The year of the auditor

Hello and welcome to another final minute. I'm George Smith, Global Capital's Securitisation Editor. And I'm joined by Tom Hall, our European ABS reporter. Hello, Tom.

Hi George, how are you doing? Yeah, well. We've just landed back from Barcelona. Well, you you landed later than me.

I I landed on uh at reasonable sort of seven o'clock. Um but you must have been about ten o'clock or or later. Yes, I think I I got home at about midnight. Yes.

Well I was in bed by 1230. Um so we're recording, we're recording on Friday morning, having landed back from Global ABS on Thursday, so we'll we'll give you our first impressions back from the conference. Very sadly, Thomas or has very wisely perhaps booked this day off um and and all next week. So there will be I'll be substituting him for some CLO coverage, perhaps.

Maybe we should start with that. Um on CLOs, uh it was obviously not my main focus of the conference, but my impression was that you know the CLO market's actually been in quite good health. Um spreads have come back in a bit since they widened after the Iran War and deals are getting done and and the pipelines healthy enough. But the conference was almost sort of like here's a slightly kind of the primary market was one thing, but then there's all these kind of stories that we've talked a lot about on the podcast that are weighing on the loan market, you know, the the software situation, the AI impact on on software valuations, whether those loans are going to start to struggle or whether they can be refinanced.

And then the continuing troubles in the Iran War, which I think Thomas in the conference wrote a story about how those could continue to play out like long into the into the autumn, basically. So there's all these kind of worries, all this sort of like macroeconomic sentiment that's just sort of set people on edge a bit. So it was sort of like, you know, despite the the positivity in the market, it wasn't purely good news. Um I'll just before we we move on to talk about um ABS, I'll just tell you what Thomas's weekly piece um which is based on on the conference and some other things he's he was working on beforehand is called TLO managers.

reset waiver spreads titan, which I think just speaks to kind of what I was just saying, which is that you know spreads come back in a bit. Um so these these resets are back on the table and and so managers might as well take advantage of the opportunities. Um but if you want all the details, that story's there for Global Captain subscribers on the website. Which brings us on to your impressions of the conference, Tom.

From from what I have read of your work, um you sort of left with some mixed feelings. Yeah, so I think it's I I use the words trepidation and optimism uh kind of in the story. Is that different to last year's cautious optimism? It is different.

It is different, I think. I mean it's funny you bring up last year, because I think last year probably did feel more sort of optimistic, and um one of the the big differences with this year's conference is obviously we we had the fall of uh you know the the bridging specialist lender market financial solutions back in February. And I think that was very much sort of a a big theme for this year's conference, and and kind of inevitably, you know, you're you're sort of discussing the the collapse of a lender and and how that can affect the market.

You know, the the sort of best you can say about that is that the the market is kind of stable in the face of adversity. Um and that doesn't really sort of bring about you know feelings of of great kind of optimism that you know the this will be sort of the the great revival of uh the securitisation market that you know we obviously hope for. Yeah, well I thought actually it's similar, like there was a lot of people going around consolidating relationships that they've had for a long time, kind of shoring up those partnerships, say between senior bank lenders and and their specialist lenders who they provide warehouses to, like in that for the big names, there was a lot of like maybe they were asking for some extra data, but um there was no no one was pulling warehouse loans from from those kind of long long-term relationships.

Um if there was any kind of edginess in the in the warehouse market, which there definitely is, it's at that like smaller end, the founder-led businesses. The the ones without big pro equity sponsors or much of a track record, that's where it's getting a bit more uncomfortable, I suppose. Yeah, I've d I've definitely heard the same thing. It's definitely, you know, if you have a long existing relationship, it's not like a a bank is just gonna be like, alright, well now now we're gonna terminate it, or we're you know, just gonna give up on this sector because I mean not nothing's sort of fundamentally changed with you know all these other uh sort of specialist lenders.

But you know, equally, I think bank banks, you know, are probably gonna be exercising more caution and conducting, I guess, what what some people are calling you know enhanced uh due diligence where you know, definitely sort of thing. Due diligence was a huge uh a huge topic, wasn't it? And everyone is thinking long and hard about how to do due diligence and and and how to minimize risks um in your due diligence process. I don't think service providers have probably ever had uh such a good conference.

Yeah, it definitely felt that way. If if there was one uh sort of single single winning group from the conference, it was definitely uh service providers who um seem seemed to be kind of you know awash with uh meetings and discussions and you know it sounded like uh they they were having an excellent time. Well, I think another group that might have some come out with some positivity is um MA advisors, actually, because MA and the lending sector, as we've talked about, has been a bit subdued, but it feels like this um this situation where smaller lenders are sort of having their funding options restricted opens up the opportunity for consolidation.

Yeah, I think that that's definitely the the one sort of you know big theme that we're gonna be seeing in the future, and especially, you know, we we've talked for a while about how the you know, I think the the bridging market isn't just diverse. I think some people would say it's sort of fragmented where you have you know sort of hundreds of these uh kind of very small specialist type of lenders where you know it it probably would make sense for some of them to to merge with other lenders and uh you know offer a more sort of you know full kind of product uh in that space.

Yeah, indeed. And then I suppose the other thing that's happening is the kind of role of institutions and the increased enthusiasm from banks to work with institutions, you know, between them and and the specialist lender market. Um like maybe it's via mayors, maybe they're funding institutional purchases via Ford Flow, but but basically sort of it all it all feeds into the same thing, whether it's um you know private equity shops buying lending firms, whether it's big lending firms buying other lending firms, the sense is that banks want or whether it's it's a credit fund like providing extra protection, but the sense is that banks want kind of trusted partners between them and and that sort of first loss or or lender equity.

Um I mean I think that's one of the the kind of interesting things, and you you sort of go into in your story this week, but I mean it it seems like you know the the bigger sort of fear is around seeing a funding retrenchment, but it it doesn't seem like um you know that there's much of a fear around sort of difficulty around mes funding or equity positions in a lot of these. Yeah, I mean obviously private credit has has had a bit of a bad name lately, but I I don't think anyone's like you know, there's loads of money that's been raised for ABF and and credit funds, and that that's all getting put to work in MES and Ford Flow and people are there's still more money than good quality assets out there.

So if you're if you're raising junior debt, like there's plenty of people who were who are willing to fund your assets at a particular unit, and and if anything, like the this withdrawal from like lower, like riskier assets, say, you know, concentrates that capital on like an even smaller pool. So like if you're a good lender, I mean people were saying it's never been easier, like if you're a if you're a lender with a track record and a good sponsor or you know, a history of of high quality origination, like funding that origination at a particular the junior level, you know, there's there's more people than ever who who want to do that.

There's there's capital out there to do it. So I suppose that you know it's easy to use the word bifurcation, but maybe it's appropriate. But yeah. The interesting thing about that is, you know, and maybe some of these pressures are telling that there's pressure to to put the capital to work that you've raised, right?

So the the need for discipline, which I think we I mean we've been talking about the the fact that you know there's a need for discipline in the in these kind of market conditions, like well back into last year, but that that theme remains as important as ever. Anyway, I was told by a market participant that I was being unduly negative. So let's uh let's let me read out this title of my story, which is called Funds I ABF Market Shares Bank Pullback, and that's also on the website for subscribers.

Um talk to you, Tom, a bit more about the positive side of the conference. Yeah, I think it was interesting because there's a lot of areas where I think there was perhaps more positivity last year because it was maybe newer. Like if you know data center is something that's been growing quite a lot kind of this year, but but that's something where you know peop people are kind of just you know already expecting uh quite a lot of activity. So I don't know if there was loads of you know sort of positivity around that.

But I mean, you know, there there's other kind of areas, you know, potentially new asset classes like fiber is something that you know came up in at least two conversations uh I had. And you know, other kind of areas for optimism are around you know international, you know, certainly issuers like Australia and uh Japan uh and sort of connecting those markets with Europe. So I I think there are you know quite a lot of reasons to be positive. Yeah, well the digital infrastructure one's an interesting one.

I mean, you said data centers. Uh my sense was like people were definitely saying like bank's balance sheets are absolutely like packed with data center lending now, and like there do need to be some some capital markets ways out of which securitization is one. Obviously, we've seen a number of deals in Europe now, but still there's there's plenty of scope for that to grow. And also, I mean that there's sort of talk of it within the the SRT space as well, so um it's one to watch.

Um and then yeah, you said you mentioned fiber, and there's there's in the US there's Tower ABS as well, and and I mean I guess it's probably slightly more removed from the public markets at this stage, but GPU financing also also something that came up. So yeah, that's a that's a positive spot. I guess another place where perhaps like the fact that it's slightly less new now has sort of like slowed down the amount of optimism was the was the regulation, um, which is still a topic.

Last year, obviously the ki Commission's proposal had just been leaked in the EU and and people were digesting them, and it looked like a kind of hugely ambitious package of reforms, but now they've had a year to chew them over, um well where was the discussion on that? Yeah, I d I definitely that's another one of the the areas that I think was was quite mixed, where you know I I had a conversation with one person who was you know really saying that they were you know kind of very disappointed where you know the the processes have gone far and just felt like uh you know even though they we still got the the trilogue to go and it's it's definitely not over uh for Europe's you know securitization reforms, they were just kind of saying it it just doesn't feel like it's gonna accomplish the goal of uh you know bringing back you know certainly insurance investors uh into the market.

But uh but also on the other hand, you know, that I I did speak to lots of people who were basically saying, you know, look, it's it's an incredibly you know tough job uh you know trying to get these reforms, and they've actually made you know really significant progress uh compared to where we current currently are, both on you know capital requirements regulation and uh due diligence. So um that there's been plenty of people I spoke to who said that they're you know already feeling pretty happy and we we've still got the the trilogue process to go, so there there could be even more sort of positivity to come down the line.

Yeah, I mean there's a lot of people who are sort of like I think it while acknowledging it's a step in the right direction, hey, is it worth the effort of making that step in the right direction? You know, there's a lot more complexity in in some places, particularly in the CRR. And then also, like, does it go far enough, as you say? Like, I think the market has had this argument from the start that this needs to be a package of reforms, and if you make changes in one place but not in another, like it doesn't things won't get going.

Like you need you need all the pieces in place, right, to do to get the securitization market functioning in the way that maximally would benefit the European economy, at least in the eyes of the kind of the market advocates. One issue that I guess is still alive in in that context is the um the sanctions regime. Yeah, and that's um you know, we we've had quite different positions, and that's why it's you know quite interesting that we'll have the trilogue of uh, you know, I think the the council has its position, which is uh kind of closest to what the market wants, which is really uh they'll they'll just allow each kind of region uh to use its own regulator to decide you know any sort of uh sanctions for breach and due diligence.

And then we we've got had you know on on the opposite side, I think the the most kind of concerning uh position from the market came from uh the commission where you know you you could potentially be fined up to 10% of your, I think, net global turnover uh for a due diligence breach. And we, you know, for an investor like someone like PIMC, where they they obviously have a huge amount of investments outside of securitization, uh someone like them could could probably see that and think we'd be taking on a huge amount of risk for a very small uh proportion of the market, would it necessarily uh be worth it?

Yes, yes, indeed. Well, if we grow the European securitisation market, uh then perhaps it would it would be, I mean yeah. It's as usual, it's checking and ac. Anyway, um we also did our live podcast, so if you came to that, thank you very much for coming.

Uh although we were blighted by some minor difficulties with the tech at the start, I hope that you managed to say some things that were interesting enough and and made it worth your while. Um, so maybe we should move on to um the thing that we also did in the live podcast, which is a global capital tradition, is the uh the merch awards. Tom, what what what did you what's in your in your suitcase? So what one of my favorite uh things that they had at the conference, and it had been haunting me, because it they they did have it last year, and I I didn't put it in our uh our Spike Awards article, but it was um European Data Warehouse brought back its uh its claw machine.

Uh I I didn't actually have time to uh have a go on it, but it did look really fun as uh someone who uh used to love going in arcades all the time when I was younger. And uh I think uh one of the one of the things when um looking at these uh kind of merch awards is uh you know when when you come to the year after you see how many other companies are are borrowing uh what what was popular last year. And I I definitely saw I think I saw about four claw machines uh going around from from different uh stands.

So uh I think well well done to uh European data warehouse for for setting a trend in uh that area. Yes, well I suppose um it's a bit like the um the market for assets that we were discussing earlier, you know, and everything that was popular, you couldn't any anything that was in demand, the queues this year seemed to be stretching back um quite a way, so you couldn't get near them. Um because I I was impressed by uh DBRS um had the uh had the monogram notebooks, but I wasn't able to get one because the every time I walked past it, the queue was about six deep.

Yes, I do I do have mine. I've got it very close to me. Oh, it's unfortunate for the uh the audio listeners, but it's uh it's very nice to have a lot of the game. Oh, it's beautiful, yeah.

Yeah, well my own coach has the same initials as you, so maybe uh yeah. Um and of course uh so does Thomas. So he could have uh he could have share it as well. Yeah, yeah.

We'll have to go to video at some point. Video is the future, everyone tells me of of podcasts. Uh I always hear about how there are very few audio-only podcasts, so maybe for the podcast traditionalists, uh they they like another five minutes for that. Um at this moment it's it's a shame.

Anyway, that's we've been frivolous enough. Um if you have stayed with us through that, then then thank you very much for for listening. And uh I think for now it's goodbye. Goodbye.