In a rising interest rate environment, the ABS market continues to be stressed. But there’s a huge opportunity for private credit to play a role in future deals.
At the recent ABS East conference in Miami, more than 5,000 structured finance professionals came together to network and participate in investor/issuer meetings. The annual event is a major catalyst for new deals across the industry, with issuers looking to market their offerings and investors eyeing up new opportunities in the asset-backed securities market.
This year’s meeting also featured a private credit summit, reflecting the bigger role that private markets are beginning to play in the ABS industry. Concord was thrilled to be part of the conversation about the latest regulatory trends and emerging asset classes. Our key takeaways from Miami:
As portfolios continue to be stressed, the industry will see a higher volume of default and non-performing loans. This in turn will drive increased demand for collections and a rise in portfolio transfers or acquisitions.
These conditions are triggering a huge opportunity for private credit to come into the market and fill the void. As publicly traded capital markets struggle with interest rate volatility, private funding offers another way to raise funds and diversify funding channels.
As an industry leading third-party loan servicer, Concord is well-positioned to manage the growing need for delinquency collections and backup loan servicing for portfolios in transition.
The market is ripe for portfolio transfers and acquisitions
There are a significant number of portfolios held by financial institutions that had some type of collateral funding support, such as a line of credit. But those portfolios were generated in an environment of very low single-digit interest rates. And today’s market yield is pushing high single-digits or even low double-digits for a required rate of return.
So the collateral holder is now looking at these assets as somewhat stressed, or with a perceived servicer risk. Those portfolios have a strong opportunity to transfer ownership, particularly in the private investor space.
Zombie companies are driving significant opportunities for private credit
In Miami, we heard a lot about “zombie” companies. These are mid-cap specialty finance companies started in the last five to 10 years in a very low-rate, free cash flowing environment. A lot of investor money was flowing into these companies, and they were able to survive based on very low interest rates. But these zombie companies cannot survive today’s current rate environment.
So they will be looking to sell their assets at a discount to private buyers, such as insurance companies, hedge funds, or other players willing to buy at the right price. And when they do, we’ll see an increased volume of portfolios that need a certified third-party loan servicer like Concord to step in as a collections partner or as a backup servicing provider.
Concord’s role in the shifting ABS landscape
Although the ABS market continues to be stressed in a rising rate environment, this will also create opportunities for portfolio acquisitions by private credit companies. And as these portfolios change hands, Concord is in an ideal position to support backup loan servicing and delinquency collections both during and after the transition period.
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Concord has the expertise to manage every aspect of your loan operations. As a leading loan servicer with more than 30 years of experience, we deliver compliant, flexible, and scalable solutions to meet your unique needs. Contact us today at (866) 493-6393 or email@example.com.
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