Gracie Point International Funding returns with a bid to raise $254.5 million in asset-backed securities that will be secured by premium finance loans and the beneficial interest in certain participations held by the trust.
The Kroll Bond Rating Agency, which has assigned ‘AAA’ ratings to the most senior notes, the class A, says the transaction is Gracie Point’s ninth one secured by insurance premium financing. Premium finance lenders make the loans to a subsidiary of Gracie Point, according to the rating agency.
Truist Bank is the structuring lead on the deal, similar to a string of recent transactions under the program, according to Finsight.
DBRS | Morningstar has assigned ratings of ‘AA’ to the $182.7 million, class A and $44.7 class B notes; ‘A’ to the $13.2 million, class C notes; ‘BBB’ to the $9.1 million, class D notes and ‘BB’ to the class E notes, according to Finsight.
Gracie Point International’s underlying portfolio consists of 173 premium finance loans to 24 out of 45 eligible life insurance companies with an aggregate adjusted principal balance of approximately $255.9 million. That amount equals the sum of the outstanding loan amount of such premium finance loans and the number of months for the surrender period of forward interest of deposit for the premium finance loans.
The trust will issue floating-rate notes, benchmarked on the Secured Overnight Financing Rate (SOFR), through five classes, A, B, C, D and E, beginning July 15. Coupon spreads are said to range from 275 basis points on the class A notes to 700 basis points over the class E notes, according to Finsight.
As of the closing date, Gracie Point intends to retain the class F notes, KBRA said. Credit enhancement on the deal will consist of subordination levels reaching 28.6% on the class A notes; 11.1% on the class B notes; 5.9% on the class C notes; 2.4% on the class D notes and 0.5% on the class E notes.
Other forms of credit enhancement will include excess cash flow, and a reserve account. The latter will be funded with about $15 million on the closing date. That amount is equal to about 5.8% of the aggregate adjusted principal balance and more than six months of forward interest on the offered notes.
But the deal also has credit vulnerabilities. Of the 173 premium finance loans in the pool, nine of them were extended to individuals or revocable trusts, KBRA said. The loans, particularly ones to individuals, introduce the risk of the individual policy holders’ bankruptcy status in which the policy could be part of an individual’s bankruptcy estate and be subject to a bankruptcy stay.
Citi Bank is the verification agent on the deal, a departure from the three previous transactions, according to KBRA.
