The future of securitisation in 2025 and beyond

Challenges in 2024

1. Regulatory Uncertainty: Ongoing changes and consultations regarding the EU securitisation framework have created uncertainty for market participants. The European Commission's targeted consultation on the functioning of the securitisation framework has highlighted the need for clarity and stability in regulations. 
2. Political Confidence: 2024 has had several general elections – the USA and the UK, of note. This impacted activity during these months as the market waited for outcomes. In addition, the German economy has delivered small or negative growth, resulting in a reset by the government, particularly for energy transition programmes.  
3. Economic Conditions: The broader economic environment, including inflation and interest rate fluctuations, has affected the market, the underlying assets and the overall attractiveness of securitisation as a financing tool. 

However, despite these headwinds, the securitisation market has been experiencing several notable positive trends recently: 

1. Green Securitisation: There's a growing focus on environmental, social, and governance (ESG) factors. Green securitisation, which involves packaging loans that finance environmentally friendly projects had been gaining traction. This trend is driven by policy initiatives and increasing investor demand for sustainable investments. During 2024, we saw a slowdown in this segment, due primarily to the change of direction by the German government.  But 2025, should see renewed interest.
2. Non-Performing Loans (NPLs): The securitisation of non-performing loans has become more prominent in recent months. Regulatory changes have made it easier to securitise these loans, helping banks manage their balance sheets more effectively. The perceived wisdom is that we will see an increase in defaults. This is expected to be driven by the impact of the overhang of corporate debt from the COVID years. As such, we expect lenders to securitise these NPLs for effective balance sheet management. 
3. Simple, Transparent, and Standardised (STS) Securitisations: In the early quarter, the EU has implemented a framework to promote STS securitisations. These products are designed to be easier to understand and less risky, which has helped investor confidence in the securitisation market. The regulatory change has been viewed as a positive for the market.  
4. Synthetic Securitisations: There has been an expansion in the use of synthetic securitisations, where the risk of a loan portfolio is transferred without transferring the actual loans. This method is increasingly used for on-balance-sheet transactions. 
5. Technological Application: The adoption of new technologies, such as generative AI, is beginning to influence the securitisation process. These technologies can enhance transparency and efficiency in the market. 

Overall, it is clear that these trends reflect a broader effort to make the securitisation market more robust, and transparent.  

Looking ahead  

As well as seeing these trends develop in 2025, there have been some interesting activities happening in the market, which are likely to fuel growth in securitisation. 

1. Non-traditional Assets: during 2024 we have seen several securitisation vehicles with cash flows based on theatre receipts, to the value of Italian housing stock, to the cash flows of sports teams. We expect to see other non-standard cash flows to be securitised in 2025. Securitisation vehicles provide efficient conduits to access these cash flows and returns.   
2. Globalisation: there continues to be interest in the global market for issuers who issue in multiple locations. We are seeing more clients look to benefit from administration partners that have local expertise, with a global outlook, which will enhance speed to market. 

3. Technology: we are seeing the use of Gen AI tools in reviewing loan documents to ensure consistency and completeness. The uptake of DLT technology and tokenisation has been slower than expected, but we expect the use of these technologies to pick up in the next few years. This will allow for quicker to market and wider distribution in the mid-term. Everything being equal, we should see this add efficiency in the securitisation capital markets.  
4. European Focus: the European Union has deliberated on Capital Markets Union for almost a decade by urging nations to lower barriers. It seems securitisation will form part of this plan and is most likely to be implemented in the short term. The European Commission has sounded out the industry on a range of measures to make it easier for banks to offload their loans to third-party investors. We expect greater European issuance in 2025. 

5. Debt and Loan Structures – with securitisation structures based on debts or loans, we are seeing clients ask for more services than before, ranging from serving the loans themselves to servicing all SPVs, companies and assets in the structure.  With GPs / Investment Managers replacing banks that provide finance to companies, we can expect those loans to be moved into securitisation structures as this financing channel matures to the next level. 

6. Outsourcing of Loan Administration - one particular trend we are seeing in the market at the moment, and set to continue in 2025, is clients who were initially servicing their loans inhouse, now wanting to outsource their loan administration functions to experts. Finding the right partner to move to, and support the transition, is critical. Without a proper project plan, technological platform or experienced resources, the migration can be really challenging and may be costly.   Experts in this field can ensure a smooth transition and free up a client’s resources to concentrate on more pressing matters, such as attracting investors into their structures, or even more time to source new investments.   

7. Refinancing  - based on S & P Global Ratings Credit Research, more debt is scheduled to mature in 2025 than the current year. Some borrowers are already planning to refinance as they expect the Federal Reserve, as well as the ECB to continue on its downward trend of lowering its interest rates. Lenders are also seeing this as a sign that the market is bullish, given that lower borrowing costs always present more opportunities to diversify their investment strategy. This bodes well for all parties involved in the securitisation sector.  

In summary, we expect the market to grow in 2025, with an increase on non-typical assets being securitised. Additionally, we foresee the outsourcing of loan administration to continue delivering efficiency and independence to both managers and investors.