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Funding Circle preplaces first SME ABS since 2021

Close-up of logo for peer-to-peer lending company Funding Circle on paper, against a light wooden surface, April 21, 2019. ()

Preplaced UK deal after Moody’s report says EU Directive will boost asset class in EU

Funding Circle preplaced SBOLT 2023-1 on Thursday, an ABS deal backed by loans to SMEs. The senior notes of the £239m deal have been priced at 135bp over Sonia, outside its previous deal which landed at 95bp in November 2021.

The pool comprises of 3,955 loans according to Fitch’s ratings report. The loans are unsecured and between £5,000 and £1m. The term lengths, which are all between six month and six years at origination, lead to a WAL of 1.46 years on the seniors.

Unsurprisingly there is a considerable credit enhancement of 40.75% on the class 'A' notes. The mandate for the deal emerged on Wednesday, when it appeared the roadshow might take place at Global ABS next week. But Funding Circle and arrangers and joint lead managers BNP Paribas and Standard Chartered opted to preplace the trade.

Directive to boost SME ABS in EU

On May 31, Moody’s published a comment on the impact of the EU Directive on Restructuring and Insolvency from June 20 2019, now that all the largest EU economies have adopted it.

“The directive establishes a harmonised framework across the different European Union jurisdictions on how to liaise with insolvency and bankruptcy,” Angel Jiminez, AVP – analyst at Moody’s told GlobalCapital. “There’s a clear definition of restructuring framework and pre-insolvency agreements.

“For SMEs, which don’t benefit from more sophisticated funding, that will be supportive as it provides specific tools to avoid bankruptcy and, if you get close to that, it helps provide a specific plan to track all the restructuring and recoveries.”

Luis Mozos, VP - senior credit officer also of Moody’s said that would help SMEs avoid insolvency, though that would not necessarily translate into ratings improvements since macroeconomic conditions remain tricky.

“We believe this will help companies avoid even entering insolvency, so we believe it will be positive,” he said. “We follow the specific performance of every transaction. Our expectation is that this is not going to translate into an immediate improvement, not because there is no improvement because of this, but because the improvement will be covered by all the other negative setbacks.”

SME ABS deals are quite rare. Moody’s has rated only 35 outstanding deals across France, Germany Spain and Italy, of which 16 are Italian.