Auden's small but perfectly formed ABS
CFO liked it so much he bought the deal
Auden Group, a fintech company providing short-term loans to borrowers with poor credit histories, has structured and sold the first asset-backed security parcelling up such assets.
But there’s a twist: the £100,000 deal is the smallest ever properly structured ABS deal and it was bought entirely by Richard Bartlett, the company’s CFO.
Bartlett, who worked at RBS for 16 years until last year, is a well known figure in the European structured finance market and joined Auden partly with the intention of using that expertise to build an efficient funding platform for the company.
Bartlett has almost literally put his money where his mouth is by buying the first deal from the Auden Payments platform. The deal will act as a proof of concept to ensure that the software that drives the company’s lending business and the asset-backed funding programme operates properly.
He plans to quickly scale up issuance – the next deal is likely to be in the £50m region – once the company ramps up its lending.
Despite its tiny size, the first deal functions as a “grown up” asset-backed financing, with the legal/structuring work done by Freshfields and the tax and accounting opinions provided by PwC, but comes with some structural twists. For instance, it uses preference shares held by Auden Payments as the first-loss piece, rather than a more normal tranched structure.
This ensures that the unrated securities issued by Auden Payments are senior secured bonds. Investors benefit from the covenants and security structure usually associated with a securitisation, but since Auden Payments is a normal company with a single tranche of debt it avoids many of the complexities associated with securitisations (including the capital charges some investors may incur by holding unrated securitisations under EU rules).
The number of preference shares will be adjusted automatically on a daily basis as new loans are originated and the number of loans changes with amounts lent and repaid – something made possible by the integrated nature of the technology managing the loans on one side and the funding platform on the other.
Lender that cares
“The technology stack is operating the structured finance vehicle, allocating cash in accordance with the priority payments daily and calculating ratios in real time to ensure investors remain protected notwithstanding rapidly changing nature of the assets,” Bartlett said.
Bartlett thinks that the structure and technology integration could become used more widely in the securitisation market.
Auden is a “for-profit social enterprise” that aims to use better technology to undercut more established lenders in the high-cost/short-term (or payday loan) market.
Bartlett says the company’s offerings will be significantly cheaper than more established rivals, although with an APR of 213% on a typical loan it will still be an expensive way to borrow money.
Bartlett insists, though, that Auden is a new type of short-term lender – and one that takes its social responsibilities seriously. It permits borrowers more flexibility than is normal with such loans, and doesn’t charge the kind of penalties that are typical for payday lenders.
It will start lending to consumers slowly, but plans to ramp up those efforts soon when it begins to push its products on price-comparison websites.
The company has no shortage of ambition, claiming on its website that it is going to “change what finance means in the UK”.
Bartlett said: “Of all the many structured finance transactions I’ve been involved with, this has the potential to bring the biggest impact to the most people – and to people to whom it will make a material difference by bringing down costs in a part of the market that hasn’t benefited from the technology used elsewhere.”