With record new issue volumes and strong investor enthusiasm driving the U.S. structured finance market to new highs, there was good reason for optimism at the Structured Finance Association’s annual SFVegas conference in Las Vegas in early October. The event, postponed three times due to the pandemic, drew an estimated 2,200 attendees.
Here are my four takeaways from the conference:
Primary market activity is expected to be robust throughout 2022
According to S&P, structured finance new issuance during the third quarter of 2021 was $549 billion, a more than 62% increase from 2020. All market participants at the conference expect issuance to remain strong through Q4 and into 2022. U.S. government stimulus packages from 2020 and 2021 have created strong credit performance in all sectors, especially consumer-focused transactions. There was an acknowledgement that as the stimulus programs roll off, credit performance will normalize.
Integrating ESG into the securitization market
While most securitization issuers incorporate ESG into their corporate business practices, integrating ESG factors into securitization transactions is still in its early stages. This is in contrast to the investor side, where nearly all structured finance investors are applying an ESG framework to their investment decisions, driven by client demand. A number of panel discussions delved into market developments in ESG and impact issuance and investing, as well as the regulatory and legislative initiatives that will shape the market going into 2022.
LIBOR transition is still on the horizon
After several delays, USD LIBOR transition is now set for June 30, 2023. The entire market is focused on providing mechanisms to ensure a smooth and continuous new issue market while limiting disruptions in the transition of legacy contracts. There has been a great deal of work done to create and adopt a new generation of fallback language, but market acceptance and use of alternative rates and related conventions has been slower than anticipated.
Technological innovation in the structured finance market
The potential of distributed ledger technology (DLT) to create operational efficiency and cost savings in securitization transactions was a major focus for issuers, service providers, and investors at the conference. Real world application of DLT in the structured finance market is still in its infancy, but there is obvious value in full transparency and real-time access to asset and performance data as digital assets become a reality in structured finance transactions.
CSC is one of the world’s largest privately held businesses, offering SPV management, independent director, and corporate trust and agency services for capital markets transactions. We support issuers, investors, arrangers, originators, and advisors across all asset classes. To learn more, visit us at cscgfm.com or email me at email@example.com.