Regional Management Corp., a consumer lender that focuses on borrowers with weak credit, just tapped the securitization market for $150 million in financing.
The company has been in business for 30 years and relies primarily on bank lines of credit. The transaction, RMIT 2018-1, securitizes roughly a fifth of its portfolio of net receivables.
A $129.77 million tranche of notes rated with a weighted average life of 2.6 years has a coupon rate of 3.83%, the company said in a press release issued Thursday. The tranche is rated AA and benefits from hard credit enhancement of 24%.
A $9.3 million of tranche of A-rated notes with an average life of 3.57 years has a coupon rate of 4.28% and $10.9 million tranche of BBB rated notes with an average life of 3.84 years has a coupon rate of 4.87%.
Credit enhancement in the transaction consists of overcollateralization (OC), subordination, a reserve account and excess spread. The initial amount of OC is approximately 11% of the initial loan pool.
Credit Suisse and Wells Fargo acted as joint lead bookrunners on the transaction.
In the press release, Peter R. Knitzer, Regional’s president and CEO, said the securitization both increases and diversifies the company’s funding capabilities. The ability to bundle loans into collateral for bonds also positioning the company for further growth while reducing its overall cost of capital.
The notes are backed by a mix of Regional’s four products: small loans of $500 to $2,500 and terms of 12 to 18 months and annual percentage rates of 50% are secured by “non-essential household goods”; large loans of $2501 to $20,000 and terms of 18 to 60 months and APRs of 30% are secured by title to a vehicle or households goods and are used primarily for education expenses; retail loans of up to $7500 are used for home furnishings, appliances, televisions and electronics and have terms of six to 48 months and average APRs of 22%; and insurance products that are used in conjunction with the loan offerings (and are optional).
The pool of collateral will revolve for the first two years of the transaction, allowing the trust to purchase new loans as existing loans are paid off. The loans currently in the pool have an average principal balance of $4,345, a weighted average FICO (at origination) of 636, a remaining term of 36 months, and a weighted average APR of 29.92%, according to DBRS.
Similar to other branch-based lenders, Regional is geographically concentrated in a select number of states. In its presale report, DBRS notes that nearly all loans, regardless of origination channel, are serviced through the branch network, providing frequent in-person contact with the customers, which Regional believes improves credit performance and customer loyalty.