Our Global ABS 2026 special report is available for free here.
After the first party of Global ABS, GlobalCapital’s securitization reporters crossed paths with a cockroach. Just a single cockroach, but were there more hiding in the shadows? Our due diligence was insufficient to get to the bottom of the matter.
When the conference kicked off, the search turned to metaphorical cockroaches. George Smith and Tom Hall covered some of the conversations held last week. (Also read Thomas Hopkin’s story on the unrelated topic of CLO resets.)
Scrutiny of specialist lenders is ramping up. The most tangible moves in demand have been in the private warehouse market, but processes are changing, including for public deals.
AUP (agreed upon procedure) was a contender for Acronym of the Conference. AUPs are carried out by auditors to ensure investors are really getting what they think they are buying.
A couple of years ago, an AUP may have been an exercise in box-ticking. That is no longer the case, as investors and issuers are thinking hard about how to produce trustworthy audits. There’s a consensus that two steps are important.
First, specialist lenders will have to give auditors access to their entire loan books, so they can check to make sure the same loans aren’t pledged to multiple funding vehicles. There’s no way to rule out double pledging if you can only see your own funding facility.
Second, auditors need access to primary data sources where possible. If an audit relies on an issuer sending a spreadsheet, it is too easy to change the numbers. That means looking at banking data and matching up cashflow to data tapes.
Implementing both of those is easier on loan books of longer tenors and where borrowers make regular payments. It might come with some upfront cost, but it seems likely that lenders in sectors like motor finance and mortgage lending will be able to find solutions.
It could be more difficult for other types of loans where interest rolls up, or books turn over very quickly, like bridging and trade receivables, but having a reliable infrastructure for verifying collateral is on course to becoming a prerequisite for a financeable asset class.
It is a challenge that cannot be ignored.
