Factored receivables and lines of credit (LOC) from small- and medium-sized businesses will secure the RFS Asset Securitization II LLC, Series 2021-1, which is expected to place $100 million, with the ability to expand up to $500 million.
Rapid Financial Services is the driving force behind the deal, serving as sponsor, servicer for the deal, and seller of the lines of revenue, which include factored receivables and lines of credit, according to Kroll Bond Rating Agency.
Factored receivables are commonly referred to as merchant cash advances, which are future receivables purchased from merchants at a discounted purchase price. The proceeds from the securitization will be used to fund even more receivables, plus fund the reserve account, plus pay fees and expenses related to the transaction, KBRA said.
Guggenheim Securities, Inc., is the initial note purchaser on the deal, which features a number of updates. For one, the trust includes a 10% concentration limit for the sum of LOCs and receivables with an original term of 19-24 months.
In another provision, up to 15% of the collateral pool may be up to 60 days delinquent, compared with the 8% threshold in the prior transaction.
Investors will be purchasing notes that are expandable term notes. At any time during the revolving period – which could end in June 2024 or earlier under certain terms – the issuer could issue additional notes, up to $500 million. Consent from existing noteholders is not necessary for the expansion.
While the expandable nature of the notes could reduce existing noteholders’ control and voting rights, the trust must meet a set of conditions before the expansion can take place. For one, the issuance cannot cause the maximum issuance amount of each class to exceed the maximum class amounts. Also, each additional issuance of notes will have the same terms as the corresponding original notes issued on the closing date, including the same rate, legal final payment date and CUSIP.
Loan receivables comprise a large portion of RFS’ underlying collateral, which aligns with Rapid Financial Services’ track record of origination since 2015. As of the statistical cutoff date, Rapid Financial Services has completed about $75 million in originations, with loans accounting for an overwhelming percentage. As of the deals’ cutoff date, LOCs accounted for 0.02% of the transaction pool, aligning with the company’s origination breakdown.
