Securitization has become a mainstream pillar of Europe’s capital markets. What’s behind the strong momentum, and is this sustainable?
Matthew Jones, S&P Global Ratings: The growth has been impressive. One of the main reasons is that more investors are attracted to the asset class and allocations have increased. Securitization in Europe is a variable rate product, so as interest rates have increased, the overall yield on bonds is higher. The market is also seeing strong credit performance and improving liquidity dynamics, which is appealing to investors.
Among the sub asset classes, ABS has been a standout. Whether it’s auto loans, consumer loans, credit cards or equipment leasing, that market has continued to grow. There are more non-bank financial institutions and auto captive finance companies coming to the market in greater volume to take advantage of tighter spreads. We’ve also seen more traditional banks use securitization for managing regulatory capital through full capital structure deals, particularly in consumer loans.
RMBS is not yet the primary funding tool of choice for banks. Non-bank institutions, however, particularly in the UK and the Netherlands, grew their origination in the last 12 to 18 months following an increase in interest rates beginning in 2022. Those assets are now coming to market and providing fresh supply. CLO growth has been stable recently, but through 2025 there was a huge amount of supply, including from an ever-increasing number of new, first-time managers from the US. In CMBS, even though the European market is relatively small compared to the US, it has seen a resurgence driven by tightening spreads in corporate credit and securitization in general.
This momentum is sustainable, provided there’s growth in underlying collateral origination. The securitization market is in a much better place than ever to provide funding and capital solutions to both banks and non-bank institutions, and it will be there to help European economies grow as markets develop.
2025 was a year of innovation. Of the esoteric products, which ones have the most room to grow — and how is S&P positioning itself to capture opportunities?
Across S&P’s global business, innovation in new assets, new structures and new jurisdictions has picked up tremendously over the last couple of years, and we’ve continued to innovate in response. At the heart of that is our novel transaction team, comprised of experienced senior analysts who assess feasibility and provide credit ratings on new and esoteric structures and emerging markets. These include digital infrastructure, fibre and towers ABS, music royalties, energy prepay in the US, timeshare property ABS in Japan, and equity release RMBS in Australia. Innovation is moving from the US to Europe. We’ve seen mid-market CLOs in Europe, digital infrastructure ABS, and more recently, new equity release RMBS structures in the UK that are picking up on the back of capital constraints among insurers looking to recycle capital into new lending.
Data centre ABS has also gained traction in Europe. How has S&P responded to this spurt in non-traditional securitization pockets?
Data centres are a big focus for us. The growth in data centre construction and its financing needs over the next few years have been well documented. That financing is going to be met across different formats, including structured corporate debt, project finance, and securitization. At S&P, we’re asset class agnostic. We look at the structures that are being put around the financing of a data centre, and the sponsor looking to securitize future revenue. We’ve put out a lot of well-received research on data centre financing, and we’re helping clients — private equity, private credit, insurance, data centre operators — look at raising financing with our ratings across those different structures.
The structures continue to evolve. In the US, the data centre ABS market has been around for a number of years. We’re now starting to see project finance data centre structures emerge, and we think that will also happen in Europe. There’s a lot of banks with data centre lending on their balance sheets. If they want to recycle the capital held against it, issuing through securitization can provide a way of releasing it and continue lending.
The European Commission last year set out proposed amendments to its securitization regulations. What would the market implications be?
Both the EU and the UK have recently put forward changes to regulatory reforms, which are only going to help both markets, largely by making it cheaper and easier operationally for investors and sponsors to issue in securitization markets. Alongside this, the EU is making changes to capital rules for banks and insurers, which should make it more economical for them to invest in the product, thereby boosting liquidity. It’s putting the market in a much better place. There is some uncertainty on how the final EU and UK regulations will ultimately differ — which is important for cross-border issuance — but the direction of travel is very encouraging.