Asset-backed commercial paper (ABCP) outstanding in the U.S. grew to $309.3 billion at the end of 2022. We expect the market to remain in the $280 billion-$290 billion range in 2023. While we expect attractive short-term rates and potentially lower bank deposits to support ABCP issuance, as issuers fund their clients via ABCP over bank liquidity draws or other credit facilities, the prevailing economic uncertainty could potentially dampen growth.
In Europe, the Middle East, and Africa (EMEA), despite a marginal 2.2% decline in the first half, issuance picked up sharply in the second half to surpass $125 billion by the end of 2022. Growth in committed funding amounts and utilization rates continued, indicating sustained long-term interest in the market. Overall, while macroeconomic conditions remain somewhat uncertain over the next few months, we expect stable issuance under our base case forecast, and any further increase will be dependent on overall economic conditions, the pace of recovery, and availability of liquidity.
In both the U.S. and EMEA, we've also observed a steady uptick in alternative financing such as ABCP backed by various types of derivative agreements, including total return swaps (TRS) and repurchase agreements.
In Japan, performance trends remained largely stable relative to 2021.
Globally, the top 10 sponsors accounted for about 71.7% of all S&P Global Ratings-rated ABCP outstanding in the U.S. and EMEA as of December 2022.
Recent Market Events Have Limited Impact On ABCP Ratings
Until now, the Russia-Ukraine conflict has had a limited direct impact on the ABCP transactions we rate. For fully supported ABCP programs, we consider any credit-related sensitivity to be secondary.
The ratings on fully supported ABCP programs are weak-linked to the ratings on the support provider, and rating actions on the ABCP transactions generally stem from rating changes on the support provider (see the Appendix for more information). A change in the rating outlook on a support provider would not affect the ratings on the ABCP. However, an upgrade or a downgrade of the support provider, or a CreditWatch placement, which could affect the short-term rating on the support provider, could affect the rating on the ABCP.
The failure of Silicon Valley Bank (SVB) and Signature Bank, as well as the downgrade of First Republic Bank, did not have an impact on the ABCP transactions we rate. Separately, on March 19, 2023, UBS announced the acquisition of Credit Suisse (CS), which had limited impact on our ABCP portfolio.
In the U.S., following the downgrade on Credit Suisse AG, we lowered the rating on four programs to 'A-2' from 'A-1' in November 2022. In March 2023, following the announcement of the UBS's acquisition of CS and subsequent rating actions on the bank, we placed the 'A-2' ratings on these programs on CreditWatch positive. We believe that the U.S. ABCP market is sufficiently insulated from the heightened risks in the regional bank sector as ABCP is generally supported by global systematically important banks with at least an 'A-1' short-term rating. This is true for alternative financing arrangements, to which some of these highly rated institutions are party.
SVB, Signature Bank, and CS are not support providers in any ABCP conduits we rate in EMEA and Japan. As such, the recent events in the banking sector have had no direct impact on the ABCP conduits we rate in these regions. Further, the current outlooks on all the support providers are either stable or positive globally, with some cushion available before a ratings impact may materialize.
Considering the more uncertain economic environment in our base case, we estimate median credit losses for banks will range broadly but remain manageable over our forecast period, largely due to higher interest rates benefitting net interest margins.
For North American banks, we expect credit losses to continue to gradually rise this year and next, returning at least to the historical averages. We view this as broadly manageable for the banks. However, in our downside scenario, in which inflation remains high, the Federal Reserve (Fed) continues to raise rates, and savings and consumer spending decline while unemployment rises significantly, credit losses as a share of loans could exceed historical norms and further eat into earnings.
For European banks, we expect a moderate deterioration of asset quality in 2023, with credit losses of around 19% of pre-provision earnings. Our base case forecast for losses in 2024 is lower but subject to increasing uncertainty around the evolution of inflation and economic growth against a backdrop of rising funding costs in real terms for borrowers.
Earlier this year we forecast that Asia-Pacific banks will likely sustain credit losses of about US$500 billion in 2023, which is about a 9% increase compared to 2022. Banks' credit losses across Asia-Pacific are dominated by China's commercial banking system, reflecting its sheer size in a global context. Across the Asia-Pacific region, the more general key risks impacting most banking jurisdictions--including lower economic growth, higher interest rates compared with pre-pandemic, high leverage, and property sector concerns--will contribute to growth in credit losses during 2023.
At this stage, considering healthy liquidity and capital, along with an uptick in 2022 earnings from rising rates in several instances, we view the risks from unrealized losses as manageable for the banks we rate. However, downside risks from confidence sensitivity concerns, liquidity impacts from deposit outflows, direct/indirect exposure to counterparties that have suffered from a decline in fair value of financial assets, and more, remain and could impact bank ratings.
Given the current outlook of support providers for fully supported conduits we rate and the buffer to ratings impact from a rating action on any of these entities, we currently expect no material impact on our ratings on fully supported ABCP conduits globally over the next six months (see the Appendix). We will continue to monitor for any support-provider rating changes that could affect ratings on fully supported ABCP.
For partially supported ABCP, we also considered asset performance in our analysis. Our base case loss assumptions for all the partially supported transactions are higher than the current loss performance and reflect our view of expected performance during multiple economic scenarios.
In 2022, we rated one new program in EMEA and six new programs in the U.S. We also discontinued our ratings on one program in EMEA following the withdrawal of an issuer credit rating (ICR) of the support provider. We continue to monitor any deterioration in support provider ratings and collateral performance over time.
Stakeholder Interest In ESG Is growing, But Is Generally Not Material To Our Credit Ratings
Certain bank sponsors have considered developing internal environmental, social, and governance (ESG) frameworks for programs to issue tranched ABCP backed by sustainable collateral, or to issue ABCP with specific qualifiers for better transparency to investors seeking such investments. However, this generally would not be material to our analysis because the credit ratings on the support providers are the primary driver of our credit ratings on ABCP programs. Consequently, the influence of ESG factors in our credit rating analysis primarily depends on the influence of ESG factors on the underlying credit rating dependencies. We reference the ESG credit indicator for each support provider, where published, in the Appendix (see Appendix 1a and 1b) for each program we rate.
To the extent a specific support provider has not published an ESG credit indicator, we have disclosed the ESG credit indicator for the parent or super parent under the hierarchy of the support provider, where available. ESG credit indicators relate to an entity's stand-alone analysis or, in the case of a parent company, the group credit profile. An entity's ESG credit indicator does not reflect the influence of ESG factors on the related parent. As such, the ESG credit indicator could diverge from that of its related parent where published (see "ESG Credit Indicator Definitions And Application," published Oct. 13, 2021).
U.S.: Alternative Financing Arrangements Buoy Issuance Volumes
Dev C Vithani, New York, (1) 212 438 1714; firstname.lastname@example.org
Joshua Saunders, Chicago, (1) 312 233 7059, email@example.com
U.S. ABCP outstanding reached a peak of approximately $309.3 billion as of year-end 2022 (rising 9.9% in 2022 from $281.4 billion in 2021), driven in part by increased utilization rates typically seen in the fourth quarter as client funding demands rise into the new year, as well as increased corporate and bank borrowings under derivative-backed financing arrangements.
We expect issuance volumes for U.S. ABCP to remain stable in 2023, within the range of $280 billion-$290 billion, and in line with current levels ($287.6 billion as of April 26, 2023) as new seller activity in ABCP programs from new ABCP-financed origination is likely to offset the wind-down of existing transactions. Although U.S. sponsors are anticipating building capacity with newly launched conduits and potentially increasing the issuance of existing ones, the recent economic uncertainty could affect this outcome. ABCP issuance rated by S&P Global Ratings is expected to remain in the $240-$245 billion range, representing approximately 85% of the market.
The U.S. economy proved resilient in the first quarter of 2023. We now forecast full-year GDP growth of 0.7%, in contrast to our November call for contraction of 0.1%. Despite persistent inflation and aggressive monetary policy tightening by the Fed, consumer demand has remained steady, and the labor market has remained robust. However, we still expect the U.S. economy to experience a short, shallow recession in the second quarter of this year, followed by a tepid recovery in the second half of the year. Additionally, as rate hikes continue to pressure the labor market, we expect unemployment will rise from 3.6%, peaking at 5.4% in early 2025. These macroeconomic trends could lead to a deterioration in collateral performance and credit enhancement in partially supported ABCP transactions. Rising unemployment may cripple consumer confidence and discretionary spending, which could impact originations across certain assets types financed by ABCP. This in turn could result in at least a short-lived slowdown in new transactions, but has yet to be seen.
On the banking side, the collapse of SVB led the Fed to create an emergency lending facility for U.S. banks to ease liquidity pressures and reduce the likelihood that other regional lenders would be impacted by similar levels of deposit outflows. We believe that the U.S. ABCP market is sufficiently insulated from the heightened risks in the regional bank sector as ABCP is generally supported by global systematically important banks with at least an 'A-1' short-term rating at their subsidiary banks. This is especially true for alternative financing arrangements, to which some of these highly rated institutions are party.
Conduit-level activity has remained strong
Since our last publication in October 2022, we have rated issuances from several programs (see the Rating Actions section):
- Podium Funding Trust (sponsored by Bank of Montreal) is a new, fully supported conduit that will issue U.S. dollar-denominated standard, callable, puttable, puttable/callable, and extendible ABCP notes to make loans under the loan agreements to borrowers.
- Cabot Trail Funding LLC (sponsored by The Toronto-Dominion Bank) is a new, fully supported conduit that will issue U.S. dollar-denominated non-index linked (standard), callable, puttable, puttable/callable, index-linked, and extendible ABCP notes to fund financial assets supported by a program-level liquidity agreement.
- Resolute Funding Co. LLC (sponsored by Nearwater Liquid Markets LLC) is a new, fully supported conduit that will issue U.S. dollar-denominated standard, callable, puttable, and puttable/callable ABCP notes to fund financial securities or financial assets supported by liquidity agreements in the form of asset purchase agreements, loan agreements, global or master securities lending agreements, global or master repurchase agreements, and TRS.
- Saugatuck Funding Co. LLC (sponsored by Nearwater Liquid Markets LLC) is a new, fully supported conduit that will issue U.S. dollar-denominated standard, callable, puttable, and puttable/callable ABCP notes to fund securities in the open market supported by liquidity agreements in the form of asset purchase agreements, loan agreements, global or master securities lending agreements, global or master repurchase agreements, and TRS.
- Endeavour Funding Co. LLC (sponsored by Nearwater Liquid Markets LLC) is an existing fully supported conduit that added callable ABCP notes to supplement the outstanding standard ABCP notes.
In November 2022, we lowered our ratings to 'A-2 (sf)' from 'A-1 (sf)' on ABCP issued by four programs with related sponsors/administrators listed below following the downgrade on Credit Suisse AG.
- Cedar Springs Capital Co. LLC and Crown Point Capital Co. LLC sponsored by Guggenheim Treasury Services LLC.
- Regatta Funding Co. LLC sponsored by Nearwater Liquid Markets LLC.
- Alpine Securitization Ltd. Administered by Credit Suisse AG, New York branch.
In March 2023, we subsequently placed our 'A-2 (sf)' ratings on ABCP issued by all four programs listed above on CreditWatch with positive implications following the merger between Credit Suisse and UBS.
Attractive short-term rates and likely lower bank deposits support issuance volumes
Industry conditions for banks, which typically serve as sponsors and administrators for ABCP programs, changed in the wake of some bank failures in March 2023. We view the heightened market volatility that followed those failures as a negative for the banking sector and a reminder of the industry's confidence sensitivity. On the positive side, we believe emergency actions from the Fed and other regulators in March have equipped the banking industry with significant access to liquidity if needed, supported confidence, and reduced risk related to unrealized losses on securities.
As of today, more than 90% of our U.S. bank ratings portfolio has stable outlooks. Overall, bank customers will continue to take advantage of higher interest rates in competitive (non-deposit funding) products. This bodes well for the ABCP market as issuance will continue to be buoyed by attractive short-term rates and potentially lower bank deposits. Funding levels in ABCP do not show any signs of stress, and spreads remain tight across the maturity spectrum as issuers continue to fund their clients via ABCP instead of bank liquidity draws or other credit facilities.
Alternative financing arrangements in ABCP continue to rise
In 2022, we continued to observe an uptick in alternative financing arrangements from specific ABCP sponsors. These transactions seek to provide global systematically important banks an alternative source of hedging short delta swap positions against hedge funds and other clients. Rather than the bank inefficiently utilizing its own balance sheet to acquire the referenced asset, the bank can enter into a TRS financed by an ABCP program. Under a TRS, a counterparty can gain exposure to a referenced asset without directly owning the asset on its balance sheet. The counterparty earns periodic dividends or interest earnings in return for a fixed payment. The counterparty is obligated to cover any depreciation in the notional price of the referenced asset from the price when the TRS was entered into initially. In 2022, we primarily saw an uptick in TRS with treasury securities as the referenced asset. Less commonly, we have also reviewed TRS with equity baskets, consumer loans, and bonds as the referenced asset.
Money market fund reforms in motion
The Securities and Exchange Commission's (SEC) reforms for money market funds, which traditionally invested largely in ABCP, were implemented in October 2016 to enhance the stability and resilience of all money market funds as well as to reduce investor risks. As a means of preventing a run on a fund, the regulations required money market fund providers to institute liquidity fees and suspension gates. In December 2021, the SEC proposed (i) removing liquidity fee and redemption gate provisions designed to provide a "cooling off" period to calm short-term investor panic; (ii) increasing daily and weekly minimum liquid asset requirements to 25% from 10% and to 50% from 30%, respectively, to better equip the funds to manage substantial and rapid investor redemptions like those experienced in March 2020; and (iii) introducing a new concept of swing pricing for institutional prime and institutional tax-exempt money market funds that adjusts the net asset value of a fund to account for trading costs, passing those costs to the traders in the form of a reduced redemption price instead of absorbing them back into the fund and effectively forcing remaining fundholders to bear the cost.
The swing pricing proposal is viewed as a detriment to investors and far outweighs the benefits of the first two proposals in that it would create significant new operational issues and costs for money market funds, including determining whether the fund has net redemptions, and calculating and applying the swing factor to the net asset value multiple times per day. Overall, we do not expect major declines in ABCP because other fund types (separately managed accounts, non 2a-7 funds, etc.) with similar investment mandates to purchase ABCP will offset the outflows from government, prime, and municipal funds being potentially impacted by the reforms.
Recent amendments by the SEC to likely expand ABCP investor base
The SEC's recent amendments to expand the definition of "accredited investor" and "qualified institution buyer" in Rules 501(a) and 144A of the Securities Act also strengthens ABCP's role as alternative capital market-based funding source for banks. These amendments more effectively identify individual and institutional investors that have knowledge and expertise to participate in private capital markets, thereby expanding the list of eligible entities. Among these entities are municipal investors who have recently benefited greatly from fiscal stimulus packages during the COVID-19 pandemic as well as higher tax revenues generated by population growth in certain states. These additional funds are likely to be deployed into new funding opportunities, including ABCP, which continues to serve as a viable funding source to fuel economic growth.
Ratings sensitivity in U.S. ABCP programs
We have assessed the impact on the ratings on outstanding ABCP programs separately for fully supported and partially supported conduits. Our ratings on fully supported ABCP conduits are weak-linked to the ratings on support providers. Currently, we consider that none of the fully supported conduits could be affected based on the ratings on the support provider (see the Appendix).
Partially supported assets' sensitivity in U.S. ABCP programs
Ratings on partially supported ABCP programs remain sensitive to not only the ratings on the support providers, but also to asset performance. The U.S. ABCP sector and rating performance trend remains stable. We continue to expect stable collateral performance for auto leases, dealer floorplans, and commercial equipment. Meanwhile, the outlook for prime and subprime auto loans, credit cards, unsecured consumer loans, Federal Family Education Loan Program student loans, and private student loans is somewhat weaker to weaker (see table 1).
Notably, exposure to the weaker and somewhat weaker sectors in partially supported programs is only approximately 10% of the invested amount as of December 2022. Our view on the ABCP sector remains stable considering the low exposure, credit enhancement for various partially supported assets that is consistent with an 'A' rating or above, ample weighted-average short-tail loss coverage multiples from credit enhancement, and the availability of 8.0%-10.0% fungible, program-wide credit enhancement for these programs (see table 2). Because of these factors, we believe the overall impact on the ratings on programs with investments in these assets will be limited.
We reviewed performance across these assets and the factors that we consider supportive of our view on the rating trends.
Auto loans and leases
Despite a dip in both U.S. auto loan and auto lease ABS issuance, ABCP financed autos rose by approximately 32.0% in 2022. Historically, autos have comprised the largest asset funded in partially supported ABCP programs. This trend continued into December 2022 as autos comprised 32.7% of the net invested amount. Auto exposure primarily comprised prime auto loans at 62.6% and auto leases at 22.1%; the remaining 15.3% primarily comprised sub-prime auto loans. Higher interest rates and affordability are likely to dampen vehicle demand in 2023.
Credit card receivables
Credit card receivables comprised $3.8 billion in ABCP issuance, or approximately 6.0% of total net investment in December 2022. This represents a substantial decline from $4.6 billion of issuance in 2021. Bank cards as a percentage of total net investment fell nearly 57.0%, while retail cards rose by 62.0%. The decrease in bank card utilization reflects strong bank balance sheets, increased margins, and higher deposits in a rising interest rate environment offset by higher retail card utilization as consumer spending increased post pandemic.
Dealer floorplan net investment exploded in 2022 with a 113% rise to $1.5 billion from $736 million in 2021. At the same time, ABCP issuance in equipment rose moderately by 9% to roughly $2.4 billion in 2022 from $2.2 billion in 2021 in part because of supply chain disruptions easing in 2022 compared to the previous year. By the end of 2022, commercial assets comprised approximately 6.4% of total net investment, up from 5.6% in 2021.
Student loans rose by 53% to $4.3 billion of net investment in December 2022 from $2.8 billion in December 2021. This was primarily driven by a sharp rise in net investment of FFELP student loans of 234% in CP conduits primarily due to aggregation and financing of existing loans in the wake of no new FFELP issuances. This more than offset a 7% decline in private student loans. Student loans performance was satisfactory to strong, with 46.0x coverage of short tail losses by credit enhancement.
Consumer-other financed by ABCP rose to 4.2% in December 2022 from 3.7% in the previous year. This growth was primarily driven by mobile handset loans, which made up 77% of total consumer-other loans. Despite representing a small portion of total consumer-other net investment, unsecured consumer loans witnessed a meteoric rise of 251% to $814 million in December 2022 from $232 million in the previous year. "Other" consumer performance was very strong, among the highest of asset types surveilled by S&P Global Ratings, with 208x coverage of short tail losses by credit enhancement.
Trade receivables made up the smallest portion of total net investment at 1.83% (or $1.1 billion). The portfolio comprises several distinct assets, including utilities, energy receivables, and consumer products. Trade receivables performance was satisfactory to strong with 36x coverage of short tail losses by credit enhancement. Prolonged inflationary risks or a deeper-than-expected recession could lead to deterioration in credit quality in 2023.
We will continue to monitor any impact on our conduit ABCP ratings as a result of the changes in macroeconomic conditions. We will also continue to monitor monthly performance on all of the partially supported transactions against our base case loss assumptions, including any weakness in the collateral over time.
Key trends in program composition
U.S. dollar-denominated issuances in 2022 accounted for the majority of the ABCP outstanding in the U.S., at about 98.2%, while the rest of the issuances were denominated in euros and British pound sterling (see chart 2).
As of Dec. 31, 2022, three sponsors (Citibank, JPMorgan, and Royal Bank of Canada) represent the nine partially supported programs, totaling $65.8 billion of ABCP outstanding, which makes up 26.9% of the total U.S. ABCP that we rate (see the Appendix). The remaining 50 programs in the U.S. are fully supported and total about $178.7 billion, or 73.1% of the total U.S. ABCP that we rate (see the Appendix).
As of Dec. 31, 2022, traditional assets, such as auto loans and leases, credit cards, student loans, consumer loans, and equipment loans and leases, make up about 44.4% of the collateral in all conduits (see chart 3) and 80.4% of the collateral in partially supported programs (see the Appendix).
EMEA: Market Volume Surpasses $125 Billion, At Decade High
Maxime Pontois, Paris, +33 (0)1 4075 2538; firstname.lastname@example.org
Matthew S Mitchell, CFA, Paris, +33 (0)6 1723 7288; email@example.com
The total S&P Global Ratings-rated ABCP outstanding from conduits domiciled in EMEA reached a decade high, increasing 7.6% year-over-year to $126.8 billion as of December 2022, continuing the momentum from 2021 when volumes grew 10.9%. Although volumes declined 2.2% through the first half of 2022, issuance picked up in the second half of the year.
We understand the growth in ABCP over the last few years has stemmed from strong investor demand for short-term paper, largely from conduits funding investment contracts whose share in total asset investments has doubled since 2017. Growth in this form of funding is expected to continue with sustained investor demand. At the same time, some market participants believe that the current ABCP outstanding funding traditional assets (auto, trade receivables, etc.) is at its peak and further growth is expected to be limited. In terms of green assets, the available volume, investor appetite and pricing benefit, if any, are all limited at this point. Overall, we expect stable issuance in 2023, subject to any impact from the uncertain macroeconomic conditions and available liquidity coverage.
Ratings sensitivity in EMEA ABCP programs
All issuances from conduits domiciled in EMEA are currently fully supported by liquidity. This means our ABCP ratings are weak-linked to the credit ratings on the support providers; i.e., liquidity facility providers or, in the case of conduits funding investment contracts, the lowest applicable credit rating on the series counterparties.
We expect a GDP growth of 0.3% in the Eurozone and a 0.5% GDP decline in the U.K. in 2023, which are lower than in 2022. In the Eurozone, headline inflation will not return to target levels before first-quarter 2025, and core inflation will not return to target levels before third-quarter 2025. Sticky inflation will force the ECB to raise rates for longer than we previously expected (probably until the deposit facility rate reaches 3.50% in the summer) unless the market turmoil undermines the current outlook for growth and inflation. In the U.K., high and persistent core inflation is still the main challenge to growth, even as energy prices fall. We expect the Bank of England to keep its benchmark rate at 4.25% until early 2024, before gradually easing it back to 2.5% in the longer term (see related research).
As macroeconomic conditions remain uncertain, financial sector spreads on credit default swaps have widened in Europe but remain below the past year's peak. Rated European banks do not appear to have meaningful direct exposure to SVB and Signature Bank, and we do not see any rated European banks exhibiting the same funding and business profiles as these entities. As for CS, we believe the business and risk management deficiencies that led to its takeover by UBS are unique in nature and scope compared with other European banks. None of these banks acts as support provider in any conduits that we rate in EMEA. Overall, we continue to see European banks as capable of weathering market volatility and still benefitting from rising interest rates.
Based on total ABCP outstanding as of Dec. 31, 2022, U.S.-based and Japan-based financial institutions are support providers for less than 5% of the EMEA conduits we rate, with the rest provided by European banks. Currently the outlook on most of the support providers for ABCP outstanding in EMEA is stable or positive.
We rated Chesham Finance Ltd.'s segregated ABCP program series VIII 'A-1' in March 2022 (see "Chesham Finance Ltd./Chesham Finance LLC's Segregated ABCP Program Series VIII Assigned Ratings," published March 1, 2022). In July 2022, we discontinued our ratings on Opusalpha Funding Ltd. following the short-term rating on the support provider (Landesbank Hessen-Thüringen Girozentrale) being withdrawn at the issuer's request. Other than these rating actions, the ratings on all other ABCP programs remained stable in 2022. Based on our analysis, none of the conduits are currently vulnerable to a change in the credit rating on the support provider. However, we will continue to monitor any changes to the support provider ratings, considering the current macroeconomic conditions.
Committed funding amounts increased about 5.1%, indicating resilience for longer-term commitments within programs, as well as sustained market interest (see chart 4). Overall utilization rates improved to almost 81.2%, the highest since 2010, when we started tracking performance, up from about 79.3% in December 2021.
Key trends in program composition
Around 99.7% of the ABCP outstanding issued by European conduits are denominated in U.S. dollars, euros, and British pound sterling. The shares of all three currencies remain largely unchanged since December 2021, indicating proportionate growth (see chart 5). The increase in issuances also stemmed largely from conduits funding investment contracts.
The share of single-seller programs increased to about 18.1% from 13.7% in 2021, due to higher issuances, particularly from conduits backed by investment contracts. Issuances increased across 'A-1+', 'A-1', and 'A-2' rated programs with their shares remaining largely stable (see Appendix).
Investment contract funding retains sharp growth streak
As of Dec. 31, 2022, total asset investments in EMEA rose 6.0% compared with 2021. Growth in commercial assets continued its three-year streak, rising 18.3% relative to last year. Some growth in consumer receivables was offset by a decline in more traditional investments of autos and trade receivables (see chart 6). Driven by strong investor demand, the share of investment contracts, such as repurchase agreements, TRS, and securities lending agreements, reached 38.3%, up from around one-third of all asset investments in 2021, and one-fifth of all assets investments in 2017, when the EMEA ABCP market started to recover from the steep decline starting in 2012.
At the same time, asset investments in autos and, more recently, trade receivables have steadily declined to reach 12.2% and 33.8%, respectively, as of the end of 2022, from close to 25.6% and 41.4%, respectively, in 2017. As of Dec. 31, 2022, total assets in conduits funding investment contracts rose close to $10 billion, to reach $51.3 billion by the end of 2022.
Of all assets, around 86% remain domiciled across various countries in EMEA. Currently, none of the conduits that we rate have any asset investments in Russia or Ukraine.
Japan: Overall Market Activity Remains Stable
Toshiaki Shimizu, Tokyo, (81) 3 4550 8302;
ABCP is a traditional form of securitization in Japan. Currently, there is one multi-seller ABCP program outstanding, which was established by Apex Funding Corp and is fully supported by MUFG Bank Ltd. Therefore, the ratings on the program remain linked to our short-term credit ratings on MUFG Bank Ltd. Currently, there are no scheduled legal or regulatory changes that would affect ABCP issuances in the Japanese market.
In 2009, there were four ABCP programs in Japan. We withdrew our ratings on two programs in 2012 and one program in 2020 following their closures and upon requests of the related transaction parties.
Utilization rates in Japan have been low compared with global trends, likely because of the current lending environment and credit availability. To date, all issuances by Japanese conduits have been denominated only in Japanese yen.
Global Top 10 Sponsors
As of Dec. 31, 2022, the top 10 sponsors globally concentrated in the U.S. and EMEA formed about 71.7% of S&P Global Ratings-rated ABCP issuances outstanding in these two regions, up from 70.8% in December 2021. The top three sponsors hold about 30.3% of the total issuance volumes in the U.S. and EMEA, slightly below the 33.5% in December 2021.
In the U.S, the top 10 sponsors, administrators, and managers accounted for 81.7% of the total ABCP outstanding as of Dec. 31, 2022 (see the Appendix). The top 10 liquidity facility providers accounted for a combined commitment of approximately $197.2 billion, or 84.2% of the $234.2 billion of support available for the U.S. ABCP that we rate.
In EMEA, the top 10 sponsors of the outstanding ABCP issuances accounted for 92.8% of the total ABCP outstanding as of Dec. 31, 2022, versus 91.9% as of Dec. 31, 2021 (see the Appendix). The top 10 liquidity facility providers represented a combined commitment of approximately $123.3 billion, or 77.2% of the $160.0 billion support available for the ABCP we rate in EMEA.
- Alpine Securitization Ltd. And Alpine Securitization LLC Ratings Placed On CreditWatch Positive, March 27, 2023
- Cedar Springs Capital Co. LLC And Crown Point Capital Co. LLC Ratings Placed On CreditWatch Positive, March 27, 2023
- Regatta Funding Co. LLC Ratings Placed On CreditWatch Positive, March 27, 2023
- New Issue: Saugatuck Funding Co. LLC, Dec. 30, 2022
- New Issue: Resolute Funding Co. LLC, Dec. 15, 2022
- New Issue: Cabot Trail Funding LLC, Dec. 5, 2022
- New Issue: Podium Funding Trust, Nov. 22, 2022
- Mountcliff Funding LLC ABCP Notes Ratings Affirmed, Nov. 14, 2022
- Cedar Springs Capital Co. LLC And Crown Point Capital Co. LLC ABCP Notes Ratings Lowered, Nov. 7, 2022
- Alpine Securitization Ltd. And Alpine Securitization LLC Notes Ratings Lowered, Nov. 7, 2022
- Regatta Funding Co. LLC ABCP Notes Ratings Lowered, Nov. 7, 2022
- Endeavour Funding Co. LLC U.S. Callable ABCP Notes Rated, Nov. 1, 2022
- New Issue: GIFLS Capital Co. LLC, Oct. 14, 2022
- New Issue: Armada Funding Co. LLC, July 7, 2022
- Fairway Finance Co. LLC’s Callable ABCP Notes Assigned Ratings, April 18, 2022
- Chesham Finance Ltd./Chesham Finance LLC's Segregated ABCP Program Series VIII Assigned Ratings, March 1, 2022
- Economic Outlook U.K.Q2 2023: Growth Eludes This Year Even As Inflation Eases, March 27, 2023
- Economic Outlook Eurozone Q2 2023: Rate Rises Weight On Return To Growth, March 27, 2023
- Global Credit Conditions: A More Difficult Way Out, March 21, 2023
- Unrealized Losses: The Rate-Rise Risk Facing Banks, March 16, 2023
- SVB Defaults and Asia Pacific Banks: Secondary Effects Are The X-Factor, March 16, 2023
- European Banks See Limited Contagion Risk From SVB, March 14, 2023
- The Fed’s Plan For The U.S. Banks Should Reduce Contagion Risk, March 13, 2023
- U.S. Auto Loan ABS Tracker: January 2023 Performance, March 13, 2023
- EMEA Structured Finance Chart Book: March 2023, March 8, 2023
- Credit Trends: Global Financing Conditions: Bond Issuance Is Set To Expand Modestly In 2023, With Stronger Upside Potential, Jan. 30, 2023
- Global Structured Finance 2023 Outlook, Jan. 12, 2023
- Credit Trends: Global Banks: Our Credit Loss Forecasts: Manageable Rise In Credit Losses As Our Base Case, Dec. 13, 2022
- Economic Research: U.S. Biweekly Economic Roundup: A "Half-Full" Jobs Report As Consumers Feel Inflation Pain, Dec. 6, 2021
- ESG Credit Indicator Definitions And Application, Oct. 13, 2021
- Credit FAQ: How Could Cyber Risks Affect Structured Finance Transactions?, Sept. 8, 2021
- Default, Transition, And Recovery: 2020 Annual Global Structured Finance Default And Rating Transition Study, May 13, 2021
- Inside Global ABCP: Economic Recovery To Underpin Modest Issuance And Stable Ratings, April 28, 2021
- ESG Industry Report Cards For Structured Finance Published, March 31, 2021
- Global Structured Finance 2021 Outlook: Market Resilience Could Bring Over $1 Trillion In New Issuance, Jan. 8, 2021
- S&P Global Ratings Definitions, Aug. 7, 2020
- Inside Global ABCP: Expanding Portfolios Underpin Steady Issuance, Though Market Uncertainties Persist, Oct. 23, 2019
- ESG Credit Factors In Structured Finance, Sept. 19, 2019
- Methodology For Linking Long-Term And Short-Term Ratings, April 7, 2017
The appendix tables can be accessed via the following link:
Resolution counterparty ratings versus ICRs on support providers in ABCP
Typically, the applicable counterparty rating is either the ICR or the resolution counterparty rating (RCR), if relevant, depending on the obligation of the support provider. The RCR reflects our opinion of the relative default risk of a bank's certain senior liabilities that may be protected from default should the bank be subject to a bail-in resolution (see "Methodology For Assigning Financial Institution Resolution Counterparty Ratings," published April 19, 2018).
We assign RCRs to banks in a number of countries across the EU and in Switzerland, the U.K., and the U.S., and differences in bail-in legislation across the major jurisdictions mean that the universe of RCR liabilities differs markedly between them. Secured liabilities, such as repurchase agreements and collateralized derivatives, would typically qualify for an RCR in most jurisdictions, if the counterparty's obligations are fully collateralized.
In considering whether a support provider would qualify for an RCR, we will review any collateralization provisions under the contract and the frequency of the mark to market. To the extent any unsecured exposure to the counterparty remains, the ICR would generally be the applicable rating type. Other forms of support in ABCP programs, such as liquidity facilities, are typically structured as unsecured funding commitments, which would not be explicitly excluded from bail-in. Therefore, we typically weak-link the ratings on the ABCP to the ICR on the support provider.
Assessing sensitivity of a rating on a fully supported conduit
In Appendix 1a and 1b, to assess the sensitivity of the rating on a fully supported conduit to a change in the credit rating on the support provider, we considered the outlook and our mapping of long-term ratings to short-term ratings. For example, for an 'A-1' rated conduit, if the support provider is rated A/Negative/A-1, there is a relatively higher risk of an impact on the ABCP rating. Given the negative outlook on the support provider, even a potential one-notch downgrade to 'A-' corresponds to an 'A-2' short-term rating. On the other hand, should the support provider be rated A/Stable/A-1 or A+/Negative/A-1, there is less risk of the ABCP rating being affected. Both a stable outlook, and one or more unused notches on the long-term rating, will prevent the short-term rating from being affected, which will limit the potential impact on the conduit rating.
This report does not constitute a rating action.
|Primary Credit Analysts:||Dev C Vithani, New York + 1 (212) 438 1714;|
|Maxime Pontois, Paris (33) 1-4075-2538;|
|Toshiaki Shimizu, Tokyo + 81 3 4550 8302;|
|Secondary Contacts:||Joshua C Saunders, Chicago + 1 (312) 233 7059;|
|Radhika Kalra, New York + 1 (212) 438 2143;|
|Matthew S Mitchell, CFA, Paris +33 (0)6 17 23 72 88;|
|Research Contributors:||Vidhya Venkatachalam, CFA, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai|
|Mugdha Mane, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai|
|Suraj Tamhane, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai|
|Pankaj Tari, CRISIL Global Analytical Center, an S&P affiliate, Mumbai|
|Kunal R Gupta1, Mumbai;|
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