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Verizon's next device-payment plan ABS tops $1.1B

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Verizon Wireless plans to market another $1.18 billion of bonds secured by device-payment plan (DPPs) agreements financing customer cell phones, tablets and smartwatches.

Verizon Owner Trust 2018-1 is a securitization of two-year device payment plans, and the the sixth offered by Verizon which remains the only major U.S. wireless carrier to tap the securitization market to finance consumer phones.

The transaction includes a two-year revolving period in which additional contracts can be added to the 2018-1 pool. As of the cutoff date, the pool totaled 3.54 million receivables on 3.21 million accounts, with a remaining principal balance of $2.05 billion.

The structure is similar to Verizon’s most recent 2017-3 transaction, including a senior-note structure divided between $500 million in Class A-1a variable- and Class A-2a fixed-rate notes. Both tranches carry preliminary AAA ratings from Fitch Ratings and S&P Global Ratings.

The floating-rate Class A-2a tranche will initially be $200 and $500 million when the deal closes in March, but will expand during the revolver period.

Bank of America Merrill Lynch, MUFG Securities, RBC, Wells Fargo and Pierce, Fenner & Smith are serving as underwriters on the deal.

The deal includes initial credit enhancement of 29.55% for the senior notes, unchanged from Verizon’s two prior deals

The contracts were pooled from Verizon’s approximate 116.3 million wireless retail contracts, a market-leading 42% share of the postpaid market, according to S&P.

The VZOT 2018-1 trust will use proceeds of the notes issued to purchase receivables form the Verizon ABS LLC depositor, which is acquiring the contracts from Verizon’s affiliated originators including Verizon Wireless (Cellco Partnership) and the Verizon DPPA Master Trust.

Verizon has now built up a 21-month payment history on the platform, which has led S&P to substantially reduce its expected losses for customers with contracts aged eight- to 12-months. The losses for the customers in this tenure bucket is been cut to 14% from Verizon’s previous deal at 20%.

Fitch noted that delinquency rates on accounts included in Verizon’s previous transactions are all well below levels that would trigger amortization figures. It has default assumptions of just 12% for the seven to 12 month tenure customer, and even lower for consumers between one and three-years continuous service (7.5%), from three to six years (4%) and over six years (1.5%).

But the agency stated that Verizon has increased the cedit risk by offering wireless devices to more subprime customers who make down payments. Although the pool’s weighted average FICO is 704 (down from 706 in the prior transaction), Fitch reports the percentage of subprime accounts in the pool is 33% - and could be expanded to 40% during the revolving period.

The percentage of long-term customers who have been with Verizon for over five years remains nearly 60% in the latest pool. The average remaining term of the contracts in the pool is 20 months.

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Esoteric ABS Verizon Fitch S&P