PFS Financing is returning to the securitization market to raise $450 million, in a deal supported by insurance premium finance loans on property and casualty policies.
The deal comes to market even as analysts expect the sector to experience 5% growth this year, compared with 10% in 2022, and different sectors struggle to increase rates, according to S&P Global Ratings. Rate increases for commercial insurance lines, in particular, have been slowing gradually for the past couple of years, and should stabilize to a range of 5%-7%, the rating agency said.
Aside from an environment of sluggish rate increases, S&P says it expects to downgrade insurers whose capitalization has fallen substantially below expectations. They would also consider it if capital management options will not be enough to rebuild capitalization to a level consistent with its current ratings over the next 24-36 months.
PFS Financing Corp., 2023-A's collateral pool is fairly diversified along the lines of property and casualty insurance carriers that contribute loans to the pool, which are of high credit quality. The top twelve insurance carriers comprise about 27.5% of the pool, according to Moody's Investors Service.
PFS Financing, however, is also concentrated in four states, according to Moody's Investors Service. California, Florida, New York and Texas account for 52.2% of the total pool balance, which Moody's says reflects the country's economic activity. Each state comprises more than 8.2% of the total pool, the rating agency said.
Managers were not disclosed at press time, but BMO Capital Markets, Citigroup Global Markets, J.P.Morgan Securities, and Scotia Capital have been managers on the most recent deals, according to Asset Securitization Report's deal database. UMB Bank is serving as the trustee and backup servicer.
Some 441,179 loans with an aggregate outstanding principal balance of around $5.1 billion comprise the pool, according to
Moody's notes that the pool has an outstanding balance of $5.1 billion, and its highly diversified by its 441,179. The top borrower accounts for 0.58%, and the top 10 account for 2.56%, Moody's said.
S&P expects to assign 'AAA' and 'A' to the fixed-rate notes from classes A and B, while Moody's says it will rate the class A notes 'Aaa'. All of the notes have an expected maturity date of March 16, 2026, and a legal final maturity of a little under two years later.
