Newtek Business Services closed its securitization backed by roughly $23 million of non-guaranteed portions of U.S. Small Business Administration (SBA) small business loans.
The sale of the trust notes was handled by Guggenheim Securities, which advised and provided investment banking services to Newtek. Standard & Poor's rated the notes 'AA'.
Newtek's subsidiary, Newtek Small Business Finance, is active in making SBA 7(a) loans. it is also one of the very few nonbank lenders currently making small business loans.
Newtek typically retains the unguaranteed portion of those loans and, with the assistance of Guggenheim, was able to securitize those portions. Through the sale, it made roughly $16 million in gross proceeds, which is for making new loans and extinguishing Newtek Small Business Finance's existing term loan with Capital One Bank.
"Newtek has previously announced the repositioning of its funding relationship with Capital One Bank," said Barry Sloane, chairman, president and CEO of Newtek Business Services. "That additional credit facility, in conjunction with the securitization proceeds, will give Newtek the confidence and financing to support the growth in its 7(a) SBA Government guaranteed lending. The Company anticipates approximately $65 million to $70million of 7(a) loan closings to small businesses during 2010, apart from any other lending programs we have."
In 2011, securitization and the new Capital One Bank financing, as well as other plans that the firm has under way and have disclosed in connection with its investor guidance, Sloane said, will the firm to originate around $100 million of loans. It will also dramatically improve Newtek's lending segment profitability over 2010 and 2009 levels. Under new accounting rules, this deal is treated as a financing and the assets and liabilities remain on the firm's financial statements, he added.
The guaranteed portion of an SBA loan can currently be sold into the secondary market at a premium of over 10%. The liquidity created by the securitization of the unguaranteed portion offers Newtek with long-term financing to support its SBA lending business, explained Sloane. This, he said, is better than using the firm's internal cash resources to support lending, which was needed in the last 12 months.