National Century Financial Enterprises, Inc. (NCFE), which recently closed its first securitization priced exclusively on a floating-rate basis, will continue to be a dynamic player in the ABS market into 2000.

The Dublin, Ohio-based company was in the market every other month for the past three years and is set to continue this trend, starting with a deal in the first quarter of 2000, said Roger Faulkenberry, director of securitizations at NCFE.

"It would be very similar to our last deal," he said. "The only thing that's truly unique about the last securitization was that it was a floating-rate transaction. It would be anyone's guess as to whether it would be advantageous to again consider a floating rate issuance, but whether it would be a floating-rate or fixed -rate transaction, the essential structure will be very, very similar, if not identical, to what we did in the last deal."

NCFE's recent $200 million deal brought its total 1999 issuance to more than $1 billion.

How would it look going forward? "I would say that we will have a very successful year as far as new business origination, and that's what drives the issuance volume," Faulkenberry said.

A Trailblazer

NCFE was the pioneer in the health-care receivables securitization market. Even before it was established in January 1991, its predecessor companies were due diligent agents and third-party servicing agents for health-care receivables transactions done in the late 1980s.

The owners of the companies eventually realized that it was more profitable for them to sponsor their own securitization backed by health-care receivables because they had the most critical part of the equation: the ability to value the underlying healthcare receivable and the system and the staff to track the receivable.

"The transactions were not true securitizations in that they were backed by third party letters of credit, and the investors relied on the letters of credit not so much on the underlying credit strength of the receivables," Faulkenberry said.

"Obviously, the banks that were issuing those letters of credit wanted someone in the health care field to vouch as to the quality and the value of those underlying receivables. That's where a couple of our predecessor companies came into the equation."

And it's been onward and upward from there for the company.

"The ability to track the receivable is really what gives rise to our dominance in the market," Faulkenberry said. "To my knowledge, we are the only one in our industry that has the ability to track the receivables on a patient-specific basis."

There are numerous factors in the health-care arena that impact the need for this kind of financing, such as changes in reimbursement levels. These changes provide opportunities for companies like NCFE to help health-care providers accelerate their payment pattern.

Labor costs are one of the largest components of their cost structure. They have to pay their labor pool every two weeks, and if they are not collecting on their revenue sources then they will have a cash flow situation that would need to be addressed. Companies like NCFE can effectively bridge that gap, Faulkenberry explained.

"There are numerous changes that the industry is trying to adapt to and of course that creates challenges, but it also creates opportunities for us as well," he stated.

Risk Management and the Middle Market

NCFE has established two special-purpose corporations (SPCs) or master indentures known as NPF 6 and NPF 12. These master indentures, which are akin to master trusts, are multiseller conduits, enabling the company to pool their assets and manage their risk exposure.

"Previously, we used to do separate SPCs, each having very discreet seller pools," he said. "With these facilities in place, we are able to continually add to the pool of assets which gives us and the investors a greater diversification of risk both in respect to the underlying providers that are selling into the pool and the underlying payors.

"There's a critical element with respect to healthcare receivables. We rely on payments not from the providers who sell into our pool but from the actual payor," he said. "These payors are of high credit quality, such as Medicare, various state Medicaid agencies, commercial insurance companies and the like. We are not dependent on payments from the individual healthcare entities who are sellers into the program."

This financing capability has helped NCFE redefine its primary clientele: the middle market. By dividing the client or seller into different pools, the company can now handle transactions amounting to more than $150 million whereas five years ago a large transaction for them would have been $25 million, he explained.

"Our financing capability with respect to the larger client is actually far in excess of almost all our competitors," he said.

A Look Into the Future

And while the emphasis thus far has been on the health-care sector, Faulkenberry said his company is leaving no stone unturned.

"We are going to remain focused on the health-care industry, though we do provide other forms of financing aside from healthcare receivables." he said. "In the past three years, we have expanded our financing options to things like equipment leasing and we will continue to do so in the future.

"Though there are a lot of opportunities in the health-care arena for NCFE, it is somewhat difficult to translate that optimism to others in the market based upon what we perceive as some of our competitive advantages," he said. "If other companies can adequately monitor their collateral base and access cost-efficient capital the way we do, the opportunities to offer health-care providers this form of financing will be better than it was last year."

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