Northpoint Commercial Finance is marketing $275 million of notes backed by dealer inventory financing for marine and recreational vehicles and manufactured housing, according to rating agency reports.
It’s the sponsor’s second ever term securitization and the first to be rated by Standard & Poor’s. Only DBRS rated the first transaction, completed in 2014.
Northpoint has a short operating history – it was founded in February 2012 – but is profitable and has experienced management. The company’s executives, along with most of the staff, worked together at Textron Financial Corp. before founding Northpoint. At Textron Financial, the management team built a lending operation and then quickly and successfully liquidated the portfolio when Textron Financial exited the sector.
“The liquidation results show the management's expertise and experience because net losses were low even though the liquidation involved a sizable book and was carried out under stressful economic conditions,” S&P states in its presale report.
Nevertheless, S&P is concerned that Northpoint expanded rapidly over 2013 to 2015, when net finance receivables nearly tripling to about $500 million at year-end 2015 from $170 million at year-end 2013. “Growth of this magnitude weighs on Northpoint's infrastructure for underwriting and servicing, but it also promotes greater diversification of portfolio characteristics,” the presale report states.
S&P also notes that Northpoint has a single U.S. warehouse facility, rather than multiple credit facilities.
Also, the assets included in the trust have a “high degree of servicing intensity,” given that the equipment types are diverse and generally less liquid than more commoditized collateral like autos. Although the transaction benefits from manufacturer repurchase agreements (covering at least 90% of the receivables in the trust) as well as a backup servicer, Portfolio Financial Servicing, S&P believes that recovery proceeds would be “markedly lower” if Northpoint was no longer the servicer.
The deal, dubbed NCF Dealer Floorplan Master Trust (Series 2016-1), will issue three tranches of floating-rate notes: $264.8 million with 19.25% credit support rated single-A by both S&P and DBRS; $15.6 million with 14% credit support rated ‘BBB’ by S&P and $12.5 million with 9.8% credit support rated ‘BB’ by S&P.
Goldman Sachs is the deal’s arranger and underwriter.