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KBRA Releases Research ? Private Credit ABS Volume Continues at Healthy Clip
KBRA releases research covering the KBRA-rated private credit ABS universe.
Given the growing volume and significance of private credit ABS, KBRA sought to shed light on the transactions by sharing the rationale for private credit ABS, the proportion of such transactions across the KBRA-rated universe, the types of transactions being financed, and their rating performance.
Key Takeaways
- Private ABS transactions as a proportion of KBRA's total ABS rating assignments have routinely approached or exceeded 25% of the transaction mix dating back to 2020.
- Approximately 64% of deals (70% by volume) across the entire outstanding KBRA-rated universe of private credit ABS are supported by consumer assets, with the remainder collateralized by commercial assets.
- The asset types financed through rated private credit ABS vary from mature/liquid assets to novel and/or complex assets where a public market has not fully developed.
- Although the rating assignment and surveillance process for private credit ABS uses the same methodologies, processes, and staff as public transactions, private credit ABS transactions have exhibited more favorable rating performance. Factors contributing to this include lower advance rates as well as more and/or tighter triggers or covenants relative to public ABS structures.
- The global financial crisis (GFC) showed that bank liquidity concerns typically place a strain on bank lending. KBRA expects banks to further tighten underwriting given the recent banking sector volatility. In addition, alternative lenders have invested resources to build teams, develop relationships, and establish programs to support future private credit ABS issuance. For these reasons, KBRA anticipates private capital will experience continued growth and play an increasingly important role in the structured finance market. KBRA views this as positive for the broader capital markets, as it will provide much-needed sources of funding and allow investors to allocate capital efficiently.
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Related Report
About KBRA
KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA's ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.
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