The securitization market saw its largest component, residential mortgage-backed securities, virtually evaporate during the financial crisis. But panelists at the Future of Secured Financing panel at ASF2012 Tuesday reminded the audience that securitization is just one piece of the puzzle. “We tend to get very much in the mode of thinking of our business around securitization, but we are asset financiers. We are helping clients move assets from point A to point B,” said Michael Millette, managing director at Goldman Sachs.
Millette pointed to the covered finance markets, noting that much of those markets were highly stable during the crisis. “There’s another whole tradition of structured finance and asset financing based on covered structures where you retain full recourse, but give investors rights over assets,” he said.
Corey Wishengrad, managing director at Barclays Capital, agreed, saying that bankers should be “agnostic,” as to structure. He added that the focus on "flow asset classes," like credit cards and auto, is moving to less traditional assets. More esoteric deals may have premiums associated with the cost of customizing structure, but there is “sustained demand for certain asset classes,” he said. He pointed to wireless towers, rental cars and restaurant franchise royalties, which performed well during the crisis and provide much needed yield to investors that need to match long-term liabilities, such as life insurance companies.
Millette singled out trade transport and infrastructure loan portfolios. “There are really sizable volumes of both types of assets that are on the move and still need to move,” he said.
The number of specialty finance companies is increasing, Millette said. “I think that for the 15 years leading into the crisis we saw an accelerating pace of absorption of consumer finance platforms into banks, and [now] we are seeing that reverse,” he said. “And I don’t know that anyone would have forecasted as one of the things as an outgrowth of the crises was the reemergence of more free standing specialty finance companies, but I think we will. Especially on the consumer finance side.”
As was the theme throughout much of the conference so far, panelists agreed that securitization’s future depends largely on improving issuer disclosure to investors on deals. “The model of relying on a prospectus [for information] is 10 years dead,” said Stephen Kudenholdt, partner at SNR Denton. Wishengrad suggested providing “data rooms, models [and ] more simplicity in terms of the form of offering documents,” to investors.