KBRA's Global ABS day 1 recap: solar ABS, CLOs, EU regs

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The Global ABS 2025 conference, held in Barcelona from 9-12 June, opened to strong attendance and a full agenda. Now in its 29th year, the event remains Europe’s premier structured finance gathering, hosted by the Association for Financial Markets in Europe (AFME) and new conference organiser Financial Times Live. The opening day of the event reflected the energy and evolving complexity of the European securitisation market, with sessions highlighting innovation across asset classes, deepening investor engagement, and a shifting regulatory landscape.

The conference began against a backdrop of renewed issuance momentum, fresh investor appetite, and a macro environment marked by policy recalibration and geopolitical uncertainty. Panels spanned solar ABS, collateralized loan obligations (CLO), CMBS, private credit, AI in fintech, and emerging esoteric assets, with speakers pointing to cautious optimism but also clear headwinds—chief among them, loan supply, regulation, and tariffs. Below is a recap of the key panels and market perspectives on Day 1.

KBRA’s Killian Walsh, Managing Director in the Structured Finance team, highlighted the scale of the US solar ABS market, with KBRA-rated solar ABS deals totalling over 130 at $16 billion in issuance. Around 85%-90% of KBRA’s transactions are residential, although commercial solar is rising.

Europe’s renewables pipeline is increasingly focused on residential solar, EV charging, and heat pumps. While it faces some challenges, and private issuance is expected to dominate in the near term, investor appetite is rising, demonstrated by strong interest in Germany-based Greentech company Enpal’s recent EUR110 million equity funding backed by private equity giant TPG. More public deals are expected to emerge as transaction structures standardise and energy costs rise.

The European CMBS market is experiencing a resurgence, led by UK and midsize sponsors, with activity expanding across France, the Netherlands, and Germany. Traditional CMBS assets like logistics and multifamily are regaining momentum, while sponsor concentration is shifting as new entrants emerge. Data center’s are a growing focus, sparking debate over whether ABS or CMBS structures will be favoured by investors.

Panellists discussed the promise of European commercial real estate (CRE) CLOs, while also noting that interest is increasing in securitising single-family rental assets in Europe.

CLO issuance surged at the start of 2025, surpassing expectations based on 2024’s trends. Following a strong first quarter, market sentiment dipped briefly to tariff-driven volatility but recent weeks have seen a resurgence.

Loan supply increased over a strong 2024 with a majority of the activity coming from refinancings. New issuance has not kept pace, despite robust CLO demand, and is driving more defensive structuring strategies.

According to the panelist’s, including KBRA Senior Director Gabriele Gramazio – Structured Credit, over 30 equity buyers have been active from 2013 through 2024, with further growth seen in 2025. This expanding, diversified equity base supports continued reset activity and enhances capital flexibility.

Private CLOs are emerging in Europe, with structures combining features of broadly syndicated loan (BSL) CLOs, including the potential for BSL collateral, while also offering bespoke features including ones likely suited to long-duration views. But while macro headwinds persist, including global tensions and the uncertain impact of European tariffs, European economic fundamentals have been relatively resilient and investor demand remains solid.

The evolution of esoteric ABS continues, with increasing interest in nontraditional collateral such as music royalties, art and media rights, stadium finance, and equity release mortgages.

Investor interest is growing, particularly among banks and insurance companies seeking mezzanine exposure in a high rate environment. Advances in data analytics, such as music streaming metrics, are helping to improve underwriting and valuation. Panellists offered the view that while complex, these deals can offer diversification and enhanced yield potential within broader ABS portfolios.

Adoption of artificial intelligence (AI) and fintech integration in the structured finance is seen as uneven, with larger institutions maintaining traditional workflows while experimenting in back-end testing and risk modelling. Meanwhile, fintechs are leveraging AI to refine originations, underwriting, and cost efficiencies—though the data demands remain steep.

Panellists emphasised that data access and quality present challenges at present, while also noting that granular consumer data in auto ABS, for example, is likely better suited to algorithmic analysis than nongranular asset classes such as CMBS.

While AI promises speed and scale, panellists stressed the importance of retaining human-led review processes to prevent misapplication of outputs. There was also some optimism that as AI evolves, cross-border investor silos—particularly between the US and EU—could gradually dissolve, creating a more integrated and efficient market.

The consumer ABS market has rebounded strongly from the pandemic, with deal volume increasing sharply in 2024 and maintaining a steady trajectory into 2025. Nonbank lenders and digital platforms are driving the resurgence, aided by strong demand for buy now pay later (BNPL) and similar point-of-sale products.

Panellists noted that consumer credit performance has remained resilient through higher interest rates, with only modest deterioration in nonconforming segments.

Investor demand for consumer ABS remains robust, with some deals reporting up to 3x coverage at the AAA level. While bank treasury participation has declined, strong pre-placement activity continues to support execution. Structurally straightforward and historically consistent, consumer ABS remains a favoured asset class among European securitisation investors.

Leveraged loan markets remain constrained by limited new issuance and aging collateral. While 2024 saw record levels of CLO issuance, just 23% represented new capital; with the remainder driven by resets and refinancings. The supply shortage continues into 2025, challenging managers in portfolio construction. CLOs continue to absorb 70% of available loan supply, and the manager landscape has expanded to over 75 firms, which is intensifying competition.

Panellists explained that the downgrade-to-upgrade ratio sits at 6.5x, a signal of rising credit stress beneath stable headline figures. Some believed that risks are building as asset concentrations increase, with portfolio management critical in mitigating idiosyncratic shocks.

Panellists flagged key volatility triggers including rising risk-free rates, currency movements, and tariff tensions. Loan spreads are hovering between 370 basis points (bps) and 400 bps—just high enough to support arbitrage at the upper end.

CLO equity appetite remains strong, positioning the market for a potential wave of resets later in 2025. While macro risks persist, panellists were confident in the underlying strength of investor demand and structural flexibility.

The auto ABS sector continues to demonstrate resilience amid economic uncertainty. Deal performance has remained stable, supported by strong consumer demand. Performance has been strong, although the potential impact of tariff actions remains a key risk.

Auto synthetic risk transfer (SRT) issuance is growing rapidly, with midsize banks joining traditional issuers. Investor appetite is deepening for mezzanine and first-loss tranches, especially from pension funds and nontraditional accounts. The automotive sector is undergoing a shift in ownership models, with more consumers opting for short-term or flexible use vehicle products. This trend has heightened residual value (RV) risk, particularly for battery electric vehicles (BEV), which depreciate faster, according to the panel. While BEVs comprise roughly 10% of current outstanding pools, their share is expected to expand, necessitating tighter structural protections—although, panellists noted that BEV borrowers continue to demonstrate strong payment performance.

Capital markets are largely tracking issuance expectations despite the recent volatility. April’s US-driven tariff policy-related disruption tested sentiment, but ABS behaved defensively, trailing rather than leading the risk-off movement. CLOs were the last to rebound but quickly regained footing.

Tariff developments have affected all sectors but failed to derail overall activity. Survey results revealed cautious optimism among market participants, with respondents pointing to regulation as a persistent constraint. ABS remains an attractive platform for both plain vanilla and esoteric strategies. Private credit and SRT structures are especially active, with private markets generating significant deal flow.

Panellists said divergence between public and private markets is creating a “complexity premium” for private transactions and called for expansion of public markets to foster transparency and pricing consistency. They were hopeful but cautious, noting that potential future regulatory reforms are not expected to be enacted before 2027, and may fall short of providing meaningful improvements.

Frameworks in Focus: EU and UK Regulatory Evolution

The closing panel acknowledged incremental progress in both the EU and UK securitisation regimes. The UK’s Batch 1 reforms were viewed as a constructive foundation for more flexible changes, contrasting with the EU’s more rigid approach. Batch 2 may introduce EU-UK divergence in reporting standards and core definitions, such as what constitutes a securitisation.

Panellists expressed the view that while capital treatment may see improvements, regulatory complexity was likely to increase. A key concern is dual compliance as market participants may need to adhere to both regimes’ most stringent requirements.

Finally, while a shift to a more principles-based approach could offer adaptability, it may also complicate supervision, with EU and UK regulators striving to strike a balance between financial stability and supporting capital formation. As one panellist concluded: “‘buckle up’—the regulatory journey remains bumpy”.