Just months after a rebrand, Reach Financial is preparing to sponsor its fifth rated securitization, a $161.7 million deal that will issue notes repaid from revenue on two streams, consumers enrolled in a debt relief program and those who are not.
Previously known as Liberty Lending, Reach Financial had originated some $200.3 million in loans year to date, a 97% increase year-over-year, according to a pre-sale report from Kroll Bond Rating Agency. Among other changes, Reach ABS Trust, 2022-2, will issue notes from a collateral that continues to shift toward consolidation loans.
Reach Financial underwrites two main kinds of loans, Express Settlement Loans, for consumers who are enrolled in a debt relief program, Called E-Loans, they are fixed-rate, fully amortizing, unsecured consumer loans with original balances ranging from $3,500 to $75,000. Consolidation, or C-Loans, are for qualified borrowers who are not enrolled in a debt relief program. Reach extends the loans to borrowers with FICO scores of 600 or higher.
Those types of loans represent 33% of total originations in Q2 2022, a substantial increase from the 9% on average from Q3 2019 through Q1 2022.
As of the transaction's cutoff date, consolidation loans make up 34.8% of the pool, compared with 13.3% in the underlying pool of Reach 2022-1. Reach Financial arranges its loans in three major tiers of risk, and some 19.3% of the loans are in the medium-risk tier, compared with 16.2% in the Reach ABS Trust 2022-1 deal, according to KBRA. This shift happened mainly because of a decrease in the percentage of loans in the low-risk tier of loans, 55.9% versus 61.6%.
Reach 2022-2 also had a higher percentage of loans in the high-risk tier, 24.8%, versus 22.2% in the previous deal.
In a potential credit boost to the notes, however, credit enhancement levels are higher for all classes, KBRA said. The rating agency noted that its lifetime expected credit net loss is 11.2%, up from 10.9% on Reach 2022-1, mainly due to the higher percentage of consolidation loans in the pool.
Reach 2022-2 has a gross excess spread that decreased to 11.26%, compared with 14.9% on Reach 2022-1, due to higher expected bond coupons and a lower collateral interest rate for the current deal, KBRA said.
KBRA expects to assign ratings of 'AA' on the $110.5 million, class A notes; 'A-' on the $20.6 million, class B notes; 'BBB-' on the $11.6 million, class C notes; and 'BB-' on the $18.9 million, class D notes.
