J.G. Wentworth first securitization of 2019 is backed by a similar mix of structured settlement and annuities receivables as its second deal of 2018, but the credit quality of the insurers making these payments is higher.
That allowed the company to offer slightly less credit enhancement on the senior tranche of notes to be issued, effectively lowering its overall funding costs.
J.G. Wentworth XLIII LLC, Series 2019-1 is initially backed by 1,177 receivables totaling $72,923,001 with a weighted average life of 13.31 years and $76,238,529 of cash. The cash will be used to acquire additional receivables over the next 90 business days. At closing, 93.9% of receivables will be structured settlement payments and 6.1% will be annuity payments. Unlike some prior deals, there are no lottery receivables.
Most of the obligors are highly rated life insurance companies, but a higher percentage of the pool is backed by Aaa-rated obligors and a lower percentage of the pool backed by unrated obligors, according to Moody’s Investors Service. The pool is similarly concentrated among the top obligors.
As a result, J.G. Wentworth was able to earn an Aaa on the class A senior notes to be issued with just 14.5% subordination. That’s down from 15% for the the class A notes in the 2018-2 transaction. It’s also the lowest level of subordination in any deal from the sponsor since 2015. However, the class B notes benefit from the same 5.5% subordination as the comparable tranches from J.G. Wentworth’s nine prior deals. Both classes of notes benefit from a non-declining reserve account equal to 1% of the initial balance of the collateral.
Of note, Moody’s placed two of the insurance company obligors, both subsidiaries of Genworth, under review for a possible downgrade on Feb. 13. Together, these two Genworth entities account for around 5.7% of the pool’s discounted receivables balance. Moody’s did not indicate in its presale report how this factored into its rating analysis.
The rating agency also noted that the prefunding account of the latest deal is larger than that of recent deals from J.G. Wentworth, which could impact the overall composition of the pool of collateral. However, any receivables to be acquired must meet certain criteria.
Any amount remaining in the prefunding account at the end of 90 days period will be deposited into the collection account and distributed, on a pro rata basis, to the class A notes and the class B notes
There’s also some regulatory risk. On July 12, 2018, the Commonwealth of Massachusetts, Office of the Attorney General, served J.G. Wentworth with a civil investigative demand relating to a review of allegations of unfair and deceptive practices between 2014 and 2018. JGW is cooperating with the Attorney General’s Office in gathering documents that have been requested. The company has previously been served with CIDs from the Consumer Financial Protection Bureau; however, the agency has completed its investigation without taking any action.
