According to new research from Kroll Bond Rating Agency, private asset-backed securities as a proportion of KBRA’s total ABS rating assignments have routinely approached or exceeded 25% of the transaction mix dating back to 2020.

Additional Takeaways

• 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 showed that bank liquidity concerns typically place a strain on bank lending. KBRA expects banks to further tighten underwriting given 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 sources of funding and allow investors to allocate capital efficiently.