Europe’s first securitisation of insurance
premium loans provides a template for unprecedented levels of
originator freedom in the region.
The £300 million ($379.8 million) deal allows Premium
Credit to diversify its funding sources, giving it the
flexibility to tap the public market when conditions are right,
while maintaining an existing bank facility.
The assets – loans issued to consumers to help them
pay off insurance premiums on claims – were sold to a
special purpose vehicle (SPV), which holds them in a master
trust. There are two SPVs; one holding the assets to repay the
private bank finance and another that will issue notes in the
public capital markets. Each one has a beneficial interest in
the collective pool of assets.
"The complexity actually gave the company the flexibility it
needed, and got the best possible treasury result," said
Angela Clist, partner at
Allen & Overy in London, who advised the arrangers. "It
could be replicated by other issuers looking for that same
UK credit and store card provider NewDay carried out a
similar deal in 2014 which gave it access to warehouse
loans as well as public debt. But Premium Credit’s
deal uses different assets, and contains a few other novel
The issuer’s loss rates are historically low as
the underlying loan is technically dual recourse – if
the consumer defaults, Premium Credit can go directly to the
insurance company to be repaid.
"But risk does exist – the issuer is still reliant
on insurance companies, for example," said
Jeremiah Wagner, partner at
Cadwalader Wickersham & Taft, who advised the
- Europe’s first securitisation of
insurance premium loans provides a template for unprecedented
levels of originator flexibility in the region;
- The deal utilises of a master trust structure,
which holds two SPVs, which service the bank facility and
public debt facility accordingly;
- It contains several innovative features that are
entirely new to the European market, including adjustable
concentration limits, giving the business even more
- The deal is testament to investors not being
afraid of innovation and complexity in ABS markets as long as
it is well explained and serves a valid
The central risk here is the issuer’s exposure
to event-driven changes that could affect liquidity. For
example a merger in the insurance market – which is
common – would distort the facility’s
exposure and potentially cut off funding. If the concentration
in one facility is exceeded, the limit can be adjusted.
"The number of different concentration limits reflect the
different product lines of the company, and setting them
separately for each series allows future issuances to flex with
the company as it grows," said Michael Hodgson, director of
securitised products at Lloyds, which acted as arranger along
with Bank of America Merrill Lynch. "It can be potentially
difficult to change those in a public context for existing
"Investors are not afraid of
complexity as long as that complexity is serving a
This feature could be used by any issuer affected by
event-driven change – small and medium enterprise
(SME) loans, for example, added Wagner.
The issuer opted for a master trust platform, typically used
for residential mortgage or credit card portfolio
securitisations, which allows for programmatic issuance and
As the loans are generally short-term, averaging around
10-11 months, if the company had opted for a standalone
securitisation, it would have been returning to the market much
more frequently than necessary, explained Hodgson.
"It also alleviates potential investor concerns about
cherry-picking assets, as they are all on equal footing with
regards to asset eligibility," he added.
Turning to the public
Chicago-based private equity house GTCR
acquired Premium Credit via a securitised buyout in 2012,
so the company has had a private securitisation in place since
then. Since February 2015 it has been
owned by Cinven.
"Although that private securitisation worked very well for
us, putting in a public source too diversifies our funds and
reduces our funding and liquidity risk," Premium Credit CEO Tom
Woolgrove told IFLR.
He added that with this structure, the company plans to
become an annual issuer of public notes, dependent on market
With this deal at £300 million and the
company’s total funding needs at around £1
billion, he foresees similar sized tranches on a three-year
cycle, along with the bank facility.
Esoteric securitisations are go
Investor feedback was incredibly positive, sending a strong
signal for the European asset-backed securities (ABS)
"This deal is testament to the idea that investors are not
afraid of complexity as long as that complexity is serving a
purpose," said Wagner. "When we talk about esoteric assets,
this is definitely one, but investors in Europe have been dying
Clist thinks the time has come for more innovative deals
like this in Europe.
"Investors are looking for yield, which such deals may give
them, and there is a growing recognition by regulators of the
importance of securitisation," she said.
Plus, central bank purchase schemes for eligible assets and
notes (typically SME loans and residential mortgages) have hit
the available supply of ABS, paving the way for different types
- Two SPVs are held within a master trust; one
repays the public notes and the other services the
- Concentration limits are adjustable, giving the
issuer immense flexibility.
- The book is comprised of personal and commercial
loans, specifically for the purpose of repaying
insurance premiums over an average 10-month
- Around 10% of Premium Credit’s book
is made up of other types of instalment financings
including school fee and membership fee loans.
- It’s a capital market financing with
a bank facility sitting alongside.
- There are four tranches, A-D.
- The originator, Premium Credit, will continue to
service the loans and originate new ones to enter
into this programme.
Premium Credit’s £300 million
securitisation of consumer insurance premium loans closed on
Cadwalader Wickersham & Taft advised Premium Credit.
Allen & Overy advised Lloyds Banking Group and Bank of
America Merrill Lynch as arrangers. The senior notes received
an AAA rating from Moodys and DBRS.
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