PFS Financing Corp is marketing its second securitization this year of loans taken out by insurance policy holders to finance premiums.

Standard & Poor’s plans to assign ratings to the $400 million deal, PFS Financing 2014-B.  The deal will offer $376 million of ‘AAA” rated notes and $24 million ‘A’; both have an expected final maturity date of Oct.16, 2017.

The issuer plans to use proceeds from the sale to redeem the series 2011-B and series 2012-B notes, according to S&P.

The collateral pool is comprised of short-duration loans made to commercial insurance buyers to purchase property and casualty insurance policies.

Property and casualty insurance policies for businesses typically require a full, one­-year premium to be paid at or near the beginning of the policy period. The premium finance loan enables the policy holder to spread payments over the course of the policy instead of paying the entire premium up front. The loans are used to finance a wide variety of policies that cover general liability, commercial property, professional liability, and automobile insurance.

Loans are paid on installments with over a term of less than one-year. The security for the loans is the unearned premium balance that the insurance carrier owes in the event that the underlying policies are canceled. S&P stated in the report that as a result, it analyses only PFS Financing, because “if the insurer remits the unearned premium payment on time, there should be no loss.”  

“Although the borrower remains liable to repay the loans, the insurance carrier is obligated to refund unearned premiums if the borrower were to default on the loan (because such a default would lead to the underlying policy's cancellation),” stated S&P.

For the loans to experience a loss, both the borrower and the insurance carrier would have to default.  

PFS Financing completed its first deal of 2014, a $500 million securitization, in February.  The 2014-A transaction priced the ‘AAA’ rated notes at 60 basis points over one month LiborThe class B notes, rated ‘A’, priced at 95 basis points.  

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Corrected October 10, 2014 at 11:47AM: of