Issuing a securitization can “help out with the bottom line” and generate increased interest from investors, according to Donal Hummer Jr., ThunderRoad Financial’s president and chief executive. However, the securitization process is “very engaging,” time-consuming, and requires many moving pieces, he said during a First Associates Loan Servicing webinar entitled Securitization: A Case Study.
The powersports lender’s debut deal, ThunderRoad Motorcycle Trust 2016-1, was a $59.7 million private placement transaction under Rule 144A. The trust was backed by prime and subprime motorcycle retail installment loans, according to a Morningstar presale report.
ThunderRoad Financial has both a primary and secondary warehouse line, which has provided “quite a bit of runway to grow our business,” he said. “We were also able to do a handful of whole loan sales throughout the first two years. However, as we started to ramp up, we realized we have to go to a different type of capital structure to allow us to get to the size we want to.”
Hummer highlighted three steps to take for a successful business formula when issuing — or considering — a first-time securitization, including:
Collect Performance Data
The first step is to determine how the ABS will perform by collecting historical and current performance data, he said. In this case, the only other powersports lender that has issued securitizations is Harley-Davidson Financial Services.
Consider the Business Lifespan and Hire an Experienced Team
Reno, Nev.-based ThunderRoad Financial commenced operations in January 2014, and booked its first loan in March 2014. Despite its short lifespan, ThunderRoad was able to “attenuate or reduce concern because we have a very experienced team,” he said.
Align with an experienced bookrunner — in the form of an investment bank or a company with an experienced trading desk, Hummer said. “They can help you organize the data for the investors’ review, and they will be the ones who ultimately find investors for the bonds.” An experienced legal team is also needed to help lenders through the “complicated legal process,” which includes offering memorandum, disclosures, and opinion letters.
Choose the Right Service Provider
A good service provider can reduce risk for investors, he said. If the lender were to close its doors, the servicer can still collect payments and make sure all bond holders are paid.
Overall, ThunderRoad Financial’s securitization enabled it to repay $60 million on its credit lines and “freed up a lot of cash for us to redeploy and prudently grow our business,” Hummer said. After its first successful ABS in April, the lender plans to issue a larger transaction within the next quarter, he added.