The US unsecured consumer loan securitization market has an influx of new investors, ranging from insurance companies to private credit funds. Market participants expect them to be here for quite a while.
At a panel on unsecured consumer ABS at the SF Vegas conference this week, panellists agreed that the investors entering the unsecured consumer loan market were diversifying beyond investors that specialise in esoteric ABS, suggesting that the sector is becoming more standardised.
“Private credit and insurance money is here to stay,” said one panellist.
The unsecured consumer loan industry has been growing fast since 2019, making investors, issuers and bankers eager to see where its securitization market will go in 2025 after a strong 2024.
“There was an insatiable investor appetite in 2024, so there was a lot of money floating around and people ready to put it to work,” said one ABS investor on the panel. “A lot of it was frontloaded. Up until the election everyone was worried about volatility. It all seemed to go incredibly well.”
Panellists discussed how 2023 had been a sluggish year due to the effects of the Covid-19 pandemic, leading to a decrease in unsecured consumer loan ABS issuance. However, the asset class returned to form in 2024.
With a sharp rise in the cost of living since 2019 — one panellist put it at 23% — consumers have been turning to debt to fund monthly expenses.
As a result, some originators are offering more shorter dated loans under three years for smaller dollar amounts, as well as loans dated up to seven years.
Lenders have been moving these loans from their balance sheets using a variety of techniques, as well as traditional ABS. These include forward flow loan deals.
“We went from a bank balance sheet model to effectively 100% capital markets distribution,” said one issuer. “For us and for others who are situated [like us] the natural strategy is to try to diversify as much as you can with forward flow, ABS and one-off sales.”