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Dwindling ABS yields draw thousands to SFVegas in search of new opportunities

Vegas sign
By Max Adams
24 Feb 2020

With spreads compressed across asset classes, SFVegas 2020 promises another huge year in attendance as over 8,000 structured finance market participants scour the desert for better returns in a low yield world.

The annual securitization get-together in Las Vegas has become more like a mass pilgrimage in the decade since the financial crisis. Each year notches a new record in attendance, with this year’s event promising to at least match 2019 numbers, according the Structured Finance Association. With 8,000 pre-registered ahead of the conference and approximately 175 sponsors packing the exhibit hall, the conference promises to be a busy affair.

Many sources speaking with GlobalCapital ahead of the event said that a frenzied search for yield has kicked off the new decade and that attendees are setting their sights on opportunities in the esoteric space, hoping to build a pipeline of deals away from the traditional flow asset classes. But this may be a tough play, as demand compresses the spreads offered for the comparatively light flow of paper from esoteric sectors.

“It is difficult to get anything at scale in those asset classes,” lamented one investor on the sidelines of the conference on day one. “In the senior tranches especially, but the mezzanine notes are also very heavily bid. There just isn’t enough flow of things like solar ABS to meet the demand right now.”

With the yield curve expected to remain flat in 2020, investors say that they are looking at either lower rated tranches of larger asset classes like subprime auto, or will try to add exposure where they can in esoteric assets like whole business, equipment and solar ABS, as well as in higher yielding tranches of agency credit risk transfer securitizations.

Seven panels will discuss the various esoteric or private asset classes over the course of the SFVegas, in addition to a large track of discussions on digital securitizations and blockchain ABS on Wednesday.

The ESG patchwork

In addition to the endless hunt for yield-ier asset classes, this year’s conference promises a robust discussion of environmental, social and governance (ESG) in securitization.

Investors, bankers and issuers speaking with GlobalCapital in the weeks leading up to the conference said that the emerging world of ESG securitization is at the top of their agenda, but conversations revealed that many in the market are frustrated with the patchwork of definitions, frameworks and criteria used to designate an investment as ESG (see related story from cover).

There is no universally agreed upon principle for ESG investing in structured finance, and as it stands, there aren’t strict standards. The rating agencies have done their part to begin incorporating ESG scoring into ratings methodology. Fitch Ratings last fall rolled out its ESG criteria for investors, and ESG has been a heavily researched topic among all the ratings firms in recent months. Still, there is an enduring feel of “so what” among many in the market, and for investors, it is as yet unclear if ESG investments produce stronger returns, drum up positive PR or if they simply should be thought of as a risk mitigant

As ever, though, a few key themes will take up the bulk of the discussion this year. Chief among them is Libor replacement, a slow and plodding development that despite being two years out, many say the market is still not adequately prepared for. The new benchmark, Sofr, is still in the process of being added to the documentation of many deals across asset classes, and there are almost no non-agency issuers that have committed to issuing deals over the new benchmark ahead of Libor’s sunset at the end of 2021.

For SFA itself, the organization is setting its sights on discussions of greater diversity and inclusion in structured finance, continuing its long running Women in Securitization initiative and expanding upon it to include a more thorough examination of diversity in the industry (see page 5 for a Q&A with SFA CEO Michael Bright). Bright, who took over the industry group following his tenure as COO of Ginnie Mae, has made of point of elevating the profile of women and people of color, illustrated by the list of keynote speakers at this year’s conference.

Keynotes remarks this year will be delivered by a range of female voices, including Democratic senator Krysten Sinema, SEC director Jessica Kane, former Democratic National Committee chair Donna Brazile and former UK Prime Minister Theresa May.

By Max Adams
24 Feb 2020