Arrow Financial recently closed its third securitization of non-performing consumer receivables, a some-odd $20 million deal backed by everything from delinquent utility/telecommunications bills to private-label cards to autos receivables.
Arrow's investment banking team is staffed in part by the former securitization crew of ContiFinancial. In the late-90's, Conti had purchase an interest in Arrow Financial (which has been in business as a contingency agent since the 1950's).
In September of 1999, Arrow Financial's management repurchased its interest from Conti, when it was clear that Conti was spiraling.
Arrow's latest deal, which closed Feb. 8, was structured as a $12.6 million A2-rated' A1-class (Moody's Investors Service), and a $6.15 million Baa2-rated' A2-class, plus two B-class certificates, which Arrow retained.
The bonds were sold to two large insurance companies, both of which are substantial ABS investors, said Michael Valentino, Arrow's chief financial officer and executive vice president.
According to Valentino, the deal is also subordinated by the residuals of the past two deals, which are still cash-flowing about $1.7 million each month, although the seniors paid out (slightly ahead schedule).
Arrow predicts a monthly credit balance of the portfolio, and the trust is structured so that, as long as the actual balance exceeds 75% of that projected cashflow (via a performance test), the cashflow from the previous deals is released on a one month lag to Arrow, the seller/servicer. In the event that the performance test falls below 75%, than the deal traps the cashflow of the two previous deals.
"We've only fallen below 95% of our projection once and the trigger was never hit," Valentino said.
Arrow's last deal closed in December of 1999, and the firm had been warehousing assets throughout 2000.