SPS refinancing $250M of notes backed by reimbursement rights

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Select Portfolio Services, a unit of Credit Suisse, is refinancing $250 million of bonds backed by repayment rights to funds it has advanced to holders of mortgage bonds that it services.

Proceeds from the issuance SPS Servicer Advance Receivables Trust 2018-T1 will be used to repay notes issued in 2016, according to S&P Global Ratings.

As a master issuer, SSART can issue multiple series of notes, all of which are backed by a single pool of collateral consisting of receivables for funds advanced to pay scheduled principal and interest payments, property taxes and insurance premiums as well as the costs and expenses incurred when property securing a defaulted loan is repossessed and resold.

The collateral pool will revolve over a period of two years, during which the trust may use collections from the receivables or may draw on a separate series of variable funding notes to purchase additional receivables. (A draw means that the holder of the variable funding notes contributes cash.)

New purchases are subject to eligibility requirements, collateral-value exclusions, a collateral test, and early amortization triggers.

The advance rate, or the percentage of the balance, that the trust can borrow against the collateral depends on the type of receivable and whether the property is in a state requires foreclosure to go through the courts, known as judicial foreclosure, or in a nonjudicial foreclosure state.

Four classes of fixed-rate notes will be issued in the transaction: $202.16 million of Class A-T1 notes are provisionally rated AAA by S&P: $11.75 million of Class B-T1 notes are rated AA, $13.06 million of Class C-T1 note are rated A, and $23.02 million of Class D-T1 notes are rated BBB.

In general, only interest and no principal, will be paid on the notes until the end of the revolving period, unless certain events occur, including the following:

The three-month rolling average of total advance receivables collected each month is less than five times the aggregate interest due for each class of notes in the current month;

One or more servicer termination events occurs that represent more than 15% of the underlying collateral by mortgage balance in the facility, with certain exceptions;

The monthly reimbursement rate is less than 3%; or

A breach of certain covenants, representations, or warranties made by the transaction participants that are not cured within any applicable cure periods.

In rating the deal, S&P assumed that the following mix of collateral: 15% principal and interest payments in nonjudicial foreclosure states; 21.1% principal and interest payments in judicial foreclosure states; 11.2% escrow payments in nonjudicial states; 33.5% escrow payments in judicial foreclosure states; 5.5% corporate, or foreclosure-related, payments in nonjudicial states and 13.5% corporate payments in judicial states.

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