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European Structured Finance
H1 2021 in Review

  • Busy H1 for CLO portfolio managers, but spreads widen on heavy supply
  • Specialist RMBS sales leads the way, some green shoots for ESG with four deals
  • Autos picking up the pace; rarity from infrequent issuers while spreads hit new tights
  • CMBS issuance on the rise with nine deals, more to come
  • Proportion of fully retained deals remains low

  • The first half of 2021 was a productive period for various sectors of the structured finance market. A combination of tighter spreads and increased origination levels in certain sub-sectors underpinned new issuance. CLO portfolio managers were busy re-pricing existing transactions. And UK specialist lenders stepped up issuance having resumed full lending operations post-Covid. Auto issuance accelerated too while CMBS sales overtook 2020.
  • CLO portfolio managers took advantage of the improved conditions to reset, refinance and re-issue over 100 transactions. Another 37 new issues priced, even through spreads widened as the weeks progressed. There were 140 CLOs pricing in H1 across all formats, with 74 in Q1 and 66 in Q2.
  • The RMBS market witnessed the first Green UK deal, from Kensington in June – this followed debut Social bonds from Kensington in February and Yorkshire Building Society in March. There was also a Dutch Green RMBS from Obvion in March. Specialist sectors continued to dominate UK supply with new buy-to-let, specialist owner-occupied (or a combination of both) as well as the refinancing of older non-conforming portfolios sold. Supply also came from France, Ireland, the Netherlands, Spain.
  • Nine CMBS deals priced in H1, already exceeding the six trades in the whole of 2020. And there are two more for early July business to push volumes through the EUR3bn equivalent mark. As at H1, some EUR2.7bn equivalent had priced, up 23% on the whole of 2020. In both 2018 and 2019 15 deals priced, for around the EUR4.5bn mark so it remains to be seen whether this can be matched, or indeed bettered.
  • A total of 18 auto ABS were priced in H1, with bonds marketed from 16 deals out of Austria, Finland, France, Germany, Spain, Switzerland and the UK. Issuance is around the EUR8.7bn equivalent mark, which is up over EUR2bn (33%) on the same stage in 2020 with five more deals. Other sectors saw increased issuance too, such as in the Italian NPL sector after a quiet start to 2021 as well as leasing ABS.
  • The heightened activity comes against a backdrop of higher revisions to global growth forecasts but also rising inflation expectations (which the Fed and Bank of England maintain are transitory) and questions regarding the timing of tapering. Vaccination programmes continue to be rolled out but rising cases of new and more transmissible Covid variants remain a concern for populations around the world leading to delays in the lifting of, or re-imposing, restrictions. As government support programmes begin to wind down the impact of asset performance will be watched.

 

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