Gracie Point International Funding returns with an offer to raise $254.5 million in asset-backed securities that will be secured by premium funding loans and the beneficial interest in certain equity interests held by the trust.
Rating agency Kroll Bond, which has assigned “AAA” ratings to the most senior bonds, Class A, says the transaction is Gracie Point’s ninth secured by insurance premium funding. Premium lenders fund loans to a subsidiary of Gracie Point, according to the rating agency.
Truist Bank is responsible for structuring the deal, similar to a series of recent deals under the program, according to Finsight.
DBRS | Morningstar assigned “AA” ratings to the $182.7 million Class A and $44.7 million Class B notes; “A” to Class C notes of $13.2 million; “BBB” to $9.1 million, Class D tickets and “BB” to Class E tickets, according to Finsight.
Gracie Point International’s underlying portfolio consists of 173 premium finance loans to 24 of 45 eligible life insurance companies with an aggregate adjusted principal balance of approximately $255.9 million. This amount is equal to the sum of the loan outstanding of these premium finance loans and the number of months of the term interest redemption period on the deposit for the premium finance loans.
The trust will issue floating rate notes, benchmarked to the guaranteed overnight funding rate (SOFR), across five classes, A, B, C, D and E, starting July 15. Coupon spreads would range from 275 basis points on class A notes to 700 basis points on class E notes, according to Finsight.
As of the closing date, Gracie Point intends to retain Class F tickets, KBRA said. The credit enhancement on the transaction will consist of subordination levels reaching 28.6% on the Class A Notes; 11.1% on class B tickets; 5.9% on class C tickets; 2.4% on class D tickets and 0.5% on class E tickets.
Other forms of credit enhancement will include excess cash flow and a reserve account. The latter will be funded with approximately $15 million at the closing date. This amount is equal to approximately 5.8% of the aggregate adjusted principal balance and over six months of term interest on the Notes offered.
But the deal also has credit vulnerabilities. Of the pool’s 173 premium finance loans, nine were issued to individuals or revocable trusts, KBRA said. Loans, especially those to individuals, introduce the risk of bankruptcy of individual policyholders in which the policy could form part of an individual’s bankruptcy estate and be subject to a stay of bankruptcy.
Citi Bank is the verification agent for the deal, a change from the previous three deals, according to KBRA.