By Catherine McGrath
Business Development Capital Markets
CSC Global Financial Markets
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In late September 2021, CSC attended both the Global ABS Conference in London, and the TSI Congress in Berlin. These were our first appearances back on the conference circuit since the COVID restrictions were lifted, and there was, understandably, a positive, buoyant atmosphere. It was great to meet up with clients and colleagues face-to-face once more, and even the torrential rain on the Edgware Riviera couldn’t dampen the mood.
There was a lot covered at both locations, and below we’ve summarised our five key takeaways from both conferences.
Integrating ESG into investment decisions
The EU’s Sustainable Finance Disclosure Regulation (SFDR) is bringing about changes in the way originators will need to report on their sustainability risks and impacts. An update from the regulators is expected in November this year, which should provide further clarity around sustainability reporting for securitisations. In addition, ESG deals are on the rise, particularly in relation to energy efficient homes, electric vehicles, and social impact ventures.
German real estate lending market growing
Domestic banks continue to dominate senior funding in Germany’s real estate lending market, however the pandemic, and incoming Basel IV regulation has intensified their reluctance to finance certain types of assets. Hospitality and retail have been suffering since the start of the lockdowns, and even the financing of offices is becoming increasingly difficult. Whilst banks used to offer loan to value ratios of more than 50%– in some cases they would go up to 70%– they are now more comfortable sticking close to the 50% mark. This reluctance is contributing to a widening of opportunities in the mezzanine space, particularly in smaller deals or niche sectors.
Updated Luxembourg Securitisation Law
Long-awaited updates to the Luxembourg Securitisation Law were submitted to parliament in May 2021, a warmly received development among attendees at both conferences. Among the updates is the clarification of the CSSF supervision requirement, when the means of funding will be expanded, and when active management will become permissible. Luxembourg is a leading jurisdiction for international securitisation structures, with the changes sure to increase the jurisdictions’s appeal as an international financial centre of choice.
Macro-economic factors favouring European ABS
Volatility on interest rates has increased again and demand for assets with lower interest rate sensitivity and higher yield is continuing. Investments with benchmark linked returns are sought after, which is leading many industry participants to look at European ABS. It is one of the few liquid asset classes with a floating rate coupon, and with spreads expected to remain around 75bps above investment grade debt for the foreseeable future, valuations of European ABS look highly desirable across credit markets currently.
Strong demand for BTL and NC RMBS
We heard many reports of an increase in issuances of UK Buy-To-Let (BTL) and Non-Conforming Residential ABS (RMBS) from non-bank originators. Lendco’s inaugural Atlas Funding 2021-1, which CSC acted as Corporate Services Provider on, is an example of new issuance in this sector performing well. Structures such as these utilise reserve funds, excess spread and cashflow diversion, allowing them to remain resilient and able to cope with payment disruptions and other stress scenarios.