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Owen Sanderson

We’re still yet to see Europe’s first public solar ABS, but the green shoots are still shooting up. Germany’s Enpal claimed the title on the back of its facility with M&G in the mezz and Citi in the senior, though arguably if we’re counting bank-financed deals, then Spain’s Perfecta Energia and Barclays scored the first.

There’s now another Barclays deal on the board in Spain, for Brookfield’s Powen Group (legal advice from Norton Rose). This deal matters because it’s a mixed pool of commercial and industrial leases, power purchase agreements and consumer loans.

The more different credit products you bundle into a securitisation, the more complex the deal. But the upside of this heavy structuring lift is financing a much larger portfolio. Right now, volumes are the basic constraint on the emergence of a European solar ABS market. Funds and banks have a firehose of money pointed at the sector; they just need deals to do.

Corporate-sponsored solar installations help to get these numbers up. Companies are likely to take a more rationalist look at their power consumption and costs than households, and take the plunge into solar with a long term lens in place.

More to the point, the client companies marketing and installing solar are solar companies first, not consumer lenders. The vision is basically about installing solar equipment and distributed clean power infrastructure; the funding is just something to enable clients to purchase. If your business is providing solar power, then the rooftop of an office or warehouse isn’t so different from the rooftop of a private residence.

Enpal itself has both business lines, including some larger loans and financings for ‘energy systems’, which can include battery storage, heat pumps and EV charging as well as solar power. As well as the Citi and M&G rooftop facility, it raised debt funding from BlackRock, ING, Pricoa and UniCredit, and has recently recycled some of the junior risk in these portfolios, selling a portion to specialist infrastructure investors Kepler Infrastructure Trust and Equitix.

The Powen Group deal has some structural nuances. There’s no true sale of the assets or receivables into the structure; instead, these are secured in favour of the issuer. Obviously the solar installations are stuck to actual buildings, but some of the power purchase agreement cashflows can only be collected by specific entities, and can’t be assigned into an SPV structure. It doesn’t use a Spanish securitisation law vehicle (Fondo), but a Lux vehicle instead.

Having figured out the technology here for a mixed deal, it will be easier to replicate in future (though grid rules, leasing and lending differ a lot by jurisdiction), so hopefully this sets a precedent. The step into public markets, though, may be more difficult for a mixed transaction; investor education work on a new asset class will be painful enough without spreading it across three different asset classes.

What’s the right amount of securitisation?

We’re unashamedly in favour of doing deals here, and need no convincing that securitisation, risk transfer etc etc has its benefits. But I think there’s an interesting mini-research project in figuring out how organisational dynamics affect an institution’s use of the securitised products markets.

A massive amount of European market supply comes from banks in some form — RMBS funding, not so much (it’s only really the UK where prime master trust stands comparison to covered bonds), but most of the volume in euro-denominated European ABS comes from somewhere on the balance sheets of Santander, BNP Paribas, Société Générale and Crédit Agricole. Sterling ABS, one could argue, is similar; Lloyds may have placed Performer Fundingwith only a single account, but volume-wise it’s bigger than the rest of sterling consumer credit supply for the entire year.

Throw in the synthetic risk transfer market and the numbers and proportions go much much higher (though much harder to track). The diversity and size of the market has been growing rapidly but big corporate shelves from the big banks are still by far the largest sources of supply.

The organisational dynamics question is basically: do banks with a big in-house securitisation investment banking operation do more securitisation than they otherwise would? By how much? Are they over-indexed to securitisation or are their peers under-securitising?

BNP Paribas moved its risk transfer shelves under the operational umbrella of the securitised products group a few years back; since then it’s massively ramped up the size and diversity of its risk transfer offerings, and it’s now marketing its US large corporates debut Broadway. SRT projects are a big lift for a treasury team, and probably rank as a nice-to-have rather than an absolute essential. But if you put SRT with people who love doing deals… you get more deals?

We’re not privy to the genesis of the Lloyds disposal programme, which has so far included Bridgegate Funding (see last week for some unfortunate events) and Performer Funding, with more to follow this year (another legacy disposal). The first two deals had US investment banks alongside, in the shape of Citi and Morgan Stanley. But Lloyds has had front office securitised products banker by background as group treasurer since 2021, and revamped its front office securitised products business as well in the same period; it may not be coincidence that it’s doing bigger, more complicated securitisation transactions at the same time.

All of the SRT and disposal deals have clear rationales, and as Basel 3.1 comes down the track, more vigorous capital management will be needed right across the banking system.

But this implies that there’s an absolute ton of bank-related third party business that should be available. If the banks with big in-house securitisation operations are doing the right amount of securitisation, all of the banks without their own securitisation operation could be doing more. Someone should pitch them?

There’s an air pocket in public securitisation at the moment, despite the still-strong backdrop in credit. The last UK RMBS prints (challenger bank BTL at 98bps and mixed pool with a lot of second charge at 112bps!) are extremely promising, raising the possibility that the specialist lender originate-to-distribute machine can start firing again for real.

But it’s not easy to do a securitisation just to hit a window. The legals, the pool cut, the rating take weeks. So any supply hitting the market today would have to be started as the year opened. Plenty of deals did hit the market in the early part of the year, having clearly aimed for the usually strong January slot.

Levels, however, have tightened enormously since the beginning of the 2024 execution window, and perhaps this has paused supply, not because deals can’t get done, but because deal sponsors can plug in more aggressive spread assumptions and maybe squeeze out better structures (if they hang on another week).

So where do we go from here? Do we pick up where we left off in January 2022 and try to forget the last couple of years? How low can we go? The research desks can give chapter and verse on long term spread means and RV across asset classes. One could argue the last 10 years were incredibly weird and don’t give much of a lesson, but I’m sure the data is out there.

Also, what does Nationwide know that nobody else does? Most of the big UK banks have already been out in prime, and the market has only tightened since. It has £1.7bn of Silverstone RMBS locked and loaded and ready to go, thanks to its “stock and drop” strategy, with call dates of January 2028, April 2029 and July 2029. Perhaps that means waiting until April for a nice clean five-year deal?

Prime hasn’t tightened as much as the spicier end of securitised products, so perhaps that explains the pause, but then in some ways this helps Nationwide. Stock and drop should be fairly uncontroversial, but it will be easiest if the bonds are placed close to par. The 50bps coupon on the April 2029s was market-ish, and prime master trust deals are still around that context.

IMN and Afme have published the agenda for Global ABS in Barcelona this June, and now the conference starts on Monday, rather than the trad Tuesday to Thursday structure. The conference had started informally sprawling onto the Monday, with a few drinks does formal and informal on the Monday night, so IMN is basically formalising what’s already de facto the first day. It’s not like there are actual sessions; just pick up your badge and join the reception.

It will also, hopefully, help avoid the ugly queuing scenes that marred Tuesday morning last year — you can register and get fixed up through Monday instead, so should be less of a scrum. I am basically in favour of the move, as I like to ease in with a glass of rose on Monday afternoon in any case, but maybe the prudent conference goer will fly in on Sunday now?

Many years and a couple of jobs ago, I took one side of a conference debate on ABS versus covered bonds. The event was a covered bond conference, so it wasn’t the most receptive audience, but we had fun of a sort. ABS versus covered bonds is essentially a debate about bank funding, and “number is lower” is a fairly compelling argument from a bank treasury point of view. There was a lot of blather about 250 years of no defaults and Frederick the Great.

Against that, I argued that covered bonds had poor transparency, relied on regulatory whim, and were often jammed full of ropey commercial real estate debt. German lenders, with a captive covered bond investor base, fragmented banking market, and y’know, Frederick the Great, seemed to be the sketchiest.

Even though it was years ago, I’m not above pointing out the storm of regional banking worry that seems to have crossed the pond. Deutsche Pfandbriefbank, a heavily covered-bond funded bank, has just taken a big provision, its shares are sliding, and the cause is commercial real estate exposure. Most of the covered bond banks have plenty of regulatory capital, but have struggled for years with profitability, so they’re vulnerable to the kind of “reason to exist” runs which hit SVB and Credit Suisse last year, and they have lent a ton to CRE at stupidly low rates (thanks partly to covered bonds).

The covered bond advocates are probably right that their beloved instrument will be fine; even if the German banking system wrecks itself (again) on CRE exposure or something else, the German regulators won’t dare touch covered bonds. But maybe next year we can have European regulators slamming these complex opaque instruments and adding a zero or two to capital requirements?

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