Marlette Funding Trust 2022-1 is preparing to issue $317.3 million in asset-backed securities, collateralized by a portfolio of unsecured consumer loans, and use part of the proceeds to repay a portion of outstanding debt in the revolving credit facilities of its sponsoring company, Marlette Funding, LLC.
The trust will issue four classes of notes to bondholders, with initial credit enhancement of 46.05%, 26.1%, 18.05%, and 9.8% for notes in classes A, B, C, and D, respectively, according to a presale report from Kroll Bond Rating Agency.
KBRA expects to assign ratings ranging from ‘AAA’ on the $190 million class A notes to ‘BBB-’ on the $28.8 million class D notes.
Marlette Funding will pay bondholders through a sequential structure, wherein class A noteholders will receive full payment before all holders of the subordinate notes. Also, the transaction is structured to de-lever, so the level of credit enhancement will increase over time, the rating agency said. This structure should help the notes maintain their ratings.
As for forms of credit enhancement, the notes in Marlette Funding benefit from overcollateralization of 9.35% initially, which will increase to 12.7% of the current pool balance, and subject to a floor equal to 1.0% of the initial pool balance. Also, a cash reserve account will be funded at closing and the amount in it will equal about0.50% of the note balance of all classes of notes as of the closing date, KBRA said. Excess spread is about 9.72%, based on a weighted average contract rate of 13.1%, minus 1.1% of servicing fees and other fees, and a weighted average life adjusted coupon of 2.35%.
KBRA noted that Marlette Funding, LLC, has a strong financial profile, including $250 million in multi-year warehouse facilities from two large financial institutions with staggered maturities. As of December 31, 2021, about $113 million of that facility had been drawn, leaving Marlette with about $137 million in available capacity. KBRA did note that Marlette ended 2020 with a net loss, mainly due to lower originations volume and a related decrease in fee income, but that the company also generated a net income for 2021 through October of that year.
