LONDON--(BUSINESS WIRE)--KBRA releases its 2025 European Structured Finance Sector Outlook, which highlights performance trends, new issuance forecasts, and sector-specific commentary for the year ahead, as well as examines rating trends from 2024.
2025 approaches with a degree of uncertainty as questions remain around inflation, interest rates, and ongoing geopolitical risks. However, the signals are relatively clear for European securitisation markets. The prospects for expansion of the market are improving with potential regulatory revisions imminent. Challenged collateral markets are facing improving conditions—namely, declining rates. However, the year ahead is not without its challenges, as borrowing rates are declining very slowly, economies are varied in their performance expectations, and the geopolitical backdrop may spur market disruption and cost increases. That said, European securitisation markets have performed well during a difficult period for collateral borrowers throughout 2023 and 2024. Some markets have fared better than others, but the backdrop for 2025 is improving.
Key Takeaways
- The backdrop for collateral performance points to positive momentum for 2025, with many of the market headwinds abating. However, challenges remain with costs and interest rates still elevated in comparison to pre-pandemic levels, and the risk of geopolitical disruption remains high.
- Issuance is expected to expand further, even after a record year for investor-placed issuance. KBRA expects an expansion to EUR160 billion of newly circulated transactions, with a further broadening of collateral types as already demonstrated in 2024 with a KBRA-rated solar asset-backed securities (ABS) transaction (Golden Ray S.A.) and a data centre transaction (Vantage Data Centers). More transactions are expected from both sectors in the future.
- Collateral performance will likely stabilise, given challenges to specific sectors and regions. The sectors most exposed to a rise in unemployment, such as the Netherlands and Italy, could see increases in delinquency. Sectors impacted by refinancing and the slower decline in interest rates could show limited improvement in delinquencies.
- KBRA conducted surveillance reviews of 82 European structured finance transactions that resulted in 293 affirmations (79% of total actions), 63 upgrades (17%), and 15 downgrades (4%) as of 14 November 2024. The number of downgrades was stable compared to last year, while there was a marked increase in the number of upgrades.
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About KBRA
KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
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