HLSS Holdings is coming out with a $350-million securitization of servicer advances, according to a presale report by Standard & Poor's.
The deal, known as 'Advance Receivables-Backed Notes Series 2013-T6,' is split into four tranches: an A-T6 series for $322.9 million; B-T6 for $13.8 million; C-T6 for $7 million; and D-T6 for $6.3 million.
S&P has rated the A tranche ‘AAA (sf)’; the B tranche ‘AA (sf)’; C tranche ‘A (sf)’; and D tranche ‘BBB (sf).’ The deal is slated to close Sept. 18.
The collateral consists of servicer advance receivables. These are related to the obligation of the servicer — in this case Ocwen Loan Servicing — to cover payments missed by borrowers on loans in an outstanding securitization deal. The flows into the HLSS transaction come from the reimbursement of those advances.
The deal’s enhancement comes from overcollateralization and a reserve fund as well as the advance rates used to determine the price paid for the recievables.
The arrangers on the deal are Barclays Capital, Credit Suisse Securities, and Wells Fargo Securities.
The robust quality of the collateral makes it likely the transaction will pay bondholders on time and in full, according to S&P. “Servicer advance receivables made on residential mortgage loans are typically repaid at the top of the underlying transaction’s waterfall,” the agency said.
In addition, the structure requires that Ocwen continue making advances on delinquent loans until the servicer deems them nonrecoverable. Also, while the advance receivables are generally reimbursed from the related loans, if for any reason the liquidation of one of these loans isn’t enough to cover that amount, in most cases the structure allows Ocwen to use the transaction’s general cash flow to make that reimbursement.
Among the deal’s risks are those linked to operational and financial risks. In short, recoveries on advance receivables are tied to Ocwen’s operational strength.
