Take Notes

While European Structured Finance issuance has been strong in the first half of the year, some investors believe that deteriorating macro fundamentals and geopolitical risks are not being sufficiently priced in. We touch on the evolving European investor sentiment over the last few months, the growth of private credit markets (and increasing focus on asset-based finance), and our expectations for the second half of 2025 (in overall issuance, regional growth, regulations, etc.).

Related:

• S&P Global Ratings' European Structured Finance Conference 2025

Loyalty programs have turned out to be highly profitable for airlines, as for some, they generate more cash flow than flight operations. Indeed, we believe that without a loyalty program, certain major U.S. airlines' earnings would be decidedly weaker in the current economic environment. We discuss how these loyalty programs work, their resiliency in tough times while other airline assets remain idle, how airlines generate financing from these programs by securitizing future loyalty revenue streams (and by proxy, the different types of ABS securitizations), and just how they've become core financial assets in general.

Related Article:

• ABS Frontiers: Airline Loyaly ABS Have Lift Off

Exchange traded funds (ETFs)--in particular, CLO ETFs--are providing a vehicle for retail investors to adapt to new financial innovations in capital markets, such as private credit (lending directly between a lender and a borrower) and tokenization (taking a real world asset and representing it as a "token" on a blockchain). While they offer access to parts of the capital markets that might have been previously inaccessible, there are risks, such as mismatched liquidity. We also look at the potential investor landscape from an Indices point of view.

Related Article:

• ABS Frontiers: How The Burgeoning CLO ETF Sector Could Impact The Broader CLO Market

Recent data regarding consumer credit--especially auto ABS collateral data--are showing signs of deteriorating performance. Moreover, we've seen some indication that consumer distress is spreading to higher credit score and income cohorts, despite a relatively low unemployment rate. An unforeseen increase in the unemployment rate over our base case could lead to further distress for consumers who are already facing a myriad of financial challenges. We deep dive into the data and detail more of our observations and what we're attributing this to.

Related Article:

• Inflation and Affordability Challenges Remain For Consumers Despite Low Unemployment

We discuss the cross-sector impact of the Los Angeles wildfires on California's property insurance, housing finance, and state creditworthiness. As the wildfires are expected to result in substantial losses for insurers, we discuss how carriers are expected to raise rates and/or reduce coverage options in California and other at-risk areas; and how the FAIR Plan, an insurer of last resort, could exacerbate that. We also detail how the fires could cause downward pressure on home prices in California's housing market. Finally, we discuss how the rising insurance costs and mounting affordability challenges could weigh on the creditworthiness of the state of California over time

Since CLO ETFs launched in late 2020, the investing landscape has changed, as retail investors can now access securities previously available only to institutional buyers. Driven by strong investor demand, CLO ETFs have injected new liquidity into CLO primary and secondary markets. We discuss what's fueling the rise of the CLO ETF sector, its portfolio compositions and purchasing activities, and the extent to which these ETFs can impact CLO tranche pricing under certain economic conditions.

Related Article:

• ABS Frontiers: How The Burgeoning CLO ETF Sector Could Impact The Broader CLO Market

We're joined by esoteric ABS credit analyst Christine Dalton to do a deep dive on the Nov. 4, 2024, downgrade of TGIF Funding LLC's series 2017-1 class A-2. We look back at the deteriorating operating performance of TGI Friday's casual dining restaurants, the impact of the COVID-19 pandemic, increased securitization expenses following the manager transition a (manger termination event was declared on Sept. 5, 2024), potential disruption stemming from TGI Friday's Inc.'s bankruptcy filing on Nov. 2, 2024, and the virtual certainty of a payment default over the next 12 months.

After two years of muted issuance, the U.S. BSL #CLO market has roared back to life, with about $165 billion in issuance to date. We're joined by CLO Sector Lead Stephen Anderberg to discuss what's driving this active market (e.g., benign credit outlook and continuing strong demand for high-quality floating-rate assets), where we think the market will end up at the end of the year, and the status of refinancings and resets, specifically. Leveraged Finance Sector Lead Minesh Patel also joins us to discuss the factors driving our generally positive view of Corporate credit performance over the next 6-12 months (e.g., policy interest rate normalization to help stick a soft landing, generally healthy balance sheets, etc.).

We're joined by analyst Casper Andersen to provide updates on the Norwegian, Finnish, and Dutch covered bonds markets, and Icelandic jurisdictional support. We discuss the current housing markets and economic growth for Norway, Finland, and Netherlands and the impact on their respective covered bond markets. We also discuss issuance demand and trends in the Dutch covered bond market and revisions to certain jurisdictional support assessments in our criteria (specifically Iceland).

Related Articles:

• Covered Bonds In New Markets: Issuance Holds Up In 2024
• Global Covered Bond Insights Q2 2024: Strong Start To The Year For Issuance
• Covered Bonds Primer
• Norwegian And Finnish Covered Bond Market Insights 2024

For our first episode in 2024, our host, Tom Schopflocher, is joined by Cian Chandler, S&P Global Ratings' Global Structured Finance Chief Analytical Officer, to introduce our "ABS Frontiers" article series. Throughout this year, these informative commentaries will explore sectors that are somewhat "out of the ordinary," which, in addition to being interesting and possibly not broadly understood by the market, show potential for growth in origination and securitization. Some asset classes we've published on so far include C-PACE, music royalties, private credit funds, and bridging loan RMBS.

In the episode, we discuss our reasons for embarking on this article series, which include providing market insight based on what we are seeing and what may come down the line.

Click on the link below to access the series:

• ABS Frontiers Series