Business Case Studies & Business Publications

Structuring Private Asset-Backed Debt

Allayannis, George...

Case

Structuring Private Asset-Backed Debt

Allayannis, George (Yiorgos); Malhotra, Sumit; Varma, Alankrit

F-2115 | Published July 24, 2025 | 13 Pages Case

Collection: Darden School of Business

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Jim Jones, a member of Asset Backed Capital Ltd. (ABC), a private credit fund specializing in asset-backed lending, has to decide whether to invest—and if so, how much—in a loan portfolio underwritten by Merry Loans Inc. (ML), a fintech company that specializes in unsecured loans to help people pay off high-interest debt (like payday loans or credit cards). Jones has to evaluate the risks of such debt investment—both those arising from the underlying loan portfolio and those from the fintech itself. Looking at data on past loans and their performance, Jones is preparing to provide a recommendation to the investment committee on the structure of the investment, to suggest an interest rate (return) on this potential investment, and to outline the risks. This case discusses asset-backed debt, which makes up a large segment of the private debt markets and has grown to over $2 trillion, and views it from the angle of a credit fund. It also delves into the structure of the deal and examines what an appropriate interest rate (return) for the credit fund would be. At the University of Virginia Darden School of Business, this fictional, public-sourced case is taught in the second-year elective “Financial Institutions and Markets,” in a module on debt markets that also includes discussion of Treasuries and high-yield debt. It is taught in conjunction with the technical note “Asset-Backed Securities” (UVA-F-2116). It also works well with (and after) a case on direct lending and private debt: “Private Debt and a University’s Endowment Portfolio Decision” (UVA-F-2108). In addition to its use in courses on financial institutions and capital markets, the case can also be used in a course on private capital and private markets.

Examine one of the largest types of private debt, asset-backed debt, which has recently grown significantly. Analyze a potential investment of a credit fund in an asset-backed deal of loans underwritten by a fintech, assessing the key risks of the investment strategy. Decide the structure of the investment to yield a “shadow” rating of BBB.