Plenti launches first $ 306 million automotive ABS deal
On an ambitious path to building a billion dollar loan portfolio, Plenti Group (ASX: PLT) achieved one of its key strategic goals with the launch of its first asset-backed securities (ABS) transaction .
Last week, the fintech lender announced the price of the first transaction, through which it issues $ 306.3 million in notes to investors backed by secured auto loan receivables.
The proposed note issue has been rated by the rating agency Moody’s, which has applied an AAA rating to 87.8% of the investment package.
Talk with Small capsPlenti Managing Director Daniel Foggo confidently called it “the best deal for any non-mortgage lender in Australia this year.”
“A credit company like ours would like a very high proportion to be rated AAA, because that means our financing costs will be much lower… We were able to achieve this mainly thanks to such a strong credit performance overall. of our loan portfolio. “
He described the note as “quite exceptional for any lender, let alone someone entering the market for the first time.”
Plenti CFO Miles Drury said the inaugural deal attracted strong support from 14 onshore and offshore investors and was officially concluded today. National Australia Bank and Deutsche Bank acted as joint lead managers.
“The attractive terms of the transaction reflect our proprietary technology and streamlined processes which help us attract high quality borrowers as we continue to grow our portfolio of blue chip loans,” he said in a statement.
Plenti achieved an introductory loan rate of $ 1 billion for fiscal 2021 after a 260% increase in loan origination for the June quarter. The company now aims to reach a $ 1 billion loan portfolio by March 2022.
Mr Foggo said another major financial milestone for the company was to break even by next June, a goal in which the ABS transaction was “extremely helpful in this regard.”
What is an asset backed security?
An asset backed security (ABS) is secured by a pool of underlying assets and takes the form of a bond or note that pays a steady stream of income (fixed rate interest) for a fixed term. until maturity.
With respect to the Plenti deal, the assets supporting its $ 306.3 million note issuance are its secured auto loan receivables.
A credit rating of “AAA” means that almost 90% of the investment has been rated as very low risk.
“In auto loans, losses are typically less than 1% per annum, and the top bracket is backed by 12.5% of equities and subordinated notes, so something would have to go wrong in the economy for the these investors’ money is at risk, ”Mr. Foggo said.
“This has a big impact on your financing costs, so this is an exceptionally good price for a non-mortgage lender,” Foggo said.
“It’s a massive savings, it reduces the cost of funding these loans for us by about 1.5% per year and it improves our cash flow in the first month of the transaction by over $ 400,000. It’s really helpful in leading us towards our financial milestones. “
“It also shows that for the first time, this premium credit segment is really opening up to companies like ours,” he added.
Plenti’s business strategy
In a presentation in May, Plenti described a three-pronged strategy in its mission to “build Australia’s best lender”.
One of the company’s commitments is to optimize funding by developing and maintaining funding structures that provide funding diversity and scalability, as well as reduced funding costs. According to Foggo, this agreement contributes to achieving this central strategic objective.
With origins in peer-to-peer lending, Plenti has deliberately branched out into institutional lenders, government through the Clean Energy Finance Corporation (offering loans for renewable energy), warehouses and now this ABS transaction.
“We want to make sure we have really diverse and deep funding. If we have these two things, we can grow strongly and we are a more resilient business. “
“If there is a change in one of the different funding markets over time, we want to be able to draw on different sources of capital at different times. This is an important step in this journey of strengthening the depth and diversity of funding, ”said Mr. Foggo.
Plenti also aims to establish a leading position in the market by establishing leading positions in blue chip lending across all lending verticals. This goal would be measured by borrower demand, loan portfolio size and customer experience.
Third, the company plans to focus on expanding its technology advantage by continuously investing in its technology platform to “innovate and provide customers with the fastest and easiest lending experience.” It also aims to leverage this platform to continuously increase its operational efficiency.