KBRA Places Ratings on LendingPoint Pass-Through Trusts on Watch Developing
16 Jul 2024 | New York
KBRA has placed four classes of notes on Watch Developing from four LendingPoint Pass-Through Trust (“LPPT”) securitizations in conjunction with our ongoing rating monitoring effort. The Watch Placements are due to a change in the treatment of obligors subject to debt settlement agreements which resulted in a decrease in overcollateralization (“O/C”). Within 90 days, KBRA will further review the transactions and resolve or update the Watch Placement status. To date, the securities have received timely interest payments.
On June 14, 2024, the Company released a Settlement Modification Memo to its ABS Bondholders and Trustees discussing the rising number of obligors utilizing the services of debt management companies. Additionally, the Company is updating policies to reduce obligors principal balances to match negotiated settlement amounts. Starting with the June 2024 distribution date the Company implemented a change where the remaining balance owed by the obligor is equal to the amount on the settlement agreement less any payments made following the agreement. The difference between the net amount on the settlement agreement and the obligor’s prior outstanding loan balance is reported as a reduction to the unpaid principal balance until the settlement is completed or broken. The Company is not recording this reduction in principal balance as a commensurate charge-off reflected in gross default or cumulative net loss amounts. The change in the treatment of loans subject to debt settlement agreements results in a decrease to O/C, lower outstanding modifications, and a lower remaining pool factor, but does not change default or loss measures. KBRA also notes that additional Obligors entering into debt settlements could have continued impacts on reductions in pool balance.
The LPPT transactions do not have a reserve account and O/C does not build unless the cumulative net loss ratio amortization event is breached. If the cumulative net loss rate is above the threshold or an Event of Default occurs, all excess cash after paying fees, expenses and Class A interest and principal are applied to pay down the Class A notes and build O/C. If the trigger is subsequently cured, the current O/C level will be the new target O/C. KBRA does not anticipate any of the triggers to be cured. The data used for this review is as of the June 2024 distribution date (May 2024 collection period).
The table below displays the current capital structures and Watch Placements undertaken in this review.
