GreenSky Offers ABS Home Renovation Loan For The First Time
Home improvement loans issued through point-of-sale finance specialist GreenSky entered the asset-backed market in an initial securitization of $ 261.8 million.
According to market data, sponsor Waterfall Asset Management marketed bonds in three tranches, which were backed by stakes in a pool of blue chip unsecured consumer loans that are primarily used to fund major upgrades. door / window and HVAC systems.
Cascade, including founders were pioneers of securitized assets in the 1980s, bringing together assets that primarily originated from Synovus Bank and Midland States Bank in partnership with GreenSky to underwrite indirect loans from 16,000 home improvement retailers across the country, including The Home Depot and Renewal by Anderson.
While GreenSky (Nasdaq: GSKY) provides loans on its platform, it was not involved in structuring the 2021-GRN1 Cascade Funding Mortgage Trust deal or selling the tickets, according to a Kroll report. Bond Rating Agency.
“The quality of the receivables, the performance data going back to 2014, the transaction structure and the operating history of the company justified the double-A minus rating despite the first time GreenSky entered the ABS market,” said Eric Neglia , Chief Executive Officer of Kroll, pointing out that the deal is also adequately secured and benefits from an excess spread as well as a reserve fund.
While this is not a green bond deal, there is a climatic angle that may be appealing to ESG-prone bond investors: around 62% of the trust’s loans are for replacement. windows / doors or HVAC. Demonstrating their importance to the climate, these energy-saving type retrofit spending is an important part of green energy plans in many states.
The loan pool includes 27,607 loans for home improvement products and services, with an average balance of $ 10,341 and a weighted average coupon of 7.97%. The loans, with an average initial term of 113 months, are seasoned an average of 15 months, according to Kroll. The average FICO borrower is 749.
The $ 226.5 million Class A tranche, which has a 1.1% coupon, benefits from a 21.1% credit enhancement consisting of overcollateralisation, Class B and C subordination, reserve fund of 0.5% and a surplus gap.
Atlanta-based GreenSky, which raised nearly $ 1 billion in an IPO in 2018, is a small player in the massive consumer loan market and uses a funding model from third-party banking partners. Georgia-based company Synovus, which funded more than 75% of the trust’s loans, is GreenSky’s largest banking partner by far. But GreenSky has agreements with other banks to ensure depth of financing capacity, with current total commitments of $ 8.1 billion.
In addition to its banking partners, the company has a $ 555 million revolving asset-backed credit facility, administered by JPMorgan, to fund loan equity purchases from the GreenSky platform. (GreenSky sells the interest directly to WaterFall, according to Kroll)
Most of GreenSky’s income comes from the initial transaction fees charged to merchants. In addition, GreenSky charges management fees on the loan portfolios they serve.
While the new ABS deal is all about home improvement loans, the company recently announced that it will start working with healthcare providers to help patients fund their medical expenses. Late last year, GreenSky unveiled a $ 1.8 billion, 3-year commitment – up to $ 600 million per year – from a new banking partner to support the care lending activities of health.
A tiny 0.26% of the trust’s loans are currently in arrears between 30 and 59 days, but GreenSky has amended its loan agreements to allow forbearance amid COVID economic tensions.
GreenSky offers low rate, deferred interest rate and zero rate loans on its platform. The majority of low rate loans have a “buy window,” a period during which the borrower can withdraw the loan funds. These loans usually start with an interest-only period of five or six months and then become a simple interest loan. Low rate loans typically have interest rates ranging from 2.99% to 11.99% for the life of the loan.
Kroll’s review of GreenSky’s historic credit loss on its low rate loans dates back to 2014. Unsurprisingly, the loss experience is closely tied to FICO scores. By December, around 1.4% of the pool’s current capital balance had already been overdue at one point or another. About 0.26% of the pool is currently in the delinquency stage, with an equal percentage of loans enrolled in a hardship program.
Kroll’s baseline loss range expectations are 6.8% to 8.8%.
Kroll noted that GreenSky has been advised that the Consumer Financial Protection Bureau intends to take enforcement action against the lender for its policies, procedures and processes, unless a settlement is reached first.