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Rating Action:

Moody's assigns definitive ratings to a JGWPT securitization of structured settlements

Global Credit Research - 18 Oct 2013

Approximately $213 million of asset-backed securities affected

New York, October 18, 2013 -- Moody's Investors Service has assigned definitive ratings to Notes issued by JGWPT XXX LLC (the Issuer), an indirect wholly owned subsidiary of J.G. Wentworth Originations LLC (the Sponsor), collateralized by a pool of structured settlement payments, assignable annuity streams and lottery payments.

The complete rating action follows:

Issuer: JGWPT XXX LLC

$194,466,000 Fixed Rate Asset-Backed Notes, Series 2013-3 Class A, Definitive Rating Assigned Aaa (sf)

$18,248,000 Fixed Rate Asset-Backed Notes, Series 2013-3 Class B, Definitive Rating Assigned Baa2 (sf)

It should be noted that final amounts of each class are slightly higher than the amounts that were assigned provisional ratings on October 10, 2013. Specifically, the Class A Notes were increased by approximately $2,450,000 and the Class B Notes were increased by approximately $229,000, resulting in an increase in the total issuance of approximately $2,679,000. Nevertheless, the deal's structure and the subordination levels were not changed and the definitive ratings of the Notes with these higher balances are based on the same methodology that was used to assign the provisional ratings (see below). The higher amounts are due to the lower final interest rate on the notes when priced as compared to the assumed rate that was used for the provisional ratings.

RATINGS RATIONALE

Moody's ratings on the Notes reflect its assessment of the quality of the court-ordered structured settlement payment streams, annuity receivables and lottery payments, the creditworthiness of the obligors, the servicing arrangement, and the structural and legal features. The structure of this securitization is very similar to that of the Sponsor's previous transactions, except that this one, like JGWPT 2013-1 and JGWPT 2013-2, includes a small pool of lottery receivables constituting around 2.19% of the present value of the receivables.

These lottery receivables are from lottery winnings in Connecticut, Massachusetts, Michigan, New York and Ohio. The origination procedures of lottery receivables in these states are similar to those of structured settlements: The purchase of a lottery payment is subject to a state-specific transfer statute and to court approval. Moody's believes that the lottery receivables in this transaction have legal protections and assurances about the irreversibility of the acquisition of payments that are similar to a court-ordered structured settlement.

The main driver of credit risk in this transaction is the obligor base. As in the Sponsor's previous securitizations, the pool of obligors is primarily highly rated life insurance companies, of which more than 90% (based on the present value of the securitized receivables) have an insurance financial strength rating of A3 or higher.

The Issuer's assets include court-ordered structured settlement payments (around 96.88% of the present value of the receivables), annuity receivables (around 0.93% of the present value of the receivables), lottery receivables (around 2.19% of the present value of the receivables), a reserve account with around $1,482,728, a capitalized interest account with approximately $782,704, and a prefunding account with approximately $74,450,056. The prefunding account constitutes approximately 35% of the balance of the Notes. Amounts on deposit in the prefunding account will be used to acquire additional receivables within ninety days after closing. The addition of new receivables will be subject to eligibility criteria and to a Rating Agency Condition from Moody's stating that it will not downgrade, place under review for possible downgrade or withdraw its ratings of the Notes solely as a result of the acquisition of additional receivables. Any amount remaining in the prefunding account at the end of the ninety days prefunding period will be deposited into the collection account and distributed, on a pro rata basis, to the Class A Notes and the Class B Notes. Please see Moody's 2010 Special Comment, "Moody's Clarifies Policy for the Issuance of RACs," which makes clear that the provision of a RAC remains entirely within Moody's discretion, and it may be that Moody's will not provide a RAC even if the transaction documents (to which Moody's is not a party) require it.

The servicing arrangement reduces the risk of a servicing disruption. Deutsche Bank Trust Company Americas (DBTCA; A2 stable, C+/a2 stable, P-1) will act as the master servicer and will initially subcontract with J.G. Wentworth Management Company, LLC (JGW Management) to fulfill its servicing obligations. In addition, Portfolio Financial Servicing Company (PFSC) will act as hot back-up servicer.

The transaction has a turbo structure in which the trustee acting as paying agent distributes all collections, net of certain fees and expenses, to, first, pay interest payments on the Notes and, second, pay down the Notes' outstanding principal balance until paid in full.

The Class A Notes benefit from 14.75% subordination, in the form of the Class B Notes and Issuer Interest. The Class A subordination is expected to increase over time as the Class B Notes will not receive any principal payments in the first 48 months after the closing date and the Issuer Interest will not receive any principal until all the Notes are paid in full. Performance triggers provide additional protection to the Class A Notes.

The Class B Notes benefit from 6.75% subordination provided by the Issuer Interest. In addition, the ratings of the Class B Notes take into account that Class B noteholders will not receive principal payments in the first four years and the possibility that, due to structural features, Class B noteholders may cease to receive any payments until the Class A interest and principal are paid in full.

Finally, the Notes benefit from a non-declining reserve account equal to 1% of the initial present value of the receivables; if additional receivables are added to the pool during the prefunding period, the amount on deposit in the reserve account and the target reserve account balance will increase accordingly.

MOODY'S V-SCORE AND PARAMETER SENSITIVITIES

The V Score for this transaction is Low/Medium. The V Score indicates better than "Average" structural complexity and uncertainty about critical assumptions. The Low/Medium score for this transaction is driven by a variety of factors. The historical performance of collateral in this sector has been consistent with expectations, and there have been no downgrades to date. Securitization performance data goes back fifteen years or so. Nevertheless, transactions have very long durations of 30 to 40 years, and, in the past, there have been no defaults by a major life insurance carrier during periods of significant stress. Additionally, the vast majority of the assets are originated through a court order, a process that minimizes origination and legal risk. Finally, the obligors are life insurance companies, which are subject to strict regulation and oversight. Servicing responsibilities are limited because the insurance company obligors are reliable payors.

Moody's Parameter Sensitivities

Moody's has analyzed scenarios stressing two key model input assumptions to determine the potential model-indicated ratings impact:

(1) For the default probability of the obligors, Moody's lowered the ratings of all obligors by two and four notches as a proxy for increase in default probability.

(2) For the recovery rate upon an obligor default Moody's lowered the assumed recovery rate by an additional 15% and 30%. Moody's base case assumes a range of recoveries centered at around 70% for companies that are rated investment grade and centered at around 50% for non investment grade companies.

For the Class A notes, using such assumptions, the Aaa (sf) initial rating might change, based purely on model outputs, as follows:

(1) If the assumed ratings for the obligors are their current ratings, the model-indicated output based on the changes in recovery rates would be, for the base case, Aaa(0); 15% lower than base case, Aaa(0); and 30% lower than base case, Aa1(1).

(2) If the assumed ratings for the obligors is two notches lower than the current ratings, the model indicated output based on the changes in recovery rates would be, for the base case, Aaa(0); 15% lower than base case, Aa2(2); and 30% lower than base case, Aa3(3).

(3) If the assumed ratings for the obligors are four notches lower than the current ratings, the model-indicated output based on the changes in recovery rates would be, for the base case, Aa2(2); 15% lower than base case, A1(4); and 30% lower than base case, A2(5).

For the Class B notes, using such assumptions, the Baa2 (sf) initial rating might change, based purely on model outputs, as follows:

(1) If the assumed ratings for the obligors are their current ratings, the model-indicated output based on the changes in recovery rates would be, for the base case, Baa2(0); 15% lower than base case, Ba2(3); and 30% lower than base case, Ba3(4).

(2) If the assumed ratings for the obligors are two notches lower than the current ratings, the model indicated output based on the changes in recovery rates would be, for the base case, Ba2(3); 15% lower than base case, B1(5); and 30% lower than base case, B2(6).

(3) If the assumed ratings for the obligors are four notches lower than the current ratings, the model indicated output based on the changes in recovery rates would be, for the base case, B3(7); 15% lower than base case, <B3(>7); and 30% lower than base case, <B3(>7).

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was "Moody's Approach to Rating Transactions Backed by Structured Settlements" published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

For the lottery receivables that constitute a small percentage of the total pool in this transaction (around 2.19% of the present value of the receivables), Moody's used a quantitative approach similar to the one the agency uses for structured settlements, with different assumptions. Moody's assumed (1) a probability of default consistent with high-investment-grade securities for the lottery obligors (i.e., the lottery commissions); (2) a very low recovery rate in the event of the lottery obligor's default; (3) payments of tax withholdings on the lottery payments in the third quarter of the subsequent year; and (4) a high correlation of default among the lottery obligors and a lower correlation of default between the lottery obligors and the other obligors in the pool.

In addition, for this transaction, Moody's qualitative analysis focused primarily on evaluating (1) servicing disruption risk; (2) cash management; and (3) payment diversion risk.

Servicing disruption risk

Under the transaction's terms, DBTCA will be the initial Master Servicer. In this role, DBTCA will be responsible for billing, servicing, administering, and making collections on the securitized receivables. DBTCA will also be responsible for directing the paying agent, US Bank National Association (US Bank; Aa3 Stable, B/aa3 Stable, P-1), to make monthly distributions in accordance with the priority of payments. DBTCA entered into a sub-contracting agreement with JGW Management, under which JGW Management will perform a significant portion of the servicing duties on behalf of DBTCA. JGW Management has the experience and expertise to conduct the day to day servicing of the collateral. However, DBTCA is still responsible and liable for the duties it sub-contracts to JGW Management. Further, to provide for a seamless servicing transition, PFSC will act as the Backup Servicer in the transaction.

Cash management

Obligors will deposit payments into lockbox accounts that are (1) in the name and control of DBTCA; (2) in the name of Receivables Collections, LLC, a bankruptcy-remote special purpose entity, and under the control of US Bank; (3) in the name of Peachtree Finance Company #2, LLC, a bankruptcy-remote special purpose entity and under the control of Wells Fargo Bank; (4) in the name of Structured Receivables Finance #1, LLC, a bankruptcy-remote special purpose entity under the control of SunTrust Bank; or (5) US Bank Lottery Lockbox. Lottery tax refunds may come in the forms of checks sent to the applicable address of the 2013-3 Lottery SUBI set forth on the appropriate tax return forms. In such event, the servicer will promptly deposit or cause such collections to be deposited into a US Bank Lottery Lockbox.

Within four business days, at most, after amounts become available in the lockbox (for example, when an obligor's check clears), funds will be transferred into a US Bank Trustee Account. US Bank shall distribute amounts on deposit in the US Bank Trustee Account every day to the Series 2013-3 Collection Account at US Bank, and in the name of US Bank, as indenture trustee, for the benefit of the noteholders. The cash management arrangement is designed to isolate the flow of funds to the transaction from the Sponsor and/or JGW Management, and therefore should benefit the transaction in the event that the Sponsor and/or JGW Management files for bankruptcy. In Moody's view, therefore, the cash management arrangement is consistent with the Aaa ratings assigned to the senior Notes.

Payment diversion risk

Payment diversion risk arises from settlement claimants attempting to divert payments from the securitization. This risk is low because approximately 96.88% of the present value of the receivables will consist of court-ordered transfers of structured settlement receivables. Court-ordered transfers of structured settlements consist of receivables created following enactment of the Victims of Terrorism Tax Relief Act of 2001, which stipulates that the sale of a structured settlement receivable must be subject to a court order directing the structured settlement obligors to remit payments to a given party. Therefore, the Issuer's right to receive settlement payments is backed by strong legal protections. In addition, approximately 2.19% of the present value of the receivables will consist of lottery receivables. The purchase of a lottery payment is subject to a state-specific transfer statute and to court approval, resulting in legal protection against payment diversion risk similar to that of structured settlements.

REGULATORY DISCLOSURES

Moody's did not receive or take into account a third-party assessment on the due diligence performed regarding the underlying assets or financial instruments in this transaction.

Further information on the representations and warranties and enforcement mechanisms available to investors are available on

http://www.moodys.com/viewresearchdoc.aspx?docid=PBS_SF344825

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.

Andrew Butville
Analyst
Structured Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Luisa De Gaetano
VP - Sr Credit Officer/Manager
Structured Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's assigns definitive ratings to a JGWPT securitization of structured settlements
No Related Data.

 

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