Asset-based lending (ABL) is secured credit backed by receivables, inventory, machinery or whole loan pools. In 2025 the strategy stands out because floating coupons remain elevated while recession odds still linger. Global private-credit assets sit near $1.6 trillion and capital keeps flowing; banks have scaled their own credit lines to private-credit funds by roughly 145 % over five years. The gap between syndicated-loan pricing and tight bank revolvers leaves room for spreads that meet both lender yield targets and sponsor return hurdles.
Credit committees rely on a single question: can pledged assets turn into cash inside the liquidation timeline? Advance rates—typically 80-85 % of eligible receivables, 50-65 % of inventory—move in lockstep with appraisals, concentration triggers and quality tests. That transparency explains why insurers, pensions and bank-owned credit desks continue to rotate from covenant-light term loans into collateral-driven paper even as base rates drift lower.
S&P Global pegs the broader asset-backed finance universe—consumer credit plus niche collateral—above $5 trillion. PGIM’s first-quarter outlook flags the segment as a top allocation theme for 2025. The liquidity flywheel works as follows:
| Investor Class | 2025 Exposure (US $ bn) | YoY Change | Typical Ticket | Recent Headlines |
|---|---|---|---|---|
| Insurers | 260 | +11 % | $50-150 m | AXA launches €3 bn ABL sleeve |
| Bank-affiliated desks | 220 | +18 % | $75-400 m | JPMorgan earmarks $50 bn for direct lending |
| Public BDCs | 175 | -4 % | $25-60 m | Shift toward “first-out” structures |
| Family offices | 95 | +14 % | $10-30 m | Asia-based feeders move into US ABL |
| Pension funds | 65 | +9 % | $75-200 m | CalSTRS ups exposure |
During BlackRock’s June investor day President Rob Kapito told shareholders that private markets “will drive at least thirty percent of our revenue by 2030.” JPMorgan followed suit in February, allocating a fresh $50 billion to direct lending. On the sponsor side, Carlyle’s venture with Citi to finance fintech loan books confirms cross-party cooperation is gathering pace.
| Metric | Senior ABL Revolver | Unitranche ABL | First-Loss / Hybrid |
|---|---|---|---|
| Spread (SOFR +) | 375-450 bp | 550-700 bp | 700-900 bp |
| Advance rate (receivables) | ≤ 85 % | ≤ 80 % | ≤ 75 % |
| Up-front fee | 1.5 % | 2 % | 2.5 % |
| Soft-call protection | 180 days | 365 days | 540 days |
| Average closing time | 6-8 weeks | 8-10 weeks | 10-14 weeks |
“First-out” ABL tranches embedded inside term-loan structures are gaining ground, giving senior lenders cleaner exits while mezzanine investors earn a modest premium. At the same time, repo-style leverage on performing ABL notes is trimming hold-period capital for funds. The result: lower blended returns yet a wider buyer base—a trade many managers accept to scale.
Fitch pins the 2024 mid-market default rate at 8.1 %. S&P flags early arrears in subprime auto and point-of-sale finance ABS. Commodity-linked borrowers face mark-to-market swings that can vaporise equity overnight. And higher-for-longer rates test companies that relied on generous EBITDA add-backs. Monthly covenant testing is prudent once pro-forma adjustments top 20 % of reported earnings.
The contest is not a zero-sum game. Banks supply senior leverage to funds and co-underwrite jumbo ABLs; funds design bespoke structures that banks cannot hold on balance sheet. Recent tie-ups—Citi with Carlyle, JPMorgan’s balance-sheet push—underline this convergence.
Borrowers
— file a liquidation memo covering ageing, appraisals and customer-level churn. Weekly borrowing-base data is the new normal.
Lenders
— book a field exam within 30 days of first funding; agree clear triggers for concentration creep; hire independent collateral managers for cross-border pools.
Sponsors
— bake accordion language at signing; 30-40 % incremental capacity keeps future draws fast.
The spread gap between bank revolvers and private ABL remains wide, yet default data remind us the margin for error is slim. Investors demand equity buffers; borrowers demand speed. Winners will pair granular data with surgical covenants. For templates, visit our ABL toolkit and due-diligence playbook. For external context explore Reuters Breakingviews’ industry review and Bloomberg’s analysis of bank funding here.
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