A trust for Kabbage will hasten the payoff on $900 million in outstanding securitized notes, after the online lender’s temporary halt to small-business loan originations contributed to a breach of a minimum asset level required under investor agreements.
According to Kroll Bond Rating Agency, a rapid amortization event was recently triggered for Kabbage Asset Securitization LLC, Series 2019-1 – an action will advance early principal payments on the notes that otherwise have a March 2024 final maturity.
The event will also terminate a three-year revolving period through February 2022 in which Kabbage could add new loan originations to the collateral pool to secure further notes issuance (up to a maximum $2 billion) under the Series 2019-1 flag.
Under the deal’s original parameters, principal payments to investors were not to commence until the conclusion of the revolving period.
But the rapid amortization event underway is from an “asset deficiency,” the result of Kabbage trust’s failure to maintain a minimum collateral pool balance to collateralize the notes, Kroll's report details. Paid-off loans reduce the pool balance, which Kabbage has not replenished due to its platform's dormant new loan activity in the wake of the COVID-19 impact on small business employment and economic activity, according to Kroll.
“The temporary pause in newly originated loans directly impacts the ability of Kabbage 2019-1 to purchase collateral,” according to Kroll.
The collateral pool balance is determined by factors beyond the aggregate total of the outstanding loan balances. For example, the pool limits concentrations of loans based on industry type, geography, delinquency status, “material” modifications and credit-grade. Loans that are in excess of those concentrations are not included in the collateral pool balance.
The rapid amortization will not impact the deal’s ratings, which include an AA grade from Kroll on the Series 2019-1 Class A notes with an original notional value of approximately $621.5 million. But the ratings remain on downgrade watch – among $2.1 billion in securities from 10 small-business loan ABS transactions that Kroll placed under review on March 30 for potential impact from the coronavirus pandemic.
The transaction the second small-business loan ABS to undergo a rapid amortization in the past month. On May 11, Kroll noted an accelerated paydown for National Funding’s NFAS, LLC Series 2019-1 notes when it also reached an asset-deficiency standing (also the partial result of a slowdown in originations and merchant cash advances).
Other online small-business lenders with ABS ratings under review by Kroll include Funding Circle, Credibly, Fora Financial, National Funding, RFS and Strategic Funding Source (d/b/a Kapitus).
While not underwriting loans via its platform, Kabbage is sourcing loan applications through its web site for the Small Business Administration’s Paycheck Protection Program.
