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Rating Action:

Moody's assigns a definitive rating to premium finance asset backed notes of PFS Financing Corp., Series 2020-E

12 Aug 2020

New York, August 12, 2020 -- Moody's Investors Service (Moody's) has assigned a definitive rating of Aaa (sf) to the Class A, Series 2020-E notes (the 2020-E notes, or the notes) issued by PFS Financing Corp. (the issuer). IPFS Corporation (IPFS) is the sponsor of the transaction, as well as the originator, along with certain of its subsidiaries, and the servicer of the assets backing the transaction. The securitization is backed by a revolving pool of insurance premium finance loans, which are secured by the right to receive the unearned premium amounts payable by insurance companies if the borrowers fail to pay the amounts due on the premium finance loans.

Moody's also announced today that the execution of the Omnibus Notice, Consent and Waiver (the omnibus amendment), which allows (1) the issuance of the 2020-E and 2020-F notes and (2) the execution of an extension to the back-up servicing agreement, will not, in and of itself and as of this time, result in a reduction, withdrawal, or placement under review for possible downgrade of any 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 2020-E

Class A Premium Finance Asset Backed Fixed Rate Notes, Series 2020-E, Definitive Rating Assigned Aaa (sf)

The 2020-E notes are one of several series of notes of the issuer outstanding under a master trust indenture. All the outstanding series of notes share pro rata in the collateral based on their respective investor interest.

RATINGS RATIONALE

The rating on the notes is based on (1) the credit quality of the insurance premium finance loans, (2) the structural and legal features of the transaction, (3) the credit enhancement available to support the notes, (4) the historical performance of the master trust, (5) the regulatory environment of the insurance premium finance industry, (6) the ability, experience and expertise of IPFS as originator and servicer, and (7) the back-up servicing arrangement.

The collateral backing the notes consists primarily of loans extended to commercial insurance buyers to purchase property and casualty insurance policies with a typical duration of less than one year. The loan proceeds will pay the premiums due to the insurance companies. 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 eleven 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 0.16% in 2015 to a high of 0.47% in 2009. For the five months ended May 31, 2020, the annualized net charge-off rate was 0.28%.

Wells Fargo Bank, National Association (long-term deposit Aa1/long-term CR assessment Aa1(cr), short-term deposit P-1, BCA a2) will act as the 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 allocable to this series, consisting of subordination of the Class B notes and overcollateralization.

The rapid spread of the coronavirus outbreak, the government measures put in place to contain it and the deteriorating global economic outlook, have created a severe and extensive credit shock across sectors, regions and markets. Our analysis has considered the effect on the performance of corporate assets from the collapse in US economic activity in the second quarter and a gradual recovery in the second half of the year. However, that outcome depends on whether governments can reopen their economies while also safeguarding public health and avoiding a further surge in infections. As a result, the degree of uncertainty around our forecasts is unusually high. We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety.

Principal Methodology:

The principal methodology used in this rating was "Insurance Premium Finance-Backed Securitizations Methodology" published in April 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1198403. Alternatively, 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 low 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 in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1240920.

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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Alexander Chervenkov
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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