Verizon is launching its 12th securitization of device payment-plan agreements and its second one this year, providing investors with exposure to an asset class that ratings analysts believe should fare well despite the pandemic.
In a July 30 presale report, Fitch Ratings says that it “expects performance to be aided by handset receivables’ high placement on a consumer’s payment priority, especially given a cell phone’s importance in day-to-day life during a pandemic.”
The proposed $953.9 million VZOT 2020-B transaction follows the issuer’s $1.6 billion VZOT 2020-A deal that priced in January.
The capital stack includes an $850 million Class A-1 tranche that will feature both fixed- and floating-rate notes, with the final balance to be determined at closing. The notes carry triple-A ratings from both Fitch and Moody's Investors Service. VZOT 2020-A transaction evenly split the two tranches at $425 million apiece.
The notes will benefit from credit enhancement of 21.25%, with preliminary AAA ratings from Fitch Ratings. The CE is in line with recent deals, despite pandemic-related stresses on Verizon's managed portfolio that have resulted in an increase in defaults tied to the economic impact of COVID-19 on Verizon customers.
The initial Series 2020-B collateral includes approximately 3.2 million devices across 2.8 million accounts, with an aggregate principal balance of $1.9 billion. Verizon can add new accounts to the pool during the two-year revolving period for the series, as existing contracts amortize.
The initial pool of loans are seasoned approximately 4 months on two-year contracts to borrowers with a weighted-average FICO of 706.
The earlier deal priced at at a coupon of 1.85% for the Class A fixed-rate notes, and a spread of 27 basis points over one-month Libor for the floating-rate tranche.
As of June 30, delinquencies of 60 days or more rose to 1.84% of the Verizon’s managed portfolio, compared to 0.73% at the same period last year. Fitch says that highlights the impact to servicing under the Federal Communications Commission’s “Keep American’s Connected” initiative, in which Verizon pledged to waive late fees for, and not terminate services to, any of its consumer or small business customers experiencing pandemic-related hardships.
The KAC protection period ended June 30, at which time consumers still affected by the coronavirus pandemic were enrolled into Verizon's own "Stay Connected" repayment program that brought all past-due accounts current, according to Fitch. Over 80% of DPP agreements more than 60 days delinquent of of June 30 were installed into the "Stay Connected" program.
