Already running an online healthcare receivables management platform, New York-based Tranquilmoney.com is prepping an Oct. 1 launch of the securitization component to its Web site.
Though healthcare receivables is its current niche market, the company is actively tapping other asset classes including accounts receivables and equipment leases and will eventually go into mortgages.
"It's kind of a structured product factory," said Karun Philip, chairman and chief executive officer at Tranquilmoney.
Where Tranquilmoney is already the back office servicer for the assets, through the program, sellers will be able to customize the securitization of their collateral pools. For example, via a rule-based system, the seller could choose which stream of assets to finance.
"This Internet-based program allows you to create derivative products that you can sell to the market," said Philip. "It's like a factory taking raw assets and turning them into tranches."
Meanwhile, before the Oct. 1 launch date, the company is helping 40 or so retail chains get together to form a conduit to accumulate enough assets - the target is about a billion by year-end - to eventually fund a term deal. Tranquilmoney is currently speaking with some of the large retail pharmacy chains, usually worth $6 billion to $7 billion dollars, and some mid-sized chains, usually worth about $100 million.
However, one of the six large retail pharmacy chains is planning to access the term market directly.
Though Philip did not want to disclose the names of potential underwriters on these deals, he said that that his firm is currently in discussions with three to four of the major New York-based banks.
Since the deals' obligors are often double-A rated insurance companies, Philip said that the senior part of the deals would likely get a triple-A rating. However, there are no projected ratings on the subordinated tranches.
The company has been in the retail pharmacy business for three years, helping companies like Prudential Securities and McKesoon, a $20 billion drug wholesaler, manage these receivables. Philip estimated the retail pharmacy business to be about $100 billion in size and said that it would probably take two to three years to attack the whole market.
Prudential, which bought retail pharmacy receivables but didn't securitize them, recently exited the business when it closed down its subsidiary called Pharmacy Fund. Tranquilmoney helped the bank clean up this account.
Philip said that Tranquilmoney's Internet-based platform will be addressing the problems that companies like Prudential faced in managing retail pharmacy receivables.
One way is through a component of the platform called custom overcollateralization, which through a rule-based system will allow those investing in these receivables to apply variable amounts of overcollateralization, interest rates, or terms. The amounts applied may be based on the credit rating of the payor, who are usually insurance companies or a company benefit plan.
The other feature is called sequential start-up, which addresses problems in the payment structure. This would allow the payment on the receivable to go straight from the payor to the special purpose vehicle, instead of the payment being sent directly to the pharmacy.
"What we'll do is we'll tell the payors to first change the address and we will only start funding the receivable once the first check hits the lockbox," explained Philip. "Right now the payors usually send checks to the pharmacy. So if they continue to send it to the pharmacy, a bank might buy the receivable but then the pharmacy goes ahead and cashes the check from the payor so the pharmacy is paid twice while the bank is left holding that asset which they didn't get paid for."
The Web site also provides deal information that includes real-time default , delinquency and prepayment histories down to the loan-level detail.
"This kind of information brings liquidity to the marketplace," Philip said. "Especially in esoteric assets, if investors don't have drill-down access on the underlying data, they won't have the confidence to buy the product."
The company also has offices based in Boston and India.