ABS

RG&E, series 2025-A, is the second utility cost recovery securitization this week, and is another first-time issuer.

Both forward-flow agreements and the larger asset-backed securitization market are becoming more popular, as consumer debt is growing.

Debt service coverage ratio triggers, including cash trapping and rapid amortization, will provide much of the credit enhancements to the notes.

The deal includes a minimum assets test, requiring the issuers to own at least 10 assets at the end of the nine-month delivery period, or seven assets after the delivery period.

The obligors' non-investment grade credit quality could present challenges to the timely repayment of notes. Yet PREF focused on high-revenue obligors backed by private equity sponsors.

Investors and analysts see pockets of value in asset-backed securities, as elevated fiscal policy uncertainty and wariness about the economic environment rise.

KBRA notes that commercial obligors with an investment grade rating make up 76% of MassMutual's customer base. Within that group, payments from the U.S. government account for 14.4%, the largest concentration.

Island is a first-time issuer and largely originates and services the loans through its network of 48 branches.

The inaugural deal is expected to close by the end of the month. Among its structural features are cash trap and cash sweep provisions.

The movements were spurred by jitters around persistent inflation and ballooning government debt, leading futures traders to wager that the Fed is unlikely to ease monetary policy again until late 2025.