Balboa Capital Corp. (BCC) plans to issue its first-ever standalone securitization of small-ticket equipment leases and loans, according to a Standard & Poor’s presale report. It is also the finance company's first securitization since the financial crisis.
BCC has sponsored equipment-leasing ABS previously but this is its first transaction without the benefit of financial guarantees from an insurer.
Guggenheim Securities is the lead manager on the $155 million deal, BCC Funding VII Series 2014-1.
S&P has assigned preliminary ratings of A’ to the $139.6 million class A notes due June 2020 and are structured with 14.20% credit enhancement. The $2.79 million, class B notes are rated A-’ and structured with 12.45% credit enhancement; the $5.51 million, class C notes are rated BBB’ and structured with 9% credit enhancement; and the $3.76 million, class D notes are rated BB’ and structured with 6.65% credit enhancement. The subordinated tranches are all due August 2020.
The Irvine, California based BCC, is an equipment financing company that was founded in 1988. As of June 30, 2013 the company reported total receivables of $166 million, according to the presale report.
Since 2007, BCC has focused its business on vendor origination efforts on the vendor segment (vendor originations comprise 73% of the series 2014-1 pool). According to S&P, vendor originations have exhibited lower losses than other small-ticket origination segments.
“We have observed lower losses on vendor originations in many of the contract pools backing equipment leasing ABS that we rate, most likely because of the positive impact that an originator's relationship with the vendor can have on both collections and underwriting,” said S&P in the presale report.
The primary equipment types making up the securitization pool are trucks, computer equipment, office products, trailers, and construction. The trucks BCC finances are primarily used vehicles for small obligors, such as delivery vehicles.
S&P noted in the pre-sale report that BCC's equity is 100% held by one individual -- Patrick Byrne, BCC's founder and CEO. Other commercial finance companies, that the ratings agency rates, generally have multiple third-party owners. “A more diverse ownership structure generally tends to create more checks and balances for management,” said S&P.