Contents

CLOs

Market volatility, tightening spreads drive renewed demand for CLO mezzanine notes

Mezzanine paper sees spike in demand as yield-seeking investors want returns amid tightening spread environment and broader market volatility

CLO managers and investors report that broader market volatility, a tightening spread environment, and growing liquidity in junior tranches may be driving new demand for mezzanine notes.  

Attendees at Global ABS in Barcelona last month appeared to be in consensus that CLO spreads were continuing to tighten while demand for mezzanine paper was growing amongst yield-seeking investors. 

Bank of America’s latest CLO report cites strong demand in the mezzanine tranche causing spreads to rebound considerably back down to pre-April levels, after ‘liberation day’ caused the market to back up amid uncertainty.  

The report notes that mezzanine spreads were almost back to YTD tights with some attendees at Global ABS stating they were looking at “migrating down the capital structure, driven by tighter spreads and the search for yields.” 

Jim Schaeffer, head of US leveraged finance and global CLOs at Aegon Asset Management, tells SCI that he saw a similar picture on the ground in Barcelona adding that there is still momentum in the market despite further tightening after spreads initially widened out in the aftermath of the ‘liberation day’ tariff announcements. 

“Things have almost done a 180 degrees [turn] back to where they were from a spread level stand point. That probably presented a buy opportunity for those people in the mezzanine tranches because those [spreads] widened out and it's probably not correlated right with what the real risk is in terms of defaults in the market.” 

Market correction brings broad-based opportunity 

Rob Reynolds, head of CLOs at Pemberton Asset Management, gives a similar explanation, adding that this opportunity extended across the capital structure more broadly as initial negative outlook in reaction to the announcement subsided. 

“After the tariff announcement date, on 2^nd April, spreads moved out in terms of liabilities and so triple-As moved from around 120 to 140 [bps] but now settling in the low 130s and the mezzanine tranches also widened out as well,” he tells SCI. 

“Since then people have looked at their portfolios and decided that US tariffs don’t necessarily affect many of the portfolio companies. The default forecasts have ticked up slightly. This means it is even more important to be highly selective when building a CLO portfolio.” 

The notion that investors are migrating down the capital structure, however, is one that Reynolds isn’t convinced of, raising the possibility that this is actually the result of increased interest in the mezzanine tranche from new buyers seeing the good relative value. 

Schaeffer agrees with this assertion, stating that it’s more likely the market is seeing mezzanine investors from other asset classes moving into the CLO space. 

“It would be more likely to see people who’ve been in mezzanine tranches of other types of asset classes now going into the CLO world. Generally speaking, whatever you are running, you’re probably trying to get a certain return threshold in what you invest in.” 

Strong growth in CLO activity fueled by new market entrants has helped expand the investor base looking to tap into the larger, more sophisticated market, Schaeffer adds. 

“I think it’s more to do with the depth of the mezzanine investor world growing, you’re seeing more and more open up focused on this market and more entrants who are running funds/vehicles investing in CLOs in general because they’re getting more liquidity, more demand, more growth in the market.” 

Pak Sum Chan, partner at Pearl Diver who specialises in CLO tranche investment, notes that broader market volatility, and CLOs’ reputation for resilience, may have been a central factor in pushing investors from other asset classes into the CLO space, and mezzanine notes in particular. 

“Especially in the past year and a half [CLO] volatility has been pretty low and that is one of the reasons why people want to go into CLOs rather than other assets, especially liquid credit where they have both rate and credit volatility in the asset class.” 

He states that CLOs in general held up “pretty well” as the broader market was “tanking quite a bit”. For example, Chan tells SCI that leading up to ‘liberation day’ double-B CLOs were trading up near par (99%) and although immediately after the tariffs were announced the weaker notes were trading down to 93-4%, with stronger double-Bs trading nearer 96-7%, both bouncing back quickly. 

More tightening, but caution may follow 

Looking forward, Schaeffer says the current trajectory of the CLO market is for spreads to tighten further across the board, and he expects any concomitant default or LME activity could cause demand from mezzanine investors to cool. 

“Right now the momentum in the near term is market positive. The trajectory right now is for the market to grind a bit tighter right now.” 

“If we start to see default activity pick up or LME activity pick up, I do think you’d see a more cautious investor on the mezzanine side because the more demand there is, tighter the spreads get and it doesn’t make as much sense for them and they’ll start to look for other places,” he explains. 

Schaeffer adds the upcoming second quarter earnings announcements will be a significant litmus test for investors, informing them of how the underlying collateral will perform in the new environment, and contribute to shaping the mezzanine tranche in the upcoming months. 

“Second quarter earnings are going to be very important because you’re going to start to see how companies look in this environment. They’ve had some time to try and assess the impact of what’s going on, whether its tariffs, energy costs, whatever it is, they’ll have some visibility to talk forward and that to me is important. That in and of itself, depending on what comes out of it, could shape mezzanine tranches a little bit.” 

Solomon Klappholz

CLOs

EU reforms: CLO market sees progress, but key concerns remain

Law firms assess latest European Commission proposals and implications for CLOs

The European Commission’s proposed amendments to the EU Securitisation Regulation signal meaningful progress for the European structured finance market but challenges remain, particularly for the CLO sector, according to leading legal specialists.

David Quirolo, partner at Cadwalader Wickersham & Taft, says that while many of the reforms are welcome, some key areas risk undermining the Commission’s objective to grow the securitisation market and broaden the investor base.

“There are a lot of good things in this proposal,” Quirolo tells SCI. “The changes around transparency such as reducing the number of reporting fields and simplifying templates, particularly for private securitisations, will certainly help CLO managers.”

However, he warns that the proposed introduction of potential sanctions for investors failing to meet due diligence requirements is problematic: “That’s really unfortunate. If the goal is to increase the investor base, layering on more penalties on top of the existing prudential frameworks is counterproductive.”

Chris McGarry, CLO specialist and partner at Mayer Brown, also recognises the broader intent of the reforms, particularly when viewed in conjunction with capital relief measures. “The Commission’s proposed amendments to the EU Securitisation Regulation, together with the prudential easing proposed in the CRR amendments and expected imminently in the Solvency II amendments, are welcome and unambiguous in their tone and in their policy signalling,” he says.

McGarry notes that while the prudential changes do not directly benefit CLOs, they do provide indirect support. “These reforms improve CLOs’ relative value, which in turn will attract new investors to the asset class.”

Both lawyers also comment on the Commission’s handling of the risk retention framework. According to Quirolo, the absence of any Level 1 changes to Article 6—despite the ESA report raising significant CLO-related concerns is a missed opportunity. “Key issues like the predominant revenue test are left unresolved in the level one text and will need to be pushed through in level two,” he says. “We were also hoping for clarification or expansion of the ‘sponsor’ definition to include non-EU investment firms - something that requires level one action, but which was left out.”

McGarry adds that the Commission appears satisfied with the current framework. “So far as risk retention is concerned, the Commission considered the ESAs’ report of 31 March 2025 and decided not to endorse it. Their position is that the rules including the sole purpose test are already doing their job. In fact, there is some easing in cases where public entities, such as the EIB, provide first-loss support.”

Quirolo warns that the Commission’s risk-sensitive approach to regulatory capital under CRR, while a positive step in theory, still contains pitfalls. “There’s no cap or floor on the risk weights, meaning banks could end up with a higher capital charge for CLOs than they have today. That runs counter to the goal of encouraging securitisation.”

From a cross-border perspective, both lawyers acknowledge operational challenges. Quirolo highlights the requirement for non-EU transactions to report to EU securitisation repositories, noting this could place a disproportionate burden on US deals, even if UK-based managers – who dominate the CLO space – are less impacted.

McGarry, meanwhile, says the new “public securitisation” definition is unlikely to impose a significant operational burden. “Issuers are already doing Article 7 reporting by alternative means,” he notes.

Looking ahead, Quirolo outlines several priorities for the CLO market as the proposals move through the legislative process. “The sanctions proposal should be removed. CLOs should be recognised as STS, and the sponsor definition clarified to include non-EU managers. Also due diligence requirements should be further simplified for both EU and global investors.”

Both experts agree that the proposals represent a constructive step, but stress that market participants must remain actively engaged as level two details are developed.

Quirolo says: “There’s still a lot of work to do to ensure these reforms truly support the growth and global competitiveness of the European securitisation market.”

On the other hand, the amendments work in favour of SRTs, with lower-RWA asset classes benefitting from reduced risk weights on retained senior tranches, thus increasing the amount of capital release from securitising these portfolios.

The draft act is open until 15 July (midnight Brussels time) and all feedback will be taken into account for finalising this initiative, the European Commission says.

Ramla Soni

Asset-Backed Finance

SCI in Focus: Private credit expands its role in APAC securitisation

Australia's innovation and Japan's fund finance surge boost private credit's prominence across the region

Private credit is playing an increasingly prominent role in the evolution of Asia-Pacific’s securitisation markets, evolving from a niche to a norm. Throughout the region, private credit is emerging not only as an alternative to public securitisation but as a complementary strategy enabling new asset classes, supporting lending scale and incubating platforms for future public issuance. 

The scale of the opportunity presented by private credit in APAC is substantial. However, private lending still represents a fraction of overall debt financing. JPMorgan estimates that APAC’s private credit market trails its public counterpart by more than US$1.3trn, with just US$200bn in private debt versus US$1.5trn in public debt outstanding. 

While Australia leads the pack in the APAC region with a growing ecosystem of non-bank originators tapping private capital, in Japan, rising allocations to private credit are being driven by factors like corporate succession and leveraged buyout activity. China, however, continues to follow its own tightly regulated path when it comes to ABF. Its private credit market remains almost entirely domestic and largely closed to foreign participants. 

“Private credit and private markets generally are very topical,” says Erin Kitson, director of structured finance at S&P Global Ratings in Melbourne. “Their growth and increasing complexity are garnering a lot of attention from multiple spheres.” 

A recent S&P Global report on the topic explored how private credit is supporting the expansion of smaller, non-bank originators, particularly in Australia, to scale more quickly and test new asset types before entering the spotlight of the public market. 

“Australia has a lot more smaller non-bank originators, and they really are in a lot of ways more dependent on securitisation for issuance,” explains Kitson. “With more private credit coming into the region, it’s given them much greater diversity of funding options. That enables them to achieve greater scale and experiment with different asset types.” 

Private credit’s utility, she adds, is not limited to stand-alone lending. It can also serve as a strategic stepping stone to future public ABS or ABF issuance. 

“It gives issuers time and space off-market to develop performance track records, which is easier to do privately when you don’t have as great a disclosure requirement,” explains Kitson. 

Australia’s capital base is a major enabler of this trend. With more than AU$3.9trn in compulsory superannuation savings, the country provides a deep domestic pool for alternative credit strategies and is bolstered by strong legal and institutional frameworks. “That’s a strong drawcard for global private credit players,” notes Kitson. 

Yet, the tale of private credit’s inroads into Australia’s securitisation market is not one being written solely by the usual global names. Although the likes of Apollo are active, Australia’s private credit growth is supported by a mixture of large domestic and international investors, propelling the growth of the ABF market down under, as already seen in the US and Europe. 

Nor do all APAC markets share the same story as Australia – they are all very much on their own unique private credit trajectories. Some parallels can be drawn between Australia and Japan, although the two countries differ significantly in terms of issuer diversity and funding needs. 

“Japan has less issuer diversity,” says Kitson. “You’ve got the Japanese Housing Finance Authority and captive auto finance companies, and those players have more well-established funding options. So private credit’s direct influence on securitisation in Japan is not as pronounced as in Australia.” 

Japan’s surging fund finance market 

While Japan differs from Australia in issuer diversity and funding needs, it is quietly undergoing a private credit transformation, driven by succession planning, governance reforms, and leveraged buyouts (LBOs).

In particular, demand for subscription credit lines and NAV-based lending is set to grow in Japan as private equity and real estate funds expand, according to a recent Moody’s report. 

“Buyout deals are set to rise due to business succession needs, stricter IPO requirements pushing startups toward M&A, and government-driven corporate governance reforms. Private credit funds will focus on mezzanine LBO loans in these deals,” explains Soichiro Makimoto, vp, senior credit officer at Moody’s Ratings.

Private capital flows in Japan are increasingly channelled through subscription lines and NAV-based lending. 

“The use of subscription financing is growing as domestic GPs become more aware of the benefits of such financing in managing liquidity and improving returns. Nevertheless, some LPs' concerns over using capital call rights as collateral may delay their widespread adoption among domestic funds,” says Makimoto.

Despite its growing appeal, banks remain cautious. “Extensive use of subscription financing to boost fund return metrics, such as the internal rate of return, by extending durations is riskier than typical three- to six-month bridge financing for capital calls,” explains Makimoto.

He continues: “A high-quality, diverse LP base helps mitigate these risks. NAV lending credit risk hinges on the invested companies' performance and GPs' ability to increase their value. This risk can be mitigated by maintaining a low loan-to-value ratio.”

Banks and private credit funds are expected to collaborate through risk-sharing strategies, such as securitisations. “Currently, Japanese private equity funds rarely use NAV lending. Private credit funds focus on it for higher risk and returns, whereas Japanese banks prefer the safer subscription finance, leading to potential risk and role sharing for PE funds,” notes Makimoto.

Japanese insurers are also slowly exploring the space. “With limited private credit fund opportunities in Japan, insurers must explore foreign markets for investment. As they gain experience in foreign funds, their investment amounts will gradually grow,” says Makimoto.

China, by contrast, continues to operate on a separate track, shaped by heavy regulation, limited foreign participation and its tightly defined securitisation framework. 

“Private credit in China is very much domestic and highly regulated. Securitisation there has to comply with particular frameworks. I don’t think it will look like how private credit operates in Australia," explains Kitson. 

Disclosure and transparency remain global sticking points in the private credit debate. However, Kitson suggests that the conversation in Australia has been constructive, with broad acknowledgment that private markets play an important role in capital market allocation.  

“The lack of disclosure and transparency is a universal private credit concern,” she says. “But private credit can also play a partnership role. If originators use it to build scale and track record, it can support entry into public markets later.” 

Unrated structures, especially those involving higher-risk or bespoke loans, remain common in early-phase private deals - but often by design. 

“Private, unrated arrangements can help originators offer more diverse lending products while keeping more ‘securitisable’, homogeneous products for rated public issuance,” says Kitson. 

While the Australian Securities and Investments Commission is currently consulting on the private credit market, the broader market sentiment remains supportive, with originators increasingly viewing private capital as a crucial pillar of their long-term funding strategy in Australia. 

“There’s an understanding that funding resilience is necessary for business longevity. Particularly if originators are reaching capacity limits with existing funders, having a diversity of funders is a business imperative,” notes Kitson. 

Even at this early stage of the region’s ABF market maturity, emerging asset classes such as data centres are beginning to gain traction across APAC. 

“They’re very topical here as well,” explains Kitson. “There’s growing interest, especially because there are different analytical approaches you can use to finance them, whether CMBS, ABS, or project finance. We’re probably still in a more nascent phase than the US or Europe, but there’s definitely growing demand for this asset type in the region.” 

Private credit’s role in Australian securitisation is likely to remain durable, particularly for domestic players. 

“It’s certainly not a fly-in, fly-out trend - at least for the domestic ones. They’ll remain a long-term part of the funding strategy, especially for smaller non-bank originators,” says Kitson.  

Claudia Lewis, Marta Canini

Capital Relief Trades

Italian first

SRT market update

IBL Banca has completed a €1.2bn synthetic securitisation referencing a portfolio of CQS (Italian salary and pension-backed) loans. The transaction includes a mezzanine tranche of approximately €70-€80m. The issuer placed the deal with international credit funds via an SPV.

This is the first transaction in Italy to combine STS certification with publicly placed notes, without requiring a counter-guarantee from the originator.

The deal is expected to free up capital for further growth, including the bank’s pending acquisition of Creditis, currently awaiting regulatory approval.

Both Intesa Sanpaolo’s IMI CIB division and UniCredit acted as co-arranger and placement agent. KPMG served as advisor.  

Nadezhda Bratanova

Capital Relief Trades

Swedish SRT

SRT market update

Swedish issuer Marginalen Bank is expected to price an SRT imminently.

Named Project Apple, the deal references a SEK4bn portfolio of consumer loans, with the issuer placing a 8-12% first loss tranche with investors. 

Last year Marginalen Bank completed Project Argo, a SEK1bn risk-transfer cash securitisation referencing a portfolio of non-performing consumer loans. 

Vincent Nadeau

Alternative assets

Ferovinum bottles world-first public securitisation of wine and spirits

Landmark deal backed by inventory and receivables across wine, spirits and soft drinks showcases securitisation's expanding role in real economy funding

Asset-Backed Finance

CFOs set to surge amid Europe's fund finance evolution

Liquidity needs and fundraising challenges trigger wave of interest in structured secondaries, drawing in private credit and insurance capital

Collateralised fund obligations (CFOs) are emerging as the next frontier in European fund finance, with a notable recent example being the landmark transaction involving Coller Capital, Ares and Barings. The deal utilised the CFO structure to unlock large-scale liquidity from secondary portfolios, attracting capital from both insurers and private credit investors.

“CFOs tranche an investment into different risk profiles, enabling sponsors to attract different types of capital to their offerings, which enhances an asset manager’s ability to raise capital,” says Richard Sehayek, md and co-head of European alternative credit at Ares, explaining why CFOs are growing in prominence as an alternative source of liquidity for sponsors.

While NAV-based lending remains the most established product in fund finance, Ares expects CFOs to grow from a comparatively low base, driven by institutional appetite for structured risk and heightened fundraising challenges across private markets.

“NAV lending is increasingly common, whereas CFOs have grown from a relatively low base to what is now a meaningful volume,” notes Sehayek.

According to Ares’s 2024 white paper, subscription lines dominate the fund finance space, with volumes of roughly US$850bn globally, while NAV loans - both single-fund and secondaries - make up approximately US$225bn. CFOs, with nearly US$25bn, are emerging as a significant contender, poised to increase in prominence - especially in Europe, where bespoke structures are gaining traction.

Historically dominated by banks, Europe’s fund finance market is quickly diversifying across private credit and insurance, opening the door for non-bank players like Ares to scale bespoke financing solutions.

“Private credit has become a source of capital in its own right,” says Sehayek. “Historically, this was a bank-dominated market, but now it’s spread between the banks, private credit and insurance capital. We’re not at equilibrium yet, but we’re getting there.”

In many CFO structures, risk is effectively carved into two investor pools: a senior tranche for insurers and a junior slice for private credit firms. That approach is increasingly attractive for large sponsors seeking concentrated capital partners rather than syndicating to dozens of smaller buyers.

“We tend to work with parties we know and have a shared history with,” notes Sehayek. “This brings a degree of trust that lends itself to faster speed of execution and better alignment on terms.”

In a tight fundraising environment, CFOs are emerging not only as liquidity providers, but also as catalysts for capital raising. Some recent structures have helped sponsors both de-risk portfolios and raise follow-on equity.

“It’s well documented that the fundraising environment is generally challenging for a lot of managers right now,” explains Sehayek. “These deals can serve both purposes – providing liquidity and raising fresh equity capital.”

With secondary AUM ballooning and sponsors hunting for tailored solutions rather than off-the-shelf term loans, fund finance is becoming more problem-solving than product-driven.

“Previously, most sponsors would request standardised ‘off the shelf’ NAV loan structures that were commonplace. Now, the conversation has shifted – sponsors tend to approach lenders with specific challenges they are looking to solve through a more customised structured solution.”

Ares is actively exploring more CFO-style securitisations and sees ‘securitisation technology’ as a core innovation theme across its pipeline.

“We’re constantly looking for ways to innovate and to bring in different capital bases that best suit a given situation,” explains Sehayek. “We want downside protection, control over terms and attractive return profiles. If those three elements line up, we’re all in.”

In terms of broader European alternative credit trends, Ares identifies digital infrastructure and fund finance as the two fastest-growing segments, driven by secular demand for data, fibre and yield-enhancing capital structuring.

Sehayek believes replication across the market is inevitable, though competition may put pressure on returns and terms.

“We’re seeing more parties announce CFO transactions, which is not surprising and in line with what we would expect,” says Sehayek. “The challenge is staying one step ahead – to keep innovating the next structure, the next solution, the next big idea.”

Marta Canini

Asset-Backed Finance

Swiss art-backed securitisation debuts

ArtSecure Capital's Sfr250m ABS brings blue-chip fine art to private credit markets

ArtSecure Capital is set to launch Switzerland’s first art-backed securitisation, a Sfr250m private facility that merges blue-chip, fine art with structured credit. The offering, advised by Zurich-based Finanz Konzept, offers institutional and high net-worth investors a compelling alternative to traditional investment-grade credit. 

“We’re bringing a structure that has seen traction in the US with Sotheby’s art lending deals, into Switzerland,” says Xeno Marugg, head of corporate finance at Finanz Konzept, acting as placement agent on the deal. 

He adds: “We don’t see this as traditional private debt. It’s a structured credit product with ABS-style protections: low LTVs, insurance and a reserve buffer, making it more conservative than most private credit strategies.”

The ABS, which pays a coupon of SARON plus 2.5%, is denominated in Swiss francs and targets a credit rating of single-A to double-A from DBRS Morningstar. 

With a seven-year maturity and bullet repayment structure, the facility aims to appeal to conservative investors seeking diversified, low-correlation exposure, utilising art as collateral and Munich Re-provided principal insurance (pending confirmation). 

Unlike traditional ABS deals, the structure is pre-securitised – meaning capital is raised before the underlying art loans are originated.

“The facility is structured upfront, before individual loans are originated, allowing for faster deployment and reducing cash drag – something rarely seen in European ABS markets,” adds Marugg.

Each loan in the facility is backed by blue-chip artwork, with a minimum value per piece above Sfr500,000. Loans are structured with conservative LTVs of 40%-60%, and borrowers are required to prepay six months of interest at origination and cover all costs related to transport, storage and insurance, reducing risk to investors and protecting the portfolio’s cashflow stability and overall credit quality.

The artworks will be held in Swiss freeports, giving ArtSecure physical control over the assets. In the event of default, collateral can be liquidated, LTVs restored with additional assets or payments or an insurance payout triggered, with Munich Re potentially underwriting the principal protection.

“It’s a relatively low insurance premium for the extra layer of protection it brings,” explains Marugg. “If a loan defaults and the art can’t fully cover the outstanding amount, the insurance activates – it's our last line of defence. That’s why we structured it this way, to effectively eliminate tail-end risk for investors.”

He continues: “Insurance also imposes discipline – Munich Re requires external appraisals for every piece, so you’ve got independent valuation checks baked in.”

Designed for pension funds, family offices and alternative credit investors in Switzerland and abroad, the structure offers a semi-annual interest distribution and an attractive risk-return profile. 

With Swiss risk-free rates near zero, the 2.5% margin above SARON provides significant spread pickup for a bond expected to carry an investment-grade rating.

“This is a low-correlation, stable asset class – very different from equities or even real estate,” notes Marugg. “The underlying artworks are historically resilient, and borrowers tend to be ultra high-net worth collectors or institutions.”

Furthermore, the ABS is structured as a private placement eligible for Euroclear and Clearstream settlement, governed under Swiss law, and includes a 1% interest reserve buffer to enhance liquidity resilience.

In case of default, ArtSecure can liquidate artworks or top up collateral to restore LTVs. “These are blue-chip pieces, so while they’re not as liquid as stocks, we’re confident in exit timelines under normal market conditions. That said, insurance gives us a final fallback,” explains Marugg.

According to Deloitte Private and ArtTactic’s Art & Finance Report 2023, the art loan market has grown steadily from an estimated US$24-US$28.2bn in 2021 to US$29.2-US$34.1bn in 2023, and is projected to reach up to US$40.4bn by 2025. Private banks hold the largest share, but specialty lenders and auction houses are expanding rapidly. Specialty lenders could more than double their portfolios by 2025, while auction house finance is also expected to see strong growth. 

“We see this as an underserved niche. With more recognition, art-backed ABS could follow a similar path to music royalties – migrating from exotic to institutional,” says Marugg.

The deal has generated preliminary interest from one large and several smaller investors, with approximately Sfr50m in soft commitments. The initial fundraising target is Sfr100m, with the full facility build-out planned for early 2026.

Marta Canini

Capital Relief Trades

NatWest's expanding SRT activity

NatWest maintains SRT momentum with Nightingale programme

The latest iteration of the Nightingale programme, which priced in June[1], marked NatWest’s eighth SRT issuance in just 18 months. According to Robert Lloyd, head of C&I Balance Sheet & Risk Management, the investor base has broadened as supply and demand remain out of kilter, with current market conditions encouraging renewed activity. 

Over the past couple of years, SRT-related asset classes have gained significant momentum. “This has been driven by elevated real interest rates, attractive yields, and the continued growth of private credit,” explains Lloyd. “These factors have collectively increased demand, and we expect this growth trajectory to continue”. 

NatWest is expected to stay active through year-end, notably though its Nightingale shelf. Looking ahead, the issuer has signalled it expects to complete between four and six additional deals this year, depending on balance sheet demand and its risk-weighted asset position. 

Discussing ongoing market trends, Lloyd believes the European Commission's new regulatory documentation and its "SRT-pro dynamic" will strongly affect the wider European investor universe, regardless of whether the PRA implements similar rules. He believes that the relaxation of European SRT regulations will lead to spillover benefits for the UK, particularly as real-money investors increasingly seek opportunities in this area.

Regarding structural features, the subject of leverage in the SRT market continues to be a point of discussion for issuers. “The use of leverage has increased capital availability, has had a positive impact on spreads, and implied greater levels of recycling of bank’s capital to continue supporting origination”, says Lloyd. 

While the Nightingale programme encompasses NatWest's current SRT transactions, Lloyd notes that each deal's is priced individually: “As part of Liberation Day (tariffs), we saw a sharp widening in spreads – SRTs performed relatively well with an average widening of 50 to 75 basis points”, he notes. While spreads remain wider than their historical lows, much of the earlier widening has already begun to contract.”

Placing particular emphasis on portfolio selection and the quality of assets in the pool, NatWest’s core SRT strategy focuses on corporate exposures – ranging from large and mid-sized corporates to SMEs; though their SRT activity has expanded to include leverage finance portfolios and project finance trades.  

While the commercial and institutional business will remain a core focus, NatWest is also eyeing opportunities in its consumer and retail portfolios if rate movements allow it. Alongside, NatWest continues to manage its capital actively through insurance-linked strategies – including secondary market sales, single-name or portfolio insurance, and traditional SRT transactions.  

Lloyd points out how SRT trades ultimately recycle capital, delving into the dynamics behind the widening gap between real risk and bank capital demands – and how this underscores the effectiveness of SRTs. He goes on to highlight the trifecta of advantages these transactions offer from an issuer’s perspective, especially under current market conditions: “They help boost returns, recycle RWAs, and serve as an effective hedge for impairments”.  

“SRT is gaining broader recognition and understanding across the market,” says Lloyd, “Investor familiarity is growing as we view SRT as a highly effective tool. “While we have made significant progress from a relatively low base, we’re also actively utilising a range of other distribution options to complement our approach” notes Lloyd. 

Dina Zelaya

Capital Relief Trades

EBA survey confirms growing SRT appetite

'Wide range' of CET1 capital relief reported

EU/EEA banks’ SRT issuance represents slightly more than half of their total outstanding securitisation volumes of around €1trn, according to EBA Supervisory Reporting data since 2017. Indeed, the authority’s latest Risk Assessment Questionnaire (RAQ) confirms the wide usage of SRTs by banks: more than half of the region’s banks have so far made use of SRTs and around three-quarters of them aim to continue doing so.

Additionally, the results suggest that around 20% of SRT users are not yet sure about future usage, whereas approximately 5% no longer want to make use of SRTs. However, around 20% of banks that have never made use of an SRT aim to issue one in the future.

The EBA data confirms the dominance of large corporate and SME loans in SRT portfolios, accounting for 29.96% and 30.52% of underlying exposures respectively. The remaining assets comprise residential mortgages (12.81%), commercial mortgages (11.89%), consumer loans (6.68%) and ‘other exposures’ (8.13%).

Compared to other jurisdictions, EU/EEA banks account for a comparatively large share of the global SRT market at an estimated 50%. At EU/EEA banks, SRT exposure volume corresponds to around 2% of total credit exposure amounts (excluding retention).

One of the survey’s SRT-related questions is how much capital is actually freed up through their utilisation. High-level calculations indicate that there is a wide range of CET1 capital relief, ranging from around small single-digit basis points to more than 100bp.

Meanwhile, the results dispel concerns of an SRT ‘maturity wall’ - whereby many deals mature at a similar time, meaning that banks’ capital relief would suddenly end (assuming similar volumes of exposures do not mature at the same time). Based on maturity estimates using the first foreseeable termination date, trades with a volume of €39.59bn are set to mature this year, rising to €79.64bn next year and decreasing thereafter. Nevertheless, the EBA emphasises the importance of this risk being properly managed by banks, especially in light of rising SRT usage.

Finally, RAQ data indicate that private credit funds are the main investors in SRT transactions in relative terms (representing just over a third of market share), followed by other investment funds (18%), insurance companies (14%) and pension funds (13%). As such, the EBA notes that even though the investor base is not evenly distributed, trades remain well distributed between different kinds of investors – implying that the investor base is sustainable and should be able to absorb supply going forward.

Corinne Smith

Capital Relief Trades

AXIS Capital targets SRTs emerging regions as Southeast Asia and CEE gain traction

MDBs pave the way for emerging market SRTs

SRT issuance in emerging markets poses an attractive opportunity for investors, AXIS Capital’s Victor Ong tells SCI. He expects increased origination across Southeast Asia and parts of Eastern Europe, albeit only in areas where policy, infrastructure, and investor appetite align.

Ong shares that multilateral development banks such as the IDB and the EBRD will continue to play a crucial role in unlocking SRT pipelines, particularly in less-developed jurisdictions where their early involvement can help attract a variety of private investors.

"SRT issuance is not easy, especially for first-time issuers in emerging markets as policies, systems, regulations, and investor interest need to be in place to facilitate successful issuances,” he shares.

“MDBs such as the EIB/EIF, IFC and EBRD have been at the forefront of opening new markets and investing in new issuances in emerging jurisdictions”.

He adds that while recurring issuers in developed markets have grown more comfortable with synthetic securitisation products, emerging market institutions often face a longer runway and may require six months to a year to launch a deal.

Issuance in Southeast Asia

In Southeast Asia, countries like the Philippines, Indonesia and Malaysia are also on the investors’ radars, yet regulatory familiarity remains limited. 

Ong shares that a first-time issuer, ideally backed by an experienced arranger – would be needed to lead the way in engaging regulators and establishing a proof-of-concept.

“Countries with a stable political and legal system and stronger sovereign ratings are more likely to attract investor interest, while the increasing need by banks to optimize their capital allocation across their portfolios could spur interest in SRT issuance by potential originators,” he comments.

“In APAC, there have been issuances out of Japan. Hong Kong has seen SRT issuances by two large international banks. Singapore has SRT regulations in place and thus Singaporean banks could be next. Corporate lending and mortgages would be great asset classes for SRTs in APAC as they are well understood by investors.”.

Multilaterals, CEE and future markets

Ong stressed the importance of development banks like the IDB and EBRD in helping emerging regions take their first steps into a more vibrant SRT market. 

"Multilaterals have been driving SRT issuances in emerging markets either as an issuer - AfDB, IDB Invest, and potentially the EBRD - or as an investor like the IFC and EIB/EIF. Their involvement helps wet investor appetite for future SRTs with landmark transactions such as AfDB’s Room 2 Run and IDB Invest’s Scaling for Impact coming to mind," he notes.

Australia is also on the horizon. Ong is hopeful to see Australia a likely entrant within the next few years, noting that local banks’ exposure to RMBS, infrastructure and corporate-backed loans could yield interesting portfolios.

"Australia has a sophisticated capital market with securitisations of asset classes ranging from RMBS to SME loans. I would expect SRT investor appetite for such asset classes to be similar given that there is already familiarity with these asset classes”.

“The progress of the first SRT issuance is dependent on regulatory changes and the Australian banks’ portfolio and capital management strategy. Full stacks have taken place, which will hopefully provide a pathway to SRT issuance in the future," he continues.

AXIS Capital remains very active in the synthetic securitisation space, having recently participated in transactions in portfolios for asset classes such as infrastructure finance, aviation finance, large corporates, SME, IPRE, leveraged finance, corporate leasing and mortgages. 

“We are keen on asset classes that we have a strong knowledge of and experience in and have an appreciation of how these asset classes have performed during various economic cycles,” Ong says.

AXIS also maintains its strong appetite for portfolio opportunities in emerging markets, given its expertise in the single transaction credit space.

“We had a great experience working with and supporting IDB Invest on their landmark Scaling for Impact SRT last year,” Ong also notes.

He explains that the LATAM portfolio has been attractive to the investor due to their decades of experience underwriting emerging markets credit risk, concluding: “MDBs such as IDB Invest are very good risk takers in emerging markets and their involvement as a lender helps to mitigate country risk due to their preferred creditor status”.

Nadezhda Bratanova

Capital Relief Trades

Reg cap market veterans Citi and JP Morgan in the market

Corporate loans and high yield loans feature in two deals

Citigroup is in the market with a US$8bn synthetic securitisation of corporate loans issued from its Terra programme, and the deal is near closing, say market sources.

The face value of the note is US$1bn, they add, and it is said to carry a 6% handle.

Citi declined to comment on the deal.

The bank is one of the most established user of the reg cap mechanism among US banks.

JP Morgan Chase is also said to be considering an CRT deal referencing high yield corporate loans, but no further details are available. The alleged issuer also declined to comment to SCI.

Two weeks ago (June 18) JP Morgan Chase also sold a USS235m prime auto 144a CLN, designated CACLN 2025-1.

In addition to the A tranche, the deal consisted of six tranches, all of which are due in 2033. The US$159m B tranche, rated Aa2, yields 4.8%, or 85bp over the interpolated Treasury curve. The US$25m C tranche, rated A3, yields 4.90% or plus 95bp. The US$11m D tranche rated Baa3 yields 5.10% or plus 115bp, while the US$17m E tranche, rated Ba3, yields 6.10% or plus 215bp.

Further down the stack, the US$10m F tranche, rated B yields plus 315bp while the unrated US$134m G tranche yields plus 675bp.

The US10m tranche was fourteen times oversubscribed, say sources, meaning that each investor would take home just over US$700,000.

In general, however, the US CRT market remains somnolent, in contrast to the very wide awake European market, agree investors.

Simon Boughey

ABS

'Keep calm, but keep cautious'

Rob Ford, retired founding partner of TwentyFour Asset Management, shares his views on the current state of the European ABS market and how to position portfolios for the future

Q: How would you characterise the current state of the European securitisation market?
A: Last year was fantastic for performance: spreads generally recovered throughout 2024 from a relatively wider level, having been through 2022-2023, where markets weren’t in such great shape because of inflation- and interest rate-led concerns. We didn’t have a boom, but a gradual tightening of spreads, which was matched by an increase in issuance, so kept a nice balance. To my knowledge, 2024 was a record year for issuance in a post-financial crisis world by quite some margin. 

Coming into 2025 and President Trump taking office, everything got chucked up in the air. We’ve had tariffs, escalations and continuations of different wars - even recently between Israel and Iran - which had previously thrown spreads out as the market dealt with the related supply chain issues. 

This time though, while volatility in the rates market has been pretty severe, the European ABS market has sailed serenely through the middle of it without an enormous amount of volatility and with demand seemingly continuing. Yes, there was a bit of spread movement - but we’re talking 10s of basis points, not 100s.

We’ve seen some asset performance deterioration in specific asset classes; in particular, non-conforming mortgages that were lent in the lead-up to Covid and then were impacted by the financial pressures that hit a number of those borrowers. It became difficult to refinance because of the rise in interest rates after inflation started soaring, with borrowers finding their refi rate was much higher than anticipated. 

However, this negative performance is yet to start creeping into the potential for losses flowing through into publicly distributed tranches. Mostly due to amortisation, there is more than enough credit enhancement in those deals - some of which have delinquencies well over 20%, which is much higher than might have been modelled at the time they were issued - to absorb any potential losses.  

Importantly, we’ve seen new issuers enter the market, which is great for market diversity and for the investor base. If the issuers come from Italy or Spain, for instance, you know they will provide a bit more yield as well.  

Q: Which sectors have shown the most resilience?
A: Everything has shown resilience. Except for those non-conforming mortgages around Covid, most asset classes have performed well, but especially corporate and leveraged loans.  

One area that has seen more volatility is CMBS. The issue with CMBS is that every deal is different and needs to be assessed individually. There are some fantastic CMBS deals out there and some that have performed poorly, due to sector-related stresses. 

Within RMBS, prime deals will have better quality borrowers, but if house prices fall by 10%, then they’re going down by 10% for both prime borrowers and non-prime borrowers. But in commercial property, there is an enormous range of different assets, from offices to shops and the wider logistics properties. 

Consequently, every deal has to be assessed on its individual structuring and the leverage applied to each of the underlying properties, as well as the way the valuations are undertaken on those properties. It’s a sector that can trip investors up.  

Q: Which risks are relevant now that you’ve noticed?
A: Geopolitical risks are at the front of everyone’s minds, as we have no idea what the world leaders will do. For ABS specifically, there isn’t anything significant on the horizon, although we still need to be mindful of performance trends and address any deterioration. 

The secondary effects of macro risks might impact supply chains; for example, the automotive industry might feel a burden, if car makers can’t get hold of components. But rates in the UK and Europe have fallen from their peaks, which would suggest we’re entering a period of more interest rate stability.  

A refinancing wall is likely to emerge within the next few years. Many of the bigger businesses that were able to finance themselves in the capital markets and the high yield market have loans securitised in CLOs, which may have to be revisited over the next three to five years.  

Q: What key piece of advice would you share with other market participants?
A: Keep calm, but keep cautious. Make sure your portfolios are nimble and have enough flexibility and/or liquidity to be able to manage what may be a volatile time coming up. 

ABS may be the best-performing assets you have, but some people will sell those first to cover other positions they have losses in. Spreads have tightened and there might be a tendency among investors to reach for a bit more yield – be careful that doesn’t come back to bite you!   

Matthew Manders

Structured Finance

Job swaps weekly: Sound Point names Gerlitz's successor as global cfo

People moves and key promotions in securitisation

This week’s roundup of securitisation job swaps sees Sound Point Capital Management naming a new global chief financial officer. Elsewhere, EBRD’s first vp and head of client services group has retired, while the completion of BNP Paribas Cardif’s acquisition of AXA Investment Managers has been followed by the consolidated platform announcing its new leadership team. 

Sound Point Capital Management has appointed Dan Fabian as global chief financial officer (cfo), effective immediately. He succeeds Kevin Gerlitz, who is retiring after a tenure as the firm’s longest serving cfo. 

Fabian brings over 20 years of experience in senior financial and operational roles within the asset management industry and will play a key role in supporting Sound Point’s global strategy. He most recently served as president, coo and cfo at Alcentra. 

As part of this transition, Gerlitz, who has been with the firm since its inception in 2008, will retire from his role and remain with the firm as a senior advisor, the firm says. 

Meanwhile, EBRD’s Jürgen Rigterink has retired from his role as first vp and head of client services group, effective 1 July. He will be succeeded by Greg Guyett, a long-time global banking executive, who is set to take the helm at the development bank in September.  

Guyett currently chairs HSBC’s strategic clients group and has previously served as ceo of global banking and markets. He also spent three decades at JP Morgan in a range of senior positions.  

Rigterink first joined the EBRD back in 2018 and has since overseen its banking, advisory and policy operations, playing a key role in delivering its €16.6bn of investments. EBRD declined to comment. 

BNP Paribas Cardif, the insurance arm of BNP Paribas, has completed its acquisition of AXA Investment Managers and entered a long-term asset management partnership with AXA Group. Originally announced in August 2024, the deal creates one of Europe’s largest asset managers with over €1.5trn in AuM.  

The new platform merges the expertise of AXA IM, BNP Paribas AM, and BNP Paribas REIM, spanning both traditional and alternative strategies. Sandro Pierri, ceo of BNP Paribas AM since 2021, will lead the asset management business, while Marco Morelli, executive chairman and ceo of AXA IM since 2020, will serve as chairman of the new platform. Integration plans are underway, with further details to be expected in BNP Paribas’ Q3 2025 and Q1 2026 reports. 

Dechert has appointed global finance partner Matthew Fischer to co-leader of its commercial mortgage-backed securities group alongside Stewart McQueen. Fischer rejoined the firm 10 years ago as an associate and was promoted to partner in 2019. He originally joined Dechert in 2011 but left in 2015 to take up a role at Sidley Austin, only to return to the firm five months later. 

DLA Piper has promoted structured-finance-focused senior associate Oisin Mulvihill to legal director, based in its Dublin office. In addition to securitisation and structured finance, Mulvihill also advises on debt capital markets, acquisition and leveraged finance, real estate finance, corporate lending and asset-based lending. He joined the firm in 2019 as an associate, having previously spent four years at A&L Goodbody. 

And finally, US insurer Republic Financial has appointed BMO Capital Markets’ Michael Pruyn to its board of directors. The hire forms part of the insurer’s national expansion plans. Pruyn joined BMO in 2016, where he holds the title of director, asset finance and origination, and focuses on ABS. 

Ramla Soni, Nadezhda Bratanova, Marta Canini, Kenny Wastell