Moody’s: Demand for sublines to remain high

Demand for sublines will remain high as the private credit sector continues to expand, Moody’s has predicted.

In a new report on non-bank lenders, Moody’s Ratings said that subscription credit facilities, or sublines, have become a core financing tool for alternative investment funds. This growth has been fuelled by the expansion of private markets sector, and the growing need for more non-bank funding.

Moody’s added that due to rising demand, non-bank lenders will need more credit supply to meet their funds’ increasing financing needs. The ratings agency expects non-bank lenders such as alternative asset managers to expand their footprint in fund finance in order to meet this demand.

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“We expect increased participation from non-US banks and non-traditional lenders, notably alternative asset managers and insurance companies,” said Alexandra Aspioti, a vice president, senior analyst, at Moody’s Ratings, and an author of the report.

“Sublines have proved attractive because of their generally favourable return profile, while market data suggest that the asset class has a strong track record of credit performance.”

However, Moody’s warned the growing share of high-net-worth investors in private markets may limit access to sublines in the future.

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“With the growth of private markets, the increasing participation of a broader range of LPs has become the new norm,” the report stated.

“However, some lenders are not keen to advance credit against individuals, high-net-worth aggregator funds and family offices, which are typically considered to have lower or more difficult to assess creditworthiness than institutional investors.

“Non-bank lenders often have more flexible underwriting criteria and can play a more important role in accommodating the increasing demand.”

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