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What are the key securitization trends emerging in Europe in 2021? Intertrust Group's capital market specialists, Cliff Pearce, Anne Flood, Helena Whitaker, Ellen Chislett, Arno Vink and Salvatore Rosato share their insights
At the start of the Covid-19 pandemic, underwriters of underlying assets to be securitized were facing uncharted territory. Over a year on, such assets can be scrutinised much more accurately, providing originators and investors with a clearer view of credit quality.
We've looked at securitization trends across Europe's key financial centres. Overall we find that the picture is encouraging. If asset valuations in areas such as residential property continue to rise, and developing trends such as green mortgage products take off in earnest, 2021 could prove a vintage year for securitization.
Ireland: NPLs and CLOs on the rise
Ireland's special purpose vehicle (SPV) securitization market grew more than 9% in the past year, despite Covid, with collateralised loan obligation (CLO) transactions being a key growth driver. Of the 4,579 securitization vehicles reported in 2020 across the Euro area, 29.8 % were domiciled in Ireland.
The country is now recognised as the leading jurisdiction for domiciling CLO SPVs following the changes in VAT legislation in the Netherlands, which saw the migration of the majority of Dutch CLOs to Ireland.
We also see new opportunities within the non-performing loan (NPL) market. As banks across Europe start to de-leverage their books following the pandemic, we expect to see securitization of these loan books through Irish SPV issuers.
Additionally non-bank lending continues to grow, with many alternative lenders establishing loan origination platforms in the jurisdiction.
UK: ESG to spur new opportunities
The pandemic has seen evolution in UK capital markets. There are more diversified opportunities among small and medium-sized enterprises (SMEs). New territories and products include green mortgages, social housing schemes and the Covid Business Interruption Loan Scheme (CBILS).
Many of these are on the periphery of traditional structured finance, therefore the skills and knowledge of the team are readily translated into other asset classes, such as insurance-linked securities (ILS).
We also expect the prevalence of artificial intelligence (AI) matched with Environmental, Social and Governance (ESG) consumer choices to have a big impact on underwriting credit in the UK.
Jersey: cryptocurrency deals transactions flowing
Jersey's deal flow remains frothy, with cryptocurrency transactions and securitization structures - welcome after two quiet years - both playing their part.
The island is seeing a renewed uptake of private market products, such as Protected Cell Companies (PCCs). Clients from Switzerland and Lichtenstein especially are looking at actively managed certificates in Jersey.
Family Offices and banks from these markets are attracted to their streamlined, repeating structures that can be rolled out with identical documentation. The deals are often small, bespoke and carried out for a reasonable fee.
The Netherlands: buy- to-let attracts foreign originators to mortgage-backed securities
The Dutch residential mortgage-backed securities (RMBS)and related buy-to-let space are attracting interest from foreign parties and private equity-backed non-bank financial institutions (NBFIs) searching for yield.
Meanwhile warehouse financings are attracting the likes of Citibank, which made its Dutch buy-to-let RMBS debut last year. The deal brought together a €213m full stack of mortgages from three different originators. Other players that have issued a number of portfolio transactions in the buy-to-let space include Dominvest, CarVal-backed RNHB, De Nederlandse, Nestr and Casarion, according to a report by Global Capital.
Luxembourg: multi-jurisdictional mandates and multi-compartment structures gain popularity
With 29.3 % of Euro area securitization vehicles in 2020 domiciled in Luxembourg, it remains one of the region's hot spots. Many deals are being funnelled through the country's pan-European private equity structures thanks to flexible securitization laws that suit multi-jurisdictional vehicles.
Advisers considering Luxembourg are of course looking for competitive and sensitive pricing, as well multi-compartment cell structures for their clients who, increasingly, are private equity sponsored NBFIs.
We are also recently seeing the repackaging of existing notes issued by non-European entities in Luxembourg, RMBS and securitisation of German auto or equipment leases. We expect these transactions to become a wider trend.
Originators and investors in another developing, yet complex securitization product, supply chain financing, are still testing the waters given its short maturity (between 60 to 120 days). The multi-compartment structure, regulated by the Luxembourg Securitisation Law, provides a high level of protection to investors and represents a valuable risk mitigation factor for such complex deals.
Overview: pan-European trends carving out new asset classes
If we had to pick two trends that will have the biggest pan-European impact on the securitization market, we'd highlight ESG and the growing investor appetite down the credit curve. Policy-driven green initiatives will carve out new asset classes.
Once a split between traditional and green pricing emerges, we expect more green bond issues to come to market along with private equity funds dedicated to the green securitization opportunity.
Intertrust Group recently won the SPV Administrator of the Year award at Global Capital's European Securitization Awards
Why Intertrust Group?
Intertrust Group is at the forefront of securitization regulation in key markets including Luxembourg, Irelands, the UK, the Netherlands and the Channel Islands.
We have on the ground securitization experts across major financial centres with track records in traditional and alternative funding structures
Our experts are in tune with emerging assets classes (including green mortgages, supply chain and enterprise value financings and NPLs) and the needs of NFBIs to structure them to appeal to a pan-European investor base
We can help clients meet growing KYC reporting requirements in multi-jurisdictional products