How has the asset-backed securities (ABS) market developed into today’s diverse and sophisticated landscape?
Sofia Shields: The total U.S. ABS market has more than doubled to about $330 billion since the global financial crisis, and the mixture and the types of assets being financed has expanded and changed over that time.
New asset classes emerged in esoteric spaces, and there have been new developments and product offerings in the traditional consumer space, as well as overall refinement to structures to maximize efficiency, credit protection and utility to the issuers.
In terms of regulation, there’s certainly been a lot of changes in the wake of the great financial crisis. Many focus on additional disclosures. In a lot of ways, there is greater transparency and disclosure of which parties have the ultimate skin in the game, which I think buttresses the alignment of interest.
What are the impacts of current macro trends?
Shields: Inflationary impacts on asset prices have a dual effect of producing a greater volume of assets available to be securitized and put into our deals, while at the same time potentially introducing stress and consumer credit that needs to be monitored and addressed via ABS.
For example, the overall increase in consumer auto transaction prices supports the growth of auto ABS. Auto-related ABS issuance rose from about $150 billion in 2020 to nearly $220 billion in 2024 and continues to grow strongly.
Rogers: Capital-raising success over the past year for issuers across the board, and certainly within the non-traditional or esoteric space, has led to plans for larger and more frequent issuances in the ABS market.
“Auto-related ABS issuance rose from about $150 billion in 2020 to nearly $220 billion in 2024, and continues to grow strongly.”
Sofia Shields, Head of U.S. Consumer ABS & Securitization Financing
Which sectors are experiencing the most growth?
Shields: On the consumer side, there is continued product innovation, new methods and channels of offering consumer credit. Then there are new ways of adjudicating credit through AI and machine learning. Together that delivers better, and better-priced, products to the end consumer.
Consumer and marketplace loan-related issuance has doubled over four years, reaching roughly $20 billion in 2024. Within that volume, point-of-sale and home improvement, the newest sub-sectors, went from about $1.5 billion to over $7 billion in 2024.
Rogers: We see investors use ABS to express their credit view in these emerging trends like AI-driven data center and fiber ABS, or a shift to renewable energy with solar ABS.
To take one example, the solar ABS market was historically comprised of thinly capitalized fintech lenders. They helped to start the rooftop energy revolution, but global players are positioned to accelerate it, both growing the pie and also taking significant share. That’s going to make the next five years very different for a financing market that's right at the center of energy innovation, and certainly for the ABS market that funds it.
RBC recently partnered with two solar originators who are reshaping the market, as sole lead on their inaugural securitizations in the last 12 months. In fact, RBC was number one in solar ABS league tables last year, having raised nearly $3 billion for four of the most active names in the space.
“Fintech lenders helped to start the rooftop energy revolution, but large and global players are positioned to accelerate it, both growing the pie and also taking significant share.”
Nick Rogers, Head of Non-Traditional ABS Origination
What are the likely impacts on ABS from the new U.S. government?
Nick Rogers: The Inflation Reduction Act (IRA) is top of mind for our residential solar clients. The 2022 law extended tax credits for new solar installations and added further credits to encourage U.S. manufacturing of panels and installation. A repeal of the law would increase new installation prices and reduce volumes.
Tariffs also disrupt global trade, which can actually be a short-term positive for our shipping container lessor clients. When trade policy causes a shift of import volumes from one country to another, these clients see increased demand from their shipping liner clients, which drives prices of new containers higher. That inefficiency just adds to the inflationary pressures felt by U.S. consumers.
Where does RBC see growth in the ABS market and how might that be different from more established areas of the market?
Rogers: We're active across a range of non-traditional or esoteric sectors. That includes transportation, renewables, real estate-related assets, communication infrastructure, royalties and various equipment.
Some of these industries are highly cyclical, like trade-driven shipping containers, while others are benefiting from macro megatrends, like the AI-driven data centers and fiber. But what they all have in common are assets that generate strong, contracted cash flows.
The size of each of the sectors is perhaps small compared to the benchmark ABS, like autos or student loans. The credit story can be more niche, and the bonds see reduced liquidity compared to those asset classes.
But with all of these we apply securitization technology to separate asset risk from originator risk, and so we can offer investors a broader array of risk reward profiles and offer issuers both lower cost of funds and greater leverage. That makes the juice worth the squeeze in our market.
Shields: Across ABS overall, RBC continues to be well positioned to take advantage of a growing market and has consistently maintained its position at the top of the league tables, commanding anywhere between 5 to 9% market share over the last decade.
Vito Sperduto: Our securitization franchise is consistently ranked among the leaders in both traditional and nontraditional ABS with a strong presence across consumer, transportation, and renewable energy sectors, and we're driving innovative solutions in a complex market for our clients.
“Our ABS team delivers tailored, forward-thinking solutions that help clients optimize funding, expand investor reach, and capitalize on new market opportunities.”
Vito Sperduto, Head of RBC Capital Markets U.S.
