There’s always a lot of talk about UK and EU issuers selling deals to US investors.
For instance, there was excitement this year in June at the number of American accents heard in the halls of Global ABS in Barcelona in June and European issuers and bankers are increasingly making the trip to the SFVegas event.
You can see why. US asset managers have plenty of cash to deploy; KKR has just raised another $6.5bn for global “asset-based finance”.
However, dollar tranches —popular before Covid — have become a rarity. There’s a graph of UK prime issuance in GlobalCapital’s 2023 review of the year here, which illustrates the point. The notable exception not shown is UK credit card lender NewDay.
But the demise of dollar tranches certainly doesn’t mean US investors have gone off of Europe. Based on recent talk in the CLO market, Europe looks increasingly attractive for its relative stability. There are also growing numbers of ABS and RMBS issuers interested in 144A issuance.
The question for this week, however, is whether European investors matter to US issuers.
The European Securities and Markets Authority certainly didn’t help things with its ill-fated attempt at simplifying disclosure templates for private deals but excluding all non-EU deals from any benefit. It pulled the plan after negative feedback from the market.
The market also has a bone of contention with the European Commission’s securitization regulation proposal published in June along similar lines. The reduced burden of due diligence only applies to EU-originated deals, with investors still having to double check the work of issuers outside the EU.
Despite all of that, Annaly, a leading issuer of US non-QM RMBS (similar to non-conforming RMBS), seems to be courting European buyers with a floating rate tranche.
The pool for the deal is the usual long term fixed rate loans of the US mortgage market, and there are no swaps in the structure. Rather the interest rate paid by the tranche is capped at 7%, with a retained inverse interest-only note taking the risk that rates could move.
The structure should mean the tranche fits into European and Asian investors’ floating rate portfolios more easily than typical fixed rate US issuance – though one US securitization banker told GlobalCapital at this stage it is still a “build it and they will come mentality”.
Will they come? Maybe if the European Commission will let them.