Small business and merchant loans get liquidity through $200m ABS deal
Kapitus Asset Securitization 2022-1 is preparing to issue $200 million in asset-backed securities, secured by small business loans and merchant cash advances, in an expandable transaction. The Trust may periodically issue additional Notes up to a maximum of $600 million.
Kapitus has already hit the market twice, according to a pre-sale report from ratings agency Kroll Bond. In this third transaction, Kapitus Asset Securitization will use the bond issuance proceeds to repay the SFS 2019-1 issuance, purchase receivables through its small business lending and merchant cash advance business. , fund the reserve account and pay fees and expenses, according to a pre-sale report from ratings agency Kroll Bond.
In concrete terms, three lines of credit will secure the Kapitus Asset Securitization operation: future claims on small and medium-sized enterprises; lines of credit, in which the originator undertakes to purchase receivables from time to time; and business loans with fixed loans and terms, KBRA said.
Guggenheim Securities is the initial purchaser of the Notes in the transaction, with Kapitus serving as manager and Vervent serving as backup manager. The Notes will be issued through three classes of Notes and will redeem Bondholders on a sequential basis.
KBRA plans to assign ratings to the notes ranging from “AA” on the $166.7 million Class A notes to “BBB” on the $12.6 million Class C notes.
Overcollateralization, subordination of junior note classes, a cash reserve account and excess spread will improve note credit, the rating agency said. The overcollateralisation of the operation is 5.0%. A non-declining reserve account will be funded on the closing date with an amount equal to 0.5% of the total balance of the Series 2022-1 notes, divided by 95.0%, the KBRA said.
The Trust will not have to obtain the consent of existing noteholders before expanding the transaction by issuing additional notes, which could dilute their existing control and voting rights.
Kapitus also includes a partial call option feature, KBRA said. Up to 30% of the Notes may be redeemed at 103% at par for the first 12 months of operation, or at 101% at par for the following seven months. Such an appeal would be applied pro rata between the notes.