Global ABS 2019: Issuers Out in Force

This week Asset-Backed Securities (ABS) market participants from across the globe gathered for the 23rd annual three-day Global ABS conference in Barcelona. And this year it proved more popular than ever with over 4,000 attendees (a post-crisis record) made up of issuers, arrangers, service providers, traders, analysts, market regulators, the industry press, and of course investors like ourselves. In particular, we felt the number of issuers represented was noticeably higher than we have seen in recent years.

As usual, topics covered in the numerous presentations and panels ranged from “101” sessions for new participants, asset class specifics, keynote speeches by senior regulators from the Financial Conduct Authority (FCA) and the European Securities and Markets Authority (ESMA) covering the ongoing development of regulations and the forthcoming replacement of the Interbank Offered Rate (IBOR) benchmarks, some highly technical issues for the trustees and law firms and market outlook sessions from the analysts and traders covering the expectations for asset performance and market direction.

These sessions were very well attended – I personally spoke on two panels, about the impending IBOR replacements and the new Simple, Transparent and Standardised (‘STS’) regulations – and the rooms were packed on both occasions, as they were in the several other sessions we attended.

While billed as the main event, for many participants all this was just a sideshow, with thousands of meetings arranged in the plethora of side-rooms where arranging banks took the opportunity to host meetings between their respective issuer and investor clients, giving firms like ourselves the chance to meet with numerous issuers from across the continent and beyond – people we just don’t get to see too often here in London – to hear their funding plans and the up-to-date status of their assets, all in one convenient place. We met with several consumer finance companies, Dutch mortgage lenders, CLO managers, insurers, and European car finance firms, as well as numerous banks with a broad range of funding and risk management requirements.

For the most part the mood was upbeat. Many of the regulatory issues that have caused uncertainty in the market for the last few years are now behind us, with the long awaited introduction of the new securitisation regulations and the new Simple, Transparent and Standardised (‘STS’) standard at the beginning of this year. Perhaps this explains the increased issuer presence at the conference, as players who’ve been absent from the market for the last few years are now considering a return. It’s still early days of course and some technical details in the rules still need to be properly finalised by the regulatory authorities which remains a source of nervousness among some participants, though this is more related to the time it might take rather than the content of the rules.

Most participants agreed that from both a credit quality and structural perspective the market is in generally good shape, and the outlook for returns was generally positive as the new regulations bed themselves in. As always, some caution remained, mostly related to whether there might be a sharper than expected downturn in the future.

The outlook for issuance is generally positive. After a slow start to the year, held back by the implementation of the new regulations, the pipeline has picked up and while the year may finish slightly down in volume terms compared to 2018, expectations for medium term growth were positive. The CLO sector, which has been less affected as it’s not an eligible asset class for STS, has held up well, though it may see less volume in H2 as the equity arbitrage is currently less attractive and underlying loan originations are down. CMBS issuance, another non-STS asset class, is also up, though this sector will always remain very deal-specific, as underlying assets can vary widely in size, industry, geography and quality.

Brexit remains an issue but nothing that is really specific to ABS markets. If anything, it has been more of a distraction to the regulators, who took people off the securitisation file and moved them on to Brexit duty, and this was partially the reason the full securitisation regulations weren’t quite finalised on time.

Overall, we came away with a good feeling and notebooks full of exciting potential future opportunities. Hopefully we can put many of them to work over the coming months, and fulfil those expectations.