Barcelona attendance jumps on renewed reg uncertainties

With new regulatory frameworks in place for securitization in Europe comes another bout of uncertainty for the trajectory of the market. The stunted issuance pipeline in the first half of this year and the delay of the regulatory technical standards (RTS) for STS securitization have driven a jump in attendance at this year’s Global ABS conference, drawing 4,100 registrations ahead of the event.

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That figure is up from 2018, when 3,830 market participants flocked to Barcelona last June, according to conference organizer IMN. The number of sponsors this year has also jumped, to 121 compared to 114 last year. Conference goers speaking to GlobalCapital on day one say that the buzz this year is, once again, regulation specifically the new STS criteria, adding that another shot of Brexit volatility and the possibility of divergent regulatory regimes is giving attendees a lot to talk about at the conference this year.

The implementation of STS was the culmination of years of work by the industry to move the market towards standardisation and put securitization back into the good graces of policymakers in Europe. But when it took effect on January 1, issuers were in no rush to be the first to test the new labelling criteria, and issuance is still lagging by about 30% year over year, according to speakers at an STS panel on Tuesday.

“The idea was that all of this work would have been finalized but unfortunately there were bigger issues including Brexit,” said Christian Moor, principal policy adviser, capital markets union at the European Banking Authority, on a Tuesday afternoon panel. “A lot of the people were re-prioritized…and just started to work again on STS in March.”

The complexities at the committee level within the European Commission also mean that there could be even more delays than have been predicted. The STS regulation is about “half done”, according to the speakers, but getting all of the RTS documents codified into law will depend on whether or not there are any objections raised by the Committee on Economic and Monetary Affairs whenever it eventually convenes.

“Given some of the more intriguing political parties that have thrown themselves into the mix, there is a small but not discountable risk that the ECON committee decides to raise objections,” said Ian Bell, head of third party verification agent, Prime Collateralised Securities. “The issue in terms of timing is completely disconnected from the market.”

STS versus non-STS, and the extent to which price tiering will emerge between the two markets, will also be a big theme at this year’s conference. According to Bank of America Merrill Lynch director Alison Belille, there has been little evidence so far that investors are pricing STS-compliant bonds any differently than paper that doesn’t carry the label.

Bell added, however, that he could envision a time when the STS market becomes its own asset class, with dedicated coverage similar to covered bonds or other securitized asset classes.

“It would be interesting if it just becomes shorthand for a new asset class…Then the game changes and STS becomes its own creature,” Bell said.

Even with STS and Brexit lurking in the background, there are still more asset specific topics that market players are looking to get their hands around this year. Speaking ahead of the event, investors said that the resurgence and development of the CMBS market in Europe was of particular interest. That market has blossomed from near zero issuance in the years since the crisis, to a flurry of new deal flow since 2018. Similarly, attendees speaking in the run up to the event said that NPLs and esoteric ABS assets would be top of mind for buysiders looking for more attractive risk adjusted yields in the remainder of 2019 (see related article).