Nearly three quarters (72 per cent) of the subscription finance services (SFFs) – or sub traces – rated by Fitch have an AA+ ranking.
The rankings company’s third-quarter replace discovered that as of 30 September 2024, 93 per cent of rated SFFs had a ranking of A or larger, whereas simply three per cent had a ranking of BBB and beneath.
Fitch additionally famous {that a} “vital” 83 per cent of its SFFs had base quantitative ranking indications (QRIs) of AAA, demonstrating the diversified and high-quality LP swimming pools of rated SFFs.
Fitch rated 215 SFFs this yr, and the report lined 150 rated services, with 80 distinctive GPs totalling $190bn (£141.4bn) in whole services’ dimension by the tip of the third quarter.
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This suggests about 19 per cent of publicity to the $1tn SFF market, the rankings company mentioned.
A complete of 26 completely different events requested rankings on SFFs within the third quarter of the yr, with rankings starting from BB+ to AA+, with a mean efficient most permitted advance price of 64 per cent.
The report discovered that institutional buyers proceed to dominate LP swimming pools within the SFF market, with pension funds making up 31 per cent of LPs’ whole capital commitments.
In round 40 per cent of rated SFFs, the highest three LPs accounted for between 10 and 20 per cent of whole commitments, which Fitch mentioned was an indication of pretty diversified LP swimming pools.
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“LP pool diversification has a cloth impression on an SFF’s QRI,” the report added.
“Fitch has additionally rated a number of single-LP individually managed accounts and sees a rising demand for such rankings given the proliferation of those merchandise.”
The US stays the preferred domicile for SFFs, with 65 per cent of the 215 services rated by Fitch being based mostly in North America. 32 per cent had been based mostly in Europe, whereas simply three per cent had been based mostly in Asia.
“SFFs rated by Fitch are prone to be skewed in the direction of bigger and better high quality services, and due to this fact the rankings Fitch has assigned to this point usually are of excessive credit score high quality and might not be consultant of the broader market,” the report said.
“SFF rankings demand on bigger and higher-rated services is pushed by the better have to syndicate a lot of these services to a number of financial institution and non-bank lenders.”
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