Aqua Finance Trust Secures $450 Million in Asset-Backed Bonds for Home Improvement, Marine, and Recreational Vehicle Loans

Aqua Finance Trust, a leading provider of financing solutions, has announced the securitization of a $450 million pool of installment loans for home improvements, marine, and recreational vehicles. The asset-backed bonds, known as AQFIT 2024-A, will be issued through four tranches of class A, B, C, and D notes, offering investors a range of risk-return profiles.

Unlocking the Potential of Home Improvement, Marine, and Recreational Vehicle Financing

Diverse Asset Pool Underpins the Offering

The AQFIT 2024-A transaction is backed by a diverse pool of installment loans, with marine and recreational vehicles accounting for 64.7% of the collateral and home improvement loans making up the remaining portion. This diversification across asset classes provides investors with exposure to multiple consumer finance segments, each with its own unique risk and return characteristics.The underlying borrowers in the pool have a weighted average FICO score of 725, a significant improvement over the previous 2021-A transaction. This enhanced credit quality reflects the strong creditworthiness of the borrowers, a key strength of the Aqua Finance Trust's lending model.

Robust Credit Enhancement Safeguards Investor Interests

The AQFIT 2024-A transaction features a comprehensive credit enhancement structure to protect investors. The class A, B, C, and D notes benefit from initial hard credit enhancement levels of 37.7%, 27.2%, 17.5%, and 7.5%, respectively, providing a substantial buffer against potential losses.Additionally, the transaction maintains an initial overcollateralization level of 7.00% and a reserve fund of 0.50% of the pool balance, further strengthening the deal's credit profile.

Experienced Servicer and Backup Servicer Ensure Operational Resilience

Aqua Finance, the originator and servicer of the underlying loans, brings a wealth of experience to the transaction. The company's indirect lending model, which partners with over 5,600 financing dealers nationwide, has proven effective in sourcing and managing a diverse portfolio of consumer loans.Furthermore, the inclusion of Vervent as the backup servicer adds an additional layer of operational resilience, ensuring the continuity of servicing in the event of any disruptions.

Potential Risks and Mitigants

While the AQFIT 2024-A transaction exhibits several credit strengths, Moody's Ratings has identified potential risks that warrant consideration. The deal structure includes a provision where the payment structure may switch to pro rata if the enhancement levels on the class A notes reach 49.0% of the current pool balance.Additionally, Aqua Finance's relatively weak credit profile compared to other ABS sponsors and its limited performance history could pose challenges. The indirect lending model, while effective, also introduces operational risks that must be closely monitored.The long collateral terms, with the shortest being 24 months, and the discretionary nature of the RV and marine collateral may also expose the transaction to additional tail risk and lower payment priority compared to other borrower responsibilities.

Ratings and Investor Opportunities

Moody's Ratings has assigned the following ratings to the AQFIT 2024-A notes: Aaa for class A, Aa2 for class B, A3 for class C, and Baa3 for class D. These ratings reflect the robust credit enhancement, the strong underlying borrower creditworthiness, and the overall structural integrity of the transaction.The AQFIT 2024-A offering presents a compelling investment opportunity for a diverse range of investors seeking exposure to the growing consumer finance market, particularly in the home improvement, marine, and recreational vehicle sectors. The transaction's diversified asset pool, rigorous credit enhancement, and experienced servicing team provide a solid foundation for investors to consider.