Marketplace lender Kabbage is marketing $500 million of bonds backed by small business loans and lines of credit. The transaction, dubbed Kabbage Asset Securitization 2017-1, refinances a $270 million facility it obtained in 2014 that is set to expire.
When Kabagge obtained the original facility, it was one of the largest credit facilities ever raised in the small business financing sector.
The new transaction is not only larger, enabling Kabbage to make more loans; it will also be backed by a different mix of products, including some with longer terms.
Like the initial securitization, the latest transaction has a 36-month revolving period, during which cash flow from principal collections may be reinvested to purchase additional receivables, based on certain eligibility requirements.
The trust can also issue additional notes, subject to certain conditions without the prior approval of existing noteholders.
Also like the original facility, the latest transaction is solely structured and placed by Guggenheim Securities.
The trust will issue four tranches of notes with preliminary ratings from Kroll Bond Rating Agency: $370.37 million of class A notes with 30.5% credit enhancement are rated A; $79.36 million of class B notes with 15.5% credit enhancement are rated BBB; $26.45 million of class C notes with 10.5% credit enhancement are rated BB and $23.81 million of class D notes with 6% credit enhancement are rated B.
All of the notes have a legal, final maturity of March 2022.
Kabbage, founded in 2009, provides business loans and short-term lines of credit called merchant cash advances. Approximately 0.01% of the collateral for the 2017-1 deal are merchant cash advances, according to Kroll.
The Kabbage Platform currently allows merchants to access uncommitted business lines of credit up to $150,000 for a six- or 12- month installment loan issued by Celtic Bank, a Utah chartered industrial bank. A business approved under the Kabbage Program can draw on the line up to the credit limit as needed, however Kabbage can cut off the borrower’s ability to draw on the business line for a variety of reasons including missed payments.
Kabbage expects to launch loan products with 18-, 24- and 36-month terms in exposure limits up to $400,000 in the future, although loans in excess of 18 months or $250,000 will not be included in this transaction. The average original receivables balance per receivable and weighted average original term in the original pool is $7,486.20 and nine months, respectively.
The loans and cash advances are repaid in equal principal payments over the original term of the loan with interest charges based on the initial borrowed amount. Each loan will have a “big fee” (typically 2% to 11%) for the first two months for six-month loans and the first six months for 12-month loans, as well as a 1% “small fee”, for the remaining term of the loan. For the 18-month loans the “big fee” will be for the first 10 months.