Private structured credit, known as Private Asset-Based Finance (Private ABF), is rapidly gaining traction as issuers seek diverse capital sources and banks adjust their lending practices. Launching a Private ABF strategy alongside an existing Traded Asset-Backed Securities (Traded ABS) team offers a pragmatic approach to adapt to this evolving landscape. By broadening the pool of capital providers, this strategy benefits issuers by expanding their funding options, investors by providing more diverse investment opportunities, and banks and service providers by increasing their market reach. Having a team well-versed in both strategies enables investors to navigate market changes effectively and capitalize on emerging opportunities.

This week we are excited to introduce our Research Feature, part of a suite of research products that explore emerging trends in the broader economy and their potential impact on securitization. Our inaugural feature, titled "Surging Auto Insurance Premiums Impact Credit and Affordability," delves into the rise in auto insurance premiums and the strain they place on household finances. For securitization participants, this trend demands attention as the upward trajectory of auto insurance premiums presents a significant challenge to the already declining credit performance of $1.5 trillion in auto loans. Authored by William Black of Black Analytics LLC, this feature draws on his extensive expertise gained during his tenure at a leading rating agency, where he led the Consumer Structured Finance New Issue Ratings team for the Americas for over two decades. Mr. Black authors a newsletter, Consumer Credit Matters, which can be found here.

In a recent analysis of 28 private credit loans and 15 broadly syndicated loans, Moody’s identified a noticeable correlation between the expanding size of private credit loans and the diminishing presence of financial maintenance covenants. Unlike the covenant-lite structures commonly associated with syndicated loans made to large companies, private credit loans made to middle-market companies have historically been characterized by robust covenant packages and maintenance requirements. In 2023, CLOs backed by private credit loans have contributed $22 billion to the $99 billion CLO new issue market. This marks an 85% increase compared to the previous year and stands in stark contrast to CLOs backed by broadly syndicated loans, which experienced a 31% decline during the same period.