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Gabriele Guidoni

ABS Analyst


Trends in the European securitization market – Q3 2022

In this article, we are going to review the main trends affecting the European securitization market during the third quarter of 2022. 

A downward trend for the second quarter of 2022 compared to a rather solid Q1

It is clear that the momentum of the EU Securitisation market reported in the first quarter of 2022 has been halted, in Q2, by the war that keeps raging in Ukraine, and in Q3, by the rising inflation and the tightening of monetary policies.

Historical cumulative distributed volumes (excluding BSL CLOs) since 2013

The volatile market conditions have negatively affected several other dimensions of the European Securitisation market, namely:

The number of transactions closed

The downward trend, in terms of the amount of transactions closed, already registered in the second quarter of 2022, continued in Q3 2022, where only 253 transactions were closed (compared to 278 in Q2 2022). Nevertheless, the average deal size (EUR 937 mln) represents the highest peak reached since March 2018;

The simple, transparent, and standardized (STS) transactions

Only 25.3% of transactions in YTD 2022 had an STS verification. This percentage appears to be significantly low when compared to the 2020 and 2021 results (∼41% and ∼46% respectively). These exceptionally low volumes of public STS (especially if compared to the €150bn predicted by the European Commission) transactions might be representative of a market that is apparently dissatisfied by the regulation, calling for a number of changes that, apparently, the regulator is not intended to carry out. in fact, according to the latest European Commission Report on the functioning of the SECR (10/10/2022), “The commission is of the opinion that the Securitisation Regulation seems overall to be fit for purpose and does not see the need for major legislative change at this juncture

The ESG transactions issuance

Since no transactions with green or social labels have been issued in Q3, confirming that the growth trend experienced in 2021 by the European ESG Securitisation Market (+273% compared to 2020) drastically halted. In fact, only a single “half-a-billion” deal, stemming from the Green RMBS Market, has been closed since the beginning of 2022. However, the explanation for such a sudden slowdown could be also found in the Government Bond Markets, which, with an outstanding volume of ESG sovereign bonds reaching EUR 317 bn in Q3 2022 (+7.1% compared to Q2 2022 and +46.8% compared to Q3 2021), might be absorbing the market’s “ESG Appetite”.

As already registered in Q2 2022, the market is still polarised around residential mortgage-backed securities (RMBS). Compared to Q3 2021, Q3 2022 RMBS securities increased by 12%, reaching 60% of the total volumes issued. Such an increase primarily came at the expense of (i) collateralized loan obligations (CLOs) (-9% compared to Q3 2021) and (ii) Commercial Mortgage-backed securities (CMBS) (-4% compared to Q3 2021), for which no issuance has been registered in Q3 2022.

Deal Volume by Sector in Q3 2021 vs Deal Volume by Sector in Q3 2022

Looking at the geographic distribution and comparing it to Q2 2022:

  • The UK, together with cross-border transactions, still accounts for the majority of distributed issuance.
  • Italy and the Netherlands registered the largest reduction; according to Morningstar estimates and to issuance made up until the end of the Q3, these countries will significantly underperform compared to the higher volumes registered in 2021.
  • Germany and Portugal registered the most significant issuance growth.
Distributed Issuance by Country by Quarter

Retention rate

Moving to the retention rate, the Q3 2022 newly issued volumes did not significantly affect the retention rate already registered in Q2 2022: Overall, the retention rate keeps its increasing trend compared to 2021, indicating a lower absorption of deals by the market.

Retention Rate in the Securitization Market - Q2 2022

A comparison between the United States and European securitization market trends

The observed downturn trend appears to be a global trend: also the US securitization market has recorded a significant slowdown, with USD 60.6bn ABS products (-21.8% compared to Q2 2022) and USD 464.6bn MBS products (-19.5% compared to Q2 2022) issued in the second quarter of 2022, continuing the negative trend already started in Q2 2022.