Contents

Capital Relief Trades

SRT: The long view – video

Man Group's Moniot delves into key differences between European and North American SRT

Matthew Moniot, md and co-head of credit risk sharing at Man Group in London, speaks to SCI’s Simon Boughey about the latest trends and developments in the SRT market. Moniot discusses the differences in attitude to – and regulation of – the synthetic securitisation market in Europe and North America, as well as the continuing utility of the mechanism to banks on both sides of the Atlantic.

Alternative assets

Leader of the pack

Digital securitization the star turn in 2024 and the future

Esoteric issuance has been voluminous in 2023 and this will continue in 2024, led in particular by data centre securitization, according to speakers at this week’s JP Morgan’s securitized products 2025 outlook webinar.

The bank divides the ABS world into 30 different product categories and supply this year in “other”– which covers the esoteric world – has increased 45% from 2023. Sectors like whole business securitization, fibre cables and data centres have seen an “explosion of growth,” says head of ABS trading Lily McGettigan.

But the star performer is data centre securitization, which will continue to be a “big driver of supply,” she adds. There were 48 unique ABS new issuers in 2023, and there have been 260 since 2020, and many of these have been data centre lenders.

This space is growing and here to stay. If you think of all the fibre currently being been laid underground, developers will need to take out ABS, she says, noting that some areas of digital securitization have swollen by 1000% since 2016.

“I don’t think I can leave this panel without saying the words “data centres” because they are going to be such a major driver of growth in supply,” agrees Jeremy Hellinger, head of CRE lending solutions and secondary CRE loan trading.

JP Morgan is currently out with a US$2bn data centre securitization loan and has another in the works. “The digitization growth relying on data centres is huge,” he comments. Indeed, it is sometimes hard to believe that there is enough capital out there to meet this yawning need, but the expected Trump administration de-regulation will free up bank balance sheets, Hellinger predicts.

Moreover, developers are supported by the highest quality corportions that need the money, including the top five tech firms that have a big presence in AI. Current CRE investors need to think about where they can deploy capital in data centres, because there will be a lot of product out there and it will be cheap relative to corporate debt such as Amazon and Microsoft and these are the credits that will be supporting the assets.

“This is where we are playing and a lot of our competitors are playing but we will need an enormous amount of investor participation,” he concluded.

The ABS sector overall has had a bumper year, with around US$300bn of issuance so far and the record-breaking total of US$320bn seen in 2006 is likely to be surpassed. This number has been underpinned by the dizzying growth in esoterics, especially digital assets, but it has been helped by the relative slowdown in MBS issuance and by the continuing cheapness of ABS financing relative to term lending.

The US securitization sector is now looking at a “higher for longer” rates scenario in 2025. Inflation has proved stickier than expected but also the incoming administration’s promised imposition of tariffs is likely to be inflationary.

Ten-year yields have climbed to over 4.40% since the election and 15-year fixed rate mortgages are not much south of 6.50%. There won’t be a wave of refinancings at these prices and MBS origination will be consequently limited.

But there are many uncertainties in this picture. Even if the protectionist agenda goes ahead, growth will also be affected alongside inflation. Lower immigration should restrict growth as well. These influences should temper upward pressure on rates.

Hellinger also foresees some tailwinds to the CRE sector from a new broom in the White House. Deregulation will provide banks with enhanced capital, while an onshoring of manufacturing should help the residential space in the form of higher rents and house prices. If government workers are also pressed back into the office as reforms by the new Department of Government Efficiency are implemented, this is likely to ripple through other areas of the economy and boost office space CRE.

At the moment, however, much is in the lap of the gods. Or in that of Donald Trump.

Simon Boughey

Capital Relief Trades

Raiffeisen finalises latest SRT

SRT market update

Raiffeisen Bank International (RBI) has completed a €2.8bn synthetic securitisation (named ROOF Corporate 2024) of corporate (and a small portion of SME) loans, predominantly from Austria, Slovakia, Germany, and the Czech Republic.

In terms of structure, the transaction was split into a senior, a mezzanine and a junior risk position. The credit risk of the mezzanine tranche was assumed by international institutional investors while RBI retains the credit risk of the junior and senior tranches. Unlike previous iterations of the ROOF Corporate programme, the Austrian originator’s latest deal attracted and combined both funded and unfunded investors (whereas previous deals were executed on a bilateral basis, with funded or unfunded investors).

At group level, the transaction will strengthen the common equity tier 1 ratio by approximately 16 basis points. 

Commenting on its execution, Oliver Fürst, head of active credit management at RBI, highlights a broadening investor base: “Diversification is very important in the mid-term. That’s why we try to add new investors and develop new relationships, even if existing investors could do the whole transaction.”

RBI’s previous ROOF Corporate transaction was issued last year. Sources have confirmed that, in line with market developments, the latest deal landed at a tighter spread than its predecessor.

Vincent Nadeau

Capital Relief Trades

Green Nordic debut

SRT market update

The European Investment Bank (EIB) Group and Norwegian DNB Bank ASA (DNB) have completed a landmark synthetic securitisation. Such partnership – and the first collaboration of its kind between DNB and the EIB Group – results in Norway and DNB’s first synthetic securitisation.

The SRT, designed in line with criteria for Simple, Transparent and Standardised (STS) securitisations, references NOK17.6bn (€1.5bn) portfolio of SME and small Mid-Cap loans held by DNB.

In terms of structuring, the transaction follows the EIF’s modus operandi, whereby the EIF provides credit risk protection to DNB on the mezzanine tranche of NOK1.1bn (€95m), which is then counter-guaranteed by the EIB. The SRT unlocks up to €190m in financing for Nordic businesses. These funds will empower SMEs and mid-caps to accelerate their green and digital transformations, addressing critical sustainability challenges while fostering regional economic growth. The transaction additionally highlights the EIB’s historical and strategic role as a “first mover” in broadening SRT jurisdictions. 

The initiative, backed by the European Commission’s InvestEU programme, underscores the EIB Group’s commitment to climate action and sustainable economic growth. Additionally, such form of green financing offers businesses a cost-effective solution for funding climate-related projects, supporting both sustainability and growth in the Nordic region.

Vincent Nadeau

Capital Relief Trades

Deck the halls

SRT market update

The wider SRT market is set to go unphased by the Thanksgiving deadline being observed by many banks in the US, as multiple deals are reported to be lined up in Canada and across Europe for pricing next month.

In the UK, NatWest’s latest corporate transaction expected to price towards the beginning of December. Additionally, challenger banks, including Metro and Shawbrook, are reportedly actively looking to complete a transaction next year.

In France, while CACIB and Societe Generale’s established programmes (CEDAR and Junon, respectively) have been deferred to next year, BNP Paribas is rumoured to be in market with yet another deal before year-end, following the tight execution of Resonance 12.

In Italy, Intesa Sanpaolo is currently in market with the repeat deal (GARC CRE-2) of its pilot CRE transaction executed in 2022. The portfolio includes pure commercial real estate exposures and non-residential mortgage loans.

In Germany, multiple banks are eyeing up issuing in the coming weeks and months, with at least five deals from German banks with German portfolios remain in the queue according to one veteran practitioner. However, just one of these ‘doubly-German’ transactions is confirmed to price before Christmas.

Of course, in even colder climates, the synthetic market is appears to be growing even hotter as in addition to rumoured issuance from CIBC and TD to be seen between now and the end of 1H25, one North American investor understands Scotiabank and BMO can also safely be added to the list of banks with upcoming issuance. BMO in particular is set to be amping up their programmatic issuance next year also, which according to the source increases expectations for growth in issuance volumes next year once again.

This year, Canadian issuance volumes fell short of estimates, as one market source shared that for every deal which priced in 2024, at least one more deal was scrapped. Although hope remains for some growth in issuance volumes next year, the interest in SRT has apparently fallen flat at a one-time Canadian issuer, who they revealed has closed up its SRT shop potentially for good.

Claudia Lewis

ABS

Variety rules in European ABS

October saw strong momentum in the European and UK ABS and MBS markets, fuelled by diverse issuance

European and UK ABS and MBS markets maintained momentum in October, building on the robust issuance pace set in September, according to monthly European and UK factsheets monitored by SCI.

TwentyFour AM Momentum Bond Fund’s managers state that October witnessed over €17.5bn in ABS and €9.5bn in CLO issuance, pushing the YTD total to over €130bn. Both TwentyFour and Aegon emphasise the scale and diversity of issuance, with Aegon European ABS Fund’s managers noting that October marked the second-highest issuance month in 2024, attributing this rush to issuers keen to price deals before potential volatility surrounding the US elections.

TwentyFour also recognises this dynamic, adding that investor fatigue in some areas, particularly Euro triple-As, was offset by strong interest in other segments, such as senior consumer ABS.

The RMBS sector drew significant attention from both firms. TwentyFour reports €48.2bn in cumulative RMBS issuance YTD, dominated by UK issuers, who are increasingly turning to market funding as cheap central bank facilities fade. "The demand for prime UK RMBS remains healthy, with triple-A books consistently 1.5-2x oversubscribed," TwentyFour notes, emphasising the tightening of spreads in senior tranches to 0.8-1% over SONIA.

Aegon also highlights the dominance of UK RMBS but observes some weakness in senior bonds, especially in ECB-eligible sectors. "Spreads for senior bonds underperformed their non-eligible counterparts," Aegon states, pointing to investor preference for higher-yielding non-senior tranches.

Both firms recognise the growing presence of ESG-themed ABS, notably the debut of Enpal’s solar-loan-backed ABS. "This inaugural public solar consumer ABS attracted healthy demand, with senior tranches pricing at 0.85% over Euribor," TwentyFour’s managers report, underlining the sector's potential for growth. Aegon similarly highlights this issuance, describing it as a positive development in diversifying the market and integrating sustainability-focused investments.

Secondary markets were active, with BWIC volumes reaching €1.1bn for ABS. TwentyFour observes investors rotating from secondary to primary markets, leading to slight widening in spreads for investment grade mezzanine bonds.

Aegon European ABS Fund’s managers echo this sentiment, stating: "Secondary supply has been elevated as ABS investors rotate into new issuance, causing mixed technicals with seniors slightly wider and non-seniors tighter."

Strategically, both firms emphasise caution and selectivity. TwentyFour highlights the importance of "sticking to established issuers with proven track records" amid geopolitical and economic uncertainties. Aegon concurs, emphasising a modestly defensive stance while maintaining a focus on high-carry assets to buffer against potential volatility.

The two firms offer a cautiously optimistic outlook for the remainder of the year. TwentyFour anticipates continued issuance supported by persistent investor demand but warns of potential market reactions to geopolitical events and the US elections. Aegon similarly highlights the risks of geopolitical and macroeconomic uncertainties but emphasises the resilience of the European ABS market due to its strong carry and attractive valuations.

"While spreads have tightened over the past year, the relative value of ABS remains compelling, particularly in the current rate environment," Aegon states.

Fund specifics:

Aegon European ABS Fund returned +0.45% in October 2024. YTD: 6.41%
Fund size: €6.99bn. ABS/MBS allocation: 75.3%

Janus Henderson ABS Fund returned +0.57% in October 2024. YTD: 6.34%
Fund size: £366.9m ABS/MBS allocation: 58.24%

TwentyFour AM Monument Fund returned +0.57% in October 2024. YTD: 6.78%
Fund size: £1.62bn. ABS/MBS allocation: 59.3%

Note: Amundi ABS’s factsheet is not available yet.

 Selvaggia Cataldi

Asset-Backed Finance

Asset migration

Euro mid-market deal flow set to grow

As year-end approaches, the private credit market is poised for continued expansion, with middle-market corporate deals expected to drive much of that growth. Speakers at Morningstar DBRS’ Credit Outlook 2025 in London last week outlined a positive trajectory for the sector, spurred by a global asset migration from public to private markets, maturing private equity portfolios and the overall resilience of mid-market firms.

“We’re seeing increased allocations to private markets across the investor spectrum,” said Daniel Sinclair, partner at Ares Management, which oversees a €75bn European portfolio. “Elevated interest rates have shifted value into debt and credit products, dominating market trends over the past two to three years.”

Mid-market firms, typically generating €10m-€100m in EBITDA, have increasingly turned to private credit as they grapple with higher servicing costs tied to variable-rate loans issued in 2020 and 2021. On top of that, the sector’s execution speed has made it an attractive choice for private equity firms facing an increasingly competitive M&A environment.

Globally, a wave of opportunities is emerging as private equity portfolios mature. Indeed, an estimated US$1trn worth of private equity assets are expected to come to market as sponsors seek exits.

“These assets, reaching maturity within fund lifecycles, create exciting opportunities for private credit deployment,” explained Sinclair.

Alongside this, traditional banks are increasingly seeking partnerships with alternative asset managers like Ares to maintain mid-market exposure while meeting risk-adjusted returns.

However, the market is also facing challenges. Cristina Ramirez, vp and team lead at Morningstar DBRS, noted that nearly 10% of companies in Morningstar’s portfolio are currently operating under modified credit agreements, such as waivers, covenants and restructurings. 

Ramirez highlighted the mounting pressures faced by borrowers: “For every positive rating action we take, we’re executing 3.4 negative actions.”

Despite these pressures, Sinclair emphasised the resilience of Ares’ portfolio companies: “Even with inflation above 10%, our companies have maintained margins by passing on price increases and tightening working capital cycles. This disciplined capital management has been crucial.”

Despite short-term headwinds, the long-term outlook for private credit remains strong, especially in Western Europe. “Western Europe’s sluggish growth provides niche opportunities for mid-market companies to thrive. We’re excited by the growing deal flow and the ability to deploy capital in a disciplined, strategic manner,” concluded Sinclair.

Looking ahead, structured products - including middle-market CLOs - are expected to gain traction in Europe, following similar trends seen in the US.

Marta Canini

Capital Relief Trades

Robust pipeline

Italian cash SRT market on the rise

Five Italian cash SRT deals closed in the consumer and auto loan space earlier in 2024 (SCI 12 July), and two recent announcements by Stellantis (Auto ABS Stella Loans 2024-2) and CA Auto Bank (A-BEST 25) bring the total to seven confirmed transactions this year for the jurisdiction. Three additional deals – Brignole CO 2024 and Brignole CQ 2024 for Creditis, and A-BEST 24 for CA Auto Bank – were structured in compliance with the SRT framework to be eligible for capital relief recognition if subsequently claimed by the originators.

Notably, two Italian issuers made their debut in the cash SRT market – Compass and Younited. “This is a positive development. Alongside these new entrants, traditional issuers such as Fiditalia (Société Générale group), Santander Consumer Bank and Stellantis (Santander group) – already experienced in cash SRTs – were also active,” says Pietro Bellone, partner at A&O Shearman, who leads the team that advised on all 10 of the transactions. “This activity reflects the clear advantages of the cash SRT market, such as the benefits of retaining excess spread while releasing RWAs.”

Younited, a fintech leader, achieved a milestone transaction as the first European fintech to execute a fully placed public securitisation for both accounting derecognition and capital relief purposes. “Compass and Younited have pushed other banks and financial intermediaries to explore similar opportunities for next year,” notes Bellone.

Looking ahead to 2025, Italy’s cash SRT market is expected to grow further, with more first-time issuers entering the space. This growth is mainly driven by the consumer and auto loan sectors, which remain suitable for cash capital relief transactions due to portfolios’ yield, notes’ marketability and robust excess spreads for originators.

“We expect that some of the newly active issuers might become frequent players, and new entrants will drive market growth,” predicts Bellone.

Investor demand remains strong, particularly for mezzanine tranches, which offer an attractive balance of good returns and low risk. Challenges persist, however, especially in placing senior tranches, though relationship banks have stepped in to fill gaps when necessary.

Despite positive signals, regulatory processes and limited knowledge among midsize banks and financial intermediaries remain potential barriers to entry. Regulatory assessment can take up to three months, creating delays for first-time issuers.

“This is a matter of culture and knowledge; it is important to enhance awareness of cash SRT as a capital management tool,” notes Bellone. “For many first-time issuers, the process can be daunting and time-consuming, but advisers can help them navigate through successfully.”

He adds: “Looking forward, it would be good to have a faster track with the authorities and more certainty on some regulatory requirements. These would certainly unlock further SRT opportunities.”

Basel 4 regulations entering into force in January are expected to encourage a more proactive approach from both originators and investors. “We will see more issuers next year. In terms of transactions, we are confident that the pipeline will remain robust,” concludes Bellone.

Marta Canini

CLOs

CLO manager corner series: Investcorp

CLO market faces loan supply challenges, but outlook remains strong

A limited supply of new loan issuance could challenge the CLO market in the future, with the development of a private equity pipeline needed, according to Investcorp.

Barry Lane, managing director of CLO new issuance in Europe at Investcorp, tells SCI that despite this risk, the current number of deals being marketed, as well as those that have issued notices for potential resets or refinancing, suggest that the CLO market is likely to remain strong as we approach the end of the year.

He says: "I believe the CLO market will continue to remain strong. There are over sixty managers in Europe, which is likely to correspond to a similar number of active warehouses. Looking ahead to the end of the year, the volume of deals currently being marketed, along with those that have issued cleansing notices for potential resets or refinancings, suggests a positive outlook. Typically, in Q1 private equity sponsors and arranging banks also begin to issue new loans for the deals that they have had in development or agreed in the previous months. Therefore, I expect to see a continuation of the current trend."

Lane indicates that the European landscape for leveraged loans is looking better than initially projected at the beginning of the year and believes that continued strong performance of leveraged loans with low default rates will help future CLO creation.

In addition, Lane believes that interest rates should also have a positive outlook for CLO creation. He explains: "A reduction in interest rates would benefit the underlying borrowers within CLOs by lowering their interest costs. This should support the ongoing resilient performance we've been observing in leveraged lending in Europe. Moreover, further reductions in funding costs could stimulate an increase in mergers and acquisitions (M&A) activity."

When discussing challenges facing the CLO market, Lane indicates that although geopolitical factors are being monitored, they have not yet greatly impacted the CLO market.

“Many investors have been focusing on US elections and are now looking at year-end budget projections. Although events in the Middle East have not yet materially impacted the loan market or CLO issuance, any escalations in that region are being closely monitored, especially in light of the substantial effects the Ukraine war had on broader markets in 2022,” he says.

Lane points out that the primary challenge currently facing the market is sourcing assets, largely due to a shortage of new loan supply. He adds: “The secondary market is performing well, driven largely by technical factors. However, this makes it more difficult to construct a portfolio that achieves equity arbitrage. Since the summer, there has been a noticeable repricing of underlying leveraged loans, which complicates matters for existing CLOs by reducing spreads, as well as for new CLOs during their construction.”

When it comes to Investcorp's CLO strategy, Lane emphasises the firm's focus on demonstrating consistency in performance to its key stakeholders.

“When I refer to consistency, I mean maintaining a focus on actively managing our portfolios to create and protect value, as well as continually repositioning these portfolios for potential risks. Naturally, different vintages necessitate different strategies. However, we want to assure our investors that if they opt for a 2024 vintage Harvest deal, it will look like a 2022 deal from a risk perspective,” he states.

Investcorp, which has been issuing CLOs since 2004, says it prioritises consistent portfolio construction and efficient ramp processes to ensure that investors have a transparent understanding of their investments.

“Our CLOs are managed under the Harvest shelf name in Europe and now in the US, which provides investors with confidence when assessing any Harvest deal that may feature similar portfolio risk profiles," Lane explains. "To optimise portfolio construction, we employ well developed and efficient ramp strategies alongside our capability to source high-quality assets as a sizeable and long standing manager.”

He concludes that on the liability side an increasing demand from investors for floating risk assets may lead to tighter liability levels.

Lane says: “This will aid in the creation of CLOs. When we look at CLO asset classes, they adapt to the challenges of the environment they face. Historically, managers have been able to build their track records by managing CLOs effectively in various environments, which will support future creation.”

Camilla Vitanza

Structured Finance

Job swaps weekly: BBB elevates two to co-chief banking officer

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees The British Business Bank appointing two co-chief banking officers. Meanwhile, Latham & Watkins has poached an experienced White & Case structured credit executive as partner, while Centralis Group has hired a new Ireland Country head.

The British Business Bank has appointed Richard Bearman and Reinald de Monchy as co-chief banking officers, with a shared responsibility for all of the organisation’s banking activities for smaller businesses. 

The bank’s guarantee and wholesale and small business lending solutions increasingly rely on a common set of institutional relationships, and the aim of this reconfiguration is to enable the bank to offer better outcomes for those institutions, as well as the smaller businesses who benefit from their support. Bearman and de Monchy will jointly lead this new relationship-driven banking model, although each will have specific line-management responsibilities.

Bearman will oversee a new relationship management function, bringing together a number of existing skillsets across relationship management, account management and customer services. This will help to support a consistent, integrated and holistic approach towards the bank’s delivery partners and enable them to create a seamless growth pathway for businesses across the bank’s products.

De Monchy will oversee the bank’s product teams, which will develop products and manage transactions across its guarantee and wholesale and small business lending programmes. The two functions will work closely in terms of originating new transactions and sharing market feedback.

Bearman has been with the BBB since 2019, most recently as md, small business lending. Prior to joining the bank, he was the head of small business at HSBC UK and has more than 25 years’ experience in the banking sector.

De Monchy has been with the BBB since 2013 and was part of the team that established the bank. He was previously md, guarantee and wholesale at the bank, with responsibility for the design and delivery of funding and capital solutions to help increase the flow of finance to smaller businesses.

Prior to joining the bank, De Monchy was head of SME, corporate and leveraged loan securitisation at Lloyds and had 15 years’ experience securitising a wide variety of asset classes. Before joining Lloyds, he worked for MeesPierson and Rabobank in a range of securitisation, loan syndication and interest rate derivatives trading roles.

Elsewhere, Jim Fogarty has joined Latham & Watkins’ New York office as a partner in its structured finance practice. Previously at White & Case since 2009, Fogarty is a seasoned expert in advising private equity sponsors, financial institutions, and asset managers on a wide range of financial matters, including whole business securitisations, collateralised loan and bond obligations, liability management transactions, and regulatory issues under the Dodd-Frank Act.

Alternative investments and corporate services advisory firm Centralis Group has hired The Citco Group's Conor Blake as its new Ireland Country head. Blake focuses on regulated entities and structured finance vehicles. He leaves his role as md at Citco after three and a half years, having previously spent 14 years at Deutsche Bank. Blake has also had spells at Sanne, Ocorian and Morgan Stanley.

Newmark has appointed Berkadia pair Vince Punzi and Lowell Takahashi as executive mds in Irvine, southern California, focusing on multi-family debt and structured finance. Punzi and Takahashi both joined Berkadia from Capital One in 2019 and leave their roles as senior director and vice president - originations respectively. During their time at the firm they focused on Fannie Mae, Freddie Mac, FHA, debt funds, banks and life insurance company transactions.

Mid-market M&A advisory firm OneToOne has appointed Emilio Recoder as partner and head of structured finance, based in Madrid. Recoder joins the business from Stiufel Europe Bank, where he spent three and a half years as md. He previously worked at HIG Capital Bayside, and Caja Madrid.

And finally, former Shawbrook Bank director James Hogan has joined Metro Bank as corporate banking director – structured finance. Hogan will focus on transactions spanning unsecured/cashflow loans, commercial mortgages, fund finance, asset-backed lending, accordions and revolving credit facilities. He leaves Shawbrook after three years, and previously spent 12 years at RBS, in addition to stints at Code Investing and Independent Growth Finance.

Corinne Smith, Marta Canini, Kenny Wastell