With the recent closing of its first-ever servicer advance ABS, Saxon Capital has tapped a new liquidity source with a unique revolving master trust structure. The $75 million transaction, led by WestLB, has a revolving master trust structure allowing the addition of advances to the trust throughout the life of the deal, sources close to the deal said.
"This securitization afforded Saxon with the opportunity to reduce its cost of funds from other financing sources previously utilized to finance these assets," said a source familiar with the trade. In addition, Saxon may issue more series, as needed, all under the same master trust.
The series 2002-A deal was issued in the form of two triple-A senior classes: a $35 million A-1 class, with a 3.1-year average life, priced at par with a coupon of 50 basis points over one-month Libor, and a $40 million, fixed-rate A-2 class, with a 3.36-year average life that priced to yield 4.02%. Fitch Ratings and Standard & Poor's Corp. rated the offering.
Both classes are revolving for the first three years, with the legal final maturity coming six years after the revolving period ends. Since the deal utilizes a master trust structure, Saxon can issue additional series to pay down the bonds after the revolving period ends.
The master trust structure is set up as a Financial Asset Securitization Investment Trust (FASIT), which is similar in tax treatment to a REMIC but with non-real-estate collateral. While this is the first time Saxon has used this particular structure, the WestLB banking group set up a similar program for Delta Funding Corp. in 2000, while at Rothschild Inc.
As a servicer, Saxon is required to make advances of principal, interest, taxes, insurance and foreclosure expenses relating to the preservation and sale of a property not made by the borrower. These advances are repaid by the liquidation proceeds of the properties. If the properties do not repay the advances, the advances are repaid from proceeds of other loans in the REMIC pool.
All involved with the structure said the benefits it affords issuers may lead to more widespread use in the future. "The majority of mortgage lenders have a need for this type of facility," one source added. "The real test is seeing how many of them have the ability not only to generate the level of detail that Saxon did, but to do so on a timely basis as well." This structure is to be targeted at home equity lenders on par with Saxon in terms of originations and securitization volume.
The time to recover an advance is correlated with the time it takes the servicer to foreclose and liquidate the properties. In order to properly gauge the lag time, Saxon provided historical data on its liquidations, as well as monthly advance activity, in order to determine the discount factors.
