It was very much a case of “planes, trains and automobiles” this year in Barcelona as thousands of finance professionals descended from all over the world to attend Global ABS. The annual structured finance pilgrimage ran parallel to an actual papal pilgrimage as the Pope's visit to Barcelona made for an even busier backdrop to a week that is already brimming with energy and enthusiasm as colleagues and friends alike catch up over coffees and cocktails.
The conference itself seemed to fly by faster than the Formula One cars that were arriving in the City as the conference was winding down — time does indeed fly when you're having fun.
Setting aside the finely crafted Dechert beach bags which were proving a big hit at the Dechert booth, we wanted to share a couple of other highlights from a productive couple of days:
Dechert partner Aaron Scott, who has advised on each European private credit CLO transaction to date, expressed optimism around the evolution of the documentation required for such transactions. The challenge of drafting a mix of static, managed, single-currency and multicurrency transactions whilst utilizing both Irish and Lux SPVs means that this initial foundation work has consolidated into a useful reference point from which future deals and structures can evolve.
Panelists praised private credit CLOs as another access point to enable investors to reach the origination platforms of those managers who have strong, diversified direct lending portfolios. The multicurrency transactions to date have helped address the diversity challenge that has historically been a key hurdle for the European private credit CLO market.
Investors on the panel emphasized that the “sponsor relationship” and valuation metrics of the portfolio remain a key factor for investors deciding where to deploy their capital. Whilst it was acknowledged that four transactions (to date) do not make a market, all indications suggest that private credit CLOs will continue to gain traction in Europe, especially given the strong investor appetite for this product. The middle market segment of the US CLO market at one time accounted for only five percent of the entire market. That figure has now grown to over 20 percent as that market has matured and panelists expressed hope that we will see similar expansion on this side of the Atlantic.
Dechert partner John McGrath moderated one of the conference’s standout discussions on the convergence of private credit and structured finance.
The convergence of private credit and structured finance is no longer optional — it is a function of size. Bilateral warehouse lines work at US$200 million; at today's market scale, managers need rated note feeders, NAV facilities, hybrid lines and sub-line securitisations. The question is no longer whether private credit engages with structured finance tools, but how — and how quickly.
Insurers are the demand engine — but most issues are still sold into the US where the regulatory framework is simpler to navigate. In Europe, UK insurers in particular are driving much of the product innovation, with the BPA market running at £40 billion per annum and a £1 trillion pension transfer pipeline in the background. The challenge remains the fundamental mismatch between private credit assets — short duration, unrated, prepayable — and what insurers actually need. The UK is making good progress; in Europe, Solvency II constraints and regulatory divergence across member states continue to slow the pace, even following the announcement of changes to the capital treatment of securitisations.
Other notable highlights — Fund Finance and Securitisation Regulation
Scale is forcing convergence. The boundary between fund finance and securitisation has become increasingly blurred — subscription lines, NAV facilities, CFOs and rated feeders all now draw on structured finance technology, and banks are beginning to securitise their sub-line portfolios to recycle capital. The US sub-line market runs into the hundreds of billions, with only a fraction tapped to date; Europe continues to rely primarily on synthetic and SRT-based approaches.
For rated feeders and CFOs, rating agencies underwrite the manager as much as the portfolio - track record is the ticket to entry. Structural subordination means rated notes only receive distributions after master fund liabilities are settled. Not all managers are created equal, and rating frameworks are expected to grow increasingly sensitive to that distinction.
The regulatory tide has turned — but execution risk remains. Both EU and UK reform packages are now framed around growth, not containment, and the divergence between the two regimes may serve as useful A/B testing. However, on the EU side, unresolved issues — acquisition limits, p-factor mechanics, synthetic STS safeguards — could quietly undermine the package if the EU trilogue does not get them right.
From sub-line securitisations to private credit CLOs, Barcelona delivered one message: the boundary between structured finance and private credit has dissolved. Scale drove it there; regulation will shape the path ahead — and as advisors at that intersection, we look forward to helping our clients navigate it.
