T-Mobile Financial, known as Finco is preparing to sponsor its first asset securitization bond deal for the year, which will be backed by revenues from unsecured retail mobile device installment plans.
Slated to close on February 14, the $561.3 million deal will issue A, B and C notes through a three-tranche, senior-subordinate structure, according to a pre-sale report from Moody's Investors Service analysts. Some 1.2 million contracts are in the collateral pool, Moody's said. On a weighted average (WA) basis, the customers have a tenure of 89 months, a remaining term of 18 months and a FICO score of 707. On a principal balance basis, California, Texas and Florida account for 16.0%, 11.2% and 9.3%, respectively.
RBC Capital Markets, Mizuho Securities and TD Securities are underwriters on the transaction, Moody's said.
The A, B, and C notes have total initial hard credit enhancement of 19.50%, 14.50%, and 9.50%, respectively. Initial overcollateralization amounts to 8.50%, and the notes are also protected by an initial reserve of 1.00%. Moody's intends to assign ratings of Aaa, Aa1 and Aa3 to the A, B and C tranches, analysts said. All of the notes have a legal final maturity date of Sept. 20, 2029, according to the company.
Overall, Moody's says expects a cumulative loss of 4.75% for the pool, and the collateral loss at a Aaa stress is 23.00%. In cases where the transaction only satisfies the pool composition tests, its cumulative loss expectation is 5.25%, and a Aaa stress is 25.00%.
Credit strengths include a relatively fast amortization, which can reduce exposure to loss risks. Smartphones account for 92.5% of the devices being financed. They are considered high utility products, with low monthly WA payments of $37.60.
There is one potential credit challenge, however. TMUST 2024-1 can revolve for up to two years before the anticipated redemption date, or the beginning of the amortization period. The revolving period could also change the trust's pool quality, as Finco adds new revenues to the collateral pool over time.
