Aqua Finance Issuer Trust is preparing to sell $373.4 million in asset-backed securities (ABS) supported by a mixed portfolio of assets like home improvement, marine and recreational vehicle contracts extended to prime and near-prime borrowers.
Consumers took out the financing contracts, which provide revenue to the bonds, to buy water treatment equipment, fund home improvement projects and buy marine and recreational vehicles, according to analysts at Kroll Bond Rating Agency.
The series 2025-A deal will issue notes through four tranches of class A, B, C and D notes, which are expected to mature on Dec. 19, 2050, KBRA said.
Credit enhancement on the notes includes overcollateralization, subordination, a cash reserve account and excess spread. With all those protections, KBRA said, the class A, B, C and D notes have initial credit enhancement representing 41.0%, 29%, 21.5%, and 8.5%, respectively.
The transaction will repay investors sequentially until the credit enhancement period of the class A notes begins, KBRA said. After that, principal allocation will change from sequential to pro rata for all the notes. Overcollateralization is 8.0% of the initial pool balance, which is also the target balance. There is a floor of 1.0%.
There is also a cash reserve account equaling 0.50% of the initial pool balance, and excess spread amounts to about 5.24%.
On Aqua Finance's corporate side, marine and recreational vehicle loan originations, boosted its originations by 172% in 2024 over the previous year, according to KBRA. The rating agency cautioned, however, that loans through the original equipment manufacturers (OEMs) are of higher credit quality than historical originations, but it was not clear if the newer contracts would perform the way previous originations had.
Borrowers looked close to prime, according to KBRA's assessment. At the February 15 cutoff date, obligors had a weighted average (WA) FICO score of 733, and an average income of $139,076 home improvement projects accounted for 54.3% of the pool, and marine or RV vehicles represented 45.7% of the pool, the rating agency said. The loans have an average balance of $14,049, with a weighted average (WA) interest rate of 11.8%.
KBRA assigns AAA, AA-, A, and BBB- to the A, B, C and D notes, respectively.
