Davidson Kempner argues it’s time to pivot to asset-backed finance

As recovery rates plunge, a new report points to second-lien mortgages, European SME ABF and US equipment finance as areas of opportunity.

Traditional private credit – defined by many as senior-secured, mid-market direct lending to sub-investment grade borrowers – is a well that has all but dried up as the market matures and as spreads, recovery rates and documentation decline, according to a whitepaper by Davidson Kempner.

That’s led to a ripe opportunity for a pivot to non-investment grade, non-rated asset-backed finance, the firm argues.