Delegates at this year's ABS East conference said on Monday that that investor participation in private securitization has expanded significantly beyond the insurance companies that traditionally drove the buyer base.
IMN and FINN's annual Miami gathering started off, for the first time, with a private credit summit on Monday morning. While this reflected the broader boom in the private credit asset class, it also showed how private markets are playing a ever bigger role in ABS.
At the beginning of 2023, insurance companies were the main buyers of private ABS transactions. However, the buyer base has expanded since then, according to a partner at a law firm focusing on private ABS structures.
Furthermore, there are more alternative asset managers looking to deploy capital in the private corners of securitization, one ABS syndicate banker told GlobalCapital. As part of this, they are increasing headcount in the sector.
IMN dedicated the first half of Monday event to a private credit summit that included panels on assessing risk in direct lending and private credit and the evolution of credit partnerships.
Private ABS had already become a hot topic last year as the publicly traded capital markets struggled under the weight of interest rate volatility. At that stage, market participants saw private ABS funding as an way to raise funds while the 144A market was a challenging place. Interest rate volatility and other macroeconomic risks led to investors shunning new issuance as the year went by, sending spreads particularly wider during the fourth quarter of 2022.
Yet this has triggered a more lasting shift. More issuers and investors are seeing private ABS as a permanently important way to diversify funding channels, said various conference attendees.
Branching out
Institutions looking beyond their traditional ways of doing things was a theme of Monday morning's conference chatter. It goes for the sell-side, too.
With primary market volume for mortgage-backed securities down significantly in 2023, more arranging banks that traditionally don’t focus on CLOs and ABS are trying to find ways to be included in non-mortgage asset classes, one senior ABS banker said.
In 2022, CMBS accounted for 23.8% of all public securitization volume, with over $156bn issuance, and RMBS made up 17.2% of all issuance at over $113bn, according to Finsight data.
This year, the issuance volumes are not looking as promising. Year-to-date CMBS volume stands at $64.8bn and RMBS is at $49.7bn.
Yet ABS primary issuance has been comparatively resilient. Year-to-date ABS volume stands at $234.6bn, across 343 transactions, up 8% from the same time last year as of October 20, according to Bank of America research.