MME Horizon - February 2023 [Pool Performance]
Source: Bloomberg
MME stock was placed into trading halt on 21st of March 2023.
MME is looking to close an underwritten deal by the end of this week for A$30mm. Funds would be used to repay the A$25mm short-term facility from Pacific Equity Partners (PEP) which was written at a high interest cost. The business remains profitable but there is some optimisation of its funding base that needs to occur, including restructuring its debt facilities to achieve a better cost of funds. Net – a new funding arrangement for MME would be credit positive upon execution.
Importantly, the MME Horizon exposure is within a segregated pool. Investors have access to the assets within the pool as first-ranking security and are somewhat immune to funding issues at the MME headstock level. We note outside the effective subordination layers (noted below), there is an equivalent of 3% excess spread in the pool (0.25% x 12) to cover losses in the first instance (if ever needed). For February 2023, monthly excess spread over total outstanding principal was around 0.25%. The effective subordination across the Class A, Class B1, and Class B2 is 20%, 10% and 5%, respectively. Given the excess spread (3%) and effective subordination, this paints a very healthy recovery profile across the three tranches of notes, in a worst-case scenario.
If the arrears cap is breached on the pool (12% pool parameter cap – currently 10%), the cure mechanism would likely be a combination of selling additional loans into the trust and buying back loans in arrears from the trust. Collections capacity is being enhanced now to increase the effectiveness on early collections and control arrears. On arrears, management has indicated that we are likely to see these peak over this quarter in line with expectations over the seasoning of the portfolio. This is a positive for MME Horizon holders going forward, with the figure trending downwards from here.
The net loss cap of 10% is based on the sum of the original funded balance for non-line of credit plus the total current funded amount for line of credit receivables. Currently, the February 2023 net loss cap of 3% is still well inside pool parameter cap of 10%.
