Plenti launches $306 million debut auto ABS deal
Plenti’s debut auto loan-backed deal significantly reduces funding costs for the company with almost 90% of the notes receiving a AAA rating.
On the ambitious path to build a $1 billion loan book, Plenti Group (ASX: PLT) has achieved one of its key strategic objectives with the launch of its first asset-backed securities (ABS) deal.
In the last week, the fintech lender announced the pricing of the debut transaction, through which it is issuing $306.3 million of notes to investors backed by secured automotive loan receivables.
The proposed notes issue was assessed by credit ratings agency Moody’s, which applied a AAA rating to 87.8% of the investment package.
Speaking with Small Caps, Plenti chief executive officer Daniel Foggo confidently called it the “best deal terms for any non-mortgage lender in Australia this year”.
“A lending business like ours would want a really high proportion to be rated AAA because it means our funding costs will be much lower…We were able to achieve that primarily through such a strong credit performance across our loan book.”
He described the rating as “pretty exceptional for any lender, let alone one going to the market for the first time”.
Plenti chief financial officer Miles Drury said the inaugural deal attracted strong support from 14 onshore and offshore investors and officially settles today. National Australia Bank and Deutsche Bank acted as joint lead managers.
“The attractive terms of the transaction are reflective of our proprietary technology and streamlined processes helping us attract high quality borrowers as we continue to build our prime loan portfolio,” he said in a statement.
Plenti reached a $1 billion loan origination run rate for the 2021 financial year following a 260% increase in loan originations for the June quarter. The company now has its sights set on achieving a $1 billion loan portfolio by March 2022.
Mr Foggo said another important financial milestone for the company is achieving breakeven by next June, a target in which the ABS transaction has been “extremely helpful in that regard”.
What is an asset-backed security?
An asset-backed security (ABS) is collateralised by an underlying pool of assets and takes the form of a bond or note that pays a steady stream of income (interest at a fixed rate) for a set amount of time until maturity.
In terms of Plenti’s deal, the assets backing its $306.3 million note issue are its secured automotive loan receivables.
A credit rating of ‘AAA’ means close to 90% of the investment has been rated as very low risk.
“In auto loans, the losses are generally less than 1% annually, and the top tranche is supported by 12.5% equity and subordinated notes, so something would have to go seriously wrong in the economy for these investors’ money to be at risk,” Mr Foggo said.
“It has a big impact on your funding costs, so this is exceptionally good pricing for a non-mortgage lender,” Mr Foggo said.
“It’s a massive saving, it reduces the cost of funding of those loans for us by around 1.5% annually and it improves our cash flow in the first month of the transaction by over $400,000. This is really helpful in terms of driving us towards our financial milestones.”
“It also shows that for the first time, that prime credit segment is really opening up for businesses like ours,” he added.
Plenti’s business strategy
In a May presentation, Plenti outlined a three-pronged strategy in its mission to “build Australia’s best lender”.
One of the company’s commitments is to optimise funding by both developing and maintaining funding structures that provide funding diversity and scalability, as well as reduce funding costs. According to Mr Foggo, this deal helps to achieve this core strategic objective.
With origins in peer-to-peer lending, Plenti has deliberately diversified by bringing in institutional lenders, the government via the Clean Energy Finance Corporation (offering renewable energy loans), warehouse facilities and now this ABS transaction.
“We want to make sure we’ve got really diverse and deep funding. If we have those two things, we can grow strongly, and we’re a more resilient business.”
“If there is a change in any of the different funding markets over time, we want to be able to lean on different sources of capital at different times. This is an important milestone on that journey of building depth and diversity of funding,” Mr Foggo said.
Plenti also aims to establish market leadership by establishing prime lending leadership positions across lending verticals. This target would be measured by borrower demand, loan portfolio size and customer experience.
Thirdly, the company plans to focus on extending its technological advantage by continually investing in its tech platform to “innovate and deliver the fastest and easiest loan experience to customers”. It also aims to leverage this platform to continually increase its operating efficiency.