Harvest SBA Loan Trust is preparing to issue $95.2 million in asset-backed bonds, secured by a pool of undivided beneficial ownership interests in the unguaranteed portions of Small Business Act loans.
Harvest Small Business Finance is sponsoring the deal, which will include adjustable-rate, primarily first-lien and small-balance business loans. Commercial real estate properties secure each loan, which might also be secured by other collateral, according to ratings analysts at Morningstar | DBRS.
Harvest SBA will issue the notes through three tranches of class A, B and C notes, DBRS said. Like the notes, the assets are adjustable rate—Small Business Administration loans are floating rate, priced against the prime at a maximum spread of
300 basis points. The Harvest 2024-1 notes will begin repaying later this month. The notes will repay investors monthly until their final payment date of December 2051.
The transaction will repay interest through a subordination structure and interest will be repaid on a pro rata basis, according to the rating agency.
DBRS says Harvest's historical collateral performance has been good, with low defaults and minimal net losses since it began originating in 2016. The pool is diverse in several ways, including business type and property type. On a weighted average (WA) basis, the borrower companies have been in business for 18 years, and the loans have a FICO score of 729. Also, the loan assets have a debt service coverage ratio (DSCR) of 2.53x.
Generally, SBA 7(a) loans are capped at $5 million, with an unguaranteed interest of $1.25 million. Primarily, they are backed by first liens on commercial real estate, which are at least 51% owner-occupied.
HSBF will also service the underlying loans. The servicing portfolio, composed of guaranteed and unguaranteed interests in SBA 7(a) loans, exceeds $1.1 billion, DBRS said.
DBRS assigns ratings of A, BBB and BB to classes A, B and C notes.
