PFS Financing Corp. is kicking off the new year by issuing two ABS offerings simultaneously that will securitize a revolving pool of insurance-premium finance loans to commercial borrowers, as well as the right to receive the unearned insurance-policy premiums when borrowers fail to pay the amounts due on the loans.
The PFS Financing Corp., Series 2025-A and PFS Financing Corp., Series 2025 -B offerings, respectively for $150 million and $350 million, are each divided into a Class A tranche that makes up 93.5% of the deal, and a Class B Tranche filling in the remainder, according to Moody's Ratings. In both transactions, the Class A piece offers credit enhancement of 10%, and the Class B tranche enhancement of 4.25%.
The two deals' expected maturity dates vary, however, with the smaller deal's occurring on Jan. 14, 2027, and the larger deal's on Feb. 15, 2028. IPFS Corporation will be the originator and servicer on the loans backing the securitizations.
Moody's said that the deals' key credit strengths include the importance of the insurance policies to borrowers, the granular and diversified pool, protection against adverse collateral pool changes, and an experienced sponsor and servicer. Challenges include servicer disruption, geographic concentration, and potential foreign exchange and interest rate risk.
In terms of servicer disruption, although PFS is a leading insurance-premium finance company, its monoline business model leaves it vulnerable to stressed economic conditions.
"A default by IPFS can result in losses for noteholders if the stress at IPFS results in a delay in the time between the default of a borrower and when IPFS cancels the associated insurance policy to collect the unearned premiums," Moody's said, adding that a default could also delay the return of the unearned premium by the insurance company to the issuer.
Geographic concentration is a risk because 56% of the pool is concentrated in Florida, Texas, California and New York, although the loans in the pool are originated in all 50 states and the Canadian provinces. The deals are exposed to interest rate risk since the Class A coupon is priced over the compounded average 30-day SOFR index while the collateral has a fixed rate for the term of each contract, potentially resulting in an unhedged interest-rate mismatch that could result in reduced excess spread.
