Wintrust Financial Corp. in Lake Forest, Ill., has weathered the real estate downturn in part by specializing in the business of financing insurance premiums, and now it wants to free up capital for more traditional lending by securitizing premium-finance loans on its books.

But selling the loans could be easier said than done. Public issuance of premium-finance securities, along with investor demand, has waned and observers say the pace is unlikely to pick up anytime soon.

Premium-finance loans are short-term loans granted to business owners unable to pay their insurance premiums in full. The lender pays the insurance company the premium up front, and the business owner repays over the course of the year.

The $9.7 billion-asset Wintrust turned to the business about three years ago, during what Edward Wehmer, its president and chief executive officer, called its "rope-a-dope" phase, when it forecast a downturn and intentionally slowed the pace of its commercial and commercial real estate lending.

It offers premium finance through two subsidiaries and between 2005 and the end of 2007 the company increased premium-finance loans 49%, to $1.26 billion; they are now the second-largest slice of its $6.9 billion-asset loan portfolio.

Wintrust said in its first-quarter earnings conference call that it has had to work harder over the last year because insurance premiums are down and the average loan size has declined by about 26%, to $28,000.

Wintrust currently packages and sells the loans, and it believes the securitization would create more of a flow as it sells the loans into the master trust as needed, Wehmer said in an interview Thursday. In the first quarter it sold $115 million of its premium-finance loans and it is aiming to securitize $300 million to $500 million of the loans.

Cristal Jones, a director in the structured-finance new-assets group at Standard and Poor's, said that S&P has rated just one deal in each of the last two years and that so far this year it has received only a handful of ratings inquiries from issuers and investors.

David Stoehr, Wintrust's chief financial officer, said that company would be meeting with firms looking to handle the securitization and would know by early this month "whether that's a do-able thing or not."

The market for ABS might be tight, but it is opening slightly for premium finance, Wehmer said. Investors are more comfortable with premium-finance-backed securities because they are familiar with the asset class and the loans have a shorter amortization, he said.

Wintrust "is probably the only of the top three or four premium-finance companies who don't or haven't utilized securitization. It really is a much better use of capital if we're able to do it that way and also should enhance earnings," Wehmer said in a conference call last week.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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