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Securitization

ABS Recap: Waking up in Vegas

Las Vegas Strip at sunrise

It’s that time of year again

Bankers, issuers, investors, researchers, lawyers and the rest have descended onto the Las Vegas strip for SF Vegas 2022.

Of course, that includes your correspondent. The same correspondent who has been known to completely freak out over mild turbulence on such long-haul flights as Edinburgh to London will make the 11 hour journey to Nevada.

There was no freaking out from banks or issuers this week though, despite the rush to get deals over the line before the trip to the desert.

There were 23 deals in the US market, but by far the largest was PG&E’s $3.9bn rate reduction bond (RRB) securitization, which brought to an end its SB 901 programme to help bring the California utility firm out of bankruptcy.

A banker on the deal said it attracted “terrific interest” from investors, particularly insurance companies. And of those insurers, it was UK investors who drove the demand, due to their own Solvency II regulations.

Elsewhere, we wrote that US securitization sits on the precipice of a wave of ESG issuance, with Cadwalader’s special counsel Michael Ruder claiming it’s a “new frontier and literally every ABS asset class can be creatively responding to ESG investing trends”.

However, given the lack of regulation by the SEC, fears of greenwashing are growing. On top that, any regulations that do come into force are likely to be aggressively challenged in the courts by the Republican party — just look what happened to the Environmental Protection Agency in June.

Meanwhile, though hiring in the CLO space has slowed down somewhat this year, one of the biggest alternative asset management firms, Sculptor Capital hired Michael Lin to be its new head of CLO structuring and origination. Lin joined Sculptor after nearly six years at Sound Point Capital Management.

Sleepy Europe

Across the pond to Europe and it’s been yet another deathly quiet week.

However, our colleague Bill Thornhill reports that there could be a little flurry of pre-placed deals today, just like last week. Triple-A notes are relatively straightforward to sell; the problem lies in the mezzanine tranches, with one banker saying “there’s no real money interest”.

One can wonder whether the trickle of deals are done solely to prevent the GlobalCapital hacks from twiddling their thumbs.

To help us hungry journalists out, Afme sent a strongly worded letter to the European Commission, once again calling out the “lack of proportionality” in regulations that continue to dog the European securitization market.

Included in the letter was a rather remarkable statistic. In 2008, the European securitization market, including the UK, was 75% the size of the US market. By 2020 it was only 6% of the US market, according to Afme.

And finally, GlobalCapital’s new (free) securitization podcast, Another Fine Mezz, returned with episode 2. This week, we discussed the future of CLOs in both Europe and the US with inflation, recession fears and the war in Ukraine giving CLO managers a lot to think about, to put it lightly.

Is the CLO party over? Will spreads drift wider still? How will CLOs fare in a recession? We asked Tyler Wallace from Fair Oaks Capital, Tim Thran from Bluerock, and Sandeep Chana from S&P Global where the market is heading.

As we come to the end of this week’s ABS Recap, the golf fans among you may have noticed the lack of Tiger Woods references, even as the greatest golf tournament in the world gets into its second day. (Yes, The Open is better than The Masters).

Alas, my unbeaten matchplay record this season is over. I lost. I am no longer the postman. My father is captain of the team too, so I may not be picked for a while.

Who’s your money on? I fancy Rory to end his 8-year hoodoo.

Have a great weekend, and I’ll see you in Vegas!

Tom

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