Stamp collecting

Muzinich launches CLO ETF, Rothesay’s huge refinancing, and why Europe should worry about AI

Transcript

SPEAKER_00 0:06

Hello and welcome to another find match. I'm George Smith, Global Capital Securitization Episode, and I'm joined by Tom Hall, our ABS reporter. Hello, Tom.

SPEAKER_01 0:17

Hi George, how are you doing?

SPEAKER_00 0:18

Very well. And for those of you who are hoping also to hear from Thomas on the CLOs, I'm very sorry to inform you that he is off on holiday. But by the time you listen to this, he should be back. Although then we'll sadly be missing Tom next week. So it's all happening on the on the holiday front here at Global Capital. And is it all happening in the ABS market as well, Tom?

SPEAKER_01 0:40

It absolutely is. It has been an incredibly uh packed start to the the first week since you know Global ABS when we obviously uh you know we had no deals uh you know during the previous week while while everyone was in Barcelona and uh they they've all it seems like everyone's come back and is marketing a deal now. We we've got you know in the the public primary we're up to double digit. So I've I've got my uh table tracking all the deals and I think we we've got ten going on this week, three pricing as as we record on the Friday with seven set to price uh for next week, the week that this comes out. So it's hands full.

SPEAKER_00 1:20

Yeah, I'll have my hands full next week. Yeah. This week I've been depotising for the CLO um side of things, where it's also been pretty busy. I think I count five deals, two new issues, two refinancings, and a reset all priced. So there's there's no let up on on either side.

SPEAKER_01 1:37

Yeah, absolutely. And that that wasn't the only thing going on in CLOs. There there was a new uh ETF CLO, wasn't there? What what's the story with that?

SPEAKER_00 1:46

Yeah, that's so I mean CLO ETFs started in Europe. They're big in the US, they're a big buyer of AAAs in the US. I think uh about six percent of the outstanding senior US AAA CLO paper is in ETFs. In Europe, it's more like 1%. Now Thomas did a big piece on CLO ETFs for the Global ABS special report, which we discussed in the live podcast as well, so it's I says steal too much kind of thunder talking about the regulatory backdrop and that sort of thing. But there was a new one this week, so I think that takes it up to nine European CLO ETFs now. But yes, this week Muzinic and Co. launched a new ETF as well in Europe, so we're up to nine. That's only um uh a couple of weeks, I think maybe three weeks after they made their debut as a CLO manager in Europe as well. So that was through their subsidiary 1988 asset management. Thomas covered that deal as well. I had a little look at the AUM now of um European CLO ETFs for the story. I went through diligently all the websites that were the ETF managers and and had a look at their net ass or their total assets. That's more or less two billion, so that's 1% of the European CLO AAA outstandings, give or take. Um and all the um ETFs in Europe invest in triple A's, more or less. So there's room for it to grow if you compare to the US. Um, but it just seems like it's quite fragmented to me. Um but then AUM is growing quickly, so so we shall see how this plays out. But also in global ABS, I thought it was a it was a theme, right? That CLO ETFs are creating more AAA demand, and along with Solvency 2, which people seem fairly optimistic about, there's good kind of technical tailwinds for the demand for CLOAAs.

SPEAKER_01 3:30

Yeah, well, I mean it it obviously seems like uh scenario where there's a lot of interest and it, you know, I I don't think it was you know just Thomas uh mentioning it uh uh global APS. So I think there there was you know uh a lot of uh people in the world of C LOs were were bringing up kind of uh the room for growth for for European CLO ETFs.

SPEAKER_00 3:51

Thomas says uh right on the pulse of the market. Yeah. Well but if you want to read my story on that new ETF, it is called Muzanich launches European CLO ETF after debut as manager. But now we can get right into this ABS pipeline, Tom, which as you've described is kind of full to bursting. You picked one particular deal out of all the contenders as the one for the weekly, and that was uh Rothsay's refinancing of this huge portfolio it bought from HSBC. Why was that the deal of the week?

SPEAKER_01 4:24

Yeah, I suppose there's quite a lot of sort of interesting things with this deal. I mean, you know, one thing that obviously stood out to me is it's purely just in terms of size. So this was um, you know, Rothsay basically acquired uh HSBC's French mortgage book back in July 2025, um, in a 6.7 billion euro deal. So um, you know, it's it's obviously a huge purchase, and and then the question was uh around how exactly are they going to be financing this book, and then sort of you know, less than a year down the line, they're they're partially financing it through securitisation. So they've they've set up this um 3.8 billion uh must trust program for you know financing what will they call um pool A as part of the um you know book and then uh they're marketing this week a 500 million uh transaction out of the uh it's a static must trust. Uh but there's obviously room for uh you know more transactions if they they choose to down the line.

SPEAKER_00 5:27

Yeah, it's pretty unusual, isn't it, for an insurer to just like basically go for maximum leverage on the a mortgage portfolio that owns because they're they're selling notes all the way down the capital structure on there?

SPEAKER_01 5:39

Yeah, and that's something that's pretty rare, definitely for like post-GFC uh prime deals. You you normally just see um seniors offered. Uh so that'd be quite an interesting sort of opportunity for investors if they they want to uh invest in the MES.

SPEAKER_00 5:54

Yeah, I mean the other thing obviously this is all in the context of it being a master trust. Is is there another master trust of like acquired mortgages? It seems like a slightly uh unusual structure.

SPEAKER_01 6:05

I certainly don't recall any since I've been covering the market. Um because normally in the the sort of master trusts you you'll have a giant revolving pool, and then uh you know, the this is kind of you know slightly different because it's it's just um using a static pool uh based on loans acquired during the the deal. So I mean I I don't know, I mean maybe it would be more comparable to something like we we saw the first uh European data center must trust this year, where you could see you know just one you know sort of big big loan added to it. So it's it's not necessarily like a credit card mast trust or something where there's constant churn and your your ways are revolving it.

SPEAKER_00 6:46

I guess what's particular about these assets, right, is that they are extremely long-dated because these are all mortgages that were made during a period of very low rates, more or less. And so it's pretty unlikely that they're gonna be prepaid rapidly. Yeah. So you've got like, you know, 20-year duration here on a quite a low-yielding portfolio. How did that kind of feature in the in the considerations of the structure here?

SPEAKER_01 7:12

Yeah, I mean, I think that that alone is quite an interesting factor, because obviously, you know, in the the French market, they they just do a hundred percent sort of fixed interest rate mortgages, so it's it's quite different to the UK where you have like a two to five year fixed and then it uh reverts to uh floating rate. So yeah, and as you say, that that means it has very low sort of weighted average interest. So I think, you know, I mean one of the interesting things is it's gonna be looking at kind of which sort of investors are kind of interested in a transaction like this, because it it seems like it it could be something that insurance investors you know might be interested in just because it's so uh you know high quality and uh long dated. Um so I think that's that's definitely one of the interesting things about the deal.

SPEAKER_00 8:00

Yeah, for sure. I mean how was the credit enhancement on the AAA's?

SPEAKER_01 8:04

It's uh very low, is kind of what's expected. And then certainly uh by the time it it steps up, um you know it it will be uh there'll be a negative carry on the transaction. But you know, I obviously you know Rothsay bought this uh portfolio at a big discount when HSB sold it because the you know the transaction was in 2025 and it was already uh sort of clear by by 2022 that uh you know the the rates were going to be changing. So it it I don't think it's necessarily from uh Rothsay's perspective uh a huge issue that it will have you know very low sort of excess spread within the structure.

SPEAKER_00 8:43

Yeah, yeah. Well I think it's 96% triple A's, isn't it? Which just shows you the uh the extent uh the quality of the of the assets. Um anyway, if you want to read that story, it is called Rothsay energises French RBS with Jumbo Portfolio Master Trust. And I think we have time to talk just quickly through the rest of the pipeline. There's been quite a lot of kind of like interesting jurisdictions, I guess, this week, because there is Auto One, isn't there, which has that mixed German and and Austrian pool. Yeah. And also a return of a Polish issuer to the public market.

SPEAKER_01 9:21

Yes, this is the uh the V HISS deal, which has uh luckily gotten a cartoon uh which always uh makes my weak. So this is the the second deal for V HISS, which is a um it's a Polish auto leasing firm uh offering leases to SMEs and mid-caps. And you know, this this is obviously it's an interesting deal because we don't really have any sort of regular issuers in Poland. I think you know there there have been some previous deals, but it's it's very rare that you see a Polish deal or or any kind of Eastern European ABS. And the I think the big uh sort of interesting thing with this deal is that the the debut uh from last year obviously had backing from the uh European investment bank and the European Investment Fund. For this deal, um the S was was able to uh find you know external investors in Poland to uh to back it. Um so it's you know it's a very interesting deal. It's it's not a super complicated structure because they issued in uh Polish Lotti, so they they didn't need to put a currency swap like a lot of um other issuers like uh Multilease, the Swiss issuer, or Santander, with its uh Swedish auto shelf. So it's it's quite uh interesting you know transaction.

SPEAKER_00 10:38

And the final sort of theme of the week has been um STS. Uh been a couple of new issuers, a couple of old old issuers, well-known issuers adding STS to their deals for the first time.

SPEAKER_01 10:49

Yeah, so this is uh interesting. I mean, um I think that so one of the interesting ones is uh Paratus uh AMC is marketing this week uh a deal from its Twin Bridges shelf, which you know it hasn't done a deal from that shelf since um 2023. And yeah, it's it's got a uh STS uh stamp, which is obviously that creates a much more competitive bid from bank treasuries on the the AAA rated paper, which they have mandates to buy. So you you can squeeze you know a couple extra uh sort of basis points on the seniors if if you get the uh the STS stamp. And it's it's not just been you know Pratus, I think it's also been that as well, yeah, which is also quite interesting because um BQIP, obviously, one or two months ago got its first uh STS deal. Propel also did an STS deal. So it does seem like it's a big, you know, the there's a lot of interest in getting an STS stamp and even a lot a lot of the transactions which you you might not expect, you know, super heavy uh bank treasury involvement, you'd expect them to be certainly driven by real money accounts. But I I think it always, you know, it's always definitely a a beneficial thing if you get the STS stamp and and then you can you know just get that slightly more uh diverse order, but yeah, yeah. Okay, and one last story I think we've got time for. Uh you've written a a Tuesday view uh related to Europe and and its response to US AI interventions. Do you want to speak a little bit about that?

SPEAKER_00 12:23

Yeah, I mean this was kind of the classic argument that we love to make, which is that you know, in in the era of increased international competition, Europe needs more funding for its various priorities and capital markets is is one way to get it. But I wrote this in specifically in response to the fact that um the US government last Friday, so by the time you listen to this, it it will be Friday, two Fridays ago. But they imposed export controls on Anthropic's mythos model, which is the one we talked about a while ago that was still originally deemed too dangerous for public release. It did eventually get released, but then it was swiftly shut down by the US government. Which I think goes to show you that the US government is is taking a more interventionist view on on AI and um is kind of viewing it as increasingly strategic. And for Europe, if Europe is kind of building its economy around US AI with no leverage in or say in kind of how those models are deployed, who controls them, who has access to them, it's a big risk. And it sort of undermines European sovereignty. Um so Europe needs some kind of leverage, and one of the ways that it could go about doing that, this this piece argues, is um by sort of finishing the capital markets project, which has been endlessly going on and of which securitization is a big part, and the European securitisation reforms are currently in the trilogue. So it's it's a timely moment.

SPEAKER_01 13:52

Yeah, yeah. And yeah, that story is uh it's free to read, and it's called uh Europe Must Bolster Capital Markets in Response to US AI interventions.

SPEAKER_00 14:01

And I think for now that is just about all we've got time for. So thank you very much for listening and goodbye. Goodbye.