FirstCity Financial Corp (FCFC) plans to issue commercial mortgage-backed securities backed primarily by non-performing loans, according to a presale report published by Kroll Bond Rating Agency.

The deal, VFC 2014-2, consists of 1,610 assets including 1,068 non-performing loans, 354 performing loans, and 188 real-estate-owned properties.  These assets, which have an aggregate unpaid principal balance of $834.5 million, were acquired for $386.3 million by FirstCity.

Two tranches of notes will be issued under the capital structure, including a $226.98 million class A tranche, which received a preliminary ‘BBB-‘rating from KBRA.  The $62.78 million class B notes have not been rated.

The indenture trustee for the deal is U.S. Bank National Association.

This is FirstCity’s second non-performing loan securitization.  The first transaction, VFC 2013-1, paid off 30% of the original $185.5 million balance. The remaining balance was in line to pay-off in September 2014 but has been transferred to the VFC 2014-2 securitization.   

KBRA noted in the presale report that 81.4% of the pool is comprised of commecial real estate (CRE), which is generally an income producing asset. That's thee second highest exposure to CRE assets among the six commercial NPL transactions that KBRA has rated since March 2013.

The remaining 18.6% of the pool, however, is comprised of land, residential properties, and other collateral, which are generally non-income producing. “Non-income producing assets have a higher credit risk profile than income producing assets because their value is primarily dependent on capital appreciation or depreciation, and non-performing assets may require significant carry costs until they are resolved,” according to the KBRA report.  

The deal’s servicer and asset manager, FirstCity Servicing Corporation (FCSC) is a wholly owned subsidiary of FirstCity Financial and its main operating company. FCSC’s current portfolio is comprised of 1,328 assets with a total unpaid principal balance of $1.1 billion.  Over the last 25 years, the firm has resolved more than 58,000 assets totaling $6.8 billion.

FirstCity Financial was founded in 1991, operating in various sectors of consumer and commercial credit.  However, the company focuses on the acquisition and management of non-performing and sub-performing commercial loans. 

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