New York, June 16, 2021 -- Moody's Investors Service, ("Moody's") has
assigned a definitive rating of Aaa (sf) to the Class A, Series
2021-B notes (the 2021-B 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, Waiver and Amendment (the omnibus amendment), which
allows (1) the issuance of the 2021-B notes and (2) the execution
of an extension to the back-up servicing agreement, among
other items, 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 2021-B
Class A Premium Finance Asset Backed Fixed Rate Notes, Series 2021-B,
Definitive Rating Assigned Aaa (sf)
The 2021-B 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 securitized portfolio has ranged from a low of 0.16%
in 2015 to a high of 0.47% in 2009. For the three
months ended 31 March 2021, the annualized net charge-off
rate was 0.29%.
Wells Fargo Bank, National Association (long-term deposit
Aa1/long-term CR assessment Aa1(cr), short-term deposit
P-1, BCA a2) acts 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 coronavirus pandemic has had a significant impact on economic activity.
Although global economies have shown a remarkable degree of resilience
to date and are returning to growth, the uneven effects on individual
businesses, sectors and regions will continue throughout 2021 and
will endure as a challenge to the world's economies well beyond the end
of the year. While persistent virus fears remain the main risk
for a recovery in demand, the economy will recover faster if vaccines
and further fiscal and monetary policy responses bring forward a normalization
of activity. As a result, there is a heightened degree of
uncertainty around our forecasts. Our analysis has considered the
effect on the performance of corporate assets from a gradual and unbalanced
recovery in US economic activity.
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 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 an upgrade or 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_1290535.
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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1263068.
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.
The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the UK and is endorsed
by Moody's Investors Service Limited, One Canada Square,
Canary Wharf, London E14 5FA under the law applicable to credit
rating agencies in the UK. Further information on the UK 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.
Chloe Zhang
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
Karen Ramallo
Senior Vice President/Manager
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
