Golden Pear Funding OpCo., a litigation finance company, is sponsoring its third asset-backed securities (ABS) deal, the PEAR 2022-1 transaction, and in a first for the sector the pool will include medical receivables.
PEAR 2022-1 will issue notes to investors secured by proceeds from judgments or settlements, in this case the collateral portfolio securing the deal amounts to about $130.8 million, according to Kroll Bond Rating Agency, which intends to assign ratings to the notes.
Golden Pear Funding refers to the collateral amount as an aggregate discounted projected balance, or ADPB, which is the aggregate discounted cash flows of collections associated with the portfolio's litigation funding receivables. Eighty-eight percent of the portfolio consists of litigation receivables, based on the pool's outstanding principal balance of receivables, while medical receivables account for 12.0% of the portfolio, according to the rating agency.
Stifel, Nicolaus & Co. is the initial note purchaser on the transaction, according to DBRS.
Golden Fear Funding launched in 2008, the company has advanced more than $825 million to more than 69,000 plaintiffs and collected more than $550 million in principal from litigations. Fundings for pre-settlement litigation make up the company's managed portfolio, primarily, and the portfolio only includes a small percentage of post-settlement advances.
The company began originating medical advances in 2017, and while they comprise a small percentage of its current managed portfolio, that ratio is increasing, according to KBRA.
KBRA did express some concerns about Golden Pear's shorter history with medical advances, and its shared payment arrangement with joint venture partners. Most of the medical receivables that Golden Pear originates are done in conjunction with joint venture partners. Under the arrangement Golden Pear and its joint venture partners share the collections on advances, but only to the degree that the return on the advance exceeds a certain defined return threshold, according to KBRA.
The trust will direct payments owed to the joint venture partner, before flowing through the transaction's payment waterfall.
In other credit considerations, Golden Pear outsources its underwriting functions to Robinson & Yablon, or R&Y, a New York City-based personal injury law firm. R&Y evaluates the merits and expected value of the potential cases, and then Golden Pear determines the size and pricing of advances against each case, KBRA said.
PEAR 2022-1 will issue three classes of notes, which will benefit from subordination for the senior classes of notes, classes A-1 and A-2, and a cash reserve account and overcollateralization.
KBRA expects to assign ratings of 'A' to classes A-1 and A-2, and 'BB' to class B. All of the notes have an expected final maturity date of October 15, 2034.
