The combination of increased regulatory pressure and additional investor demand for higher yield has seen numerous banks gradually displaced by private debt funds in the corporate lending sector (particularly for mid-market and SME borrowers). However, many banks, alongside an increasing pool of alternative lenders (collectively, "ABL Providers"), are comfortable lending to these private credit funds through so-called “credit portfolio finance” or “ABL facilities.”
Whilst there is nothing new about lending to private credit managers, the continued growth of the direct lending market has been accompanied by the increased use of back leverage at fund level through these facilities.
In this article, we look at some of the key issues for ABL Providers under these transactions in the European market.
Although second lien loans in subscription line finance have been discussed with interest over the years, their use has been sporadic and it has only been very recently that we have started to see a real uptake in the use of these structures, especially here in Europe.
The EMEA FFA NextGen Committee invites you to join them on Wednesday, December 4th, 2024, for a remarkable evening of networking, cooperation, and merriment.
Securitization has been a major focus in the fund finance industry as of late. Due to a confluence of factors, some of which are specific to fund finance, and some of which are features of the broader economic environment, it seems that fund finance has firmly entered its securitization era. To underscore the incredible amount of interest in the subject, just a few months ago, in June, Cadwalader was a lead sponsor to an extremely well-attended Securitization in Fund Finance conference held in New York. Then, most recently, there was major news in fund finance with the first broadly syndicated publicly rated securitization of sublines hitting the market. We are working on a number of these transactions here.
You, dear reader, may have noticed people discussing these transactions with great interest and predicting where the market may be headed, but what are they actually referring to and how do these deals work? Today, we break that down for you with this summary of ‘why now?’, a description of basic securitization structures, and some additional context you may not have considered.
The fund finance sector has seen notable activity in recent months, including a shift away from sub-lines and the entrance of new players in the market.
Fitch Ratings Senior Director of Fund & Asset Manager Ratings Joyce Fargas recently co-authored a special report on Subscription Finance Facility Securitizations.