European Public ABS Issuance Continues to Decline; Private Deals on the Rise

Private issuance in the European ABS market has exceeded public deal volumes, according to a recent Bloomberg article. As reported, data from the first half of 2016 shows that “private bilateral sales of the bonds, which are typically backed by collateral such as car loans or mortgages, now outstrip public sales to investors.” The research cited was conducted by Bank of America analysts, led by Alexander Batchvarov. The retained transactions in Europe rose to “78 billion ($87 billion) in the first six months of the year, which is more than double the 30 billion euros sold in the same period of 2015, according to Bank of America data.” However, in the public ABS market “new-issue supply totaled just 41 billion euros, or roughly half the volume recorded a year earlier.”

The article explains that the decrease in public issuance is because “banks are using [securitization] to manage risks and offload assets in private transactions that are typically unrated and where transaction data is often not available,” and that the increase in private deals is due in part to ”securitization of whole loan portfolios including non-performing loans,” according to Bank of America. Finally, the use of synthetic securitizations “are also said to be growing in favor as banks seek to bolster their balance sheets”. Mr. Batchvarov wrote that "discussions with market participants suggest that the volume may be (much) larger," and that "the revival of synthetic securitisations speak[s] to the need of the banks to manage their capital and credit risk of their balance sheet, but apparently this is now done through bilateral transactions, mostly not rated, and rarely seen."

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