ABS: Expanding Financing Options in U.S. Capital Markets

What Are Asset-Backed Securities?

Asset-backed securities, commonly known as ABS,  are fixed-income instruments whose payments are supported by cash flows from underlying financial assets. These assets can include auto loans, credit card receivables, equipment leases, consumer loans, trade receivables, or other contractual payment obligations.

In a typical securitization, a company transfers a pool of assets to a special purpose vehicle (SPV). The SPV issues securities to investors, and the cash flows from the underlying assets are used to pay interest and principal on those securities.

Investors evaluate both the quality of the underlying assets and the transaction structure, which is designed to help manage credit risk. At its core, securitization converts future cash flows into immediate funding.

Why ABS Matter for Companies

ABS help companies diversify funding sources and reduce reliance on any single market or lender. They also unlock liquidity by converting future cash flows into immediate funding that can support lending, investment, refinancing, or working capital.

Depending on the transaction structure, securitization may also improve capital efficiency by helping companies optimize balance sheet usage while continuing to originate new assets

What Makes the U.S. ABS Market Unique?

The U.S. ABS market stands out for its scale, depth, and breadth. It is one of the largest and most developed securitization markets in the world, with decades of issuance history and a sophisticated network of issuers, investors, arrangers, servicers, trustees, rating agencies, and legal advisers.

In addition to traditional sectors such as auto loans, credit cards, equipment finance, and consumer lending, the market has expanded to support a growing range of specialized asset classes.

Compared with many other markets, the U.S. benefits from a large institutional investor base and an active secondary market. That depth can help issuers access capital repeatedly and give investors greater confidence in liquidity and price discovery.

Regulation has also shaped the market's development. Disclosure requirements, risk retention rules, and standardized reporting have increased transparency since the global financial crisis, while both public transactions and private Rule 144A offerings give issuers flexibility in how they reach investors.

The Investor Base

Investors are drawn to ABS because the securities offer exposure to specific asset pools, often with defined cash-flow characteristics and different levels of credit risk. Many transactions are divided into tranches, allowing investors to choose between more senior securities with lower risk and lower yield, or subordinated securities with higher risk and higher potential return.

For issuers, this broad investor base can improve execution and reduce dependence on traditional corporate credit markets.

The Market Today

The ABS market continues to play an important role despite higher interest rates and more selective credit conditions. Issuers have continued to use securitization to diversify funding, while investors have remained engaged because ABS can offer attractive risk-adjusted yields and exposure to diversified collateral pools.

Credit performance varies by asset class. Some consumer-linked sectors have faced pressure from elevated borrowing costs and higher delinquencies, making asset quality and underwriting standards especially important. At the same time, demand remains strong for well-structured transactions backed by resilient collateral.

The market is also evolving. Private credit, specialty finance, digital infrastructure, renewable energy, and other emerging asset classes are expanding the securitization opportunity set. For corporate issuers, that evolution reinforces the importance of understanding where ABS fit within a broader financing strategy.

Driven by the increase and diversification of collateral types, the ABS market has demonstrated significant growth. Since 2019, when annual issuance stood at approximately $250 billion, the market has expanded considerably, with expectations that volume will reach nearly $400 billion in 2026. This upward trajectory is supported by an increasingly broad investor base and a rising allocation of institutional capital toward securitized products.

ABS as a Financing Tool

Asset-backed securities and other securitized products are a powerful complement to other financing sources. By linking institutional capital to predictable asset cash flows, securitization gives companies another way to fund operations, manage liquidity, and diversify access to capital.

As part of its broader capital markets capabilities, BBVA Corporate & Investment Banking supports clients in evaluating and executing ABS transactions alongside other financing alternatives as part of comprehensive funding strategies.

For CFOs, treasurers, and corporate finance teams, understanding ABS is increasingly important. In a market where funding resilience matters, securitization remains one of the key tools connecting corporate balance sheets with U.S. institutional capital.