Access Point Financial (APF) is making its debut in the securitization market with an unusual asset class: loans used to finance hotel furniture, fixtures and equipment.

The deal, Access Point Funding I 2015-A, is also the first asset-backed transaction that Morningstar has rated. Previously, the rating agency has only worked on residential and commercial mortgage securitizations.

Access Point Funding I 2015-A will offer $183 million of securities that are backed by the loans made to franchisees of major hotel brands and owners of independent boutique hotels.  Guggenheim Securities is the lead arranger.

Morningstar’s is rating the bonds at least one notch above Standard & Poor’s ratings. The 2.6-year, class A notes are rated ‘A+/ A; the 4.81-year, class B notes are rated ‘BBB+’/  ‘BBB’ and the 5.16-year, class C notes are rated ‘BB+’/ ‘BB’.  The class A notes are structured with 27.9% subordination, the class B notes are structured with 22.95% subordination and the class C notes are structured with 14.65% subordination.

The ratings differential is widest on he most subordinate tranche, the 5.57-year, class D notes, which Morningstar plans to rate three notches higher than S&P, at ‘BB’ versus ‘B’.  The notes benefit from 8.80% subordination.

Many of the loans included in the pool were made to franchisees of major hotel brands to finance franchisor-mandated improvements. A failure to make such improvements could result in losing the brand flag. The loans are structured to encourage prepayment with initial periods of one to two-years periods during which only interest must paid; the loans amortize during their subsequent terms of seven to eight years.

On average, borrowers pay an interest rate of 7%, however rates in the pool can be as high as 12%.  “The loans are typically structured with a relatively high interest rate compared to loans made by more traditional lenders to incentivize borrowers to refinance,” according to the S&P presale report. “As a result, borrowers may be at a higher risk of default”.

APF, which is partly owned by Stone Point Capital, LLC, a private equity firm based in Greenwich, Connecticut; was founded in 2011 by CEO, Jon Wright. Wright’s career includes leadership roles at Holiday Inn Franchise Finance (1988-97), GMAC Commercial Mortgage (1997-2004), and Specialty Finance Group LLC (2004-11).

The issuer provides bridge mortgage loans and capital expenditure financing programs to hotels throughout the U.S. The loans are secured by furniture, fixtures, and equipment loans.

As of April 30, 2015, APF has originated approximately $628 million. Of the total 330 loans it originated, 78, with an aggregate lending commitment of $141 million, have prepaid before maturity due to refinancing, sale of the related hotel property post-renovation, or loan acceleration.

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