The European structured finance (ESF) market has remained resilient despite the Middle East conflict, new research from Morningstar DBRS has shown.
However, the firm’s analysts warn that an extended conflict could have a greater impact on pricing and issuance.
“In terms of European securitisation issuance volume excluding broadly syndicated loan (BSL) CLOs, expectations in early March were that issuance would come to a halt because of the uncertainty related to the war, yet nine ESF deals were announced and nine deals with issuance volume of €14.9bn (£12.9bn) were priced in the first two weeks of March,” the research said.
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Furthermore, Morningstar DBRS knows of several CLO, residential mortgage-backed securities and asset-backed securities arrangers that plan to announce deals in the coming weeks.
While the research firm suggested “an increased tolerance for distress” in the market, it highlighted that it had already seen an adjustment in pricing – particularly in mezzanine and lower-rated tranches – to reflect the uncertainty.
“Currently, market sentiment is reflected in repricing the risk rather than a dislocation, with spread widening acting as the primary transmission channel,” it said.
“This widening is evident in recent primary issuance. Auxmoney’s German consumer ABS Fortuna priced its AAA tranche at around 70 basis points (bps), compared with 61 bps at its September 2025 issuance, while the BBB tranche widened to approximately 170 bps from 140 bps.
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“In auto ABS, Société Générale’s Red & Black Germany 14 priced AAA notes at 52 bps versus 48 bps in September 2025, with mezzanine tranches widening by around 10 bps. Paratus’s UK BTL/OO RMBS from is Braccan mortgage Finance shelve pried AAA at 85 bps, only one bp wider than its May 2025 transaction.
“In leveraged finance, BSL CLO AAA spreads also appear roughly 10 bps wider, reinforcing the broader theme of higher risk premia across structured credit. “Unsurprisingly, across all asset classes, by widening up to 50bps, non-senior class pricing has been more affected than for senior bonds.”
Time will tell
Ultimately, the research firm predicts that a prolonged conflict resulting in persistently higher energy prices would likely affect European securitisation collateral performance due to its impact on inflation, interest rates, and growth.
However, at this stage, the firm said it sees no evidence of a systemic disruption to European securitisation markets, although pricing discipline has increased and execution windows have become more selective.
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From a credit rating standpoint, it believes the majority of ESF transactions are well positioned to navigate these renewed headwinds.
“Current market dislocations stemming from the Middle East conflict are unlikely to have a material impact on the underlying credit profiles of most ESF transactions in the near term”, said Mudasar Chaudhry, senior vice president and lead of European structured finance research. “However, a prolonged conflict would increasingly differentiate performance across asset classes, with higher beta sectors and weaker borrower profiles experiencing earlier pressure.”
