Approaching the market with its third and largest deal this year, non-QM originator and issuer Angel Oak Capital Advisors plans to issue $303 million in asset-backed securities following the recent completion of its initial public offering.
The $137 million IPO priced 7.2 million shares — 850,000 fewer than expected — at $19 per share, below the range of $20 to $21, according to Renaissance Capital. The shares will be listed on the NYSE, and Wells Fargo Securities, BofA Securities, Morgan Stanley, UBS Investment Bank and B. Riley Securities acted as joint book runners on the deal.
The current non-agency RMBS deal, Angel Oak Mortgage Trust 2021-3, comprises 602 loans, with 89.1% designated as nonqualified mortgages. The remainder are investment properties that Fitch Ratings describes in its presale report as not subject to the Ability to Repay (ATR) Rule.
Angel Oak Mortgage Solutions, an affiliate of Angel Oak Capital Advisors, originates the loans in wholesale channel, controlling the underwriting process, an approach its IPO filing said differentiates it from mortgage lenders that use an ‘aggregator model,’ which depends on third-party origination and underwriting.
Underwriters on the new deal are Deutsche Bank Securities and Barclays Capital.
Pricing details were unavailable, but the nonbank lenders previous $220 million MBS deal, completed in mid-May, priced for a spread of 65 basis points over Swaps on the AAA portion; 85 basis points over Swaps on the AA+ piece; 110 basis points over Swaps on the A+ tranche; and 160 basis points over swaps on the BBB+ portion.
Each of those portions priced five basis points or more tighter than guidance. The offering was marketed as a social bond, as is the current offering.
The biggest difference between the current AOCA deal and those previously it previously rated, Fitch says, is the “significant improvement in credit quality of the borrowers that reflects tightened guidelines implemented as a result of the coronavirus pandemic.” In the current deal, borrowers’ average FICO score is 736 and debt-to-income of 34%, although they have relatively high leverage, the rating agency says.
Fitch notes that the social framework of Angel Oak Capital Advisors, AOHL’s parent, was reviewed by Institutional Shareholder Services, whose April 22 report highlighted its sustainability strategy. That strategy focuses primarily on the use of proceeds while benchmarking the framework against the international Credit Market Association’s social bond principals.
“Additionally, the report considered whether AOCA’s social bond framework contributed to the Sustainable Development Goals as defined by the United Nations,” Fitch says.
Fitch’s one negative ratings driver was that 93.3% of the mortgage-loan pool was underwrite to borrowers with less than full documentation.
“Of this amount, 87.0% was underwritten to a 12- or 24-month bank statement program for verifying income, which is not consistent with Appendix Q standards and Fitch’s view of a full documentation program,” Fitch says, adding, “To reflect the additional risk, Fitch increase the [probability of default] by [1.5 times] on the bank statement loans.”
