With the completion of its long awaited, first-ever term securitizations, Peachtree Settlement Funding has hopes to become a regular ABS issuer, a company source confirmed. Following last week's $70 million private placement - Settlement Funding Securitization 2004-A - Peachtree Chief Financial Officer Jim Terlizzi said the company has plans to sell one to two additional similar deals backed by structured personal injury settlements this year.
"We have several term ABS issues in the queue for the near term," he said.
Peachtree, which has had plans to securitize since 1999 (see ASR 11/8/99), finally completed its transaction through a negotiated placement led by SunTrust Robinson Humphrey. Peachtree had been funding through the Three Pillars conduit, while it awaited the resolution of Article 9 of the Uniform Commercial Code, which deals with state transfer statutes and the Tax Relief Act.
In the past, structured settlement deals were often susceptible to lawsuits brought on behalf of sellers. However, the revised Article 9, which took place in January 2002, has made these deals all but impervious to legal challenge, said David Zuber, analyst at Standard & Poor's, the only agency to rate SFS 2004-A.
A full 97% of the Peachtree portfolio cash flows have been court- ordered, meaning the purchase has been vetted by a judge, leaving little recourse for claimants to yell foul play after the transaction is closed. "A lot of problems have been abrogated through the court process," Zuber said.
At this juncture, S&P's Zuber considers the legal risk on these types of transactions to be negligible, and he focuses instead on the default risk of the insurance carriers, he said. He noted that there have been some administrative glitches that can lead to delinquencies during the early stages of the deal, but those kinks are generally ironed out within 90 days.
Peachtree's $70 million transaction featured two fixed-rate classes. The $57.5 million A class, rated AAA' by S&P, had an average life of 4.66 years and priced at par with a 4.063% yield. The $12.9 million AA' rated B class, with a 9.83-year average life, priced at par to yield 7.50% (see scorecard, p. 32).
The senior/sub structure is supported by 25.5% overcollateralization for triple-A and 16.75% for double-As, according to S&P. There is also a cash reserve account with a minimum 1% balance. The transaction has an expected maturity of July 2015. Settlement was scheduled for last Friday.
As of Sept. 30, 2003, the pool consisted of 1,161 annuities, totaling a $70.6 million discounted balance. The top five annuity providers in the trust are: First Colony Life Insurance Co. (11.7%), Metropolitan Life Insurance Co. (8.5%), Transamerica Life Insurance Co. (7%), Safeco Life Insurance Co. (6.1%) and Allstate Life Insurance Co. (6.1%).
The structured settlement sector can hardly be described as burgeoning now that it has cleared the legal hurdle. The issuer with the closest profile to Peachtree is Philadelphia-based J.G. Wentworth, which has completed five securitizations to date, through Credit Suisse First Boston and ING Barings.
In the past, Peachtree had also intended to securitize lottery receivables, a plan that is now dead, according to Peachtree's Terlizzi. Instead, Peachtree has found alternate sources of term funding for its lottery receivables purchases, he added.