The Newtek Small Business Loan Trust, 2023-1, is preparing to issue about $103.8 million in asset-backed securities secured by a pool of Small Business Administration small business loans, a portion of which has strong seasoning.
About 17% of the 1,064 loans in the collateral pool had been securitized in two previous Newtek Small Business Loan Trust transactions, from 2016 and 2017, specifically, according to S&P Global Ratings, which intends to assign ratings to the notes. Those loans provide valuable seasoning to the current collateral pool, which will actually be higher compared with the series 2022-1, S&P said.
The notes issued from this latest Newtek deal will benefit from the seasoning, as well as several critical forms of credit enhancement. S&P will rate classes A and B, which benefit from 36.18% and 21.00%, respectively in initial credit enhancement. Other forms of credit enhancement include a funded reserve account and excess spread, according to S&P.
Investors, however, will need to need a few areas of caution before the deal's June 8 closing date. For one, the pool contains loans originated under the SBA's "SBA Express Loans" program, which are unsecured and underwritten according to relatively abbreviated process, compared with standard 7(a) program loans.
Even so, "SBA Express Loans" account for only 3.1% of the collateral pool.
Deutsche Bank Securities and Capital One Securities are initial purchasers on the deal, while Newtek Small Business Finance, which has been making business loans since 1994, is the originator, seller and servicer, the rating agency said. Newtek's long track record as an originator and servicer is another factor that should mitigate any credit risks to the timely repayment of notes.
S&P intends to assign ratings of 'A-' to the $84.2 million, class A notes and a rating of 'BBB-' to the $19.5 million, class B notes, which will expire in July 2050.
