Almost three quarters (72 per cent) of the subscription finance facilities (SFFs) – or sub lines – rated by Fitch have an AA+ rating.
The ratings agency’s third-quarter update found that as of 30 September 2024, 93 per cent of rated SFFs had a rating of A or higher, while just three per cent had a rating of BBB and below.
Fitch also noted that a “significant” 83 per cent of its SFFs had base quantitative rating indications (QRIs) of AAA, demonstrating the diversified and high-quality LP pools of rated SFFs.
Fitch rated 215 SFFs this year, and the report covered 150 rated facilities, with 80 unique GPs totalling $190bn (£141.4bn) in total facilities’ size by the end of the third quarter.
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This implies about 19 per cent of exposure to the $1tn SFF market, the ratings agency said.
A total of 26 different parties requested ratings on SFFs in the third quarter of the year, with ratings ranging from BB+ to AA+, with an average effective maximum permitted advance rate of 64 per cent.
The report found that institutional investors continue to dominate LP pools in the SFF market, with pension funds making up 31 per cent of LPs’ total capital commitments.
In around 40 per cent of rated SFFs, the top three LPs accounted for between 10 and 20 per cent of total commitments, which Fitch said was a sign of fairly diversified LP pools.
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“LP pool diversification has a material impact on an SFF’s QRI,” the report added.
“Fitch has also rated several single-LP separately managed accounts and sees a growing demand for such ratings given the proliferation of these products.”
The US remains the most popular domicile for SFFs, with 65 per cent of the 215 facilities rated by Fitch being based in North America. 32 per cent were based in Europe, while just three per cent were based in Asia.
“SFFs rated by Fitch are likely to be skewed towards larger and higher quality facilities, and therefore the ratings Fitch has assigned so far generally are of high credit quality and may not be representative of the broader market,” the report stated.
“SFF ratings demand on larger and higher-rated facilities is driven by the greater need to syndicate these types of facilities to multiple bank and non-bank lenders.”
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