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Securitization

ABS Recap: Here comes the sun

Barcelona skyline from Park Guell. Image shot 04/2019. Exact date unknown.

There could not have been a more apt time for Global ABS to return to its sun-drenched spiritual home

GlobalCapital’s securitization team were in Barcelona last week for the Global ABS conference. There could not have been a more apt time to return to its sun-drenched spiritual home.

On the previous week’s pre-conference Another Fine Mezz podcast, Owen Muller of NatWest Markets had told us of one surprisingly wet Global ABS when his firm’s rogue choice for a summer conference goodie — umbrellas — had ended up making his stand the place to be. Sunglasses would have been the hot choice this year (take note, marketing people): 2022 was a scorcher.

Amid Spain’s abnormally early heatwave, the hot topic for many at the conference was solar ABS. By now a well-established sector in the US, excitement is building over when we might see the first public deal in Europe. Gordon Beck at Barclays told the conference that we could see a solar ABS deal by the end of this year, or next year at the latest, and he was not alone in his optimism.

Investor interest is certainly there, yet some feel there is still some way to go in finding the right sponsors and assets. Here’s our write-up on that debate.

As the famous saying goes, the way to an ABS banker’s heart is through his or her stomach. By far the longest queues for sponsor exhibits were for ice cream, and for those law firms who’d decided to bring their own baristas to enhance the standard conference coffee offering.

Delegates could be forgiven for needing a sugar or caffeine boost; talking up the asset class is tiring work. No matter the doom and gloom in financial markets, most ABS market participants are finding reasons to be cheerful — or at least stay very busy.

As well as excitement around solar, there was talk of potential new horizons in the NPL securitization mart, which could flourish in France, Spain, Portugal and Ireland, we wrote — beyond its traditional stomping grounds of Italy and Greece.

And though development of the US ABS market is streets ahead of Europe in almost every aspect, some feel that it could be the US following the EU when it comes to ESG regulations.

No time for heroes

What’s more, there was a general sense of optimism that despite volatility and spread widening making deals hard to price, there is no reason to be overly alarmed about the potential deterioration of asset quality. So could today’s levels represent a great buying opportunity?

ABS traders ended the conference arguing that there was certainly value in today’s spreads but cautioned that there could be more pain in store in the short term. As we enter the latter stages of the rates correction, there could be an “inflection point” at which investors start to allocate away from floating and into fixed-rate products, bad news for European ABS.

Eric Huang, a Société Générale ABS trader, perhaps summed it up best: “I can understand if you want to buy risk, but in the two to four week timeframe I think spreads will continue to widen. There’s certainly a case to buy paper but it’s not a time to be hero. Mildly adding risk makes sense but I don’t think anyone wants to reach for the longest duration or hairiest profile.”

Elsewhere, in US markets we reported that major banks have teamed up to launch Octaura, designed to be the first open market electronic trading platform for CLOs and syndicated loans.

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