Aqua Finance Trust to launch $ 775 million in ABS

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In its fourth asset-backed securities transaction, Aqua Finance Inc. plans to issue approximately $ 775 million in notes through Aqua Finance Trust 2021-A, or AQFIT 2021-A. The agreement will significantly increase the percentage of loans on marine or recreational vehicles for an AQFIT transaction.

According to Moody’s Investors Service, the trust has a collateral pool made up of installment loans for home improvement, plus up to 25% marine or recreational vehicle loans. In previous transactions, collateral pools had concentrations of no more than 5% of marine / RV loans.

KeyBanc Capital Markets, Credit Suisse Securities and Goldman Sachs & Co., LLC are acting as initial purchasers of the notes in connection with the transaction. The capital structure includes a feature which states that if the Class A improvement reaches 57.7%, the transaction becomes a pro-rated compensation structure. This increases the average life of the Senior Notes and exposes the Notes to additional credit risk.

A cumulative loss trigger that reduces the structure to sequential compensation mitigates risk. The other mitigation is a recovery rate trigger, which increases the overcollateralisation target from 2% to 100%.

While Aqua Finance Inc. will have the option of selling additional loans to the trust for a period of up to six months after closing, no loans for borrowers with a FICO score below 600 will be added during the period. pre-financing. In addition, only 0.1% of borrowers in the pool had a FICO score below 500, according to Moody’s.

AQFIT 2021-A borrowers have a weighted average FICO (WA) score of 711, Moody’s said. The initial pool of guarantees has a weighted average initial term (WA) of 145 months, or just over 12 years.

A credit challenge is that AFI, the originator and manager, has a weak credit profile compared to other ABS sponsors. But a backup service agreement with Vervent mitigates that potential risk.

Although AFI offers financing on a promotional basis, which can also affect the payment of the underlying loans, this potential risk is mitigated by the fact that 83% of the trust’s receivables have no periods. promotions or that these periods have already ended.

Moody’s plans to assign an “A3” rating to the $ 599.8 million Class A Notes. All banknotes have a legal final maturity of July 2046.


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