Newtek Makes Late Entry With $31M Small Biz Loan ABS

There’s not much time left, but Newtek is prepping its first small business loan securitization of the year.

The deal, NBSLT 2014-1, will issue a single $31 million tranche of bonds backed by an amortizing pool of unguaranteed portion of loans made under the Small Business Administration's Section 7(a) program.

The SBA is a U.S. government agency that supports entrepreneurs and small businesses with loans made through partner banks, credit unions, and other lenders.  Newtek is  a direct SBA nonbank lender and acts as the seller and servicer for the series 2014-1's loan collateral.

The notes to be issued in Newtek’s latest deal will be rated ‘A’ by Standard & Poor’s. The notes benefit from credit enhancement of 28.75% and are due on April 25, 2040. The transaction is subject to a prefunding period that ends in March 2015. However, 95% of the pool has already been purchased.  The pool is comprised of 137 loans that have a weighted average principal balance of $263,216 and weighted average original term to maturity of approximately 20 months.  

Guggenheim Securities is the lead underwriter.

Newtek was last in the market in December 2013 with a $24 million deal.

So far this year securities backed by small business loans have accounted for $2.3 billion of $24 billion issued in non-traditional securities, according to S&P.

A pullback in lending by banks has created more opportunity for non-bank lenders. Still, Newtek and Hana Small Business Lending are the only two non-banks that have securitized the unguaranteed portion of SBA 7(a) loans since the financial crisis. Hana delivered its first deal of 2014 in September via the JP Morgan Securities-led Hana Small Business Lending Loan Trust 2014-1.

But this year a new breed of asset has also emerged in the securitization market — unsecured high coupon small business loans that are not guaranteed by the SBA. There were two such deals in April: om OnDeck Capital’s $175 million deal, OnDeck Asset Securitization Trust LLC Series 2014-1. A portfolio of small business loans originated by the sponsor backs the deal. It was managed by Deutsche Bank amd DBRS assigned ratings of ‘BBB’ to $156.6 million of class A notes with a weighted average life of 2.32 years. Also in April, Guggenheim led a $270 million deal for Kabbage, an online provider of working capital for small businesses. That deal was backed by receivables on merchant cash advances. Merchant cash advance providers offer businesses a lump sum payment in exchange for a share of future sales.

In October, CAN Capital completed its inaugural deal, a $191 million securitization of small business loans and merchant cash advances via the Guggenheim Securities led CAN CAPITAL 2014-1. The deal, backed by high-interest loans to businesses that are unable to get bank credit, achieved an investment grade rating of single-A from both S&P and DBRS.