BNY Mellon Corporate Trust Sees Changes Brewing in Debt Capital Markets
Last month, BNY Mellon attended ABS East in Miami. This signature conference allows us to help track the pulse of the industry and share our best thinking with fixed income investors, debt capital markets issuers, underwriters/structurers, analysts, and industry influencers.
According to Aidan Canny, Managing Director, Global Head of Financial Institutions & Investment Managers for BNY Mellon’s Corporate Trust Business, and Sonal Patel, Americas Business Development Group Head, while the mood is very positive, a number of changes are brewing in key asset classes.
Among their main observations:
- As products have become better defined and more familiar, investor understanding of these products has increased. They are more savvy and more confident and asking for more. “Market maturity will stand us in good stead over the long haul,” said Canny. “It means markets are more capable of dealing with macroeconomic shocks and with pricing volatility.” This was a key topic of discussion in his panel on the value of investing in the U.S. versus European markets.
- While the CLO market is enjoying record volumes globally, its success is also creating new challenges. CLOs attract a significant amount of attention, and further the market has seen a frenzy of refinancing and resetting activity in 2018. “There’s a growing debate on where we are in the CLO cycle,” said Patel. “The consensus is that we are in the 7th inning, and the game may be changing, especially as the inventory of higher grade loans to securitize dwindles.”
- Whether it be CLOs or more broadly, transparency of information delivery is a preoccupation among most investors. As a result, investors consistently demand technology innovation to understand their assets better and wrestle with the challenges of more complex documentation.
- Outside of CLOs, the ABS market has continued to build momentum as capital flows into the market. In parallel, esoteric assets remain an important consideration as investors seek new pockets of yield. “The U.S. is a much deeper and broader market than Europe’s, which presents more opportunity to seek diverse investments and assets,” said Aidan Canny.
- The prevalence of green investing and green projects has had a notable impact on the popularity of PACE financing and additional PACE securitization activity. This was one of the main focal points of Patel’s panel Green Investing.
- Changing regulation and the broad trend of bank disintermediation is presenting opportunities for everyone in the debt capital markets. Non-traditional investors such as pension funds and insurance companies are making more forays into these areas than ever before, ultimately creating new opportunities. Banks are innovating in response.
Simply put, market maturity is driving changes in investor sentiment and in the actions of everyone participating in the debt capital markets. Investor demands continue to evolve and technological change keeps up its steady pace of growth. Both Canny and Patel agreed, “BNY Mellon embraces the challenges and the changes ahead.”