Purchasing Power, a leading provider of payroll deduction-based employee purchase programs, plans to securitize a $160.4 million of consumer installment contracts, according to Kroll Bond Rating Agency.
Purchasing Power Funding 2015-A bundles contracts offered by the sponsor through "members only" purchase programs.
The Atlanta, Ga. based online retailer is owned by private equity firms, Rockbridge Growth Equity and Falcon Investment Advisors. It serves 260 clients across 16 industries.
The contract program, established in 2001, provides over 7.8 million consumers access to goods and services through payment plans based on employees' job tenure, job status and current income. Revenue has grown from $140.9 million in 2010 to $277.2 million in 2014.
The target customer has subprime credit with limited and expensive financing options. The contracts are paid over a 12 to 18 month term and require no credit check since installments are drawn directly from an employee's paycheck. The majority of the contracts in the collateral pool backing Purchasing Power Funding 2015-A have a 12-month term (97%) with the remaining receivables paid over either six or 18 months.
Employees use contracts to finance “big ticket” consumer goods such as computers, electronics, home appliances, furniture, jewelry, fitness equipment, educational services and vacation packages. Most of the contracts (87.1%) in the securitization pool have a remaining receivable balance of less than $2,000.
The contracts do not carry a specific interest rate; instead Purchasing Power establishes individual spending limits specifically tailored to the type of client/employer and the related customer’s/employee’s job title and salary. A markup of up to 30% is also charged on the products as compared to the same product sold by other retailers.
Kroll assigned preliminary 'A' ratings to two tranches of class A notes; 'BBB' ratings to the class B notes and 'BB' ratings to the class C notes. The notes are structured with a legal final maturity date of Dec. 15, 2019.
The transaction has initial credit enhancement levels of 26% for the class A notes, 18.5% for the class B notes and 13.5% for the class C notes. Credit enhancement consists of overcollateralization, subordination and an upfront reserve account.
The securitization will be used to repay the sponsor's $92.5 million revolving line of credit, which set to mature on Oct. 14, 2016 and a $69.3 million term loan. Purchasing Power is expected to enter into a new, $50 million senior secured term loan with a term of between three and five years.