The future of Securitization: Alantra at ABS Global 2023

Alantra’s European FIG team sponsored the 27^th Global ABS Conference in Barcelona. With record attendance of over 4,500 issuers, investors, banks, lawyers and more coming together to discuss the most important trends shaping the industry this year and beyond.

Below, our team summarise the key themes discussed, including the latest in:

• Significant Risk Transfer (SRT);
• Non-Performing & Reperforming Loan (NPL & RPL);
• Funding;
• Trade Receivables;
• Commercial Mortgage-Backed Security (CMBS); and
• Regulations

SRT

The first half of this year’s SRT pipeline has been busy. There have been several transactions executed, both funded and unfunded. Some of the ‘known’ investors have been particularly active – including Magnetar, Chorus, CRC – but also the insurers. There is however, still capacity and appetite for Southern European SRTs from both the ‘known’ investors and insurers. Equally, we met a number of potential new accounts keen to explore this asset class – particularly in the SME and corporate space, such as Centerbridge, Elliott, Bayview and Glenmont.

NPL and RPL

In this sector, conversations have been focused on existing NPL ABS structures and their performance. There are some transactions that are underperforming the original business plan and importantly, we are seeing several structures under-hedged, with collections used to cover the increase in Euribor rates. However, the upside is that there are also a relatively significant number of NPL transactions are performing in-line with original expectations or even, outperforming the initial business case for instance, Portuguese NPL ABS.  Another recurring topic from our discussions was the available structures for granular UTP and RPL portfolios – with both investors and originators working to establish private transactions backed by SME and residential mortgages (the latter has been tested with success in Ireland – where Alantra has been active).

Interestingly, potential securitisations of UTP and RPL seems to also be a hot issue for rating agencies. In discussions with them it’s evident that there is an internal discussion to possibly adjust their methodologies, in order to provide ratings for such securitisation.

Funding

For the first time in a while, we have seen banks (originators) keen to explore ABS for funding purposes. The current rate environment – coupled with central banks tapering – is putting funding requirements in the spotlight.

Funding has always been an important topic for alternative lenders (NBFI), which are keen to explore options to their current funding model. At this year’s ABS there were numerous discussions on forward flow and tranched warehouses for an ABS term exit.

We have also observed a lot of interest from asset managers to provide tranched and untranched solutions to NBFIs, focusing on solar installations for retail customers, given the strong ESG focus across the securitisation community. Some of the lenders are expanding into other equipment to generate renewable energy, in particular heat pumps.

In addition, the ‘mezzanine’ dilemma – in particular for NBFI but also for small lenders with fixed rate portfolios.  Mezzanine and junior finance is available, but at returns that are unaffordable for many portfolios.  The EIF, EBRD, EIB and in the UK, the BBB are trying to ‘fill the gap’, particularly in the mezzanine space for those originators that have an SME focus.

Trade Receivables

Trade receivables have been less of a focus recently. This is traditionally an asset class that has always performed, given the short nature of the repayment profile. However, the focus from investors in this asset class now seems to be more and more on the due diligence required to set up these transactions.

CMBS

CMBS is not a new topic. In a post-covid environment and with ESG upgrades looming and office occupancy still low, a number of existing CMBS are struggling to refinance on both sides of the Atlantic. This could therefore be an opportunity for longer dated investors with capacity to actively manage real estate portfolios.

Regulations

As usual, there have been a lot of discussions around the P factor (outside the output floor) and of course Art. 5 of the Securitisation Regulation and the due diligence requirements that EU investors need to satisfy when investing in ABS. With the DA recently releasing a report by AFME yesterday (available here).

Comparatively however, the latest EBA Draft RTS on the calculation of exposure values of synthetic excess spread (EBA/RTS/2023/02) has been received well by the industry.

If you would like to get in touch to find out more about the above topics, please contact our European FIG team.