News Analysis
ABS
Finance Ireland's second auto ABS signals growing EV momentum
Latest deal strengthens issuer's ABS framework, boosts investor demand, and drives EV exposure
Finance Ireland has recently priced its second auto ABS transaction, marking another milestone in its securitisation program. Following its debut deal in October 2023, the latest issuance reflects refinements based on investor feedback and past performance, further solidifying the issuer's presence in the European ABS market.
The structuring of the new deal closely mirrors Finance Ireland’s previous auto ABS transaction, maintaining a familiar framework for investors. However, refinements were introduced, including a shift to a two-class note structure from the prior three-class arrangement, allowing for a more streamlined issuance.
"We managed to have only two classes of notes available for investors – last time around, there were three," notes Jacob Binnema, ABS structurer at MUFG Securities. "The most important refinement was introducing a static pool with pro-rata amortisation from day one. In the first deal, we had sequential amortisation first and only moved to pro-rata upon reaching certain thresholds."
This shift was supported by Finance Ireland’s expanded credit history, demonstrating strong performance and stability.
Another minor structural refinement involved changes to hedging. While the previous deal had a full portfolio hedge via a guaranteed swap, the latest transaction limited hedging to the Class A and B notes, representing a slight adjustment in risk management strategy. "This time around, only the Class A and B notes were hedged. It's a small but meaningful improvement," adds Binnema.
Investor demand and EV adoption trend
Investor appetite for the deal was robust, particularly in the mezzanine tranche, which was oversubscribed 5.5x. Asset managers dominated the investor base, with participation also coming from banks. French investors were particularly active in the book build, alongside UK-based investors.
"Clearly, there was a trend in Europe where mezzanine notes saw a lot of demand," observes Binnema. "The pricing was also a highlight – we managed to price the senior notes at 68bp compared to 85 last time. The differential between this deal and German ABS benchmarks has tightened significantly, which reflects growing confidence in Irish auto ABS."
The collateral pool saw notable shifts compared to the prior deal, with an increase in electric and hybrid vehicle exposure. The proportion of EVs and hybrid vehicles in the pool rose from approximately 24% in the October 2023 transaction to around 39% in the latest deal. This increase reflects broader trends in the Irish auto market, where EV adoption continues to grow.
"It’s a reflection of the business of Finance Ireland and the broader trend in Ireland—EV and hybrid penetration is rising rapidly," states Binnema. "Compared to German deals, which tend to have 5-7% EVs in loan pools, Ireland is doing very well in this regard."
Compared to other European auto ABS transactions, the Finance Ireland pool remains differentiated by its focus on used vehicles. While German lease-based auto deals tend to feature a higher proportion of new cars, Finance Ireland’s portfolio is more akin to German loan-based transactions, which also have a greater share of used vehicles. The rising share of EVs in Finance Ireland’s transactions suggests a growing secondary market for electric vehicles in Ireland.
Macroeconomic factors, including interest rates and consumer affordability, remain key considerations in the expected performance of the pool. Finance Ireland’s long operational history – dating back to 2011 – allowed rating agencies to apply slightly lower stress assumptions compared to the previous deal. However, electric vehicles continue to be assigned higher loss assumptions relative to petrol and diesel vehicles, reflecting ongoing uncertainty about residual values.
"What I still find interesting is that EVs are still penalised more than diesel and petrol cars – around 10% more," notes Binnema. "But we all know the future is electric."
On the regulatory front, the transaction complies with both EU and UK securitisation regulations. Structuring the deal under both regimes did not introduce significant complexities, with the primary requirement being adherence to the 5% risk retention rule applicable in both jurisdictions.
"Not at all," Binnema confirms when asked if dual compliance created additional complexity. "The most important thing is the 5% retention requirement, which is the same in both jurisdictions."
Programmatic approach
With two successful transactions now completed, Finance Ireland appears to be establishing a programmatic issuance strategy. Given investor interest and MUFG's broader securitisation activities – including RMBS and consumer ABS – market participants can likely expect future auto ABS deals at regular intervals. While the exact frequency remains to be seen, indications suggest potential issuance on an annual or semi-annual basis.
"This deal fits our strategy of warehousing takeouts," explains Binnema. "It’s a fair assumption to expect a deal every year/year and a half. Investors appreciate that kind of consistency."
MUFG, which has dedicated esoteric ABS teams in both Europe and the US, has also an established track record in financing data centres in the US market.
"As market participants are constantly looking at ways to diversify funding sources, esoteric ABS and data centre ABS are key areas of interest for many European market participants. This would also complement the European securitisation strategy of MUFG,” adds Binnema.
Selvaggia Cataldi
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News Analysis
ABS
SCI In Conversation Podcast: Jason Smilovitz and Midroog's Moty Citrin (part 2)
We discuss the hottest topics in securitisation today...
In the second part of this episode of the SCI In Conversation podcast, SCI’s Selvaggia Cataldi continues her discussion about Israel’s securitisation market with Moty Citrin, head of financial institutions and structured finance at Moody’s subsidiary Midroog, and independent senior securitisation consultant Jason Smilovitz.
Citrin and Smilovitz discuss the impact of the country's recent legislative changes, investor sentiment, market liquidity, and sovereign risk. They explore local and international investor interest amid Israel’s sovereign downgrade and how political instability could delay reforms or necessitate alternative market developments.
This episode can be accessed here, as well as wherever you usually get your podcasts, including Apple Podcasts and Spotify (just search for 'SCI In Conversation').
News Analysis
ABS
SCI in Focus: Data centre securitisation - ESG risk or green opportunity?
Growing appetite for deals brings environmental commitments into question as participants seek to balance impact with yield
As data centre securitisation gains traction, some of the most prominent voices in the ESG movement are now at the forefront of this growing market. While the industry’s energy intensity may seem at odds with sustainability principles, ESG remains a fundamental consideration in the structured finance business – though now less prominent as a marketing tool.
The recent
landmark €600m deal from Vantage Data Centers
– the first data centre securitisation in Europe – has underlined this momentum. “There’s an insatiable appetite for data centres right now," one industry insider tells SCI. "The growth isn't purely opportunistic. I’ve seen innovative sustainable solutions emerging that make me optimistic about the sector's sustainability direction.”
The Vantage transaction
broke new ground
last year as the first global data centre ABS to incorporate ESG features, despite multiple data centre securitisations already seen in the US market. “Vantage caused a stir last year, because it went out of its way to be green,” comments Claude Brown, partner at Reed Smith.
The SPO provided by Sustainalytics concluded that Vantage’s use-of-proceeds deal was “credible and impactful,” citing alignment with ICMA’s Green Bond Principles and best market practices. The opinion highlighted the focus of Vantage’s green finance framework on energy efficiency through low-PUE data centres, robust project evaluation, transparent fund management, and regular environmental impact reporting.
The UK has positioned itself as an attractive market for data centre expansion. "The UK has welcomed the data centre industry – compared to a lot of other jurisdictions," says Ashley Thomas, head of structured finance UK at ARC Ratings. "The government seems to be quite open to increasing new developments, and the regulatory environment seems to be quite favourable."
“We’re seeing data centres grow as an asset class massively," adds Thomas. "We released a new methodology in December, which was finalised at the start of the year. We wouldn’t have done that unless we saw a significant amount of demand from the market."
According to Thomas, the expansion of data centre securitisation reflects increasing investor interest,
with ARC’s new methodology
outlining how these ABS and CMBS transactions can be assessed.
Yield versus sustainability
For the structured finance market, the opportunity in data centres extends beyond the esoteric asset class being the latest shiny toy, according to Reed Smith’s Brown. It also offers more compelling yields than more traditional CRE investments at present. However, sustainability concerns remain central to the conversations of the energy-intensive, and ultimately brownfield asset class.
The challenge for ESG-conscious investors is not necessarily one of hypocrisy, but of structural limitations.
“It’s not a question of hypocrisy,” says Brown, “but more the lack of a coherent ESG strategy in structured finance investments in the first place.”
“ESG, generally, remains less well-tied into the structured finance world than, for example, in the funds sector, which has the Sustainable Funds Reporting Directive (SFRD), or companies within the Corporate Sustainability Reporting Directive (CSRD) space,” Brown continues.
“It’s not fully translated into the capital markets just yet.”
And even where ESG is present, it may lack ambition. “Without these rounded strategies, most ESG-linked securitisations are stuck in the ‘reduce the wrong’ rather than the ‘impact for change’ bracket,” Brown warns.
Sustainability efforts in data centres often focuses on improving energy efficiency. However, nuclear energy – despite offering a low-carbon, stable baseload power well-suited to near-constant uptimes required by data centres – remains a particularly controversial option.
"We’ve also seen some promising developments like co-locating renewable energy generation directly with data centres – such as batteries, SMRs, wind turbines, and solar arrays, which can produce zero carbon emissions during operation, lower operational costs, achieve greater energy independence and stability – and in the case of SMRs provide stable and continuous power supply,” says the industry insider.
However, as the same source acknowledges, not all renewables can deliver the consistent uptime required by data centres, highlighting a key trade-off between sustainability and operational resilience. As a result, co-location has become a critical priority, especially given the inefficiencies of long-distance transmission and the limitations of the UK’s ageing energy grid.
Power usage effectiveness (PUE) also remains a key sustainability benchmark, playing a crucial role as a performance and ESG indicator. "Some data centres have managed to achieve impressively low PUEs, with Google reportedly achieving PUE close to 1, which is approaching near-optimal energy efficiency," the insider noted.
Circular water systems run deep
Water use and biodiversity considerations are also becoming increasingly significant factors in evaluating the sustainability of data centre developments – particularly as scrutiny around big tech’s environmental impact grows. A
recent FT investigation
exposed the significant pressure data centres place on local water supplies and ecosystems, especially in areas vulnerable to drought or ecological disruption.
"Circular water systems are a key advancement," the insider says, “and can substantially reduce water consumption, addressing the intensive cooling processes data centres require.”
However, challenges remain, particularly around site selection and community impact. "Awareness is growing about the implications of greenfield developments – such as converting wetlands, biodiversity impacts, and historical or cultural sensitivities, especially in regions with indigenous communities," adds the insider, “which are factors that are not only critical from an ethical perspective, but also for credit risk."
Despite broader challenges facing ESG initiatives – primarily in the US under the new political administration evident in the indefinite stalling of the SEC’s climate-related disclosures – industry participants maintain that ESG integration remains essential. While public commitments may be less prominent, sustainability concerns continue to underpin fiduciary duties behind the scenes. Market participants are attuned to risks such as stranded assets and reputational damage, maintaining a strong internal focus on ESG despite shifting political winds. ESG also continues to be an integral part of risk considerations.
Several innovative strategies have been incorporated within the European data centre space.
“In Scandinavia, there has been a pretty significant build-out of data centres, which has two major benefits,” the insider says. “The first is that there is a lot of land that isn't currently inhabited by people, so you don’t need to offset the space or residential areas. The second is that it's cold, which allows data centres to take advantage of the climate to reduce the significant energy needed for cooling.”
While colder climates such as Scandinavia are often seen as attractive locations for energy efficiency, proximity to major cities remains essential for the likes of edge data centres and colocation facilities. "There’s a technological limitation in that they want to achieve low latency speeds, and therefore these need to be relatively close to city centres," ARC’s Thomas explains.
In the last two years, ESG considerations have evolved beyond purely marketing-driven approaches and battles against greenwashing, towards more meaningful and integrated credit-focused assessments.
“Sustainability is something the data centre industry is very focused on,” states Thomas, “and as always, all of our methodologies consider ESG to the extent that it has a credit impact.” He adds that securing renewable power sources and improving energy efficiency remain critical for the industry given data centres often require extremely high levels of uptime – sometimes reaching 99.99% or 99.999% availability – making the balance between sustainability and reliability a critical challenge.
Obsolescence before maturity?
Long-term risks are also on the radar. “We need to get away from the initial ripples – the hype needs to calm down,” Reed Smith’s Brown says. “Data centres will go through decentralisation at some rate, as they’re not big employers and transmission is difficult.”
Asset longevity presents a potential material credit risk to the securitisation of modern technologies, and data centres are no exception. Rapid technological advancement and the shorter life spans of modern technology – such as the cooling systems and servers used by data centres – could render the collateral in these transactions obsolete before the securitisation matures. This raises questions about how well such assets align with the duration and reliability of securitisation tranches.
However, data centres have become a fundamental and established component of modern infrastructure, making them indispensable to many aspects of daily life.
"It's not black and white,” says the industry insider. “Because data centres are, in many ways, critical to our current and future economy.”
By providing services such as data storage and management, these types of infrastructures play a critical role in storing vast amounts of information related to socioeconomic mobility – healthcare and education.
The UK market appears primed for further issuance, with both investor appetite and infrastructure expansion
setting the stage for future data centre securitisation activity. “While there’s only been one securitisation so far in the UK, there’s certainly more than one data centre in the UK,” says ARC’s Thomas, “and there are many conversations ongoing about different data centre securitisations. It’s more about which of these come to fruition, so it will be interesting to see how things develop this year.”
For many, the future use of securitisation in this asset class appears not only promising, but inevitable.
“There is a demand for capital, and securitisation provides a route where they can get long-term financing, during either the construction phase or once they’re up and operating,” explains Thomas, “whether that’s the CMBS or ABS route.”
As data centre securitisations gather pace, ESG is returning to the spotlight in structured finance and raising questions about the market’s capacity to reconcile investor demand with global sustainability goals.
News
Asset-Backed Finance
Marketplace lending entering 'cautious phase'
Castlelake and PGIM warn of cracks in MPL sector as fintech models face recalibration
Marketplace lenders are entering a more cautious phase in 2025 as the rapid evolution of their business models and loosening credit standards appear to be dampening investor confidence. While private credit firms continue capitalising on falling senior financing costs and sustained demand for non-bank lending, concerns are mounting around potential impacts on the MPL segment.
"As marketplace lending has become a more permanent source of credit for consumers and businesses, they must now prioritise building stable balance sheets – the asset-light models of the past have proven vulnerable," says Isaiah Toback, partner and deputy co-cio at Castlelake.
Following Castlelake’s forward-flow partnership with AI-powered platform Upstart in 2024, Toback says the firm is adopting a more selective approach. “We’re incrementally more cautious on marketplace lending now but still see pockets of opportunity throughout 2025,” he says.
Indeed, the MPL sector saw a pandemic-era inflection point, with US$9.5bn of ABS issuance in the US in 2022 and US$7.6bn in 2023, buoyed by private credit inflows. “In 2023 and 2024, credit conditions were tightening every month. That was a great dynamic for us,” explains Toback. “But today, we’re starting to see competition pick up, and underwriting standards are beginning to loosen.”
Gabe Rivera, co-head of securitised products at PGIM Fixed Income, agrees. “There was too much confidence in big data models,” says Rivera. “You had players that were great with technology but lacked true lending expertise, and that overreliance on models led to loans being originated that should have never cleared underwriting.”
According to Rivera, the rapid deterioration in loan performance across certain fintech platforms prompted a sector-wide rethink of underwriting, with lenders reducing exposure to lower-tier borrowers and blending traditional underwriting protocols with AI tools. “The sector was too loose and now it’s correcting,” says Rivera. “We’re being very judicious on every dollar that goes out the door.”
Where Castlelake and PGIM see opportunities in 2025
Looking ahead, Castlelake and PGIM’s outlook remains opportunistic. Castlelake is eyeing a diversified pipeline across consumer finance, transportation, small business and even auto lending. Toback highlights the rapid expansion of SME fintech lending as one of the most intriguing – albeit risky – developments for 2025.
PGIM, on the other hand, sees growing opportunities in fund finance, according to Rivera. “It’s a massive asset class – trillions in size – and from a risk-return perspective, it’s incredibly attractive. It’s a space where we can deploy significant capital at scale,” he says.
Beyond fund finance, Rivera is eyeing interesting niches in consumer-related credit tied to tangible assets. “We’ve looked at sectors like consumer lending, solar financing, residential transitional loans and manufactured housing lending – areas where we’re able to step in and provide lending solutions for originators,” he says.
Both firms are benefitting from private credit’s current tailwinds. “We are in the Goldilocks period where unlevered returns are dropping, but senior financing costs are dropping even faster,” says Toback. Despite the favourable conditions, he remains watchful, warning: “The moment loan yields catch up to declining senior financing rates, the value dissipates.”
Rivera shares the cautious optimism: “It’s euphoric right now, but that doesn’t mean it’s easy. ABF has higher barriers to entry than corporate private credit, which has gotten crowded. ABF is more operationally complex, which is why I think there’s still real opportunity for investors with scale,” he concludes.
Marta Canini
News
Asset-Backed Finance
Lincoln Financial preps pair of private-market funds
Insurer aims to offer retail investors exposure to private credit, ABF and IP royalties by late 2025
Lincoln Financial is preparing to launch two new evergreen funds in partnership with Bain Capital and Partners Group by late 2025. The funds will offer retail investors access to high-barrier sectors, including asset-backed finance (ABF) and royalty-based investments, traditionally limited to institutional investors. By tapping into its network of 60,000 financial advisers, the life insurer aims to offer individual investors new opportunities to diversify their portfolios.
“There is significant demand for holistic financial planning solutions from financial professionals and clients,” says Tom Morelli, head of investment distribution for Lincoln, hired by the firm last year to lead distribution efforts for the new private market funds.
“These new registered private market funds can create opportunities to diversify a client’s portfolio and expand access to investment solutions typically only available to high net-worth or institutional clients,” adds Morelli.
Managed by Bain Capital, the first fund will offer exposure to private credit investments, with a portfolio mixing direct lending, structured credit and ABF strategies.
"By combining our deep expertise in private markets with Lincoln’s innovative, expansive distribution platform, we can further expand access to private markets for more investors,” says John Wright, partner and global head of credit at Bain Capital.
In collaboration with Partners Group, Lincoln will launch a second evergreen fund that will invest across various sectors, including intellectual property assets across pharmaceuticals and entertainment, as well as emerging areas like energy transition, sports and consumer brands. Partners Group will use a mix of direct royalty purchases, royalty creation and lending against royalty streams.
"We’re excited to extend our long-standing strategic partnership with Lincoln to bring a new offering to the US private wealth market,” says Nicholas Hegarty, md and co-head of client solutions Americas at Partners Group.
While registration statements for each fund have been filed with the US SEC, they have not yet been made effective.
The next frontier of growth: private wealth and retail participation
Historically, private market investments - including private credit and royalty-based finance - have been accessible primarily to institutional investors. However, growing demand for diversification among individual investors is shifting this landscape.
According to a recent Bank of America (BoA) research paper, global private wealth currently stands at US$83trn, with allocations to alternatives, such as private credit, still relatively low at 2%. However, this is expected to increase to 4%, potentially bringing an additional US$3trn into alternative investments, with 30%-40% of that likely to be directed towards private credit. Over the long term, private wealth’s allocation to alternatives could rise to 6%, creating a US$10trn market for alternative investments.
In parallel with these trends, younger high net-worth investors - particularly those aged 21 to 43 - are increasingly allocating portions of their portfolios to alternatives, with 17% of their portfolios in alternatives compared to just 5% for older investors.
Lincoln’s move aligns strategically with these evolving trends, demonstrating the insurer's commitment to diversifying its product offerings and capitalising on the increasing interest in these asset classes.
Marta Canini
News
Capital Relief Trades
SRT disclosures reviewed (UPDATED)
Pillar 3 survey underlines Santander's dominance
An SCI survey[1] of European bank Pillar 3 Disclosure Reports for 2024 underlines the dominance of corporate loans in SRT reference pools and of Santander as a leading synthetic securitisation issuer. The findings also shed light on the role that cash SRT transactions play in institutions’ capital management strategies.
In its latest annual disclosure and regulatory capital adequacy review, Santander highlights a total volume (where the institution acts as originator) of €73bn synthetic SRT exposures in its non-trading book, as of 31 December 2024. Of this, €34.17bn references corporate loan synthetic SRT securitisations, with the remaining exposures comprising residential and commercial mortgages, finance leases and receivables and ‘other retail’ exposures.
Additionally, the bank reports €500m STS and €34m non-STS cash SRT exposures, all of which are in the ‘other retail’ segment. This compares to an overall cash securitisation exposure (as originator) of €25.18bn, of which €2.35bn is STS-eligible.
The next most prolific SRT issuer is Barclays, which reports £48.38bn in synthetic SRT exposure, as of 31 December 2024. Of this, £45.95bn references loans to corporates, with ‘other wholesale’ exposures accounting for the remainder.
In terms of cash SRTs in the non-trading book, Barclays reports £528m of non-STS exposures, the majority of which are in the residential mortgage segment. This compares with £46.95bn of overall cash securitisation exposure (as originator), of which £3.18bn is STS-eligible.
Other examples include BNP Paribas (which disclosed €46.50bn of synthetic SRT exposures, €45.60bn of which reference corporate loans; €703m of STS cash SRT exposures, and €5m of non-STS cash SRT exposures), Deutsche Bank (which disclosed €33.71bn of synthetic SRT exposures, €30.19bn of which reference corporate loans; and €102m of non-STS cash SRT exposures), Nordea (€22.052bn, €12.36bn of which reference corporate loans; ), Lloyds (£14.21bn; £9.74bn of which reference corporate loans), Societe Generale (€16.29bn, €6.43bn of which reference corporate loans; €4m of STS cash SRT exposures and €3m of non-STS cash SRT exposures), HSBC (US$12.94bn, comprising entirely corporate loans; and $45m of non-STS cash SRT exposures), and NatWest (£8.92bn, referencing corporate loans and commercial mortgages). Such figures underline the unequivocal dominance of corporate loans as the leading asset class in the SRT market.
All these institutions report an uptick in SRT exposures and proactive management of loan books to improve capital efficiency and shareholder returns, but Santander tops the list with a significant circa 55% increase in its synthetic SRT exposures year-on-year (up from €47.14bn last year). Comparatively, Barclays reports a more modest 2% increase (up from £47.44bn), while Standard Chartered saw a decrease by US$1.05bn to US$15.29bn in its capacity as originator last year.
Unsurprisingly, some Pillar 3 Disclosure Reports offer more market colour than others. For instance, Santander reports that it originated 30 new synthetic securitisations in 2024. Similarly, Barclays reveals in its supporting FY24 results that it executed 9 deals, hedging £7.6bn of exposure (and just under £2.0bn RWAs amortisation profile per quarter). It also states that it initiated risk transfer in Q124 on US credit cards, to help capital consumption for its US consumer bank in light of IRB model migration headwind.
Vincent Nadeau
[1] At the time of writing, not all Pillar 3 reports were available.
News
Capital Relief Trades
Risk mitigation
Regional banks advised to build investor confidence in CRT deals
US regional banks executing CRT transactions continue to face challenges in managing regulatory expectations but navigating complex servicing arrangements adds another layer of difficulty.
For example, one of the key hurdles lies in balancing strong borrower relationships with compliance with tightened regulations. While banks prefer to closely monitor loan servicing, GAAP derecognition may require the involvement of a third-party servicer, especially in distressed scenarios. This can present further challenges.
As Jed Miller, head of the CRT practice at Cadwalader, Wickersham & Taft (Cadwalder), notes, primary servicing can remain with the originating bank, allowing it to manage day-to-day borrower interactions. However, once a loan defaults, GAAP rules may require third-party servicers take over to ensure impartial management.
Meanwhile, disputes in commercial real estate CRTs often centre around whether servicers adhere to previously agreed standards. Partner Kahn Hobbs notes that clear, well-defined servicing agreements are crucial for minimising conflicts. He believes that it is better for banks to negotiate detailed servicing terms that align with investor expectations while protecting their interests.
Management of cash collateral is another aspect that regional banks should consider, Miller advised. Opting for a third-party cash management, for example, can reduce risk perception for investors, though it may come at a pricing premium. Other elements like having a robust internal reporting system and effective communication are also essential for the banks to ensure transparency with stakeholders.
Cadwalader further believes that a good balance between control and compliance can significantly help regional banks optimise the benefits of CRT transactions. The prioritisation of servicing agreements, disputeresolution mechanisms, as well as transparent reporting, can enhance both risk mitigation and investor confidence in the long term.
Nadezhda Bratanova
News
Capital Relief Trades
Insurer appetite for SRTs on the rise
IACPM survey shows substantial growth of unfunded protection
Insurer provision of unfunded protection on tranches of SRT transactions has increased significantly year-on-year. The number of protections sold rose to 82 new subscriptions in 2024, versus 45 the previous year, according to the IACPM’s latest Global SRT Insurance Survey.
Respondents insured €2.8bn of European SRT transactions last year, compared to €1.2bn in 2023. The average insured amount per insurer also increased in 2024 to €34m, versus €31m on average since 2019. Overall, these (re)insurance firms accounted for an outstanding total of €6bn in European SRT insurance protection, as at the end of 2024.
Insurers continue to have limited appetite for first loss tranches. Nevertheless, the seniority of their protections is moving from senior mezzanine to junior mezzanine risk - which accounted for 48% of the participations in 2024, versus 27% in 2022.
Given that credit insurance is not an eligible credit risk mitigant for US commercial banks, European assets are dominant with 57% of insurance-covered SRT assets based in the EU and 11% based in the UK. Nevertheless, underlying assets from North America can be part of SRT risk mitigation for European banks and North American corporate loan pools comprised roughly 20% of assets in 2024.
The asset classes of underlying loan pools within SRTs covered by insurance continue to be more diverse, with around 50% of the insurance covering business finance, including corporate loans and trade finance. Nearly 30% covers residential mortgages and almost 10% covers specialised lending, such as project finance.
The IACPM survey shows that (re)insurers continue to have strong interest in participating in SRTs, with a focus on diversifying their non-life insurance portfolios. Respondents note that SRTs referencing pools of large corporate loans are particularly attractive, with SME pools also popular. Additionally, the number of insurance transactions involving residential mortgages is expected to grow, although at a more modest pace.
Finally, the percentage of syndicated unfunded transactions remained dominant last year, accounting for 82% of volumes. More insurers participated in the syndicates, with each insurer protecting on average 25% of the syndicated amount (versus 35% in 2023).
Participants in the survey, which was conducted in January, comprised 14 global (re)insurance companies. The IACPM notes that over the past six years, only a few claims have been filed by banks, all of which have been fully repaid by the insurer.
Corinne Smith
News
RMBS
Firstmac's 'Eagle' spreads wings in commercial SMSF market
A$1bn transaction sees mortgage lender turn to international investors in expansion of programme
Firstmac priced its largest RMBS deal to date earlier this month, in a deal that saw the mortgage lender expanding its investor base overseas. The A$1bn Australian prime RMBS transaction – Firstmac Mortgage Funding Trust No 4 Series Eagle No 5 – was backed by self-managed super fund (SMSF) loans and upsized from A$500m due to strong demand from investors.
For Firstmac’s cfo, James Austin, the pricing of this deal marks a significant milestone for the company. "This is the largest Eagle trade we have completed to date and demonstrates the growing acceptance within the institutional investor market for our SMSF collateral," he tells SCI.
The Eagle issue was launched at the beginning of the month and priced on 12 March, initially set at A$500m. According to the company, the issue was heavily over-subscribed and priced at +108bp above the one-month BBSW. Institutions from Australia, New Zealand, Southeast Asia, the UK and the USA participated in this issue, which was backed by SMSF residential loans and lenders risk fee (LRF) residential loans.
The company noted that the success of this issuance was also fuelled by investor confidence in the RMBS market remaining robust, particularly following last month’s RBA rate cut, the first since November 2020.
The last deal from Firstmac Mortgage’s Eagle programme was Firstmac Mortgage Funding Trust No.4 Eagle No.4, which was preplaced and priced its class A at plus 140bp in October 2023.
Firstmac also issued another RMBS deal with Firstmac Mortgage Funding Trust No.4 2024-4 in the second half of 2024. “In contrast [to Firstmac Mortgage Funding Trust No 4 Eagle No 5], the 2024 transaction was offered exclusively to Japanese investors. Expanding into overseas markets is key to establishing ourselves as the SMSF lender of choice,” he explains.
Opportunities in commercial SMSF
At the end of last year, Firstmac announced its entry into the commercial SMSF lending market after identifying a gap of coverage from the major banks. "Our residential SMSF product has been very popular with investors, which is not surprising. We're bringing competitive SMSF options and rates to a sector that is largely being overlooked," says Austin.
Firstmac has over 130,000 home loans amounting to A$18bn in home loans under management, alongside its auto finance business with a current portfolio of A$1bn. For the company, having consolidated its position in the RMBS SMSF market, venturing into small-ticket commercial SMSF lending was the logical next step, as the cfo explains.
"With this growing acceptance from institutional investors, we have increased confidence to expand our SMSF property lending activities,” says Austin. “This includes moving beyond residential SMSF and into the realm of small-ticket commercial SMSF."
Marina Torres
Talking Point
CLOs
Uncovering drivers behind recent EU CLO double-B and equity tranche performance
Poh-Heng Tan from CLO Research provides insights on recent secondary trading
In the evolving world of European CLOs, secondary market dynamics offer a telling glimpse into investor sentiment and relative value. Recently, trading activity in double-B and equity tranches has revealed notable pricing trends and performance disparities.
For instance, based on SCI BWIC data, CRNCL 2018-10X E (Cairn CLO X) traded at noticeably tighter DM levels (based on cover prices) than BCCE 2018-2X E (Bain Capital Euro CLO 2018-2), despite having slower post-reinvestment period (post-RP) annual prepayment rates and a slightly lower MVOC.
But what drove this divergence? Was it market perception of manager quality, structural resilience, or simply a flight to stability? By analysing recent BWIC (bids wanted in competition) data from SCI, we uncover the nuanced factors influencing tranche-level pricing and explore the performance attribution of three key EU CLO equity tranches.
|
|
Price (decimal) |
DM|mat |
MVOC |
Reinv End Date |
BWIC Date |
|
CRNCL 2018-10X E |
99.53 |
533.00 |
107.74 |
15/04/2023 |
20/03/2025 |
|
BCCE 2018-2X E |
97.55 |
622.00 |
107.90 |
20/01/2023 |
20/03/2025 |
|
CORDA 12X E |
99.86 |
539.00 |
108.65 |
23/07/2023 |
18/03/2025 |
One possible explanation is that BCCE 2018-2X E failed its Class F OC test in January 2025, triggering a diversion of interest cashflows to pay down the Class A notes — a structurally sound, self-correcting mechanism, though less attractive from a cosmetic standpoint. In addition, its equity NAV — currently in the teens — is markedly lower than that of CRNCL 2018-10X E, which stands in the 40s. Should market conditions worsen and equity NAV move into negative territory, BCCE 2018-2X E’s duration could be extended.
CORDA 12X E (CVC Cordatus Loan Fund XII), on the other hand, has a solid MVOC, but recorded single-digit prepayment rates in both the first and second years post-RP. Its near-par price may also have limited the bond from trading tighter. Turning to four double-B tranches with one to two years remaining in their reinvestment periods — three of them traded above par.
|
|
Price (decimal) |
DM|mat |
MVOC |
Reinv End Date |
BWIC Date |
|
PENTA 2018-5A ER |
100.15 |
588.00 |
108.96 |
20/04/2025 |
19/03/2025 |
|
ELMP 1X DRR |
100.66 |
601.00 |
109.75 |
15/10/2025 |
20/03/2025 |
|
AVOCA 23X E |
100.15 |
572.00 |
109.76 |
15/10/2025 |
20/03/2025 |
|
DRYD 2016-46X ER |
98.86 |
645.00 |
106.97 |
15/07/2025 |
18/03/2025 |
While ELMP 1X DRR (Elm Park CLO) exhibited the widest discount margin to maturity among the three above-par bonds, its DM to call is likely to be much tighter, given it traded well above par. With a current WACC of 1.65% — lower than recent reset WACCs of around 1.90–1.95% — a future reset could still prove economical.
DRYD 2016-46X ER (Dryden 46 Euro CLO 2016), on the other hand, traded at the widest DM among the four bonds, largely due to its lower MVOC.
Looking at three long-dated double-B tranches with reinvestment end dates in 2029:
|
|
Price (decimal) |
DM|mat |
MVOC |
Reinv End Date |
BWIC Date |
|
CLNKP 2024-1A E |
100.51 |
613.00 |
109.87 |
18/03/2029 |
20/03/2025 |
|
AVOCA 31A E |
100.87 |
586.00 |
110.23 |
15/04/2029 |
20/03/2025 |
|
ARBR 13A E |
100.22 |
612.00 |
110.17 |
15/02/2029 |
20/03/2025 |
AVOCA 31A E (Avoca CLO XXXI) stood out with an impressive discount margin to maturity of 586, despite having a similar MVOC to the other two tranches. This is perhaps unsurprising, as KKR is a large manager with an above-average MVOC profile across its platform. Both CLNKP 2024-1A E (Clonkeen Park CLO) and ARBR 13A E (Arbour CLO XIII) traded at comparable levels, with discount margins of around 612–613.
Performance Attribution of Three EU CLO Equity Tranches on a Recent BWIC
The primary equity IRRs presented in the table below reflect the returns that primary investors would have achieved, assuming an issue price of €95.
|
|
Deal Closing Date |
Reinv End Date |
EQ IRR (issue Px 95) |
Annual Dist |
NAV (Best/CVR Px) |
BWIC Date |
|
Harvest CLO XX |
Nov 28, 2018 |
Apr 20, 2023 |
10.8% |
16.0% |
50.1% |
13-Mar |
|
Ares European CLO VIII |
Dec 15, 2016 |
Apr 17, 2024 |
6.1% |
11.3% |
37.5% |
13-Mar |
|
Cairn CLO X |
Oct 25, 2018 |
Apr 15, 2023 |
13.7% |
18.4% |
46.3% |
12-Mar |
Cairn CLO X traded on 12 March 2025 with a released cover price of EUR 46.3, equating to a primary equity IRR of 13.7%.
At 13.7%, this 2018-vintage deal would rank in the top 10% among other 2018-vintage EU CLO equity tranches with BWIC colour released since July 2024. Notably, this deal experienced post-reinvestment period (post-RP) annualised prepayment rates of 0% in the first year and 14.1% in the second year. Its strong performance was largely driven by a solid annual distribution of over 18% sustained over more than six years.
Turning to another 2018-vintage deal, Harvest CLO XX, this deal was not traded via BWIC on 13 March 2025. However, based on the disclosed price colour, its equity tranche recorded a primary equity IRR of 10.8%, based on a price of EUR 50.1. While this equity tranche attracted a higher bid than Cairn CLO X, its primary equity IRR is lower due to its lower annual distribution. At an IRR of 10.8%, this deal would fall within the 25th to 50th percentile range. In terms of post-RP prepayment rates, it recorded 3.6% in the first year and 13.8% in the second year post-RP.
Finally, Ares European CLO VIII, a 2016-vintage deal, also did not trade via BWIC on 13 March 2025. Based on the disclosed price colour, its equity tranche achieved a primary equity IRR of 6.1%.
Given the limited number of 2016-vintage deals traded via BWIC since July 2024, its performance is compared to the equity IRRs of redeemed deals from the same vintage. At 6.1%, it would be positioned in the 25th to 50th percentile range.
Despite benefiting from a longer runway due to a 2019 reset, which extended its reinvestment end date from 17 February 2021 to 17 April 2024, its low IRR was largely attributed to its below-average annual distribution of 11.3%, relative to redeemed deals from the same vintage.
Source: SCI, Intex, CLO Research, S&P Global Market Intelligence
Market Moves
Structured Finance
Job swaps weekly: Morgan Lewis snaps up former SEC lawyer
People moves and key promotions in securitisation
This week’s roundup of securitisation job swaps sees Morgan Lewis hiring a structured finance specialist and former SEC special counsel as partner. Elsewhere, Marathon Asset Management has promoted a long-standing senior portfolio manager to partner, while Close Brothers Property Finance has added two senior professionals to its new structured finance team in London.
Morgan Lewis has hired the US Securities and Exchange Commission’s Brandon Figg as partner in its Washington office. In his new role, Figg will focus on public and private asset-backed securities, asset-backed lending, repurchase agreement transactions and derivatives. He leaves his role as senior special counsel at the SEC after three years with the organisation. Figg previously spent seven years at Cleary Gottlieb Steen & Hamilton where he focused on structured finance, securitisations, credit funds, derivatives and asset-based finance, among other areas.
Meanwhile, Marathon Asset Management has promoted Joseph Griffin to partner, based in its New York office. Griffin joined the firm 12 years ago and will continue in his capacity as senior portfolio manager focusing on loan origination and CMBS trading, as well as sitting on the manager's investment committee.
Close Brothers Property Finance has expanded its new structured finance team in London with the hire of two senior professionals. Manu Dinamani joins the build to rent specialist as a director from Downing, where he served as investment director. Joining him is Iain Melville, who will serve as the firm’s new senior business development manager, after previously serving as funding manager at Citu, where he led the structuring development and investment finance for the group.
And finally, Eagle Point Credit has recruited the ForeStar Sustainable Credit team to focus on direct origination in the ‘infra-centric’ space and build the firm’s infrastructure credit investing programme and support its private credit strategies.
ForeStar managing partner Jennifer Powers will lead the team as principal and head of infrastructure credit. She is joined by md Brittany Starck Pinkerton and director Michael Weber. Prior to ForeStar, Powers worked at Global Infrastructure Partners, Mizuho, RBS and CSFB. Starck Pinkerton and Weber also worked at Mizuho and RBS before joining ForeStar.
Corinne Smith, Claudia Lewis, Kenny Wastell
structuredcreditinvestor.com
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