Propel Financial Services is preparing its second securitization of tax liens, according to a presale report published by Kroll Bond Rating Agency.
Kroll has assigned a preliminary AAA rating to a $137 million senior tranche of notes to be issued by TLF National Tax Lien Trust 2017-1. There is also $7.4 million tranche of subordinate notes rated A. All of the notes have a stated maturity of May 2029.
Guggenheim Securities is the initial purchaser.
The deal appears to be something of a do-over. Propel completed its inaugural tax lien securitization, a $134 million transaction, in 2014 and it exercised an option to redeem all of the notes early in September 2017, according to a press release published by Kroll last year.
The initial collateral pool for the new transaction is comprised of property tax liens from municipalities within the states of Arizona, Connecticut, Florida, Illinois, Nevada, New Jersey, New York and Texas. Kroll's presale report does not indicate whether the new deal recycles collateral from the original deal, but the transaction represent a large portion of the company's managed portfolio.
Propel may also be taking advantage of more favorable market conditions or an increased level of comfort on the part of investors to borrow more heavily against the collateral. The original transaction consisted of a single tranche of AAA-rated notes.
Another apparent difference is that the new transaction includes an $11 million account that can be used to purchase subsequent tax liens on properties already subject to tax lien assets in the initial pool.
As with the first transaction, each tax lien was formerly owned or originated by Propel, and the vast majority of the tax liens were acquired by the company directly from municipalities. The average LTV at origination is less than 5%, while the average balance is less than $10,000.
The initial collateral includes approximately $137.4 million of property tax assets with weighted average age of approximately 40 months. The majority of the properties are residential (67.2% by redemptive value), followed by commercial (25.8%) and other property types (7%).
Tax liens have a statutory “super-priority” lien position, meaning that they are repaid ahead of a previously filed mortgage. The weighted loan-to-value ratio is 11.8%.
Propel was founded in 2007 and is based in San Antonio, Texas. It has acquired over $300 million of tax lien receivables since inception, according to Kroll's presale report. Over that time, it has had to foreclose on less than 1% of the properties in its managed portfolio, according to Kroll.
The company underwrites based on several factors, including the appraised value of the underlying property and the property tax owed. All subsequent tax liens require a review by an underwriter, while new transactions with delinquent taxes in excess of $200,000 require the review of the CEO, and frequently a broker price opinion is obtained. The company’s average LTV at origination is less than 5%, while the average balance is less than $10,000.