# Part IV. Outlook

> Part of the *Music ABS and Institutional Readiness* knowledge base. See `INDEX.md` for the full map. For the readiness framework that produces the performance described here, see `03 - The Five Drivers (overview).md`.

## Three Trajectories Reshaping the Rated Market

Three forward-looking shifts will shape how platforms approach the rated market over the next several years, each building on what the current deal record has already established.

- **Continued tenor extension.** The first 10-year tranche placed in 2025 establishes the structural precedent. Twelve- to 15-year notes are the logical next step as platforms accumulate the performance history required to support longer-tenor stress assumptions and as investor appetite at the long end is tested across additional transactions.
- **Continued broadening of rating-agency coverage.** KBRA has rated every transaction across the modern rated record, while additional agencies have joined KBRA in more recent transactions. Multi-agency ratings are likely to become standard for transactions above $500 million, opening the deal to insurance general accounts and asset managers that require more than one rating opinion before committing capital. For newer issuers, single-agency coverage remains the practical entry point, but the trajectory points toward multi-agency as a baseline expectation for institutional-scale execution.
- **Public market access.** The SEC's September 2025 Concept Release raised the question of whether the definition of ABS under Regulation AB should be revised. Among its principal residential mortgage-backed securities (RMBS) disclosure questions for comment is whether the definition should be amended to accommodate cash flow profiles that are not self-liquidating in the Regulation AB sense. If the definition is amended in a way that fits music royalty pools, the asset class would gain access to registered-shelf execution and the broader 1940 Act mutual fund and retail structured credit investor base. Reporting stringency would shift to the asset-level disclosure, CEO certification, and ongoing 10-D and 10-K cadence that Regulation AB II requires, materially heavier than the current 144A reporting cycle. The investor universe would expand to mutual funds, retail structured credit accounts, and 40 Act funds with shorter holding-period requirements, deepening secondary trading. Platforms that have already built rated-ABS-grade operational, legal, data, and governance infrastructure would clear the new disclosure regime with substantially less buildout than those that have not, because most of what Regulation AB II would require sits on the same foundations rated 144A execution already does. Rulemaking is unlikely before 2027 or 2028, but the trajectory is worth tracking as the next expansion of investor access for the asset class.

For platforms preparing rated execution today, that preparation is also the foundation for whichever broader investor base opens next.

## How Are Recent Music ABS Transactions Performing?

Performance in rated music ABS is monitored through a set of overlapping metrics rather than a single headline figure. Some of these metrics include:

- **DSCR.** DSCR is the key trigger metric, tied directly to cash trap and rapid amortization triggers. The ratio is calculated on trailing cash flows, and rated transactions open at 1.5x to 2.5x cushions against trigger thresholds in the 1.05x to 1.50x range.
- **Capture rate against theoretical royalty entitlement.** Capture rate is the operational metric that drives DSCR over the medium term.
- **Decay curve performance against the underwritten base case.** Decay curve performance is the asset-level metric that allows for monitoring of deterioration before it compresses DSCR materially.
- **Collateral coverage.** Catalog appraised value over notes outstanding is retested through annual third-party revaluations and functions as an LTV check.
- **Concentration metrics.** Top songs, artists, songwriters, and territories are tracked alongside the above.

Rating-agency surveillance translates the combined picture into rating affirmations, upgrades, Watch Placements, and downgrades, which is how the deal record is most usefully monitored across the cycle.

Four years into the modern rated record, the performance trajectory across the deal universe indicates that the format has thus far supported continued institutional participation and repeat issuance. Public surveillance reports across the rated record show DSCR cushions running materially above trigger levels on most outstanding paper, with Concord's master trust as the longest-tenured reference. Per KBRA's May 2026 Playback report, **the sector's average and weighted average DSCR each stood near 1.8x as of the first quarter of 2026**, materially above the cash trap and amortization trigger thresholds. The latest deal-level surveillance marks from KBRA reinforce that picture:

| Issuer / trust | Reported DSCR (early 2026) |
| :--- | :--- |
| Recognition / Lyra | 1.51x |
| Concord | 2.06x |
| Hi-Fi | 2.11x |
| Crescendo | 2.17x |
| Hipgnosis | 2.50x |

Each is running well above its cash trap and amortization triggers.

**Tenor extension** across the cycle has cleared without friction at the long end, with multiple 7-year ARDs and the first 10-year ARD placed between 2024 and 2026, and spread tightening on inaugural transactions has compressed from the high 300 bp range over benchmark in 2022 to 160 bp on Canon Music Issuer Trust 2026-1 in April 2026. The May 2026 announcement of Sony Music Publishing's pending acquisition of Recognition's catalog from Blackstone is the most recent indicator that catalog M&A continues to clear at scale against the institutional infrastructure rated execution requires.

Within that overall trajectory, **the Kobalt 2024-1 is one of the most analytically useful surveillance events in the rated record to date.** Kobalt 2024-1 issued in February 2024 at $266.5 million in senior notes against an appraised catalog value of approximately $410 million, carried a KBRA A- senior rating and was anchored by recent indie content. By the January 2026 payment date the trailing DSCR had reached 1.33x, and KBRA placed the notes on Watch Downgrade on March 3, 2026, pending an updated third-party valuation. After a cash infusion in the same month, Kobalt's DSCR moved up to 1.73x.

The Watch Downgrade demonstrates that surveillance discipline operates without sponsor discretion, and that the rating process can function as a forward signal the platform is able to act on. The same mechanism works in the other direction, producing mid-life upgrades on improving performance. For institutional investors, both directions of rating action are credit signals, and the Kobalt sequence shows the feedback loop between agency monitoring and issuer response operating as intended.

Beyond surveillance performance on individual deals, the broader pattern across master trusts is one of repeat issuance compounding into deeper market access over time. Concord, Lyra (under Recognition), and Duetti have each issued multiple series under their master trusts between December 2022 and January 2026, including refinancing transactions that captured tighter spreads on the same collateral. Once the master trust legal architecture is built and the inaugural deal closes, successive series build on previous ones, making rating agency assignment and review more efficient. That operational simplicity makes the cumulative cost-of-capital advantage durable.

**Sector spreads have compressed sharply over that span, from +340 bps at Concord's inaugural 2022-1 deal in December 2022 to +160 bps at Chord Music Partners' Canon 2026-1 deal in April 2026.** That compression reflects the broad maturation of the rated market across issuers, and the master trust architecture described above is what lets an established sponsor convert market-level tightening into a durable, deal-over-deal cost advantage.

> **Pull Quote:** "Once you have established the securitization framework, it can become a repeatable exercise where you can tap the market for incremental proceeds that allow you to pursue additional catalog acquisitions."
> — Paul Sipio, Managing Director, Apollo Global Management

Two cautionary points act as qualifiers for the otherwise positive performance record. The market has not been tested through a prolonged streaming slowdown or a broader cyclical downturn, and the discount rate compression and single-appraiser concentration risk on headline LTV detailed in Part III remain untested against that stress. Another reason the Kobalt Watch Downgrade is constructive is that it functions as evidence that surveillance catches deterioration in the format the structure is designed to handle; however, an untested macro stress would be a different test. For platforms reading the performance record as a signal about the rated end of the financing spectrum, the structural architecture has performed across the rate cycle to date while remaining within its cushions and triggers, and the next iteration of the format is being built on the same surveillance framework.

## Two Risk Vectors Worth Monitoring

### Phonorecords V and Statutory Mechanical Rate Setting

Phonorecords V proceedings began in December 2025 to set statutory mechanical royalty rates for the 2028 to 2032 rate period. Under the current Phonorecords IV final determination from the Copyright Royalty Board (covering 2023 through 2027), the headline all-in interactive streaming rate escalates from 15.1% of service-provider revenue in 2023 to 15.35% in 2027.

The directional questions for Phonorecords V are whether the all-in formulation persists, whether streaming rates rise relative to revenue, and whether physical and download rates increase. Conservative underwriting posture on these inputs is rooted in cycle-over-cycle history, where rate determinations have repeatedly delivered less than the market priced in at the time of the prior negotiation, and platforms that underwrote to higher expectations carried the variance into their reporting cycles. **The disciplined approach allows a well-structured ABS pool to absorb a downward rate adjustment without triggering rapid amortization.**

> **Pull Quote:** "We take a conservative approach to forecasting. We do not build in upside in future periods. We are still not collecting the amount everyone said we would collect from CRB back pay. But we are not at a disadvantage with our ABS covenants because we didn't predict that we would collect as much."
> — Lynn Hazan, Co-Managing Partner, Influence Media Partners

### AI-Generated Content Dilution

AI-generated content moves more slowly than Phonorecords V as a risk factor but is more structurally significant over the long term. Deezer's platform data showed approximately 44% of daily track uploads as AI-generated in early 2026, with the majority flagged as fraudulent and demonetized.

The near-term effect on premium catalog with deep evergreen content and diversified sync income is limited, and the medium-term question of whether AI-driven supply abundance compresses the commercial value of human-authored music at the margin remains open. Lawsuits filed by major labels against Suno and Udio, alongside partnerships some labels are negotiating with generative AI platforms, will shape future royalty income. Lynn Hazan frames the offsetting development:

> "People are talking about the flood of tracks in the market and they're not focusing on the benefit that AI is giving all of us. For example, related to 'black box income' in the music industry: the better tools we have to clean the data and to share information across service providers and cross-border, I think it's really going to help collections."
> — Lynn Hazan, Co-Managing Partner, Influence Media Partners

Streaming fraud is a related, near-term integrity issue, illustrated by the **2024 DOJ indictment in the Michael Smith case alleging a seven-year scheme that used bot-driven streams to extract approximately $10 million in fraudulent royalties.** Platform-level fraud controls have tightened in response, and the case underscores why revenue reconciliation discipline at the platform level is itself a credit signal for rated execution.

## Conclusion

The four years from Concord's December 2022 inaugural master trust through Canon's April 2026 pricing have moved music catalog ABS from an emerging structured credit category into a recognizable institutional asset class. Those developments now operate at scale rather than as the one-off exceptions they were before the cycle. For platforms with catalog scale and operational depth, rated ABS offers a cost-of-capital advantage that compounds across successive issuances under a master trust in a way bilateral or warehouse structures cannot replicate through the rate cycle.

Rated ABS is not the only viable financing path, however, and the right answer for any given platform depends on its catalog size, operational and governance readiness, the alignment between its capital needs and its exit horizon, and the LP and counterparty relationships it has built. For platforms already in the rated market, the question is how to sequence the next vintage and which trajectory (tenor extension, multi-agency coverage, broader distribution) to prioritize. For platforms not yet in the rated market, the path is well-mapped, and the work consists of disciplined sequencing across the five drivers. The asset class has shifted from a structuring exception accessible to a small group of sponsored platforms into a defined institutional category with a documented playbook, and the platforms that allocate capital and time to the five drivers now will be positioned to compete for the next generation of institutional capital on terms previously available only to legacy scaled issuers. For the platforms that do the work, the rated market is open and its buyer base broadens with every vintage.

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**See also:** `05 - Path Forward.md` (the checklist) · `Appendix - Transaction Record.md` (the full deal-by-deal performance record cited above) · `03 - The Five Drivers (overview).md` (the five drivers that explain why some platforms have cleared the threshold and others have not).
