Approximately $221 million of asset-backed securities rated
New York, July 15, 2014 -- Moody's Investors Service has assigned provisional ratings to Notes issued
by JGWPT XXXII 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 XXXII LLC, Series 2014-2
$196,862,000 Class A Fixed Rate Asset Backed Notes,
Assigned (P)Aaa (sf)
$24,607,000 Class B Fixed Rate Asset Backed Notes,
Assigned (P)Baa2 (sf)
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 and collateral of this securitization
is very similar to that of the Sponsor's previous transactions,
except that this one includes, for the first time since 2011,
receivables where Executive Life Insurance Company of New York (ELNY)
was the original obligor. These obligations were assumed by Guaranty
Association Benefits Company (GABC) under a court approved Restructuring
Agreement in August 2013. GABC is a newly created not-for-profit
insurance company formed by state life and health guaranty associations
and funded with estate assets of ELNY, financial contributions from
guaranty associations and additional support from certain life insurance
companies. For modeling purposes, we treat GABC as an unrated
obligor and only give credit for the cash flows which GABC has verified
in writing. The total scheduled payments from GABC are about $2.5
million ($1.7 million discounted at 5.5%)
representing about 0.98% of the total cash flows (1.16%
of discounted cash flows).
Similar to the Sponsor's last 4 securitizations, this transaction
includes a small pool of lottery receivables constituting around 2.45%
of the present value of the receivables. These lottery receivables
are from lottery winnings in California, Connecticut, Florida,
Illinois, Massachusetts, 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 71% (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 94.24% of the present value of the receivables),
annuity receivables (around 3.31% of the present value of
the receivables), lottery receivables (around 2.45%
of the present value of the receivables), a reserve account with
around $1,474,157, a capitalized interest account
with approximately $672,935, and a prefunding account
with approximately $66,440,700. The prefunding
account constitutes approximately 30% 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.
J.G. Wentworth Management Company, LLC (JGW Management)
will act as the master servicer. In addition, Portfolio Financial
Servicing Company (PFSC) will act as hot back-up servicer.
We believe that servicing disruption risk is adequately mitigated by US
Bank National Association (US Bank; Aa3 Stable, B/aa3 Stable,
P-1), as the trustee, assuming responsibility for finding
a successor servicer. If US Bank is unable to find a successor
servicer, then US Bank will act as Master 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 16.00% subordination in the
form of the Class B Notes and Issuer Interest. Note that this is
an increase from the 14.75% subordination in the Sponsor's
most recent securitization. The Class A subordination is also 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 5.50% subordination provided
by the Issuer Interest. This is a decrease from the 6.00%
Issuer Interest in the Sponsor's most recent securitization. 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.
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 2.45% 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, JGW Management will be the initial
Master Servicer. In this role, JGW Management will be responsible
for billing, servicing, administering, and making collections
on the securitized receivables. JGW Management will also be responsible
for directing the paying agent, US Bank, to make monthly distributions
in accordance with the priority of payments. JGW Management has
the experience and expertise to conduct the day to day servicing of the
collateral. To provide for a seamless servicing transition,
PFSC will act as the Backup Servicer in the transaction. US Bank,
as the Trustee, is responsible for finding a successor servicer.
If US Bank is unable to find a successor servicer, then US Bank
will act as Master Servicer.
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 2014-2 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 2014-2 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 94.24% 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 2.45%
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.
Factors that would lead to an upgrade or downgrade of the rating:
Up
An upgrade of the Class B Notes is unlikely in the near term due to the
fact 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.
Down
Moody's could downgrade the ratings of the Notes if the credit risk
profile of the obligors (primarily life insurance companies) were to deteriorate
significantly, as reflected by a downgrade of one of more of the
obligors' credit ratings.
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.
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_SF373978
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 did not use any stress scenario simulations in its analysis.
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
Giyora Eiger
Vice President - Senior Analyst
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 provisional ratings to a JGWPT securitization of structured settlements
