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PCL readies as-yet unsized premium finance securitization

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Premium Credit Limited is preparing an as-yet unsized securitization of loans used to finance insurance premiums and other annual payments to individuals and corporations in the U.K. and Ireland.

The transaction, PCL Funding III, will be backed by a pool of short-term assets that will revolve over a 3.6-year period. It’s the third deal from the sponsor’s master trust.

In addition to insurance premiums, borrowers in the pool use the loans for annual membership fees of sport or leisure facilities or professional bodies.

PCL both originates and services the loans.

Moody’s Investors Service expects to assign an Aa2 to the senior tranche of notes to be issued, which will benefit from 16.5% credit enhancement.

Among the strengths of the deal, according to Moody’s, is the fact that the portfolio of loans is highly granular with the largest and 10 largest retail borrowers representing 0.1% and 1.38% of the pool, respectively.

Moreover, the majority of receivables are linked to insurance or service contracts that allow the servicer to claim payments from insurance companies, insurance brokers or the respective service provider in case of an obligor default. Moody’s expects cumulative defaults over the life of the transaction to reach 8.1%, and it thinks that 75 of those assets will be recovered.

Among the rating agency’s concerns is the fact that the master trust securitizes 100% of PCL's portfolio, which makes the company dependent on the trust performance for funding its operations. Additionally, PCL is a monoline finance provider that does not benefit from material diversification should the insurance premium finance market deteriorate.

This risk is mitigated, however, by early amortisation triggers to wind down the structure in case of financial distress of PCL and comparatively short life of the assets in the pool.

Lloyds Bank Plc is the arranger and joint lead manager; Merrill Lynch International and Societe Generale are also joint lead managers.

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Esoteric ABS Europe