Neighborly Issuer LLC is set to raise $414 million in asset-backed securities (ABS) in a whole business securitization, the second such transaction from the Neighborly platform. Substantially all of the company’s domestic revenue-generating assets will secure the notes.
Headquartered in Waco, Texas, Neighborly provides a range of home services to the consumer segment, through an array of 25 specialty brands. Services provided include cleaning, maintenance and repairs, HVAC, electrical, plumbing, windows, landscaping and pest control.
Barclays Capital and Mizuho Securities USA are acting as joint book-runners on the transaction, which will issue notes to bondholders from two tranches, according to Kroll Bond Rating Agency. Proceeds from the deal will fund general corporate purposes, pay certain transaction costs and fund various transaction accounts, including possibly the Series 2022-1 pre-funding account.
The A-2 class will issue the bulk of notes to bondholders, $410 million, and KBRA expects to assign ‘BBB-‘ ratings to them.
Neighborly Issuer’s transaction structure incorporates several features to benefit the notes should principal and interest fall below established debt service coverage ratio (DSCR) thresholds. If the principal and interest on notes is less than 1.75x, but equal to or grater than 1.5x on any payment date, then 50.0% of all excess cash flows will be deposited into the cash trapping account. The deposit will increase to 100% if the DSCR is less than 1.5x, KBRA said.
The transaction also has a liquidity reserve class, the A-1 LR notes, in the amount of $4 million, also rated ‘BBB-,’ for which Barclays is the lender.
Neighborly’s covenants also call for a rapid amortization event. If the DSCR falls below 1.20x on quarterly payment date. Should that happen, then the series 2022-1 notes will be subject to the rapid amortization event.
In conjunction with issuing the 2022-1 notes, KBRA expects to affirm the ratings on the Series 2021-1 notes from the platform’s master issuer, the rating agency said.
KBRA noted several credit strengths that should benefit the notes paying out of the Neighborly transaction. The company operates in 50 states and nine countries, with Texas accounting for the state with the largest concentration (10.6%) of service providers. Also, the franchise network is highly granular, with 3,684 active service territories, according to KBRA.
In a period of the U.S. economic cycle where labor demand seems to outstrip supply, KBRA noted that the home services industry typically requires a number of employees and is subject to high rates of employee turnover, creating operational challenges. Yet the rating agency also noted that Neighborly’s increased focus on hiring and retention includes offering competitive compensation, recognizing strong performance and looking internally to fill open positions.
