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Genesis Financial’s third securitization faces challenging environment

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Genesis Financial Solutions (GFS) is pursuing a $135.9 million securitization of credit card receivables, including riskier point-of-sale credits that should provide investors with attractive spreads.

Maturing in just under five years, the GSFMT Series 2020-A notes are split into five tranches, including a $76.25 million Class A portion rated AA by Kroll Bond Rating Agency that has initial credit enhancement of 48.10%. Kroll gives a B- rating to the $16.01 million Class E piece that has initial credit enhancement of 8.50%.

GFS, controlled by the Castlelake private equity firm, completed a $138 million securitization in July and a $136 million one in January 2019 — Credit Suisse acting as structuring lead on all three.

The $83.49 million Class A portion of the deal in July priced at a spread of 185 basis points over Treasuries and carried credit enhancement of 58.37%, according to Finsight

The $6 million Class E piece, rated single-B and carrying credit enhancement of 30.7%, priced at 975 basis points over swaps.

The 2019 deal’s $75.59 million Class A portion was rated single-A, according to Finsight, and carried a spread of 200 basis points over swaps, while the four-tranche deal’s $20.91 million Class D portion, rated single-B, priced at 700 basis points over swaps. Credit enhancement details were unavailable.

Kroll’s presale report says that the economic effects of the pandemic have the “potential to impact this transaction and the company’s business operations, including its financial performance, servicing capabilities, originations and credit performance of its managed portfolio.” The rating agency notes that the point-of-sale financing GFS provides through the private-label credit card programs at a variety of retailers tend to be offered to consumers who may have been declined under traditional financing options.

Economic downturns and high unemployment tend adversely impact consumers with poor credit quality and credit-card loans in general.

“In considering this risk, KBRA applied additional stress scenarios by increasing its expected base case charge-off rate assumption and decreasing its monthly payment rate assumption,” Kroll said.

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Point-of-sale ABS