end-q Securitisation vehicles can be broken down into two categories: 1) vehicles which issue debt and take on the credit risk of assets themselves, and 2) vehicles which use more than one company to achieve this (multi-vehicle structures). This distinction is important to understand the statistical treatment of securitisation sector assets and liabilities. The two FVCs used by NAMA operate a multi-vehicle structure which can influence asset and transaction figure disproportionately. The key assets held by FVCs are debt securities and securitised loans, accounting for 61.4% of holdings. Together with equities and other securitised assets, these account for 75.3% of FVC assets. Other assets include derivative assets, accruals of interest receivable, and prepayments. Deposit and loans account for approximately 19% of assets and 18% of liabilities. The following graph shows how these categories have moved over time, and the degree of correlation is noteworthy. The excess of deposit and loan assets over liabilities can likely be explained by overall FVCs increasing their holdings of cash and bank deposits, which can be necessary in their normal course of business. 100bn 90bn 80bn 70bn 60bn 50bn 40bn 30bn 20bn 10bn 0bn As would be expected, debt securities are the main liabilities of Irish FVCs with a value of 242.7bn Deposit & Loan Assets The other liability category includes derivative liabilities, accruals of interest payable, accounts payable, and a balancing figure which enables securitised loans to be reported at nominal value Deposit & Loan Liabilities 18 Under Regulation ECB/2013/40 which forms the legal basis for FVC reporting, certain categories must be reported at nominal value, including securitised loans. Debt securities are reported at market value, as are most other categories, so the balancing figure accounts for the difference between nominal and market value. 14

16 DEBT SECURITIES ISSUED The maturity profile of debt securities issued by Irish securitisation companies was little changed during the quarter, although there was an increase in shorter maturity debt. Over 90% of debt issued by FVCs has a maturity of greater than 2 years, with about 9% having a maturity less than one year. 300bn 250bn 200bn 150bn 100bn IRELAND S COMPARISON WITH OTHER JURISDICTIONS 50bn 0bn Q3 2014Q4 2015Q Q2 2015Q Over 2 years Between 1 and 2 years Up to 1 year Ireland is one of the leading jurisdictions globally for securitisation, due in part to several significant beneficial factors including an extensive double taxation treaty network, excellent corporate and legal infrastructure, and the Section 110 tax regime. Spain 10.4% France 12.1% Belgium 3.4% Germany 2.7% Portugal 1.5% Malta 0.1% Ireland 21.5% Annual Growth Rate in FVCs 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% Ireland 16.2% 5.9% 5.9% Italy Luxembourg -4.9% 5.6% France Netherlands Spain -5.8% Portugal -8.7% -12.5% -9.7% Malta Germany Belgium -13.3% Luxembourg 13.6% Netherlands 13.8% Italy 20.7% Share of euro area securitisation assets at end-q This fact is reflected in the figures, as can be seen in the above chart. Ireland has the euro areas largest share of securitisation assets 19 and is second only to Luxembourg in terms of numbers of securitisation vehicles. The growth rate of Irish FVC vehicle numbers is the fastest in the euro area, clocking in at +16.2% yearly growth. The next fastest growing jurisdictions are Italy and Luxembourg at +5.9%, while vehicle numbers in several jurisdictions fell over the past year. Ireland accounts for 21.5% of euro area FVC assets and 25.4% of euro area FVC vehicles, demonstrating that a significant slice of market share is domiciled in this jurisdiction. The amount of ISIN coded debt securities issued by Irish FVCs is at its highest recorded figure this quarter, with 4,965 individual codes issued Q Q Q Q Q Q3 Unique ISINs Issued by Irish FVCs Q Q Q Q Q Q Q2 19 Data sourced from European Central Bank FVC Statistics and List of FVCs 15

17 ANALYSIS OF IRISH FVC ADMINISTRATORS ECB data suggests that there are as many as 39 administrators active in the Irish securitisation market 20. Despite this, most FVC administration is concentrated in 4 large service providers 21, as shown in the chart below. Many other smaller providers however thrive on their own niche of the market. The big 4 currently have very similar market share, which may be evidence of a competitive environment, but also of a very healthy market 22. The industry has undergone several mergers over the past few years, which has contributed to the concentration of FVCs in a smaller number of larger administrators This dispersion is complicated however by the fact that there are varying rates of growth within smaller firms, whereby many smaller administrators are growing their share significantly, yet others are winding down crisis-era vehicles. Number of FVCs Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Number of FVCs Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 TMF Administration Services Ltd Deutsche International Corporate Services (Ireland) Ltd Vistra Alternative Investments (Ireland) Limited Maples Fiduciary Services (Ireland) Ltd Intertrust Group Top 4 Administrators All Other Administrators Despite the significant concentration among the big 4, there are signs that the smaller administrators are starting to collectively grow their numbers again. FVCs administered by smaller administrators are up 7.2% over the past year, and by 16.8% over the past two years. Collectively, this group of large administrators has added more than 120 new FVCs over the past four quarters, and almost 200 in the past two years. The market share of these top 4 FVC administrators has grown significantly over the past 5 years, while the rest of the industry has, on average, remained flat. 20 Not all of these are private commercial entities, as NAMA is counted as an administrator under ECB statistics 21 Vistra acquired Deutsche Bank s corporate services business in 2018 but is registered as a separate legal company 22 The decline in FVCs administered by the Deutsche corporate services division over the years was due to a disproportionately large market share in the pre and post-2008 crisis period, as high as 36% in this data sample. Many of these FVCs came to the end of their natural lifespan around , which resulted in falling reporting numbers. 23 Intertrust acquired Structured Finance Management and Elian Fiduciary Services in 2016, but still reports these FVCs under the separate (rebranded) companies. These three entities are merged into one for the purposes of this analysis. 16

18 ANALYSIS OF VEHICLE TYPES NAME ANALYSIS To analyse the different types of FVC that exist and estimate growth rates for these types, a name analysis of individual FVC vehicles was conducted 24. CENTRAL BANK DATA Asset figures for FVC vehicle types are estimated using Central Bank SPE publication charts and adjusting for known data gaps 25. Number of FVCs Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q2 CLO CDO MBS This analysis examined FVCs that had one of the following attributes in their name: bn 62.5bn 50.5bn Other FVCs Cash CDO Multi-Issuance Vehicles 45.0bn 43.0bn RMBS Corporate ABS 38.0bn 30.0bn 29.0bn 17.5bn 7.0bn CMBS ABCP Programme NAMA-Related Synthetic CDO Consumer ABS CLO CDO MBS (or Mortgages ) The results are very interesting, and it is unlikely that this type of analysis has been accurately compiled before on Irish FVCs. Although it is not entirely certain what is contained in the Other FVCs category, it is likely that most of the new diverse activity such as royalty payments and nursing home receipts and life settlements 26 exists here, along with activities like peer-to-peer lending which do not fit into any of the other categories. The data shows that CDO and MBS-type vehicles (which were indicative of the pre-crisis period) have been steadily declining since the beginning of This is likely due to the natural lifespan of these vehicles coming to an end, combined with a lack of new issuance to make up for the decline. CLO type vehicles, on the contrary, have undergone something of a boom over in the past 5 years, rising from 49 vehicles in Q to 159 in Q This research examines the presence of key phrases such as CLO in the legal name of companies which report as FVCs. The European Central Bank publishes a list of FVCs quarterly. 25 In the most recent two publications, the Central Bank omitted data on the assets of NAMA FVCs, so these were estimated using published NAMA S.55 accounts, Consumer ABS was also omitted and so was estimated here. 26 References from Central Bank of Ireland SPE Statistics Q

19 ESTIMATED IMPACT OF NAMA VEHICLES NAMA operates two FVCs which report to the Central Bank of Ireland and European Central Bank under statistical reporting requirements. As has been widely publicised, these FVCs took on large mortgage books from Irish banks at significant haircuts to nominal value. Due to the requirement in ECB statistics that securitised loans must be reported at nominal value rather than the market price, or price that loans are acquired at, this meant that activities in NAMA vehicles can distort overall FVC statistics. The effect of NAMA loan sales has meant that FVC assets have been depressed in recent years, masking underlying activity in the sector. 500bn 450bn 400bn 350bn 300bn 250bn 200bn 150bn 100bn 50bn 0bn FVC assets excluding NAMA Total FVC assets Assets of NAMA FVCs For example, the chart opposite shows that FVC assets declined by 15.2bn from Q to Q When NAMA FVCs are excluded however, assets grew by 13.8bn over this period. This effect is likely to subside in future quarters, as NAMA nears the end of its operational life, however many loans still exist on NAMA s books through the National Asset Loan Management FVC. It is currently estimated that NAMA vehicles account for about 29bn of assets within FVC statistics. 18

20 5. OTHER SPECIAL PURPOSE VEHICLES Trends and analysis of Section 110 companies that are not engaged in securitisation activities 19

21 OTHER SPECIAL PURPOSE VEHICLES HEADLINE DATA 1,300 1,200 1,148 1,129 1,109 1,100 1,067 1, , Number of Active Other SPVs 400bn 350bn 300bn 250bn 200bn 150bn 100bn 50bn 0bn Total Assets of Other SPVs Other SPV numbers continue to climb substantially, growing at a yearly rate of +8.4% since Q The drop in vehicle numbers during Q was primarily due to the switch of 40 vehicles from SPV to FVC status Central Bank data confirms that despite this switch, underlying SPV numbers grew by 21 during the quarter, which is reflective of past quarterly trends Assets of other SPVs declined by 3.6bn over the quarter, clocking in at 269.2bn at end-q This is despite 8bn in assets moving over to the FVC population, so underlying assets increased by 4.4bn during the quarter The average size of other SPVs stands at 238m this quarter, which is down from 334m a year ago and far below the average FVC size of 397m INFORMATION ON OTHER SPVS The other SPV population contains significant diversity of activity, with many vehicles falling outside the scope of traditional classification. The population includes treasury companies involved in the financing of non-financial corporations, vehicles involved in the holding and leasing of aircraft, and SPVs linked to banks, insurance companies, and investment funds. A key motivation for the Central Bank beginning the collection of this information in 2015 was to find out the extent of interlinkages with regulated entities, and to fill statistical data gaps that existed within the Irish financial sector. 20

22 ASSET AND LIABILITY BREAKDOWN Debt Securities, 58.8bn Securitised Loans, Other 18.3bn Securitised Assets, 33.9bn Deposits and Loans, 118.6bn Debt Securities, 107.3bn Deposits and Loans, 100.9bn Equities, 75.6bn Other Assets, 63.9bn Other Liabilities, 27.9bn Capital & Reserves, 15.5bn Assets of all other special purpose vehicles at end-q Three major types of vehicles exist within this population which accounts for most assets and liabilities. This analysis would not be complete without a detailed description of each. Firstly, investment-fund linked SPVs are generally set up to receive a profit participating loan from the investment fund and acquire the ultimate assets of the fund. This accounts for a large proportion of deposit and loans on the liabilities side, and a variety of categories on the assets side. These structures often seek to make use of Ireland s extensive double taxation treaty network. Liabilities of all other special purpose vehicles at end-q A significant asset category not covered by these three examples is that of Other Assets. Although not separated out here, fixed assets (including property, plant and machinery) forms a large part of this item and is represented by the many aircraft leasing transactions done through Section 110. Loan origination vehicles account for a large part of deposit and loan assets, however these companies drastically reduced in assets values during Q as the L-QIAIF structure was utilised by certain companies who exited Section 110. Second, intra-group financing SPVs generally funnel cash throughout a parent organisation, consisting of back-toback loan transactions. It is thought that multinational companies may be using this structure for tax efficiency reasons, although circumstances may have changed as assets in this category dropped by 25bn in Q due to the exit of some SPVs from the Section 110 regime. Finally, treasury companies issue debt securities which are often listed on the Euronext Dublin exchange and further the proceeds to their parent company. 21

23 ANALYSIS OF VEHICLE TYPES The most significant growth in other SPV vehicle types over the past two years has been in investment fundlinked vehicles and aircraft leasing vehicles. Bank-Linked Investments, 8.0bn Other, 20.5bn Fund-Linked Investments, 88.0bn Investment fund linked SPVs accounted for 32.7% of other SPV assets at end-q This compares with a share of only 21.5% when SPV data was first published in Q The resolution vehicle category was originally designed to accommodate a NAMA vehicle which was not otherwise included in FVC statistics. Resolution Vehicle, 7.0bn Operational Leasing, 29.0bn Loan Origination, 10.0bn Bank-linked investments are said to hold a wide variety of assets, but the category has been declining since 2015, having fallen by over 45% since then. External Financing, 61.5bn Intra-Group Financing, 45.5bn Assets of all other special purpose vehicles by vehicle type at end-q AIRCRAFT LEASING SPVS A significant amount of Section 110 companies are involved in aircraft leasing activities. Central Bank estimates 27 show that in 2015, about 300 SPVs were involved in these types of transactions Using this as a benchmark, and by also tracking the growth of operational leasing assets in published Central Bank statistics, we can estimate 28 vehicle numbers and assets for this segment of the reporting population Estimated Aircraft Leasing S110 Companies bn 35bn 30bn 25bn 20bn 15bn 10bn 5bn 0bn Operational Leasing Assets To estimate finance leasing assets, initial estimates were taken from the 2016 Central Bank SPV paper and the growth rate of operational leasing assets was then applied each quarter. Combined, aircraft leasing SPVs accounted for around 33.4bn in assets and 410 companies at the end of Q Finance Leasing Assets Osbourne-Kinch, Coates & Nolan - The Aircraft Leasing Industry in Ireland: Cross Border Flows and Statistical Treatment, Central Bank of Ireland Quarterly Bulletin Q1-2017, p The ratio of 36.5% (300/822 SPVs according to CBI estimates) was applied to published SPV numbers each quarter for one method. Then this basis of 300 was estimated for each quarter using the growth rate of operational leasing assets. An average of these two methods was taken as the final estimates for the vehicle numbers in the graph shown above. 22

24 6. ADDITIONAL INFORMATION Background information on the Irish SPV Report 23

25 ADDITIONAL INFORMATION ACKNOWLEDGEMENTS The author would like to extend his sincere thanks to Gary Palmer from the Irish Debt Securities Association for his helpful suggestions for this report. ABOUT ATLANTIC STAR CONSULTING Atlantic Star Consulting is a consultancy offering statistical and regulatory reporting solutions, specialising in Central Bank of Ireland FVC & SPV reporting requirements. We help clients report this data to the Central Bank through consulting and staff training services. Atlantic Star Consulting is also registered to report SPV and FVC data to the Central Bank on behalf of clients. Clients of Atlantic Star Consulting are welcome to request additional insights and analysis following on from this publication. Unfortunately, we are currently unable to offer this to non-clients. ABOUT THE IRISH SPV REPORT The Irish SPV Report is a quarterly publication by Atlantic Star Consulting highlighting key trends and developments in the Irish Section 110 industry. The report combines multiple sources of data and information to create a comprehensive analysis of Irish SPVs. ABOUT THE AUTHOR Dominick Barrett founded Atlantic Star Consulting in 2018 and is Managing Director of the company. He holds a Master s Degree in International Finance, Bachelor of Civil Law and a Higher Diploma in Economic Science, all from NUI Galway. Dominick previously worked in the Central Bank of Ireland and was a key part of the team that began the collection of statistical data from Irish Section 110 companies in He was also involved in the data collection and analysis of credit institutions, money market funds and investment funds. He co-authored two published papers on financial statistics, one in the Central Bank s Quarterly Bulletin and the other was presented at the Bank for International Settlements Irving Fischer Committee Conference in NOTES ON DATA Most statistical data on Section 110 companies is sourced from the Central Bank of Ireland SPE statistics, which consist of a quarterly publication and statistical data tables. Atlantic Star Consulting combines data on Section 110 companies from numerous authoritative sources into a master dataset which is the basis for this report. A full list of references is supplied on the following page. SUBSCRIBE TO THE IRISH SPV REPORT To receive the next copy of the Irish SPV Report direct to your inbox for free, simply sign up at the following link: CONTACT ATLANTIC STAR CONSULTING Atlantic Star Consulting can be contacted through info@astarconsulting.net You can also find the company on LinkedIn: 24

26 REFERENCES & SOURCES Central Bank of Ireland SPE Statistics European Central Bank Financial Vehicle Corporation Statistics European Central Bank List of Financial Vehicle Corporations Osbourne-Kinch, Coates & Nolan - The Aircraft Leasing Industry in Ireland: Cross Border Flows and Statistical Treatment, Central Bank of Ireland Quarterly Bulletin Q Barrett, Godfrey & Golden - New Data Collection on Special Purpose Vehicles in Ireland: Initial Findings and Measuring Shadow Banking, Central Bank of Ireland Quarterly Bulletin Q Special Purpose Vehicles and the Securitisation Industry in Ireland Q&A, Irish Debt Securities Association Ireland s Aircraft Leasing Industry at a Glance, Aircraft Leasing Ireland, July 2018 IFS 2020 A Strategy for Ireland s International Financial Services Sector Action Plan 2018, Government of Ireland, January 2018 Lawyers and accountants share 284m SPV fees at IFSC - The Irish Times, May 2018 UPDATE HISTORY - 12/11/2018: Page numbering added, correction of chart on sponsor country of all S110 vehicles, general formatting improvements, added page numbers to Contents COPYRIGHT & DISCLAIMER This publication is produced by SPV Reporting Services Limited t/a Atlantic Star Consulting (the Company ), a company limited by shares and registered in Ireland (No ). The author has taken great care in order to produce accurate information in this publication, 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 it is primarily derived from third party sources over which the Company and the author has no control. Information in this publication is provided as-is and the Company accepts no liability arising from actions undertaken by any party as a result of this publication. The Irish SPV Report is Copyright 2018 SPV Reporting Services Limited, all rights reserved. Attribution Rights You may reproduce, disseminate, or otherwise share this publication freely, so long as you clearly attribute the content to Atlantic Star Consulting. If you have any doubts about permissions surrounding this publication, please contact info@astarconsulting.net for clarification. 25

27 Irish SPV Report Q Atlantic Star Consulting astarconsulting.net