Subprime card issuer Genesis Financial issuing debut securitization

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Genesis Financial Solutions, a point-of-sale retail card issuer for merchant partners, is tapping the securitization market for the first time in a $135.9 million deal.

The Beaverton, Ore.-based Genesis is a privately held lender that underwrites higher-risk credit card accounts for customers of retail merchant partners, primarily in the furniture, consumer fitness, home furnishings and improvement, as well as fine jewelry sectors. Borrowers who do not qualify for retailers’ prime lender card program are steered toward Genesis’ “second-look” programs. Larger Genesis partners include Home Depot, Aspen Dental and Ashley HomeStore, according to a presale report from Kroll Bond Rating Agency.

Genesis Sales Finance Master Trust Series 2019-A will issue four classes of notes backed by an undiscounted principal balance of $175.15 million in receivables from the initial pool. Additional receivables may be added during a two-year revolving period following the closing of the deal. Kroll expects to assign an A to $75.6 million of Class A notes supported by 49.3% credit enhancement, including subordination, a 7.05% overcollateralization and expected excess spread of 17.59%.

The Class B notes total $18.9 million with a BBB rating; the Class C notes are sized at $20.5 million with a BB rating; and the $20.9 million in Class D notes are rated B.

All of the notes are due Aug. 2023, but all are expected to be paid off by 2022.

Kroll expects 27.8%-29.8% of receivables to be charged off over the life of the deal, in its base-case scenario.

The notes will be paid through receivables from accounts that have credit limits between $500 and $15,000, with interest rates ranging from 15.75% to 34.9%. A majority of accounts in Series 2019-A (61.3%) are subject to limited promotional plans that defer interest for 6 to 18 months, giving borrowers a chance to prepay balances without paying accrued interest.

As of Nov. 30, the accounts in the pool had an average balance of $1,173, a weighted average FICO of 639, an average APR of 28.6% and an average credit line of $3,297. The average utilization rate of the accounts is 62.87%.

Genesis has originated $1.94 billion in account receivables since being founded in 2011.

Genesis is majority owned by private equity firm Endeavor Capital. Other investors include the company’s management and OneMain Financial. However, the company is preparing for a change of hands through an acquisition/merger agreement made in December with Castlelake LP, according to Kroll.

The loans in the Series 2019-A pool were originated by Genesis’ underwriting partners, the federal industrial chartered First Electronic Bank in Utah; the state-chartered Bank of Missouri; and Sterling Jewelers.

Sterling is the U.S. subsidiary of U.K.-based jewelry retailer Signet Jewelers Ltd. (NYSE:SIG), which operates chains such as Kay Jewelers, Zales and Jared. Genesis has serviced Sterling non-prime loans since October 2017, and launched its second-look financing agreement with Sterling in June 2018 to supplement Sterling’s prime lending arrangement with Comenity Bank, according to Kroll.

Sterling’s originations make up just 13.5% of the account balances in the pool, but developments from the jewelry chain’s recent legal clash with the Consumer Financial Protection Bureau “could have an adverse effect on the performance of the Sterling receivables” within the pool, Kroll stated in its presale report.

Sterling, based in Akron, Ohio, last week settled claims in federal court with the CFPB that it opened credit-card accounts for consumers without their consent, as well as enrolling them without consent in payment-protection insurance programs. Sterling was also charged with misrepresenting financing terms associated with credit cards accounts and failing to follow Truth in Lending Act disclosure requirements.

Sterling agreeing to pay $11 million in fines to the CFPB and the state of New York as part of the settlement.

Genesis itself swung to a profit of $20.3 million profit for the first nine months of 2018, according to Kroll.

The company has used access to a $246.65 million senior bank facility with Credit Suisse and a $53.35 million subordinate facility with global asset firm Ares Management to finance its private-label credit-card program.

Genesis also has a general-purpose credit-card program that is financed through a separate revolving senior loan facility that had $139.5 million drawn on it as of December 2018. None of the loans in that program are included in the new master trust ABS issuance.

The company currently services about $1.4 billion in credit-card receivables (as of Nov. 30, 2018). Wells Fargo is the backup servicer.

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