KBRA releases a report that tracks several reported metrics within recurring revenue loan (RRL) securitizations.

Several large middle market collateral managers over the past decade have developed dedicated direct lending strategies to provide financing solutions to high-growth companies, typically within the software and technology sectors. Often referred to as late-stage or recurring revenue lending (RRL), this niche asset class’s investment thesis generally relies on underwriting to annual recurring revenue (ARR) compared with more traditional EBITDA-based metrics. Increasingly, the originators of RRLs have pursued capital markets debt financing for their portfolios, typically utilizing an asset-backed securitization (ABS) structure. These transactions comprise approximately 60% of RRLs on average by par balance.

In this report, KBRA tracks several key metrics sourced from quarterly collateral loan tapes provided by the issuers, in dashboard form. Changes in such metrics can, over time, provide an indication of the general health and credit quality of the securitized portfolios.

Key Takeaways

• On an aggregate basis, annual recurring revenue for the borrowers in the dashboard has grown by approximately 35% year-over-year (YoY). The debt-to-recurring revenue ratio is down quarter-over-quarter (QoQ) and has increased by a modest 3.6% YoY.
• Balance sheet cash is up approximately 70% YoY. Liquidity cushion, which typically measures cash and capacity under undrawn revolvers, is up approximately 2% over the same period and remains above the historical average.
• The average loan-to-value (LTV) ratio was generally stable YoY (around 26%) but is trending upward.
• The weighted-average life (WAL) of the loans has been steadily increasing but has leveled off in the past four years.
• The all-in rate reported for the borrowers in the dashboard is 10.3%, up 3% YoY.
• Interest payment-in-kind (PIK) has trended upward, albeit mildly. Approximately one-third of the RRLs in the dashboard currently report a PIK balance. There are currently no reported delinquencies or defaults.

Click here to view the report.

Related Publications

• Private Credit: Recurring Revenue Loans in a Rising Rate Environment
• 2023 Structured Credit Sector Outlook: A Whole New World?

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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