KBRA Places Rating on Pagaya AI Debt Selection Trust 2021-1 on Watch Downgrade
7 Aug 2024 | New York
KBRA places the rating of the Class C notes of Pagaya AI Debt Selection Trust 2021-1 (“PAID 2021-1”) on Watch Downgrade due to the ongoing deterioration in collateral credit performance evidenced by eroding overcollateralization (“O/C”), which is below the target of 12.00% and is currently 0.00% of the current pool balance. Continued deteriorating credit performance could prompt the rating to be further lowered.
It is KBRA’s understanding that the sponsor of the transaction, Pagaya Structured Products LLC, plans on supporting the PAID 2021-1 transaction in the coming months by repurchasing collateral as is allowed under the transaction documents. To date, the securities have received timely interest payments.
The table below displays the current capital structure and Watch Placement undertaken in this review.
On the January 2024 distribution date, Pagaya had repurchased approximately $3.5 million of collateral (0.43% of the original pool balance). As a result of the Company repurchasing these loans, the realized CNL as of the July 2024 distribution date is 20.26%. If the repurchase did not occur, CNL to date would be 20.64%. Both levels are above KBRA’s base case at 39 months of seasoning.
The transaction includes a cumulative net loss trigger, which, if breached, will cause the transaction to enter full turbo amortization. The trigger was breached on the June 2024 distribution date. Since the actual O/C is below the target levels, the trigger breach has not provided any additional credit enhancement.
The current delinquency level of this transaction is 13.92%, as depicted in the charts below.
The reserve account required amount is the greater of 0.50% of the current pool balance and 0.15% of the prefunding account balance as of the closing date. The current reserve amount is 0.04% of the prefunding account balance as of the closing date, or 0.91% of the current pool balance. As O/C decreased to 0% on the June 2024 distribution date, the reserve account has been used to pay down the notes and maintain parity. The overcollateralization (“O/C”) target is 11.00% of the current pool balance, subject to a floor of 2.00% of the initial pool balance. The O/C target was met in month four (July 2021); however, O/C is currently below the target at 0.00% of the current pool balance.
KBRA will continue to monitor the performance of the transactions and update and/or resolve the Watch Placements within 90 days.
To access rating and relevant documents, click here.