Funding for U.S. small businesses is getting a boost, as the Newtek Small Business Loan Trust 2021-1 prepares to issue $103.4 million in asset-backed securities (ABS). The deal’s collateral is comprised of unguaranteed interests in small business loans sponsored by the U.S. Small Business Administration’s 7(a) program.
Like previous transactions dating to 2016, the notes are benchmarked to the one-month Libor. The current transaction, however, has the lowest issuance amount since the 2018-1 deal, according to deal tracker Finsight.
Deutsche Bank Securities and Capital One Securities are initial note purchasers on the deal, which has a capital structure of two classes of notes. The structure also features overcollateralization, subordination for the class A notes, a reserve account, and excess spread. The deal is expected to close on December 9, according to S&P Global Ratings.
Newtek Small Business Finance originated the loans and is selling them into the trust. It will also service the notes. The deal includes a provision where the servicer can, within 90 days of the deal’s closing, substitute new and eligible loans for any loans that are delinquent by 150 days or more. This substitution can impact up to 10% of the adjusted portfolio balance, S&P said.
Also, the issuer will deposit about $23.3 million into a prefunding account at closing, according to S&P.
S&P expects to assign an ‘A’ rating to the $79.6 million, class A notes, and a ‘BBB-’ rating to the class B, $23.7 million notes, S&P said.
The collateral pool is comprised of 677 loans with a weighted average (WA) loan rate of 6.0%, and a WA spread over prime of 2.75%. The average current principal balance is $150,170, according to S&P.
Similar to previous SBA 7(a) deals, refinancing debt accounts for the most commonplace use of loan proceeds, 42.7%. The next most common use is for working capital 25.0%, followed by real estate 13.9%. They have been the three top categories going back to the securitization from 2016.
Geographically, Florida accounted for the state with the highest percentage of loans, with 11.2%, followed by Texas, with 10.9%, and California, with 10.6%, S&P said.
