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Europe’s special purpose vehicles (SPV) market remains resilient in the face of economic headwinds

21 June 2022

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Demand for these structures is growing as traditional banks withdraw from parts of the lending market. Learn more from Cliff Pearce, Global Head of Capital Markets; Anne Flood, Head of Capital Markets, Ireland; Salvatore Rosato, Head of Capital Markets, Luxembourg; Arno Vink, Director, Capital Markets, Netherlands; and Helena Whitaker, Director – Head of UK Capital Markets.

After a strong start to 2022, uncertainty has entered the market following recent macroeconomic events and world market volatility.

This is not new news, however the structured finance market is particularly susceptible to this volatility compared to the more vanilla flow markets. This, in turn, has had an impact on special purpose vehicles (SPVs).

Demand for business was good at the end of 2021 and the market for SPVs is currently still dominated by buyers keen to invest and do business. However, we have seen some deals postponed – although not cancelled – as investors and issuers wait for the impact of the Ukraine war and slowing consumer spending.

Against this background, spreads are widening, reflecting wider credit concerns and a market slowdown. Companies will have to be a lot nimbler in how they issue debt and how much they issue in future.

Nevertheless, the market backdrop is still witnessing strong technical support, with investors keen to deploy capital – particularly given spreads widening, which naturally plays very well with the investor market.

Here are the key trends:

Continuing demand for SPVs

SPVs continue to be popular because they enable a group of assets within the securitisation market to be ring-fenced, allowing rating agencies to focus purely on how the underlying assets perform.

With banks adopting a more “risk off” stance, direct credit lenders have stepped in to fill this gap. SPVs are commonly used by these alternative lenders in their financing structures, spurring growth in this market.

Nervousness about consumer spending and house prices

So far, falling demand – driven by inflationary concerns from under-pressure consumers – has not yet filtered through to the corporate market.

But as UK homeowners come off fixed-rate mortgage deals, a market slowdown is likely later this year. By contrast, the typical fixed period in the Dutch market is 10 years, offering greater immunity from consumer boom and bust.

In the UK the impact is likely to cascade down from the consumer and retail sector to the SME market and big corporates, affecting all aspects of industry.

However, the shortage of housing in the UK is still the predominant issue, with the buy-to-let mortgage providers specifically benefitting from the demand for rented accommodation.

In the Netherlands there is also a lack of homes, but environmental licences are needed to build new social housing, which is holding up the pipeline. As a result, we are seeing renewed interest in buy-to-let.

CLO migration

Ireland has continued to see growth in new collateralised loan obligations (CLOs), particularly following the adverse VAT changes introduced in the Netherlands in 2020.

However, recent amendments to the 2004 securitisation law in Luxembourg have now created opportunities for private equity houses to base their CLO activities in this jurisdiction, particularly those looking for a gateway to Germany.

A drive for liquidity

There has been increased use of asset classes to help corporations unlock working capital, such as supply-chain finance. There is also growing demand for credit default swap transactions to compensate companies in case of default within a portfolio of assets.

Increasing regulation

Increasing regulation in the European market brings greater reporting obligations, especially for SPVs.

That said, the regulations do not differentiate between SPVs and other entities, and skilful navigation and understanding of the nuances between regulatory demands and SPVs purpose is in demand.

Technology can make data capture and use more efficient and transparent. For example, automated processes in supply-chain finance can reduce the need for human input into repetitive transactions and cash management activities.

Growth in non-bank lending

The SPV market in Ireland grew by 8.5% in 2021 and that growth trajectory continued into Q1 of 2022. We are seeing more of a trend towards privately structured finance transactions. There is also a focus on non-bank lending supporting commercial and residential real estate, both Irish and non-Irish.

Ireland has fallen behind in terms of house building because of Covid-19 and there is a big backlog of demand. Many alternative financing providers, including private equity, are entering the market to satisfy that demand, as Ulster Bank and KBC Bank Ireland withdraw.

Increasing interest in ESG

Investors are focusing on environmental, social and governance (ESG) and there is potential to secure better terms if borrowers can demonstrate their ESG credentials. Some high-profile, innovative projects are being finalised – including one that will finance underdeveloped sovereign nations in Africa.

How Intertrust Group can help your SPV business

Intertrust Group was recently awarded SPV Administrator of the Year at the GlobalCapital European Securitization Awards for the second year running.

This award is voted for by our peers in the market and we are delighted that clients value the service we provide. We strive to create a seamless service and to work with our clients to establish the best outcomes for them. Regulatory requirements for SPVs are becoming increasingly complex, and we can help you keep on top of changes.

We can take care of the legal administration of your company at any stage in its life. From setting up and day-to-day management and reporting, all the way through to liquidation, we will ensure you comply with all global and local legislation.

Why Intertrust Group?

  • Intertrust Group is a global leader in delivering capital markets solutions, fund and corporate services, private wealth and employee benefit solutions to financial institutions, fund managers, multinationals, and business entrepreneurs worldwide.
  • We have 4,000 specialists working from 41 offices in 30 countries, including the world’s most important financial centres. So you get a world of local expertise working with you to meet your goals.
  • Intertrust Group is a publicly listed company with more than 70 years’ experience providing world-class trust and corporate services to clients around the world.