Foundation Finance Co., which underwrites and acquires installment loans issued by third-party home improvement contractors, is launching it’s first-ever asset-backed collateralization sized at $178.15 million.
The interest rate on Foundation Finance Trust 2016-1 is to be determined on both the Class A series of notes totaling $157.55 million and the Class B notes sized at $20.6 million. The Class A notes are supported by 24% enhancement, and have a preliminary ‘A’ structured finance rating by Kroll Bond Rating Agency. The B notes, with 14% enhancement, carry an ‘A-’ rating. Credit enhancement includes a 13.5% initial overcollateralization pool and a 0.5% reserve fund.
According to Kroll, Foundation acquires contracts from dealers providing point-of-sale financing to “typically” credit-worthy homeowners (53.9% with FICO scores between 640-719) who purchase roof replacements, heaving/venting/air condition systems, water heaters and water treatment products.
Foundation funds the dealers directly after project completion. The company will hold equity in the portfolio and will service the loans.
The current pool balance is $205.9 million, with an average contract loan balance of $6,600 at an average interest rate of 13.23%. The homeowners borrow the funds for an average term of 104 months, and typically have an income of $95,000, an average debt-to-income ratio of approximately 34.1%, and a weighted average FICO score of 708. The loans have a weighted average seasoning of 14 months.
Foundation is 99% owned by Garrison Investment Group, a middle-market credit and asset-based investment management firm with $3.8 million in assets under management.
A majority of the pool's loans (79.9%) were issued to “standard” borrowers with higher credit risk standards than the “same-as-cash” borrowers who are given the opportunity to pay off principal within a certain amount of time to avoid interest payments.
Foundation was founded in 2012, and has a network of approximately 3,240 dealers through referrals or manufacturer relationships in all 50 states. It has originated almost 350 million contracts and has a portfolio of $216.7 million.
Foundation has a $164.5 million revolving credit facility (recently upsized by $25 million) through a syndicate of bank lenders. Although the outstanding balance is $149.4 million, Kroll believes Foundation has ready access to additional capital markets financing.
Foundation reported $6.2 million in first-half 2016 net income, according to Kroll.