On 21 September 2023, the European Securities and Markets Authority ("ESMA") published an overview of the EU securitisation market (the "Report") as part of its ongoing monitoring and analysis of trends, risks and vulnerabilities in the EU financial markets. The Report is based on data provided to ESMA under the EU Securitisation Regulation, specifically:
(a) data on public (and some private) securitisations provided to ESMA by registered securitisation repositories ("Transparency Data"); and
(b) data submitted to ESMA in respect of public and private simple, transparent and standardised ("STS") securitisations ("STS Data" and, together with the Transparency Data, the "Data").
The Data primarily covers securitisations which issued between 1 January 2019 (when the EU Securitisation Regulation began to apply) and the end of 2022.
Transparency Data
Based on the Transparency Data, the Report gives an interesting overview on the state of the securitisation market in the European Union as at the end of 2022. Below are some key points highlighted in the Report:
- Size of the market: The Report notes a significant decrease in the size of the EU securitisation market from the €2 trillion it reached at the end of 2010. According to the available Transparency Data, at the end of 2022 there were 390 individual securitised products outstanding in the EU, amounting to €540 billion. However, ESMA notes that these numbers reflect only those transactions reported to securitisation repositories under the EU Securitisation Regulation, which are primarily public securitisations (as discussed in further detail below).
- Asset classes: Of the reported securitisations, residential mortgages are the dominant underlying asset class, accounting for 54% by outstanding balance, followed by auto loans (16%), corporate loans (15%) and consumer loans (12%).
- Geographic breakdown: The Report examines the jurisdictions where securitised assets are originated, and notes that France has the biggest share of originated assets by outstanding balance, at 25% of the reported transactions, followed by Germany (21%) and Italy (17%). By number of securitised products, the biggest contributors are Italy and Germany, each with 19% of reported products, followed by Spain and France (14% each), the Netherlands (13%) and Ireland (7%).
- Defaults: Since 30 June 2021, the amounts of underlying loans that have defaulted over the previous year has broadly increased at the same pace as the outstanding balance of the securitisations themselves. Between June 2021 and the end of 2022, the annualised default rate oscillated between 1.4% and 1.75% of principal amount outstanding. This is separate to the default rates of the securitisations themselves, which the Report notes is much lower.
STS Data
The Report also includes a review of the STS Data and contains some interesting observations on the state of the STS securitisation market, as follows:
- Overall trend: At the end of 2022, ESMA had received 586 STS notifications for "traditional" securitisations: 238 for public deals and 348 for private deals. It had also received 54 STS notifications for synthetic securitisations. New STS notifications peaked in 2020, with smaller numbers of new notifications filed in 2021 and 2022.
- Public STS: STS securitisations accounted for approximately 60% of all public securitisations at the end of 2022, with a total outstanding amount of €215 billion. The breakdown by asset class broadly reflects that of the broader public securitisation market, with residential mortgage securitisations being the most common.
- Private STS: Trade receivables securitisations account for almost two thirds of total private STS notifications, with the next most significant asset classes being auto loans and leases (18%) and corporate credit (8%). 84% of private STS notifications come from asset-backed commercial paper programmes. A quarter of private STS transactions involve an Irish issuer.
- Synthetic STS: The Report notes rapid growth in the synthetic STS market since the EU Securitisation Regulation was amended in 2021 to permit such transactions. The large majority (96%) of synthetic STS securitisations use financial guarantees to transfer the risk of the underlying assets as opposed to credit derivatives. 63% of deals are cash collateralised.
Conclusion
Overall, the Report paints a picture of a securitisation market which is growing and performing well in meeting the needs of both investors and businesses.
The Report does note disparities in the use of securitisation as a financing tool across different Member States, with the Transparency Data showing about 86% of securitised assets (by outstanding balance) originating in five countries. The Report also notes the downward trend in new STS issuance levels since 2020 and ESMA will continue to monitor that trend.
Under Article 7 of the EU Securitisation Regulation, only information on public securitisations (those in respect of which a prospectus must be prepared under the EU Prospectus Regulation) is required to be provided to a securitisation repository. Certain information about private STS securitisations must also be reported to ESMA. However, as ESMA notes, private non-STS securitisations are largely absent from the Data which forms the basis of the Report, even though such securitisations account for a significant portion of the overall securitisation market.
In 2022, the European Commission published a report on the functioning of the Securitisation Regulation in which it suggested that regulatory supervisors should enforce their right to obtain information about private securitisations, which they should then use in their supervisory work. The Commission did not recommend an amendment to the EU Securitisation Regulation to require private securitisations to submit transparency data to securitisation repositories, but noted that this may be an appropriate solution in the longer term. It remains to be seen whether regulators will take a more pro-active approach to the monitoring of private securitisations in the future.
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