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Central Bank of Ireland Publishes Insights into the Global Position of the Irish SPE Industry

Ireland has for many years been the premier European location for activities to support the global cross border debt issuance market. Ireland provides a responsible, sustainable and effective environment within which debt securities and other specialist securities can be used to facilitate transactions, to create investment products and to raise capital funding, in accordance with the policies and objectives of the European Commission’s Capital Markets Union initiative. In many transactions, the special purpose entity (SPE) that issues the securities to global investors will be based in Ireland. Over 2,500 people are employed in this sector in Ireland.

Recent publications by the CBI

The Central Bank of Ireland (CBI) issued a number of related publications authored by the members of the CBI Statistics Division on 10 December 2018 relating to the role of SPEs in the Irish and international economy. The contents of these publications are based upon information supplied to the CBI by SPEs currently established and carrying on business in Ireland. These SPEs are a mixture of financial vehicle corporations (as defined by the European Central Bank) and other financial special purpose entities. Some of the statistical information provides a useful overview of the size and scale of the SPE business located in Ireland and its importance in the global cross border debt issuance market.

Ireland has the largest securitisation SPE sector in the euro area by assets under management (AUM) and is one of the main global hubs for other SPEs (according to ECB statistics for June 2018). In Q2 2018, the CBI collected granular data from 2,170 SPEs with AUM of €685 billion. This is broken down into 1,049 securitisation SPEs with AUM of €417 billion and 1,121 other SPEs with AUM of €268 billion.

Overall, sponsoring entities of SPEs appear to be diverse, covering over 60 combinations of country and sector, though some distinct patterns are apparent across securitisation SPEs and other SPEs.

For securitisation SPEs, the sponsors tend to be EU and US banks and other financial institutions, with a particular bias towards the US and UK:

  • Irish sponsors are generally domestically-focused banks who issue residential mortgage backed securities;
  • US sponsors are mostly financial auxiliaries, being a range of investment entities including asset and capital managers, advisors and servicers, issuing debt securities based on Cash CDOs and commercial mortgages;
  • UK sponsors are split fairly evenly between banks and non-banks although both engage in relatively diverse activity, such as ABCP issues, Cash CDOs and Corporate ABS. Multi-vehicle structures are also significant;
  • German sponsors, both bank and non-bank, engage almost exclusively in debt issuance based on receivables;
  • French sponsors are predominantly banks engaging in a diverse range of debt issuances not based on mortgages; and
  • Belgian sponsors, both bank and non-bank, are mostly linked to multi-vehicle structures.

For other SPEs, Non-Financial Corporations (NFCs) are also prominent sponsors in addition to banks and various non-bank financial entities:

  • Irish sponsors are mostly multi-national NFCs that are engaged in intra-group financing, external financing and operational leasing activity. Fund-linked investments linked to Irish-resident investment funds are also significant;
  • UK sponsors are mainly fund managers who use SPEs to undertake investments on behalf of investment funds; and
  • US sponsors engage in a wide variety of activities, with various investment entities sponsoring intra-group financing activities.

The largest links between Irish-resident entities are between SPEs and investment funds. Investors in the units/shares of these investment funds are predominantly foreign, which means that money flows to the Irish-resident fund from abroad, flows to and from the Irish-resident SPE and, ultimately, flows back to the fund investors. These links account for total assets of €53 billion in Q2 2018, of which €41 billion were sponsored by UK asset managers and similar entities. The other main links, excluding NAMA, are SPEs sponsored by Irish NFCs, amounting to €31 billion in total assets. Within this, €16 billion are in SPEs engaged in intra-group financing and €7 billion in external financing. These sponsors are mostly multi-national firms headquartered in Ireland. An additional €6 billion of assets are in SPEs engaged in operational leasing activity, whose Irish sponsors are aircraft leasing companies.

The CBI will continue to collect statistical information into the future and will publish further insights in the coming months.

For further information, please get in touch with the Finance and Capital Markets Group, or your usual contact at Matheson.

This article was co-authored by Senior Associate Richard Kelly.