Unsecured consumer loans will secure a $197 million asset-backed securitization deal through the LL ABS Trust 2021-1. It is the latest transaction from a securitization program that launched in November 2019, just before the onset of the COVID-19 pandemic.
FinWise Bank is acting as the deal’s funding bank and originator, with Liberty Lending acting as sponsor of the transaction, which features several transaction structures that Kroll Bond Rating Agency finds to be credit positives.
For one, LL ABS Trust 2021-1 will operate with a sequential pay structure in which the class A notes will receive principal payments before all subordinate notes, class B and then class C, will receive principal payments.
Aside from subordination and a sequential payment system, the deal includes overcollateralization (OC), initially as 5.0% of the initial portfolio balance. The target level of OC will be either 7.5% of the outstanding portfolio balance or 5.0% of the initial portfolio balance, according to KBRA.
The deal also provides 13.7% and 6.4% subordination for the class A and class B notes. Also, LL ABS Trust will feature a cash reserve account in the form of a non-declining reserve account funded at closing and on each funding date during the prefunding period. The amount will be equal to 0.50% of the cumulative pool balance of the initial pool, as well as the additional loans acquired on funding dates.
Another aspect of LLABS Trust 2021-1 is the geographic diversification. No single state accounts for more than 12% of the pool as of July 31, 2021, the statistical cutoff date. California (11.4%), Texas (8.2%), New York (7.9&), Florida (7.3%) and Illinois (7.1%).
KBRA noted that credit performance to Liberty Lending portfolios has been better than expected, despite unemployment running higher during the heights of the COVID-19 economic slowdown. The rating agency attributed that to assistance programs, which gave borrowers the flexibility to defer monthly payments on debt such as student loans and mortgages. This freed up funds to service other debt, such as unsecured consumer loans, Liberty Lending’s line of business.
KBRA expects to assign ‘A’ ratings the $169 million class A notes; ‘BBB’ to the $15.3 million class B notes and ‘BB+’ to the $13.3 million class C notes.
