GlobalCapital: We’re seeing increased convergence between private credit and ABS structures, particularly around NPLs. What’s driving that trend from a lending and structuring perspective?

Peterson: We’ve seen this convergence for years. I wouldn’t say it’s just about NPLs, it’s across the board. Given the amount of money raised in broad private credit over the last five to seven years, the market is becoming more institutional. It’s now on par with the BSL or high-yield bond markets in the US, which are in the $1.4trn to $1.8trn range.

Ten years ago, private credit funds were doing $50m deals. Now they’re doing $550m or even billion-dollar deals, directly competing with bank balance sheets. If you had a $500m fund before, that was fine. Now, vehicles are raising $20bn to $30bn. You’re essentially a de facto bank — in fact you’re better, because you don’t engage in maturity transformation and therefore don’t incur the risk of a run on deposits. Apollo and Blackstone, through their insurance arms, behave more like insurance companies than traditional asset managers. That all flows into how deals are structured and capital is managed.

Furnari: It’s always been the issuer who drives what they need. Whoever’s structuring the transaction has to adapt to that. When issuers want something that looks like what they’re used to — maybe reusing documents or their own counsel — it tends to go that way. So even with different labels, structures are starting to look more alike.

GC: How are institutional investors responding to this convergence?

Furnari: As banks step away, those stepping in to fill their shoes need to be more flexible. Covenant testing is tighter and much more closely monitored. We’re finding that technology from our CLO tools can help us test leverage lines and warehouse lines. The standard approach might have been to move a non-performing asset out of the borrowing base. Now, the approach could be to keep it, but the haircut has to increase. A performing asset might have a 5% haircut; a non-performing one might see 10–20%, depending on the asset class, covenants, clawbacks and support. The tests have gone from simple LTVs to something far more complex.

Peterson: Investor behaviour hasn’t radically shifted, but scrutiny has increased. Over the past 60 days — or even pre-US election — there’s been more concern around portfolios. The kinds of questions are: what’s your underwriting standard? Do you allow EBITDA add-backs? Are you building a strong mid- to high-yield book, or just effectively creating a BSL ETF? So yes, we’re seeing more attention on credit quality.

GC: What are the key challenges in servicing these portfolios and how does the lack of consistent data impact that?

Furnari: Data needs to be collected more frequently. It’s no longer just about payments. It’s about predictive monitoring. AI is helping us anticipate issues. If a transaction is underperforming, we’re seeing more conversations happening outside the regular reporting cycle, with new data points being collected and reported. There’s much more focus on getting deeper, more detailed information, especially in volatile asset classes like venture capital or fintech. Everyone’s looking for the next Amazon, yet trying to avoid the next WeWork.

Leverage lines are starting to resemble CLO compliance frameworks. We’re even using our CLO compliance modules for ABLs now, which is interesting to see. Those modules let us design custom tests, there’s no set checklist. We read the indenture, read the loan or credit agreement, and build accordingly. Operationally, we’re leaning more toward a collateral administration role — tracking available cash and making sure it doesn’t move inappropriately before a mismatch occurs. Lenders want that cash to stay in place, whether the assets are performing or not.

The lack of a standard reporting package is a major issue. Everyone wants transparency, but there’s no shared baseline. That’s why we’re piloting a standardised reporting pack — moving away from Excel-based models toward programmatic solutions that offer better control and fewer risks.

GC: Looking ahead, do you expect the convergence between private credit and structured finance to accelerate?

Peterson: Some of the more esoteric asset classes that have been funded by private credit are now starting to look for structured exits — for example, portfolio-level ABS takeouts. As long as there’s investor appetite and the risk-return profile makes sense, that will keep driving the industry forward. If I’m an institutional investor today, I’m expecting something similar to what I’d get from a high-yield bond package or a AAA CLO tranche. I expect reporting, pulled-out data, transparency — everything I need to assess, in near real-time, what I own and what my risk is.

The idea of a closed-end fund reporting 45-plus days after quarter-end is being challenged. It’s not enough anymore, especially for CIOs using co-investments or managed accounts. They want curated, timely data so they can see what’s on the books and allocate capital effectively. That demand is only going to accelerate, particularly in an environment where low volatility is likely to persist.