J.G. Wentworth tapping securitization market while in Chapter 11
The J.G. Wentworth Co.’s second bankruptcy filing in a decade doesn’t appear to be inhibiting its access to financing via the securitization market.
The company is marketing its third offering of the year backed by structured settlement receivables and annuity payments.
Two classes of notes of notes will be issued in the transaction, I.G. Wentworth XL: the Series 2017-3: $51.8 million of Class A notes are provisionally rated Aaa by Moody’s Investors Service and $5.9 million of Class B notes are provisionally rated Ba3.
The Class A notes benefit from 15.25% (as a percentage of the assets) subordination of Class B notes (9.75%) and retained interest (5.50%). This subordination is expected to increase over time as the Class B notes will not receive any principal payments for the first 48 months after the transaction closes and retained interest will not receive any principal until the notes are repaid in full.
There is also a non-declining reserve account equal to 1.0% of the initial present value of the receivables, which can be used to pay expenses, interest on the notes and principal on the notes on the legal final maturity date.
In its presale report, Moody’s noted that the credit enhancement supporting the Class A notes compares favorably with the losses that JGW has experienced historically of only 15 basis points cumulatively since 2002.
Court-ordered structured settlement payments account for 95.6% of the present value of the receivables and annuity receivables 4.4%. Unlike some of JG Wentworth’s prior transactions, there are no lottery receivables in collateral pool.
Most of the obligors are highly rated life insurance companies: 74.1% (based on the present value of the receivables) have insurance financial strength ratings of A3 or higher. However, Genworth Life and Annuity Insurance Co. (Baa2) and Genworth Life Insurance Co. (B2), which together accounts for 5.9% of the balance, were downgraded by Moody’s in October and remain under review for additional downgrades.
In November, J.G. Wentworth entered into a prepackaged restructuring support agreement with more than 87% of its $449.5 million senior secured term loan lenders as part of Chapter 11 plan of reorganization. That prompted Moody's to downgrade the company's cororate family rating to C, with a stable outlook, from Caa3 on Dec. 5.
“Although the restructuring is a distressed exchange and default, and is credit negative for the lenders, it will not disrupt servicing of the company’s asset-backed securitizations that we rate because the servicer, JGW Management, an indirect operating subsidiary of The J.G. Wentworth Co. is not part of the bankruptcy filing,” Moody’s stated in the presale report.
This should minimize the potential for any servicing disruptions, not only in the new transaction, but in any of J.G. Wentworth’s outstanding transactions, whose remaining balance exceeds $3 billion, Moody’s said.
In addition, the transactions have several features that mitigate servicing disruptions in the event of a servicer bankruptcy. A backup servicer, Portfolio Financial Servicing Co., will assume servicer responsibilities if JGW Management is unable to continue servicing. This transaction also benefits from having U.S. Bank National Association as the servicer of last resort.