Specialty lender Oxford Finance is preparing a collateralized loan obligation backed exclusively by loans to life science and healthcare companies, according to Kroll Bond Rating Agency.

Oxford Finance Funding 2014-1 will be backed 56 loans, primarily senior secured loans, to 46 obligors, 96.4% of which are in life sciences and 3.6% in healthcare services.

Kroll has assigned a preliminary ‘A’ rating to a single, $204 million tranche of notes with a legal final maturity of December 2022. The deal has a 24-month reinvestment period during which time principal payments can be reinvested inn new loans.

Barclays Capital is the structuring advisor and initial purchaser.

Securitizations of senior loans typically are highly diversified by obligor and industry. Kroll said that the concentration in this portfolio raises concerns; however this is mitigated by the fact that the various subsectors within life sciences have different fundamentals. Additionally, individual technologies within a sector are not correlated.

The deal benefiits from overcollateralization in the form of an advance rate on an adjusted pool balance, which is determined by subtracting the principal balance of any defaulted, delinquent, or restructured loans and any amount in excess of the concentration limits from the outstanding principal balance of the loans and adding funds from principal collections. The maximum advance rate is 70% but will adjust downward as the number of obligors decreases.

In the case of life science companies, the loans often include a negative pledge on the obligor’s intellectual property.

Oxford is backed by two private equity firms, Sumitomo and Welsh, Carson, Anderson & Stowe, each of which own 48.75% of the company. The remainder of the company is owned by Oxford’s management. According to Kroll, the two sponsors have provided $121 million in equity capital, and the company overall indebtedness, relative to its earnings, is low at 2.5x.

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.