Securitization

Interest in CLO ETFs, an asset class that's only been around since 2018, is picking up, with the number of funds doubling since August to a total of 24.

Almost all the collateral was extended to borrowers attending four-year schools, and the same percentage was made to borrowers attending not-for-profit schools.

The non-prime pool benefits from a non-declining reserve fund of 1.0% of the initial pool balance, and subordination of 32.9% for the pool.

Figg will advise financial institutions, issuers, arrangers and underwriters on asset-backed securities (ABS) deals, collateralized loan obligations among other transactions.

A reserve account starts off at 0.0%, but its funding level varies in line with three-month average excess spreads, if it falls below certain thresholds.

Unlike estimated excess spread, which increased to 13.2%, from 12.8% on the EART 2024-4 transaction, several other forms of credit enhancement levels dropped.

The bonds are tied to rights to collect mortgage payments, known as mortgage servicing rights, and it's only the second such deal that's non-recourse.

Second-lien loans make up virtually the entire pool, which carries some risk of poor recovery rates. Yet 78% of the pool is also considered safe-harbor mortgages.

Borrowers are considered prime in this pool, but Fitch Ratings notes that delinquency rates have been increasing since 2022.

Total hard credit enhancement will represent 4.5% of the note balance, and initial reserves amounting to 2.0% of the pool.

The $1 billion securitization includes a $424 million fixed rate Aaa-rated portion with a yield of 5.133% as well as a $424 million floating Aaa-rated portion priced at 110 basis points over the Secured Overnight Financing Rate.

Almost the entire pool of mortgages will fund primary residences and were underwritten using full documentation.

Portfolio managers should consider choosing CLOs and ABS over corporate credit and agency MBS over Treasuries in 2025, says asset manager Janus Henderson.

Loans on used cars, extended to borrowers with prime credit characteristics, make up the reference pool of assets.

Money-market funds with cash to invest are doing more repo — extending overnight credit to owners of Treasuries, causing the rates on the loans to decline.

Aside from that, three collateral performance trigger events—delinquency, default and extension rate—that can force an early amortization are structured into the deal.

The pool is diversified, with its top obligor accounting for 3.2% of the pool balance, and the top 10 obligors account for 14.1%.

Coupons range from 4.4% on the noted rates P1/A1+ from Moody's and S&P, to 5.66% on the notes rated Ba1/BB+.

FHF sources almost all its loans—most recently 96% in 2024—from franchise dealers.

The deal is structured as a public securitization, under Rule 144A, and is supported by lending indirectly through more than 1,100 partnerships across the country.