8-K: NewtekOne Closes $154.3 Million Securitization Backed by Alternative Business Loans

NewtekOne's joint venture has successfully completed a $154.32 million securitization of alternative business loans, demonstrating strong investor demand and favorable ratings.

Summary

• NewtekOne's joint venture, Newtek-TSO II Conventional Credit Partners, LP, has closed a securitization backed by alternative business loans.
• The securitization involved the sale of $137.17 million of Class A Notes and $17.15 million of Class B Notes, totaling $154.32 million.
• These notes are backed by $190.52 million of collateral, including $159.77 million of company-originated alternative loan program (ALP) loans and a $30.75 million prefunding account.
• The Class A and Class B Notes received ratings of A (sf) and BBB (high) (sf) from Morningstar DBRS, respectively.
• The notes had an 81.0% advance rate.
• The Class A Notes were priced at a yield of 6.585%, and the Class B Notes were priced at a yield of 7.835%, resulting in a combined weighted average yield of 6.724%.
• The weighted-average coupon of the collateral pool is expected to be approximately 12.68% following the end of the prefunding period, plus a 100 basis point servicing fee to the company.
• This provides the NALP Business Loan Trust 2024-1 with approximately 11.68% of net weighted-average yield on its assets.
• The company received over $370 million in requests for the approximately $154 million of notes.

Sentiment

Score: 9

Explanation: The document conveys a very positive sentiment due to the successful securitization, strong investor demand, favorable ratings, and high expected returns on equity. The management's comments are also optimistic, and the company's track record is highlighted.

Positives

• The securitization was oversubscribed, with over $370 million in requests for $154 million of notes, indicating strong investor demand.
• The notes received favorable ratings from Morningstar DBRS, enhancing their attractiveness to investors.
• The ALP loans are expected to provide a high return on equity for the company, estimated at 20% to 30%.
• The company has a strong track record with its securitizations, with all prior issuances maintaining or upgrading their investment-grade ratings.
• The ALP loans have shown low default rates since 2019, with no charge-offs to date.
• The company has built a loyal institutional investor base since 2010.

Risks

• The company acknowledges that while they expect low loss rates in the ALP, they do not expect zero charge-offs to continue.
• The forward-looking statements are subject to uncertainty and changes in circumstances, and actual results may differ materially.

Future Outlook

The company intends to continue issuing ALP loan-backed securitizations through its joint ventures and expects the ALP to be a key driver of earnings growth and profitability. They also anticipate originating over 2,000 loans in 2024 and see strong demand for ALP loans.

Management Comments

• Barry Sloane, Chairman, President, and CEO, stated that they are pleased with the outcome of the securitization.
• Mr. Sloane mentioned that they intend to continue issuing ALP loan-backed securitizations.
• Mr. Sloane believes the ALP will be a key performance metric for the company's earnings growth and profitability.
• Mr. Sloane highlighted the attractive return on equity from originating ALP loans and issuing securitization notes.

Industry Context

This announcement highlights the growing trend of non-bank lenders utilizing securitization to fund their operations and manage risk. The securitization of alternative business loans is a niche market that provides higher yields compared to traditional asset-backed securities. NewtekOne's success in this area positions them as a significant player in the alternative lending space.

Comparison to Industry Standards

• The securitization of alternative business loans is less common than securitizations of traditional assets like mortgages or auto loans.
• Companies like OnDeck and LendingClub have also engaged in securitizations of small business loans, but NewtekOne's focus on larger, non-SBA loans through the ALP differentiates them.
• The 6.724% weighted average yield on the notes is competitive in the current market for asset-backed securities, especially considering the A and BBB ratings.
• The expected 11.68% net weighted-average yield on the trust's assets is attractive compared to traditional fixed-income investments.
• The company's claim of 20-30% return on equity from ALP loans is significantly higher than typical returns in traditional lending.

Stakeholder Impact

• Shareholders are likely to view this positively due to the potential for increased earnings and profitability.
• Investors in the securitization notes will benefit from the yields and credit ratings.
• The company's employees may benefit from the company's growth and success.
• Borrowers will have access to alternative financing options.

Next Steps

• The company intends to continue issuing ALP loan-backed securitizations.
• The company expects the ALP to be a key driver of earnings growth and profitability.
• The company plans to originate over 2,000 loans across all loan types in 2024.

Key Dates

Keywords

securitization, alternative business loans, ALP loans, asset-backed securities, NewtekOne, joint venture, credit ratings, loan origination, fixed income, institutional investors