CAN Capital has mandated Guggenheim Securities to manage a $191 million securitization of merchant cash advances (MCAs) and loans made to U.S. small businesses to fund working capital needs.
The deal is the only the third securitization of this type of asset. In early April Guggenheim led the inaugural deal in the space, a $270 million deal for Kabbage, an online provider of working capital for small businesses. Later that month Deutsche Bank managed a $175-million deal backed by small business loans for OnDeck Capital. Ronald Borod, counsel for DLA Piper, who spoke at last week’s ABS East securitization conference, said that time that there were at least three more transactions in the works.
Both Standard & Poor’s and DBRS will rate CAN Capital’s Series 2014-1 transaction. The deal is S&P’s first in the asset class; DBRS rated the Kabbage transaction. The capital structure features $171 million of A’/ A’ rated class A notes that have credit enhancement at 15%. The class B notes will be rated BBB-’/ BBB’ and have credit enhancement at 5%. All of the notes are due April 15, 2020.
The pool is comprised of 4,270 small business loans and 2,801 MCAs. The loans all have a term of less than or equal to 24 months, with a weighted average term of 13.76 months. The transaction is structured with a revolving period; new loans and MCA can be added up for a 30-month period after the close.
First Associates Loan Servicing is the backup servicer for the transaction.
CAN Capital uses an inhouse scoring model to assess the probability of merchant default or non-performance. The model assigns a score between 0 and 100 that is referred to as a CAN score. A lower CAN score means lower risk. The initial pool has a weighted average CAN score of 9.
The CAN score is based on merchant's expected to performance taking into account its business, industry and economic risk factors; merchants are compared with their cohorts it a proprietary database. This database includes 16 years of transaction history and performance data and comprises more than $4 billion in more than 130,000 merchant funding transactions.
All assets that CAN Capital sources are either originated directly through its subsidiaries (MCAs and a small percentage of loans) or through an outside relationship with WebBank (most loans). WebBank is an FDIC-insured, state-chartered industrial bank headquartered in Salt Lake City, Utah. The underwriting for the small business loan program is controlled by WebBank. The bank uses CAN’s technology platform, including CAN Scores and the proprietary servicing system to underwrite the loans.