Octane Lending, a powersport equipment financing company hoping to see its first profitable year in 2021, is preparing to price $305 million in asset-backed securities through Octane Receivables Trust 2021-1.
Founded in 2014 with venture capital funding, Octane Lending is a full-spectrum lender that offers point-of-sale retail installment sale contracts and installment loans through powersports and power equipment dealerships, according to Kroll Bond Rating Agency. Customers use the funds to purchase all-terrain vehicles, cruisers, dirt bikes, sports bikes, watercraft and other vehicles, including golf carts, mowers, and other powersport assets, according to S&P Global Ratings.
With a risk department based in New York City, the company began using the asset-backed securities market in 2019, and the OCTL 2021-1 will be the issuer’s third transaction, according to KBRA.
Roadrunner Financial, Octane’s subsidiary, originated the loans collateralizing the ABS pool. Although the company has a short operational history, Octane’s management team has extensive experience in the auto and powersports financing industry, and has worked at such companies as Capital One and GE Capital Consumer, says KBRA.
While growing organically, originating more loans, Octane has already made progressively higher quality loans than when it first started. S&P says Octane began lending in the prime segment in Q2 2017. As of Q4 2020, prime loans comprised 60% of Octane Lending’s originations, according to S&P. Octane’s typical borrower profile is that of a homeowner with an average weighted income of $84,443, and a weighted average FICO score of 691.
Among its obligors, the top three lines of work are construction, manufacturing and healthcare, industries that were not heavily impacted by COVID-19 lockdowns.
In the 2021-1 pool, the numbers suggest higher quality borrowers. The weighted-average non-zero FICO score in the pool is 700. The average outstanding loan balance is $12,551, and the average monthly payment is $283.
Credit Suisse is the structuring lead manager on the deal. Octane Receivables has an initial credit enhancement of 16.8%, 8.75% and 1.0% on classes A, B and C, respectively. Excess spread, overcollateralization, subordination and a reserve account funded at closing provide further credit enhancement, according to KBRA.
Both KBRA and S&P have assigned preliminary ratings of ‘AA’ to the senior class of $256.6 million in notes; ‘A’ to the $24.7 subordinate class B notes; and ‘BBB’ to the class C notes.
