UBS Finds Liquidity In Private Markets With Insured Debt Play

UBS Group (UBS) is consolidating its holdings across eight private credit funds into a debt offering, backed by an insurance guarantee against default.

Through its money management division, Unified Global Alternatives, UBS plans to issue $500 million in securities, of which $375 million will be protected by the unnamed insurer to mitigate default risk. 

This structure secured an A2 rating from Moody's Ratings, Bloomberg reported. Conversations are still ongoing and details could change, unnamed sources told the publication.

Unlocking Cash From Hard-To-Sell Investments

The trend of securitization reflects broader market shifts, as private equity firms grapple with slower exits and longer holding periods. The challenges of selling assets in a volatile market are becoming more pronounced, prompting firms to adopt new strategies to unlock value.

Last year, Churchill Asset Management closed a $750 million collateralized fund obligation tied to private capital strategies. 

Meanwhile, AlpInvest Partners, a subsidiary of The Carlyle Group, has been involved in structuring and underwriting large transactions for private equity portfolios.

Private Equity’s ‘Valuation Mismatch’ Problem

A report from S&P in December noted that private equity buyouts posted longer holding periods across most industries last year than in 2020.

Valuations have not increased as expected and rising interest rates have forced private equity firms to keep companies for longer. 

"What we’re seeing still is a valuation mismatch between buyers and sellers,” said Christopher Atkinson, co-chair for M&A and private equity at Katten Muchin Rosenman LLP. “People were buying in 2019 to 2021 when interest rates were very different than where they are today. What we’re seeing are firms that are continuing to hold these assets and waiting for market improvement.”

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