Capital markets spotlight: Current conditions and trends in the global ABS market

This was a topic discussed in a session at the recent 2024 Global ABS event held in Barcelona. Our Ocorian head of capital markets for EMEA Kevin Butler sat on the speaker panel alongside industry heavyweights from BNY Mellon, NatWest, ASF, ARC Ratings and Lloyds, all of whom were able to lend their valuable experiences to date.

The scene was set with an overview of the global ABS market and the positive message of steady growth year to date in 2024. We have summarised the key session outputs below, reflecting insights into the present state and future evolution of the Global ABS market dynamics.

Continued US dominance

The US leads the global ABS market, accounting for a high percentage of the total issuance. The depth and diversity of the US financial markets continue to attract investors globally and overall growth is up 46% yoy to end of Q1. Within that is an increase of 60% for RMBS/CMBS, both by deal volume and size. An example from Ocorian witnessed 10 home equity deals come to market this year versus none in 2023.  While outside the mainstream issuances esoterica continue to increase.  This includes a broad variety of asset classes.

As a cautionary note, there is a persistent upwards trend in missed payments and delinquencies, likely attributed to inflation and the cost-of-living crisis. The good news is that this is still quite low (and well below underwriting assumptions) so only a cloud on the horizon as opposed to pouring rain.

Key geographical players

Europe remains the second largest ABS market with key countries Germany and the UK playing large roles in issuance, but it’s worth noting that the Asia Pacific region has been growing rapidly, with Japan, China and Australia as major contributors. Latin America, the Middle East and Africa, are smaller in comparison, yet seen as emerging markets with a growing presence in the ABS landscape.

Enhanced structures

We are seeing a very large increase in STS structures, as well as some banks increasing their use of off-balance sheet conduits versus on-balance sheet. i.e. upsizing existing structures.

Challenges facing ABS in Europe

The number one issue is the lack of investors in Europe alongside a more general dearth of cross-border investment. The market needs initiatives that can help build confidence for the EMEA ABS market. This might be the Capital Markets Union, the initiative designed to get investment and savings flowing across member states, tackling the absence of an integrated market in Europe.

Challenges facing ABS in Australia

For Australia issuers looking to European investors the lack of regulatory guidance is a huge issue and needs to be addressed.  Some of the reporting requirements just don’t make sense in a non-European context and this lack of support is really hampering the continued development of the market.

Challenges facing ABS in Emerging Markets

Outside of the established markets, Emerging markets have their own challenges.  One of the key challenges relates to a lack of consistent data between private and public sources.  This lack of consistent data (which includes delinquency and recovery rates) mean that investors require an addition premium which ultimately increase the costs for the issuer.

Ocorian can support transactions in ABS

We provide SPV administration, corporate trust and agency services through the lifecycle of capital markets transactions. This includes acting as a security or facility agent on loan deals, providing efficient escrow services and detailed reporting for specialised structures and vehicles. We have decades of experience with extensive expertise in transportation, infrastructure and project finance, private credit and direct lending, insurance and securitisation.

To discuss your requirements or receive more information on how we can help your business or clients, please contact our team.

Kevin Butler asks fellow panellist Chris Dalton, CEO from ASF (Australian Securitisation Forum) for his highlights on the session and event overall.

To watch all our video interviews from Global ABS event, click here.