Brex Inc., a startup corporate-card issuer that targets emerging tech companies with high-limit commercial charge accounts, is launching its first securitization of client-card payments.
The debut series of asset-backed securities through the newly established Brex Commercial Charge Card Master Trust, will feature two classes of notes totaling $185 million. The Class A senior tranche, sized at $180.5 million, has a preliminary single-A, investment-grade rating from Kroll Bond Rating Agency.
Those bonds (Series 2021-1) will be funded through monthly receivables from a pool of 7,986 Mastercard-branded accounts that had balances of $196.1 million in the initial asset pool for the transaction.
Those non-revolving accounts made up about half of Brex Inc.’s charge-card portfolio of more than 15,000 accounts that had cumulative balances of $328 million as of Dec. 31.
Brex, based in San Francisco and
The online-based card accounts serve firms with high cash balances (an average of $4.4 million per client, or about four times most borrowers' credit limits), and offer embedded tools such as expense management, spend control and the ability to reconcile with a firm’s back-office accounting software.
The accounts have average monthly balances of $26,905 on credit limits of over $300,000. Client firms are required to pay monthly balances in full with no grace periods. Brex does not charge interest rate or late fees on the accounts, but earns income through interchange fees of 1%-3% per transaction, according to Kroll.
Although it delves in the riskier segment of emerging companies, Brex has limited monthly charge-offs of just 0.3% thanks to high payment rates, large cash balances and auto-debit ACH payment tools, Kroll's report noted.
Brex currently lacks a charter, so it issues cards via banking partnerships with New York-based Emigrant Bank and Fifth Third Bank of Cincinnati. All of the accounts backing the Series 2021-1 pool are through Emigrant.
(Kroll noted Brex has applied with the Federal Deposit Insurance Corp. and the Utah Department of Financial Institutions to establish Brex Bank, a process expected to be a multiyear endeavor.)
The Series 2021-1 issuance will have a 23-month revolving period in which additional accounts can be added to to fund investors' note payments. And since Brex has established a master trust – similar to major credit-card ABS sponsors including Citi, American Express and Discover – it may periodically issue new notes backed by the same asset pool.
Kroll projects modest credit losses to the pool of between 1%-2% due to delinquencies and defaults.
