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A sustainable future is hotly discussed at TSI, Berlin

8 October 2019

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At the end of September our team of experts from Germany, Luxembourg, Netherlands and the UK attended and sponsored TSI conference, Berlin. Over 600 participants discussed the latest developments around securitisation and the asset based finance markets. The likes of STS, Brexit and regulatory changes were never far from conversation, however there was a distinct focus this year in topics relating to sustainability and how the market adapts to a new future. Below our team share key takeaways from the conference and panels.

A sustainable infrastructure CLO market

The transformation of the economy and society into sustainable climate neutrality is paramount for many. Alternative sources of funding are needed in order to fund global sustainable infrastructures. An expert panel highlighted the rising importance of a sustainable infrastructure CLO securitisation market. Potential models were debated to identify a structured product able to fund global sustainable infrastructures. An overview on the standard manner of financing most infrastructure projects via bank loans was provided and thus emphasised the importance of creating an international infrastructure CLO market to free up bank balance sheets. Such CLOs will consist in the repackaging of illiquid sustainable bank loans into liquid tradable bonds, rated by rating agencies. In this way, the banks’ balance sheets will create space for new infrastructure projects.

Changing landscape of the mobility fleet

Given the rapid technological evolution a huge transformation is expected of the mobility fleet from traditional engines to alternatives; electric and hybrid, in the next decade or two. This brings with it uncertainty in the short and medium term as the residual values of these vehicles are difficult to determine. In addition, customer mobility demand is likely to change over time, especially in the metropolitan areas, resulting in a shift from owning to sharing vehicles. Although not expected in the short term, both developments will have an impact on the granularity of auto ABS pools, which would make it more difficult to securitise. It’s therefore likely that we will start to see the first structural changes in auto ABS transactions within the next decade.

Financing of the sharing economy

The sharing economy involves short term peer-to-peer transactions to share the use of assets or services or to facilitate collaboration. A hotly debated topic during the conference was the use of asset backed and/or asset backed lending structures to finance beyond the standard financing options for the sharing economy. During a panel discussion an extensive overview was provided; from current practice, options to requirements and aspects from the Rating Agencies. All in all, financing via asset backed and/or asset backed lending structures are seen as an alternative to standard financing options. The structuring requires a corporate structure, including an SPV to be managed, similar to existing ABS transactions.

With all the conversation around a sustainable future we look forward to the developments and continuation of these discussions until the next conference.