Canyon Partners, founded in 1990, had a busy autumn, closing three CLOs since September and leading leveraged buyout financings for Advent, the private-equity firm it often partners with. It announced last August a strategic partnership with A&D Mortgage and Imperial Fund Asset Management that's anticipated to enable $5 billion in non-agency mortgage securitizations. The $29 billion asset firm also invests in commercial real estate, distressed credit and a range of asset-backed securities (ABS), as the value-oriented specialist looks across private and public markets for opportunities.
We look across markets, always wanting to make sure that we're finding the best credit fundamentals.
"We look across markets, always wanting to make sure that we're finding the best credit fundamentals and relative value," said Adam Rizkalla, a managing director who joined Canyon Partners four years ago following securitization-related positions at Thornburg Investment Management and J.P. Morgan.
Rizkalla recently spoke to Asset Securitization Report (ASR) about where Canyon Partners has identified structured finance opportunities in the consumer-asset structured finance markets.
ASR: What is driving fundamental credit investing today?
Rizkalla: The landscape today can largely be traced back to the global financial crisis, when the epicenter was the housing sector. That's where all the froth and loose underwriting was, and coming out from the crisis the industry and federal government said, 'We're not going to let that happen again.' Now we've got an environment where mortgage credit standards are very tight historically.
Homebuilding is another legacy of the housing crisis, when supply was very elevated. Over the last 15 years, homebuilders have underbuilt and we've had insufficient supply relative to demand. The combination of those factors leads us to have a very favorable view on sectors that are either directly or indirectly tied to housing.
ASR: What drives the firm's favorable view, exactly??
Rizkalla: Homeowners who were fortunate enough to participate in the historic mortgage refinancing boom in 2020 and 2021 are in great shape. Locking down historically low rates for the next 30 years, they have low debt-to-income levels, high asset levels and a very clean and simple mortgage structure. That leads us to get involved in areas like second-lien home-equity lines of credit (HELOCs) that have re-emerged for the first time since the global financial crisis (GFC). There's a huge segment of borrowers who [are] locked in a 3% mortgage and don't want to move, but they want to extract a modest amount of equity for home renovations or debt consolidation. We think that's really interesting.
When you step outside the mortgage space ... homeowners outperform renters because they are generally in better financial condition.
ASR: Are there any opportunities in first-lien RMBS?
Rizkalla: We also really like the non-qualified mortgage (non-QM) space. It's another legacy of the GFC, and now credit standards are so rigid and tight at Fannie Mae and Freddie Mac that a lot of high-quality borrowers don't fit into their guidelines. The borrowers often have FICO scores in the mid-700s, 70% loan-to-value (LTV) thanks to large downpayments, and high incomes and assets that can be documented. But they may be self-employed, or want an interest-only period, or may be buying investment properties, whatever the case. That's still very prime collateral, a prime borrower profile, and we think that's attractive today.
ASR: Do you consider related areas like home-improvement loans?
Rizkalla: We're involved in those. By definition, you get 100% homeowners in that asset type. All of our research shows that when you step outside the mortgage space, whether auto, personal loans or whatever, homeowners outperform renters because they are generally in better financial condition. They have fixed monthly mortgage costs and equity they can tap into. It ties back to our thesis that prime homeowners are in great shape, while the subprime renter is not.
ASR: Have spreads tightened significantly in the areas you've mentioned, as they have across other fixed-income assets?
Rizkalla: They have tightened since the dislocation in 2022 and 2023, when they were as high as the low 200s bps. But we still see a lot of value relative to spreads historically. Non-QM AAAs, the most liquid part of the market, for example, saw spreads around 80 bps or 90 bps and as tight as 70 bps just before the pandemic, and now spreads are 130 bps to 140 bps.
You're doing loan-level, third-party reviews, often on 100% or a significant part of a mortgage loan pool.
ASR: Do the still wider spreads imply investors see risk in those assets?
Rizkalla: I think it's for technical reasons. Back then, the non-QM market was smaller, so there wasn't as much supply to absorb. But non-QM issuance in 2025 was higher than 2024, and this year people are expecting it to grow further. Every bond manager in the country can buy investment-grade corporate credit, but there are still some investors who have not done their work on the non-agency RMBS space, so not everyone is buying AAA non-QM. There's a lot of supply to absorb at a time when not every investor is necessarily involved.
ASR: What are you finding attractive now?
Rizkalla: Following the GFC, due diligence on the mortgage side tightened, and today you're doing loan-level, third-party reviews, often on 100% or a significant part of a mortgage loan pool. Auto ABS did not go through the same reckoning [nor have]to revamp its entire due diligence. We weren't involved in the Tricolor Holdings blowup, but we think part of the problem in that sector today is that the auto market hasn't had the same level of due diligence applied as the mortgage market.
ASR: Do you see opportunities in the auto loan asset class?
Rizkalla: We are cautious on subprime auto, but we see opportunities to partner with banks on their prime auto-loan portfolios. For various reasons, banks are now bringing their auto-loan portfolios to market, either in the form of cash securitizations or risk transfer transactions. So there's an interesting opportunity to invest in really high-quality auto-loan portfolios originated and serviced by some of the largest banks in the U.S.
ASR: What else are you watching as we head into 2026?
Rizkalla: We're expecting more opportunities down the road in areas like student loans. The majority of the student loan market was brought on to the government's balance sheet during the first Obama administration, and it's been there ever since. The Trump administration wants a smaller federal footprint, so if the government were to limit its activity in the student-loan sector, that means more lending will shift to the private markets. Those lenders will fund themselves with loan sales, securitizations, or some other structure that creates opportunities for firms like ours. For example, the federal government may be less active in areas like providing graduate students with loans. People getting graduate degrees should have more earning potential, so those are generally high-quality loans.
