Variety is the spice of today’s structured finance

A wide range of relatively new types of structured finance programmes were handled by Amsterdam-based fintech services company Hypoport recently. We caught up with Managing Director Jacco Samuels and Senior Associate Cas Oostlander to survey that rich landscape from their viewpoint as a provider of ABS infrastructure.  

How was the past year, from Hypoport’s point of view?

Cas Oostlander: Well macroeconomics dominated the market for us last year, particularly rising interest rates. We saw a wide variety of transaction types including warehouses with compartments. This refers to the segregation of assets and liabilities within one securitisation vehicle. This structure allows originators to use one vehicle for several different funding projects. Also, Significant Risk Transfer (SRT) securitisations were also prevalent in the market. We definitely saw an increase in these types of transactions. That was a notable change from the previous year.

Jacco Samuels: Indeed, we saw a marked rise in transactions for a wide variety of alternative asset classes which we had not seen previously. There was wider variety of deals, in addition to the traditional RMBS and auto ABS securitisations. These included transactions such as Trade Receivables for supply chain finance, SME portfolios, corporate loan portfolios.

These types of transactions (which can also be synthetic) were more prevalent in our market than, for example, the traditional mortgage market. Within the mortgages asset class, we saw primarily covered bonds and less focus on securitisations. We also saw more structured finance transactions based on consumer loans, credit card loans and buy-now-pay-later loans.

What could explain this rise in these diverse classes of structured finance?

Jacco Samuels: We think investors are seeking alternative ways to invest. As they survey the market, they may see interesting opportunities in these types of loan portfolios. And on the funding side, enterprises are seeking alternative methods to raise funding, and these types of structured finance product offer them a vehicle to raise capital.

Does this stem from a market retreat on this type of funding by the incumbent banks?

Jacco Samuels: That could be the case. The way incumbent banks approach SME financing is changing. While the major banks often still provide smaller loans, they will only provide them through subsidiaries and joint ventures which focus on these specific types of loans.

Did the Auto ABS market show any notable movements from your point of view?

Cas Oostlander: We observed growth in the (green) auto ABS market, especially in the private lease market, combined with steadily rising numbers of EV car lease contracts. We expect that market to grow in future.

Were there any other market trends which impacted your business?

Cas Oostlander: The introduction of new regulations on sustainable finance is a key trend. The EU launched its Regulation on European Green Bonds late last year. The idea behind this standard is to create consistency and comparability in the green bond market. Right now, we see groups of market participants joining forces and exchanging ideas as how best to interpret this new regulation and avoid greenwashing. I think that will have a major impact next year.

There is also increased focus on Operational Readiness within financial institutions regarding sustainability data. This is about how to embed readiness within an organisation in order to take delivery of data and then interpret and incorporate it. Institutions are exploring how they can take a periodic delivery (say monthly, or quarterly) of energy efficiency data and immediately update the performance of the loans underlying a mortgage securitisation. That data not only refers to the energy label of a property but also the underlying data. We see this becoming increasingly important this year and beyond. This is also tied to the ECB legislation on banks demanding more transparency on climate risk.

How does Hypoport help clients with the specific challenge?

Cas Oostlander: I think we are particularly good at interpreting data and automating calculations and reporting within financial institutions through our PRoMMiSe cloud-based platform. We are also involved in a number of Sustainable Strategy initiatives. We have an in-house energy efficiency data tool called Greenport. This extracts all the publicly available green data from Dutch commercial and residential properties and as a service we can upload it to our clients. Clients use the data within the common platform for structured finance transactions, and to comply with regulations.

Jacco Samuels:  We are also a consortium member of the EU financed platform Engage. The consortium is setting up the Green Investment Portal to provide consistent housing related ESG data on European housing stock. I believe that Engage will ultimately help create a European sustainable finance ecosystem which will be interconnected with existing data and regulatory infrastructure via the portal. Once it is fully up and running, the Green Investment Portal will analyse, integrate, and reduce risks for energy efficient investments across the whole EU financial sector.

Currently, market parties can download the Engage templates. These templates are based on the ESMA reporting standards for RMBS and they apply the European Commission’s Climate Delegated Act to mortgages and home renovation loans.

Has Hypoport’s client base changed recently?

Jacco Samuels:  Not really, but we have seen a marked increase in business from Asia (Singapore in particular) and Germany. We have been involved with a number of covered bond and trade receivable programmes originated in Asia. Specifically, within the German market we are involved in ABCP programmes for the lease market, and we have tailored the PRoMMiSe software for the Pfandbrief market.

Why Singapore?

Cas Oostlander: Singapore has regulations for covered bond structures based on the EU legislation, which makes them familiar for us to handle on behalf of our clients.

Looking into the future, what do you see ahead?

Cas Oostlander: I think next year will be an important transition period for issuers and investors to prepare for the new sustainable finance regulations. There are also some remaining puzzles to tackle from the EU Taxonomy, with clauses being interpreted in different ways by various European countries. That is something we need to prepare issuers for going forward.

Jacco Samuels:  We do see the securitisation market declining and the covered bond market growing. This is mainly due to incumbent banks finding covered bond programmes more attractive than securitisations.  Also, we see the Dutch buy-to-let market declining due to higher interest rates and increased regulatory pressure.

What do you hope to gain from the Securitisation Event this year?  

Cas Oostlander: Last year, I helped set up the Young Dutch Securitisation Association (Young DSA). I am really looking forward to catching up with everyone in again in Amsterdam. It will make a change from only meeting on video calls.

Jacco Samuels: It’s always great to catch up with everyone at the event. I’m also personally very curious to see if and how sustainable finance will achieve a major breakthrough in the structured finance market.