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Rating Action:

Moody's assigns a definitive Aaa (sf) ratings to premium finance ABS

15 Feb 2018

$376 million of asset-backed securities rated

New York, February 15, 2018 -- Moody's Investors Service has assigned a definitive Aaa (sf) rating to the Class A notes of a new issuance of premium finance asset backed notes, Series 2018-B (the 2018-B notes, or the notes), issued by PFS Financing Corp. (the issuer), a bankruptcy-remote, special purpose Missouri corporation, and a wholly owned subsidiary of IPFS Corporation (IPFS, or the servicer; unrated).

In addition, Moody's announced today that the issuance of the 2018-A notes, the extension of the Back-Up Servicing Agreement and other administrative changes would not, in and of themselves and as of this time, result in a reduction or withdrawal of the ratings currently assigned to any outstanding series of notes issued by the Issuer.

The complete rating action is as follows:

Issuer: PFS Financing Corp. Series 2018-B

Premium Finance Asset Backed Fixed Rate Notes, Series 2018-B, Class A Notes, Definitive Rating Assigned Aaa (sf)

RATINGS RATIONALE

The 2018-B notes are one of several series of notes of the issuer outstanding under a master trust indenture that share pro rata in the collateral based on their respective investor interest. Simultaneously with the issuance of the 2018-B notes, the issuer is also issuing the 2018-A notes.

The collateral in this deal consists primarily of loans extended to commercial insurance buyers to purchase property and casualty insurance policies with a typical duration of one year. The loan proceeds pay premiums due to the insurance company. The loans are secured by the right to receive the unearned premium amounts from the insurance companies if the borrowers fail to pay the amounts due on the premium finance loans. For the past eight years, the annual net charge-off rate as a percentage of the average receivable balance for IPFS's portfolio has ranged from a low of 0.17% in 2015 to a high of 0.47% in 2009.

IPFS was formed in 1977 and offers premium financing services through a network of around 17,500 insurance agencies. IPFS, directly or through its subsidiaries, is one of the largest originators of property and casualty insurance premium finance loans to commercial and individual obligors in the United States. As of 30 November 2017, IPFS had approximately $3.6 billion of outstanding receivables.

Wells Fargo Bank, National Association (long-term deposit Aa1/long-term CR assessment Aa1(cr), short-term deposit P-1, BCA a2) acts as trustee and back-up servicer for this transaction.

Finally, the Class A notes benefit from at least 10% of hard credit enhancement as a percentage of the assets, consisting of subordination of the Class B notes and overcollateralization.

Principal Methodology:

The principal methodology used in this rating was "Moody's Approach to Rating Insurance Premium Finance-Backed Securities" published in October 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

For the quantitative analysis, Moody's used the following key assumptions:

1) Servicer likelihood of default: Taking into account the size of the company's platform and its strong position in the US insurance premium finance industry, Moody's assumed a probability of default for IPFS consistent with a high speculative-grade rating.

2) Excess spread: Moody's gave no credit to excess spread in the transaction.

3) Pool breakdown by remaining payment terms: Using the current pool breakdown as a base, Moody's used a stressed pool breakdown by remaining payment term to account for the change in pool characteristics during the revolving period consistent with a payment rate of approximately 14%.

4) Insurance carrier concentrations: Moody's created a hypothetical pool of carriers based on its consideration of the actual pool of carriers, both current and historical; the high degree of industry concentration of the carrier pool; and the concentration limits for this transaction.

Factors that would lead to a downgrade of the rating:

A disruption in the ability of the servicer to service the assets could lead to a downgrade of the rating. Additionally, looser underwriting standards (e.g., lower down payments or longer loan terms) could result in insufficient collateral to satisfy the outstanding loan balance when a borrower defaults. Finally, a substantial increase in borrower defaults or a significant deterioration in the credit risk profile of the property and casualty insurers that hold the unearned insurance premium serving as collateral could lead to a downgrade of the rating.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions of the disclosure form.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1112725

The analysis relies on a Monte Carlo simulation that generates a large number of collateral loss or cash flow scenarios, which on average meet key metrics Moody's determines based on its assessment of the collateral characteristics. Moody's then evaluates each simulated scenario using model that replicates the relevant structural features and payment allocation rules of the transaction, to derive losses or payments for each rated instrument. The average loss a rated instrument incurs in all of the simulated collateral loss or cash flow scenarios, which Moody's weights based on its assumptions about the likelihood of events in such scenarios actually occurring, results in the expected loss of the rated instrument.

Moody's quantitative analysis entails an evaluation of scenarios that stress factors contributing to sensitivity of ratings and take into account the likelihood of severe collateral losses or impaired cash flows. Moody's weights the impact on the rated instruments based on its assumptions of the likelihood of the events in such scenarios occurring.

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Arti Mattu
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Tracy Rice
VP - Senior Credit Officer
Structured Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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