A pool of installment loans on home improvements, marine and recreational vehicles will secure $450 million in asset-backed bonds from the Aqua Finance Trust, series 2024-A.
Marine and recreational vehicles account for 64.7% of the pool, with home improvement accounting for the rest, according to Moody's Ratings. KeyBanc, ATLAS SP Securities,
AQFIT 2024-A will issue notes through four tranches of class A, B, C and D notes. They start to repay investors on a sequential basis, and all have an April 18, 2050 legal final maturity date. The A, B, C and D notes benefit from total initial hard credit enhancement levels of 37.7%, 27.2%, 17.5% and 7.5%, respectively, according to Moody's.
Also, all the notes have initial overcollateralization levels of 7.00% and an initial reserve of 0.50% of the pool balance, Moody's said.
Aqua Finance has two major credit strengths, the rating agency said. One is the underlying borrowers' credit quality. On a weighted average (WA) basis, they have a FICO score of 725, a 14-point increase over the 2021-A transaction, driven largely by improved credit profiles among the marine and RV borrowers. By the cutoff date, none of the borrowers in the pool have FICO scores of less than 600.
Aqua Finance will service the notes, and in another credit plus Vervent is the backup servicer.
Yet the deal structure exposes the deal to potential credit weaknesses, according to Moody's. If enhancement levels on the class A notes reach 49.0% of the current pool balance, the payment structure will switch to pro rata, ratings analysts said.
Also, despite the creditworthiness of the underlying borrowers, Aqua Finance has a weak credit profile relative to other ABS sponsors and has a limited performance history. Also, the company uses an indirect lending model, where it partners with about 5,600 financing dealers across the country. Some home improvement services require ongoing maintenance at least annually, including water treatment and filtration.
Other potential drawbacks include long collateral terms, with the shortest being 24 months, because a longer term exposes the transaction to additional tail risk. The RV and marine collateral are discretionary assets, so the loans might have a lower payment priority compared with other borrowers' responsibilities.
Moody's assigns ratings of Aaa, Aa2, A3 and Baa3 to classes A, B, C and D notes.
