Slideshow Next generation of esoteric asset-backeds

Published
  • July 16 2018, 6:37am EDT
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Exotics

Nine years into the credit cycle, market fundamentals for structured products are still strong. Consumer credit remains healthy , for the most part, and lower corporate tax rates are bolstering business expansion, which is supporting leveraged loans as well as commercial asset-backeds such as whole business, aircraft, and other kinds of equipment loans and leases. The commercial real estate market appears to be cooling, but is still stable.

After selling off on multiple occasions in the first half due to macroeconomic, events, the structured finance market has, for the most part, held its ground. Spreads on the highest rated tranches of deals have moved from two-year tights as the end of 2017, thought that’s being partly attributed to increased supply.

Even as the broader securitization market takes a breather, however, unusual deals from off-the-run asset classes continue provide diversification – and the opportunity to move down in credit and pick up yield. Deutsche Bank recently increased its forecast for full-year issuance of estorics, to $50 billion from $41 billion previously, citing the investor appetite for this paper and the favorable funding environment.

'Opportunistic' deals demonstrate renewed appeal of legacy private student loans

Private student loans made before the financial crisis were once considered a toxic asset. A recent transaction by Cerberus Capital Management shows how much things have changed.

Last month, the distressed debt specialist securitized a $414 million portfolio of seasoned loans it had acquired (via its FirstKey affiliate) in December 2017 from Bank of America; the deal’s strong reception could help revive demand for this asset class, encouraging more banks to shed their holdings, much as they have unloaded federally guaranteed student loans.

Towd Point Asset Trust 2018-SL1 wasn’t the first securitization of legacy private student loans since the financial crisis, but it was by far the largest. Since December 2016, DBRS has rated several other deals consisting of this type of collateral, none of them half as big. These include three transactions for Goal Structured Solutions, and transactions for Loan Science and EdLinc.

All were “opportunistic” deals with collateral from several different pre-crisis private student loan originators that are no longer in business, according to Jon Riber, DBRS’ senior vice president, U.S. ABS.

“This is definitely something people are exploring,” Riber said.

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Mosaic’s latest solar ABS has Goldman’s fingerprints all over it

Mosaic’s next solar loan securitization includes an unspecified portion of loans that it previously sold to Goldman Sachs.

In September, the solar loan provider inked an agreement to sell $300 million of loans to Goldman on a forward flow basis. The deal provided Mosaic, which has been growing rapidly but is still losing money, with an additional source of funding, as well as a vote of confidence.

Now Goldman is contributing some of those loans as collateral for the $317.5 million Mosaic Solar Loan Trust 2018-2-GS. It’s a strategy that the bank and some of its peers have used to invest in consumer loans made by marketplace lenders such as CommonBond.

Goldman is making its mark on the deal in other ways, too. No surprise, it’s the lead manager of the offering and the initial purchaser of the notes (which will then be distributed to other investors). Goldman is also holding onto a portion of each tranche of notes to be issued in order to comply with risk retention rules.

Florida firm debuts with $202.7M of insurance commission ABS

tLTC Global, a Florida-based insurance services firm, is sponsoring its first-time securitization of a "relatively new" asset esoteric class: insurance sales commission receivables.

The Insurance Commission Receivables Backed Notes, Series 2018-A is a $129.7 million bond offering secured by a stream of commission receivables from the in-house or third-party distribution of LTC-branded life and long-term healthcare products, or the acquisition of commission payment streams from other insurance agencies maketing life, healthcare and Medicare insurance products.

All of the in-house policy originations are through an LTC affiliate, ACSIA Long Term Care; the acquired commissions include those from a host of distribution companies the privately held LTC has acquired since 2002, according to a presale report from DBRS.

Insurance ABS deals are rare, usually involving receivables from consumer premiums (such as from long-time deal sponsor PFS Corp.) or sponsored by firms like J.G. Wentworth that acquires rights to structured-settlement insurance claims.

Trinity's 1st railcar lease ABS in 4 years features newer cars

The leasing subsidiary of railcar manufacturer Trinity Industries is returning to the securitization market for the first time in four years, according to rating agency presale reports.

The $482.5 million Trinity Rail Leasing 2018 is the first Trinity Industries Leasing Co. asset-backed portfolio since 2014, with a portfolio of relatively young (5.1 years) railcars with a combined market value of $621.6 million.

The leasing subsidiary of railcar manufacturer Trinity Industries is returning to the securitization market for the first time in four years, according to rating agency presale reports.

The $482.5 million Trinity Rail Leasing 2018 is the first Trinity Industries Leasing Co. asset-backed portfolio since 2014, with a portfolio of relatively young (5.1 years) railcars with a combined market value of $621.6 million.

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Precious metals dealer A-Mark taps securitization to boost margin lending

A-Mark, a precious metals trading company based in El Segundo, Calif., is turning to the securitization market in order to boost margin lending to its clients.

The company is selling $100 million of bonds backed by a revolving pool of loans secured by precious metals as well as some of its own inventory of cash and gold, silver, platinum, and palladium.

It’s an asset class that was pioneered at another precious metals company, Monex, in Newport Beach Calif., which has completed nine deals to date. Two bankers who worked on Monex’s transactions while at Piper Jaffray, Chris Flannery and Tom Baurle, are leading A-Mark’s deal from their new firm, Oak Ridge Financial.

The practice of using a commodity as collateral for a loan is being litigated by the Commodity Futures Trading Commission, which sued Monex last year, claiming it was engaged in illegal, off-exchange transactions. In May, however, a California federal judge rejected the CFTC’s claims, ruling Monex’s trading fell outside the agency’s authority.

Morningstar Credit Ratings, which rated Monex’s most recent securitization, in 2016, is rating A-Mark’s deal as well. In its presale report, the rating agency stated that the litigation is unlikely to pose a risk to A-Mark’s transaction, even if the CFTC appeals.

Wyndham earns AAA on next timeshare ABS, but at a steep price

Wyndham Worldwide earned an AAA from Fitch Ratings on its next securitization of timeshare loans, but not because of a big improvement in the credit quality of the collateral.

Rather, the resort operator opted to pay up in the form of additional credit enhancement on the senior tranche of notes to be issued in the $350 million transaction, Sierra Timeshares 2018-2. The $160.89 million of Class A notes benefit from 61.79% “hard” credit enhancement, which is 30.25 percentage points higher than the senior tranche of the previous deal rated by Fitch, which was rated two notches lower at A.