Jaja zeroes in on UK card ABS debut
Digital credit card provider Jaja Finance is aiming to complete its first public ABS offering this year, a move that is set to bring some welcome diversification to the UK card ABS market.
The company has built up a roughly £430m pool of receivables since it was founded in 2015. Existing warehouse senior funding is provided by Barclays, BNP Paribas and Societe Generale and there is also mezzanine and retention financing from a non-bank investor.
“The next step is definitely to go out with a public transaction, which I do expect to happen this year," said Francesco Di Costanzo, who was appointed as the company's permanent CEO in March, having served in the position on an interim basis since October.
The company intends to become a regular issuer of term ABS through a master trust structure that it has been working on since earlier this year. It will be backed by receivables associated with its two main credit card products: Vanta, which it offers under its own brand, and the Asda Money Credit Card, which it operates in partnership with the supermarket chain (Jaja and Asda are both part-owned by private equity firm TDR Capital).
“I don’t think the products are so far apart that you can’t put them into a pool together," Di Costanzo told IFR. "We’re growing at pace and I think it would be worth the effort to introduce our own card and the Asda card to the market, because we know we’ll reap the benefits from the second and third issuance, because these products are here to stay.”
As the company prepares to begin marketing its first deal to ABS investors, Di Costanzo was expected to be busy with meetings at the Global ABS conference in Barcelona. He was due to speak on the consumer ABS panel on Tuesday.
Fresh blood
The UK credit card ABS market is dominated by NewDay Cards, which issues through two master issuer programmes and has few peers in the market.
Tesco Personal Finance also used to issue credit card ABS, through Delamare Cards MTN Issuer, but has not done so since Barclays acquired the supermarket's retail banking business last year. At the time, market participants said they thought the acquisition could put an end to the programme.
Another UK lender, Capital on Tap, also has a UK credit card securitisation programme, called London Cards, but it is different from the others because it is backed by a credit card product for small businesses rather than individuals.
There are also a handful of credit card ABS issuers in euros and Swiss francs, such as BPCE, Swisscard AECS, WiZink Bank, Carrefour Banque and Santander Consumer Finance Portugal, which priced Silk Finance No. 6 in May.
Fast progress
Jaja Finance has taken a shortcut on the road to public ABS issuance by skipping forward-flow funding and proceeding directly to warehouse financing, according to Di Costanzo.
“If you are a startup, the best way to prove yourself is to get a forward-flow agreement in place, which is typically provided by a hedge fund or an alternative asset manager," he said. "When I joined, because Jaja was already managing the Bank of Ireland portfolio, one of the ideas we had was to leapfrog the expensive forward-flow construct so that our funding is immediately competitive.”
Jaja serviced Bank of Ireland UK's credit cards, including AA and Post Office-branded cards, with backing from KKR and Centerbridge Partners, before acquiring the bank's portfolio in 2022.
Di Costanzo, a former Societe Generale banker and Moody's credit rating analyst who went on to hold senior positions at non-performing loans investor Hoist Finance, joined Jaja as head of capital markets in 2022. Later the same year, the company signed a £250m warehouse financing deal with BNP Paribas and Citigroup.
“That immediately makes you competitive, and that structure allows for excess spread to flow to the company, compared to a forward-flow agreement, where I would say most if not all of the economics flow to the private credit or alternative asset manager investor," said Di Costanzo. "So I did feel that was the best way to do this, and by acting on that strategy, we cut our funding roadmap by a couple of years, easily.”
Economies of scale
Jaja has opted for a master trust structure for its ABS offerings to keep down the cost of repeat issuance, as it intends to be a regular issuer over the years.
“It creates a lot of synergies from a documentation point of view," said Di Costanzo. "You can create one big framework with one servicing agreement and you can have one cash management agreement.
"Those documents can be restated for future issuances, but you don’t have to redraft them or revisit them. There is a big economy of scale, given that we as a company rely on structured finance for funding and intend to go to the market at least once a year.”
As well as its efficient ABS issuance structure, Jaja will be aiming to impress investors with its high-tech approach. It claims to be one of the first UK financial technology companies to use generative artificial intelligence.
“Our machine-learning credit-scoring models have created big synergies and that’s very accretive for the company, and there are some big operational gains by deploying generative AI in customer service," said Di Costanzo.
"Being one of the first [fintech] companies in the UK to deploy a chatbot based on generative AI that can now reply to over 50% of all customer queries within 15 seconds, that creates big economies of scale.”