Gracie Point International Funding is back with an offer to raise $254.5 million in asset-backed securities that will be secured by premium financing loans and a beneficial interest in certain units owned by the trust.
Rating agency Kroll Bond, which has assigned ‘AAA’ ratings to the highest bond, Class A, says the transaction is Gracie Point’s ninth secured by insurance premium financing. Premium financial lenders make loans to Gracie Point affiliates, according to the rating agency.
Truist Bank is structuring the deal, similar to a number of recent transactions under the program, according to Finsight.
DBRS | Morningstar assigned an ‘AA’ rating to the $182.7 million Class A and $44.7 million Class B notes; ‘A’ up to $13.2 million, Class C notes; ‘BBB’ on $9.1 million, Class D notes and ‘BB’ Class E notes, according to Finsight.
Gracie Point International’s core portfolio consists of 173 premium loans to 24 of 45 qualified life insurance companies with an aggregate adjusted principal balance of approximately $255.9 million. This amount is equal to the sum of the outstanding loan amount of such premium financial loans and the number of months for the term of redemption of the term deposit interest for premium financial loans.
The Trust will issue floating rate notes, geared to the Secured Overnight Funding Rate (SOFR), across five classes, A, B, C, D and E, commencing on 15 July. class A notes up to 700 basis points over class E notes, according to Finsight.
As of the closing date, Gracie Point intends to hold the Class F notes, KBRA said. The credit enhancement at work will consist of a level of subordination that will reach 28.6% on class A notes; 11.1% on Class B notes; 5.9% on Class C Notes; 2.4% on Class D Notes and 0.5% on Class E Notes.
Other forms of credit enhancement will include excess cash flow and a backup account. The latter will be funded with approximately $15 million at the closing date. That amount is equal to about 5.8% of the total adjusted principal and more than six months of forward interest on the offered bills.
But the deal also has credit weaknesses. Of the 173 premium loans in the fund, nine were granted to individuals or revocable trusts, KBRA said. Loans, especially to natural persons, introduce the risk of the bankruptcy status of individual insured persons, in which the policy may be part of the bankruptcy estate of the individual and be subject to bankruptcy deferment.
Citi Bank is the verification agent for the deal, which is a departure from three previous transactions, according to KBRA.