Unrated, Not Unloved – The Quiet Rise of Private Securitisations

Credit ratings used to be the be-all and end-all of securitisation. To imagine a deal without one was practically unthinkable. Yet in recent years, a growing number of transactions have decided they can get along just fine without the blessing of the rating agencies.

These are unrated securitisations – the less gobby cousin of their rated peers. Same structure, same bones, but a very different temperament. These deals don’t swan about with a shiny “AAA” badge (the gold star of creditworthiness). Instead, they whisper quietly to a smaller audience of investors who prefer to do their own homework.

Once seen as being a bit mysterious, these private deals have matured into a confident corner of structured finance – proof that you don’t need a rating to have credibility.

What Makes a Securitisation ‘Unrated’?

If you’ve seen one securitisation, you’ve seen them all – and the unrated variety is no different. There’s still an SPV full of assets, cash flowing dutifully through the waterfall, and lawyers ensuring no one forgets a signature. The only missing ingredient is the rating agency handing out letters like gold stars in assembly.

That doesn’t make the structure any less disciplined – it simply changes who’s holding the clipboard. Instead of paying Moody’s or S&P to hand out marks, investors crunch the numbers themselves. These are private placements for grown-up institutions – funds, insurers and pension schemes that prefer their own models to someone else’s opinion.

Why Stay Unrated?

For issuers, skipping the rating process has its perks. Ratings cost time, money, and the occasional small piece of your sanity. Avoiding them keeps things moving at a pace the public markets can only dream of.

• Speed and cost: Credit ratings take weeks and come with invoices long enough to qualify as a prospectus. Cut them out and deals close faster and cheaper – always a winning combination.
• Flexibility: Rating agencies like predictability. Issuers like creativity. Without agency criteria to satisfy, there’s more room for unusual assets, non-standard structures, and the odd touch of innovation that doesn’t fit neatly into a ratings spreadsheet.
• Discretion: Some asset pools are best kept off the radar – especially when data is sensitive or commercially valuable. Private investors prefer their confidentiality kept within a small circle of trust, not blasted out with an accompanying fanfare.

For funds, private-debt platforms, and specialist lenders, the freedom to execute quickly and quietly often outweighs the marketing value of a few capital letters.

How Investors Manage (and Control) Risk

So, once the deal’s up and running, the real art lies in keeping it on the straight and narrow. In unrated structures, investors don’t just buy the notes and disappear – they build the checks in themselves.

The best private deals are designed for exactly that: control. Oversight is built into the structure, with investors insisting on features like:

• Detailed reporting: monthly performance packs and data that lay out every loan in the pool, warts and all.
• Cash-flow tests: triggers that flag problems early – missed payments, defaults, or collateral that’s not pulling its weight.
• Covenants and controls: bespoke undertakings that keep issuers transparent, from eligibility criteria to stress-test results.
• Step-in rights: clearly defined powers to intervene before things unravel, not after.

And while it might sound like extra effort, most investors prefer a more hands-on approach. Better to write your own rulebook than be graded by someone else’s.

Of course, self-discipline only gets you so far. Even the quietest corners of finance still have to answer to the rulebook.

The Rulebook Still Applies

Just because these deals skip the rating process doesn’t mean they get to bend the rules. Whether in the UK or EU, the Securitisation Regulation (EU) 2017/2402 still calls the shots – rating or not. The rulebook doesn’t care how loudly a deal announces itself; it only cares that the essentials are done properly.

That means the same expectations of diligence and discipline still stand – they’re just carried out in smaller rooms, over spreadsheets rather than press releases. And while the rating agencies may be missing from the guest list, the regulators certainly aren’t.

The five per cent risk-retention rule is a perfect example. Every originator, sponsor or lender must keep a slice of the deal, ensuring they succeed – or stumble – alongside their investors. In private transactions, that slice is often larger: part reassurance, part appetite. If you’re serving pudding, it helps to give yourself a larger spoon.

Transparency hasn’t gone missing either. Investors still expect to see what’s under the bonnet – regular reports, data updates and the occasional deep dive into individual loans. The only difference is delivery: instead of being pinned to a public noticeboard, it’s served quietly through secure data rooms. It’s disclosure, just without the megaphone.

The legal framework looks familiar – subscription agreements, trust deeds, servicing contracts – but in private deals the cut is sharper. Tighter covenants, brisker triggers, quicker rights to step in if performance starts to drift off course. Think bespoke tailoring rather than off-the-peg.

Banks, however, are less enthused. Without a public rating to plug into their capital models, unrated paper eats up more balance-sheet space than they’d like. It’s not the risk that bothers them so much as the paperwork that follows.

So, yes, these transactions may whisper rather than shout – but the rulebook still applies, even if the tone is a little more polite.

Market Evolution

All that structure hasn’t slowed things down. If anything, the unrated market has started to find its stride. With the framework now familiar and the infrastructure firmly in place, what began as a niche corner of private credit has become a regular feature of modern finance.

Since 2020, activity has picked up across small-business lending, everyday consumer borrowing, and renewable projects – everything from car loans to solar panels. What started as a workaround for funds that didn’t fancy waiting on ratings committees has matured into a funding route in its own right.

For lenders, unrated securitisations have become a straightforward way to raise money without the performance of a public deal. For investors, they offer something increasingly rare: solid returns and a clear picture of what’s under the bonnet.

With familiarity, has come efficiency. The once-bespoke paperwork now moves at pace, the lawyers less wide-eyed, the investors less tentative. The market has found its routine – still private, but far from experimental.

Rated or unrated, the mechanics are the same. The only real distinction is who feels the need to tell everyone about it.

The Last Word

Unrated securitisations haven’t torn up the rulebook; they’ve simply stopped asking for permission to use it.

Issuers move faster, investors look closer, and the market hums along without the running commentary. It’s finance for grown-ups – still serious, still structured, just a little less in need of applause.