Faced with a challenging pricing environment, J.G Wentworth modified its latest structured settlement securitization, eliminating the pre-funding account. Unlike prior deals, J.G. Wentworth XXXVI 2015-3 does not have the ability to acquire additional collateral after the deal closes.
Historically, prefunding has accounted for 30% to 40% of the overall size of J.G. Wentworth's deals.
This means that J.G. Wentworth will need to come to market more frequently to securitize the same amount of collateral. But the sponsor sees an upside to this, since more frequent issuance will mitigate future pricing volatility.
"Our modified securitization program will provide us with additional flexibility to respond to changing market conditions," said Scott Stevens, executive vice president and CFO of the company, in a press release. "…We chose to reduce the size of [the] securitization and not have a pre-funding component to the securitization in response to the current market conditions that caused investor spreads to increase beyond the prior securitization’s results".
J.G. Wentworth 2015-3 consists of two classes of investor placed notes: $92.9 million of class A notes that have a coupon rate of 4.08%, and $10.3 million of class B notes that have a coupon rate of 5.68%.
Moody's Investor Service and DBRS assigned preliminary ratings of 'Aaa'/ 'AAA' to $91.9 million of class A notes and 'Baa2'/'BBB' ratings to $10.2 million of class B notes. The class A notes mature on March 2070 and the class B notes mature March 2072.
The latest deal priced wide of the sponsor's 2-15-2 deal, issued in August 2015. The class A notes, also rated 'Aaa'/ 'AAA' paid 3.87% and the class B notes, rated 'Baa2'/ 'BBB' paid 4.83%.
Credit Suisse and Barclays are joint bookrunners on the deal. Natixis Securities Americas and Deutsche Bank are co-managers.
The notes will primarily be collateralized by payments from a pool of rights arising under court ordered structured settlement payment purchase contracts, court ordered lottery payment purchase contracts and annuity contracts primarily originated by the J.G. Wentworth and Peachtree Financial Solutions companies.
Going forward, the sponsor plans to tap the securitization more frequently "to better average-in investor spreads," said Stevens.
Starting in 2016, J.G. Wentworth will offer four securitization per year; an increase from its usual three per year program. The structure will also be modified to better hedge interest rate risks and will introduce an interest rate hedging program, which hedges a portion of structured settlement payment purchases against interest rate volatility at the time new receivables are funded.