In the wake of interest over cat bonds, the Small Business Administration is looking at putting together a disaster relief loan portfolio that has potential ABS issuers lining up.
The agency will soon be shopping around the first tranche of a $9 billion loan portfolio, with $6.5 billion of that in disaster home and business loans - assistance loans granted following natural disasters. The portfolio has significant geographic diversification, with loans involved from all states, plus Guam and Puerto Rico.
Of the remaining non-relief loans, that $2.5 billion is made up of section 7(a) and section 504 loans to small businesses.
Richard Blewett, director of the SBA's asset sales program, said most of the loans are performing, but there are some delinquencies and others the SBA has claimed from private lenders and have since made into re-performing loans. "There's a little something for everyone," he said.
So far, he estimated up to 400 investors have shown some interest in the portfolio, and while not all of them intend to bring the loans to the ABS markets, some familiar names in the mix have said that may be a final goal. "I think that's definitely an exit strategy for some," he said.
Citigroup and Ocwen Financial Corp. are rumored to have designs on some of the portfolio with aims to securitize any purchases. As well, the bad debt involved may be a popular asset, with some talk of South Dakota-based chargeoff specialist The Credit Store having interest in the delinquencies.
The assets are all SBA-owned, said Blewett, and the agency expects to complete its first sale by the end of summer, starting with a $350 million to $400 million portfolio, more than likely made up of mostly the non-relief loans. New York-based Whitestone Capital has been acting as advisor on the deal.
But the SBA expects to put together something larger - perhaps up to $1 billion - of the disaster relief loans soon after the first sale. "The deal could be bigger since those loans are a little more homogenous," he said. - TC