Continental Finance Co. (CFC) is introducing a master-trust platform for issuing new revolving collateral pools of subprime credit-card receivables, launching with its first series offering of $188.9 million in asset-backed notes.
The securitization is CFC’s fifth overall transaction, but the first under a master-trust format allowing it to introduce new periodic series of notes on a revolving basis. The issuer’s previous deals involved static pools of general-purpose credit card accounts assigned into a stand-alone, bankruptcy-remote trust.
The receivables from Continental Finance Credit-Card ABS Master Trust Series 2020-A will support principal and interest payments on three classes of notes being marketed to investors, according to a presale report from Kroll: a Class A $116 million tranche with a preliminary single A rating from Kroll Bond Rating Agency; a $31 million Class B tranche with an early BBB rating from Kroll; and a $41.9 million Class C notes offering with a non-investment grade rating of BB-.
The Class A notes benefit from 42% credit enhancement, unchanged from the previous CFC transaction last year. Kroll has an expected base case gross charge-off range of 36.8%-38.8% of the pool balance.
The collateral pool consists of $150 million in initially assigned receivables, which will be supplemented with an additional $50 million in additional accounts after the completion of the initial six-month prefunding period.
The accounts were originated and are held by The Bank of Missouri and Celtic Bank Corp., since CFC lacks a bank charter and does not issue the cards itself. CFC assigned a third-party servicer, but receives a 3.5% per annum servicing fee based on the aggregate outstanding loan balance for each account.
CFC primarily targets non-prime and “thin” credit-file borrowers with an average Vantage score of 623 and a weighted average annual income of $46,247.
The accounts in the new 2020-A series under its ABS master trust have slightly worse WA Vantage score of 596 (CFC’s previous transaction has a Vantage score average of 618). Most of the card accounts in the pool have limited credit lines with an average of $615 per account that carries an average balance of $383 (a utilization rate of 62.5%).
But the 385,456 accounts backing the new series carry an average APR of 27.65%, and have a weighted average age of 14 months, a lower rate and a more-seasoned pool than CFCC 2019-1.
The pool of accounts was only minimally impacted by economic stresses of the COVID-19 pandemic, with only 3.9% of total active customers seeking assistance from CFC’s disaster relief program offering temporarily lowered minimum payments and a reduced fixed-interest rate for three months. The share of CFC customers on the relief program have been under 0.5% since June.
In fact, utilization rates on the cards declined from 72% in March to 58% in July, reflecting government stimulus payments and overall reduced consumer spending by cautious cardholders.
Although the company is private, Kroll reports the company was profitable through the first nine months of 2019 “and has increased gross revenues from the same period in 2019.”
Kroll noted that 8.83% of the accounts in the CFCCMT Series 2020-A transaction were originated to cardholders in New York, Connecticut and Vermont that have APRs exceeding those states’ usury limits. That could subject the trust to exposure in the event of defaults due to the 2016Madden v. Midland Fundingfederal court decision, which involved limiting pre-emption for non-bank purchasers of charged-off credit card accounts that were originated in those three states.
CFC will have a 10% concentration limit on loans from those states.
