Tidewater Readies 1st Subprime Consumer Loan ABS

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Subprime auto lender Tidewater Finance Co. is marketing its first offering of bonds backed by unsecured consumer loans.

Tidewater, founded in 1992, finances the purchase of home goods, furniture, electronics, and bedding through regional and national retailers. It lends to consumers who are declined by the retailers’ primary finance sources.

The $68.9 million Tidewater Sales Master Finance Trust will issue four tranches of notes with a final maturity date of April 2021. Kroll Bond Rating Agency expects to assign an A rating to the $51.32 million senior tranche, which benefits from 29.8% credit enhancement. This credit enhancement is comprised of excess collateral amount, subordination of junior note classes, excess spread, and spread account for the benefit of Class C notes.

There’s another form of credit enhancement not included in these calculations: the trust will include approximately $15.44 million of delinquent receivables and 45,000 charged-off accounts that will provide additional cash flows. These assets are not counted as receivables, and servicing fees for them are not paid from the cash available to trust-

The transaction includes a 18-month revolving period during which additional receivables may be purchased and no principal payments are made to the notes. Any receivables purchased during this period must comply with certain eligibility criteria, including origination channels, internal risk score, and annual percentage rate.

Among other risks, Kroll cited the fact that Tidewater originated the majority of its consumer loan receivables through a few large retailers. That means its origination volume could fall if the partnership with any one retailer ends, which could impact its profitability, as well as, its ability to add receivables to the trust.

A Mid America Bank & Trust Co. originated 63.46% of the closing date collateral, and the Tidewater expects nearly all future receivables interests sold to the Issuer to be originated through MAB.

TFC is 90% owned by the Sandler family and 10% owned by CEO Nathan Benson. The company  has been profitable since 2005, according to Kroll.  It previously issued six auto loan securitizations, one each year in 1999, 2001, 2010, 2012, 2014, and 2016, respectively; Kroll rated the latest transaction, Tidewater Auto Receivables Trust 2016-A.

Tidewater’s funding includes an asset backed warehouse facility from two lenders, Capital One and The Private Bank, for a total of $69 million. This warehouse line will reduce to $63 million in May 2018 and expires in June 2018.

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