Island Finance is preparing to sponsor a $292.5 million sale of asset-backed securities (ABS) to investors, out of a pool of non-prime consumer loans. The first-time term ABS issuer is expected to close the sale around the end of the month.
Island Finance Trust, 2025-1 will sell notes through three tranches of notes, according to Morningstar | DBRS and S&P Global Ratings, which assigned ratings to the notes. All the notes have a March 19, 2035 legal final maturity date.
ATLAS SP Securities is the lead underwriter on the deal. Headquartered in San Juan, Puerto Rico, the company operates 48 branches, and funds unsecured loans with fixed rates and fixed terms, with fully amortizing and equally distributed monthly installments, according to DBRS.
Using an automated and centralized underwriting process, the company offers four loan products, small loans, intermediate loans, payment protection, and sales finance loans, but the latter is not eligible for securitization, according to DBRS.
Subordination, overcollateralization, a reserve account and excess spread provide credit support to the notes, the rating agencies said. Classes A, B and C notes have 31.0%, 20.5% and 11.0%, respectively.
Initially, overcollateralization is 10.0% of the initial loan pool, while the reserve account is funded to 1.0% of the initial loan pool.
The company was founded in 1959 and typically serves customers that are about 53 years old, had an average 668 FICO score, and an average income of about $25,000. Branch employees originate most of the loans, and they are positioned to do so, since the branches are in 50% of the municipalities, DBRS said.
S&P says Island Finance has exhibited strong credit performance on its consumer loan portfolio, even during the Great Recession, and has been consistently profitable.
Still, there are some potential drawbacks to the credit, mainly Island Finance's localized branch network. If Island Finance relies heavily on decentralized manual processing, payments are more likely to be delayed or misdirected than through lockboxes or electronic channels.
S&P assigns A, BBB and BB+ to the A, B and C classes, while DBRS assigns A, BBB and BB to classes A, B and C.
