It’s deceptive, but asset-backed finance (ABF) is a somewhat simple market. There are the originators and the financiers. Those originators underwrite thousands of loans to people like you and me, whether to provide us with a mortgage or a credit card, and those who underwrite and make investments in those who underwrite thousands of loans to people like you me…ok, perhaps not so simple after all.

No doubt it is a radiant market, but it is one that has suddenly gotten a little less colorful. The recent blowup of subprime automobile lender Tricolor Holdings, as well as the possible bankruptcy of auto parts supplier First Brands, is a moment for those in the ABF industry to reflect.

That said, any industrywide sense of alarm about Tricolor and First Brands didn’t get in the way of dreams of explosive growth and profitable partnerships at the DealCatalyst Asset Based Finance in New York on Thursday and Friday (25-26 September).

The response to the Tricolor meltdown became a question of whether investments firms are prepared for such big events.

“I wouldn’t say it has changed our approach,” one of the attendees said, adding that the Tricolor furor has underscored where the pitfalls lie and where the market needs to pay attention.

Another investor voiced some caution while emphasizing that the company was not emblematic of ABF altogether: “It’s probably a one-off, but the fact that so many entities had eyes on it and everyone missed it is reason to pause.”

So — no weeping, moaning or gnashing of teeth this week at the Marriott Marquis in midtown Manhattan (unless you’re a Mets, Jets or Giants fan). And there is plenty to be excited about for a market that is seeing private options for borrowers grow, which means more creative structures that may be better tailored to a certain financing need.

“What is important comes down to two things — a diversity of funding sources and the cost of funding. You want to come to a place where the public and private side are competing,” said one panelist.

But while banks and capital funds may sometimes complement each other, speakers cautioned attendees about the inherent conflicts built into that relationship.

“As you structure your warehouse, you may go to a bank to do the senior and then go to other parties to do the mezz. That can create two funding bases that are at odds against each other,” said another panelist.

Conversations also focused on how to get ahead and stay ahead in an industry dominated by a handful of large GPs, including Blackstone, Sixth Street, and Apollo. They and their peers are poised to remain atop the ABF industry given their ability to marshal big chunks of money to seal deals.

But the strength of demand in the market will ensure that there’s business aplenty for smaller lenders in the space as the field continues to grow — if not through individual fortitude, then perhaps through clever alliances.

“There really are scale advantages and true competitive moats,” a lender at the conference told 9fin. “At the same time, there’s still a lot of interest from LPs.”

There were some warning signs about the future of the macroeconomic landscape, with one session moderator remarking that he thought there is “a reasonable chance that we’re going to see a downturn due to tariff effects or whatever it may be.”

But conference attendees seemed generally undeterred by the potential for interest rates, inflation and the like to derail ABF’s future growth trajectory.

“I don’t think it’s a bubble,” one panelist said. “I think it’s a structural shift.”

This week on 9fin

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SnelStart bids land as second round kicks off

For a comprehensive list of live deals we are tracking, check out 9fin’s weekly US private credit pipeline.

From around the web

Private Credit Giants Turn Debt Into Equity for Jumbo Deals (BBG)

First Brands’ lenders race to rescue car parts supplier as debt woes rattle markets (FT)

Blackstone, Apollo and Others Sell Bonds Backed by Private Credit at Fastest Pace Ever (BBG)

Investors Flock to Semiliquid Funds for Income (Morningstar)

Akin Boosts Private Credit Practice With DLA Piper’s Borthwick (Bloomberg Law)