IPFS Corp. is preparing to sponsor $450 million in asset-backed securities deals collateralized by a revolving pool of insurance premium finance loans, and will sell the securities through two series of notes simultaneously.
PFS Financing Corp., 2023-C and 2023-D will issue $350 million and $100 million, respectively, according to Moody's Investors Service. Customers, which are largely small-and medium-size businesses, tend to prioritize servicing this kind of debt, which is one of the main strengths underpinning the credit of the outstanding notes, Moody's said.
The underlying pool is also highly diversified, both by borrower and the insurance companies facilitating the loans. Each borrower in the pool accounts for less than 0.4% of the loan's principal balance, while the top 13 insurance companies make up about 29.9% of the pool, according to Moody's.
In another layer of protection, the deal has eligibility criteria and collateral concentration limits to protect noteholders against adverse changes in pool characteristics during a revolving period that ends on Oct. 15, 2026.
Moody's did note a few potential challenges to PFS Financing's timely repayment of notes, however. One issue is that IPFS is one of the largest insurance premium finance companies in the U.S., yet its single line of business leaves it open to business disruptions due to stressful economic conditions. Also, the pool is geographically concentrated. Although IPFS does make loans in all 50 states and Canada, the loans in both 2023-C and 2023-D were originated in four states: Florida, Texas, California and New York.
In both series of notes, credit enhancement comes from 4.25% overcollateralization, and 5.75% subordination from the class B notes, as a percentage of the initial allocable pool balance. Series 2023-C are fixed-rate, while the 2023-D are floating-rate notes, the rating agencies said.
Moody's expects to assign 'Aaa' ratings to the class A notes on both series. S&P expects to assign 'AAA' to the class A notes and 'A' on the class B notes in the 2023-C series, which have a legal final maturity of Oct. 16, 2028. Similarly, it assigned 'AAA' on the class A notes and 'A' to the class B notes in the 2023-D series, which has a legal final maturity of Aug. 16, 2027.
