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Tuesday, 20 August 2019

EMEA Structured Finance Issue: Premium Credit's £300m Series 2017-1

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Innovative newcomer

Premium Credit was a refreshing newcomer to the European securitised credit market, offering investors a granular, quality consumer risk portfolio – best of all it was truly a new asset class.

This was a unique take on European consumer credit, an underlying asset class investors love but is barely represented outside of autos, credit cards and mortgage paper.

Those staples are not going to go away but securitisation needs new, regular issuers if it is to thrive. And when Bank of America Merrill Lynch and Lloyds jointly arranged and lead-managed Premium Credit’s inaugural public securitisation of insurance premium finance and other instalment credit receivables they achieved just that.

This was the first securitisation of this asset class in Europe.

There have been deals backed by these assets in the US but they provided no template for the rating agencies to fall back on. The leads also faced a challenge of how to pitch this asset class at a time when the UK consumer is seen as quite stressed.

But after the near-final instalments of the UK and Irish legacy mortgage portfolios hit the market it became clear that 2017 would be a turning point for European structured finance – especially given that the Bank of England’s post-Brexit provision of ultra-cheap mortgage loan funding had sidelined the large UK RMBS issuers and investors were begging for paper.

Although far from the year’s biggest deal, the Premium Credit deal should be seen as a marker in the return of securitisation as a viable funding route for growing businesses. This development is essential if the market is to return to health.

Premium Credit provides financing for third-party insurance premiums in the UK and Ireland with £3.6bn of total net advances in 2016. It was acquired by private equity sponsor Cinven from GTCR in Febuary 2015 and previously was reliant on a private bank facility provided by a consortium of six banks.

Its securitisation was no opportunistic one-off deal. The transaction was structured to enable Premium Credit to access the public market to diversify its funding and reduce its overall costs.

Premium Credit wanted a blend of private and public facilities. A master trust was structured to accommodate both and ensure that future series of public ABS notes could be issued while still referencing the same underlying portfolio.

The inaugural issuance, Series 2017-1, generated significant investor demand and £282m of the deal was priced well inside initial marketing levels on final order books oversubscribed across all tranches. Premium Credit retained the remaining £18m of the paper.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.

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