Rated note feeders (RNFs) have emerged as one of the fastest-growing segments of fund finance for US life insurers, Moody’s Ratings has revealed.
In its latest analysis of the US life insurance market, Moody’s said RNF structures enable insurers to gain exposure to private credit strategies through rated securities. Such strategies include direct lending, infrastructure, ABF, and commercial real estate.
“RNFs off a capital efficient means of accessing private markets under current regulatory frameworks,” the research stated. “As private fund AUM approaches $16trn globally, insurer participation in fund finance is poised to accelerate further.”
Furthermore, Moody’s said RNFs can offer insurers incremental yield above comparably rated public corporate bonds. It added that RNFs incorporate credit enhancement through subordination, overcollateralisation, and cash sweep triggers designed to protect noteholders.
“However, credit performance ultimately depends on the underlying credit portfolio and reliability of valuations. A prolonged deterioration in private credit performance or a significant correction in asset valuations could weaken coverage ratios and increase stress on these structures.”
