After Foundation Finance Co. posted its highest historical yearly origination period in 2023, it is sponsoring a securitization of retail installment sale contracts with key metrics, like a higher net recovery rate, gross excess spread and class A credit enhancement.
The sale contracts securing the deal, Foundation Finance Trust 2024-1, finance home improvements, primarily, according to ratings analysts at Kroll Bond Rating Agency. This is Foundation Finance's ninth 144a transaction and is collateralized by a pool of $307.7 million in receivables.
Moody's says all the notes have a Dec. 15, 2049 legal final maturity date, and it assigns Aaa to just one tranche, the class A notes.
The deal will issue notes through four classes of notes, expected to price between 115 basis points on the class A notes to 415 bps on the class D, putting them virtually at par, according to the Asset Securitization Report's Deal Database.
Moody's also notes the collateral's high quality and the experienced backup servicer, as credit positives. The pool has 18,512 contracts that, on a weighted average (WA) basis, have a FICO score of 713, an original term of 146 months, with 143 remaining, and an interest rate of 12.58%.
The classes A, B, C and D notes have total initial hard credit enhancement levels of 35.50%, 17.80%, 12.50% and 4.20%, respectively. This includes an initial reserve fund representing 0.50% of the outstanding pool balance, and 5.62% in excess spread. Total excess spread on the deal increased from 2.77% on the Foundation Finance 2023-2 deal, according to KBRA.
The notes also benefit from subordination, the rating agencies said.
Some credit vulnerabilities include FFC's weak credit profile, notably its low financial durability, Moody's said. Also, FFC indirectly lends to the borrower, introducing a potential for collusion between the dealer and the borrower before the loan is sold to the FFC. Also, the weighted long original terms of the assets extends the deal's potential exposure to credit risks.
KBRA assigns AAA, AA-, A- and BBB- to the classes A, B, C and D, respectively.
