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MoneyMe Horizon Warehouse Trust

MoneyMe (MME) Horizon Warehouse Trust

IAM Capital Markets View

  • MME is seeking to raise AUD68m Class A notes with 20% credit enhancement (CE), AUD8.5m Class B1 notes with 10% CE and AUD4.25m Class B2 notes with 5% CE to refinance existing similar notes.
  • Upon the successful placement of the new facility, existing note holders of the MME Horizon Warehouse Trust A and B notes will receive a redemption price of AUD102 (AUD100 par value + AUD2 call premium) at the 18 March 2022 coupon payment date − which will coincide with the settlement of the new transaction.
  • The Class A, Class B1, and Class B2 notes will be unrated and fully drawn upon settlement and will have a scheduled maturity of 18 March 2025.
  • The Class B1 notes will be pass-through notes and will rank subordinated to the Class A notes but will benefit from a 10% subordinated provided by Class B2 notes (AUD4.25m) and Equity or Class C notes (AUD4.25m). The Class B2 notes will rank subordinated to the Class A and Class B1 notes but will benefit from a 5% subordination provided by Equity or Class C notes (AUD4.25m).
  • The MME Horizon Warehouse Trust is a funding vehicle used by MME. The warehouse currently has good diversity across borrowers and industries, with limited exposure to sectors hit by COVID-19.
  • The composition of the receivables in the warehouse will vary during the term, but MME is required to ensure that new assets meet the eligibility criteria when transferred into the warehouse. MME is required to maintain adequate diversity through ongoing compliance with set portfolio parameters (including State or Territory and Employment Sector).
  • The new transaction benefits from certain triggers which, if breached, would require the warehouse to be closed for new business, with the cashflow waterfall structure enacted. All cashflows would be redirected to repayments of the Class A notes first, then the Class B1 notes, and then the Class B2 Notes and finally the Equity or Class C notes. Based on our analysis, we believe there is strong protection available to provide high conviction of a full repayment in the event of a windup.
  • The new transaction benefits from a higher notional subordination when compared to the old transaction by function of being a larger warehouse. The larger warehouse also makes this a lower risk proposition as MME will be able to sell in a better credit quality borrower into the trust and arrears are likely to fall as a result.
  • Arrears for the Trust will be reduced from day 1 by nature of MME selling in c.AUD20m of new receivables that will not be in arrears. Furthermore, these new receivables (and future sold receivables) will perform better than existing receivables given their better credit score. This will help to maintain a better arrears percentage going forward, and thus generate more trust income.
  • We believe the Class A, Class B1, and Class B2 notes share many characteristics with similar notes issued in public securitisation markets and should perform well over their lifetime. Current relative value would appear attractive versus comparable pools and investors should consider this security as part of their diversified portfolio.

Key Indicative Portfolio Characteristics (31 January 2022)

Total Receivables $83,339,942
No. of Receivables 15,939
Max Current Loan $35,000
Average Loan $5,229
WA Equifax Score 621
WA Remaining Term* (months) 35
WA Seasoning* (months) 24
WA Interest Rate* 17.7%

*Weighted according to outstanding principal balance.
Source: MoneyMe Pool Data

Key Indicative Portfolio Characteristics (31 January 2022)

New Structure Size CE% Notional CE Old Structure Size CE% Notional CE
Class A Notes AUD68m 20% AUD17m Class A Notes AUD52m 20% AUD13m
Class B1 Notes AUD8.5m 10% AUD8.5m Class B Notes AUD9.75m 5% AUD3.25m
Class B2 Notes AUD4.25m 5% AUD4.25m Equity or Class C Notes AUD3.25m 0%
Equity or Class C Notes AUD4.25m
Total AUD85m Total AUD65m

Source: MoneyMe

Looking at the latest pool statistics:

  • The pool currently has an outstanding balance of around AUD83m, which translates into an average loan size in the warehouse of around AUD5k
  • Over 3,000 borrowers would need to default and there be no recovery between now and the scheduled maturity date of 18 March 2025 for the A note to suffer impairment i.e., B1+B2 note subordination as well as Equity or Class C notes = AUD17m and (>3,000 x AUD5k average loan size)
  • Over 1,500 borrowers would need to default and there be no recovery between now and the scheduled maturity date of 18 March 2025 for the B1 note to suffer impairment i.e. B2 note subordination as well as Equity or Class C notes = AUD8.5m and (>1,500 x AUD5k average loan size)
  • Over 750 borrowers would need to default and there be no recovery between now and the scheduled maturity date of 18 March 2025 for the B2 note to suffer impairment i.e. Equity or Class C notes subordination = AUD4.25m and (>850 x AUD5k average loan size)
  • That’s excluding excess spread (or trust income) which we expect will be grow as the better arrears % going forward, will be positive for this pool
  • Hence, the structure is robust and capable of withstanding extreme stress in the unlikely event of a sudden macro-economic weakness within the next 12 months or so

Structure Diagram

Chart 1. Structure Diagram

Source: MoneyMe IM

Eligibility Criteria

Each Seller represents and warrants, to the Issuer, on each Settlement Date and Reallocation Date, that each Trust Receivable (referred to in the relevant Offer to Sell or Reallocation Notice to which that Settlement Date or Reallocation Date relates) is an Eligible Receivable on that Settlement Date or Reallocation Date (as applicable).

A Trust Receivable is an ‘Eligible Receivable’ if it complies with each of the following criteria on the relevant Settlement Date or Reallocation Date (as applicable) for that Trust Receivable:

  1. the Trust Receivable is denominated in, and is only repayable in, Australian dollars;
  2. the Trust Receivable is governed by the laws of a State or Territory of Australia;
  3. the Obligor in respect of the Trust Receivable is a natural person domiciled in Australia;
  4. the Trust Receivable was originated by the relevant Seller materially in accordance with the Origination Procedures (current at the time of origination) and in the ordinary course of that Seller’s business;
  5. at the time the Trust Receivable was entered into the Obligor was at least 18 years of age,
  6. had legal capacity to enter into the Trust Receivable and was employed in Australia;
  7. the relevant Seller has not received any notice of the insolvency or bankruptcy of the Obligor in respect of the Trust Receivable;
  8. the Trust Receivable is not in arrears by:
    1. if the Receivable Terms of the Trust Receivable require payments to be made weekly, more than 35 days;
    2. if the Receivable Terms of the Trust Receivable require payments to be made fortnightly, more than 42 days; or
    3. if the Receivable Terms of the Trust Receivable require payments to be made monthly, more than 44 days;
  9. the Outstanding Principal Balance of the Trust Receivable is less than or equal to $35,000;
  10. if the Trust Receivable is a Line of Credit Receivable, the Trust Receivable has a Credit Limit of:
    1. more than or equal to $1,000; and
    2. less than or equal to $20,000;
  11. the Trust Receivable is subject to an interest rate of not less than 12.00% per annum:
    1. in the case of a Line of Credit Receivable, calculated by reference to the Credit Limit of the Trust Receivable; and
    2. in the case of each other Trust Receivable, calculated taking into account the timing and amount of monthly account fees, establishment fees, annual fees and merchant fees;
  12. the Receivable Terms of the Trust Receivable require that the principal amount of each advance under the Trust Receivable must be repaid (in full) by no later than 60 months from the date of the relevant advance; or
  13. the Trust Receivable does not have a designation under the Origination Procedures of “Bankruptcy”, “Debt Agreement Voting Period”, “Repaid”, or “Under Debt Agreement”;
  14. the Trust Receivable is assignable in equity to the Issuer without the prior consent of, or notice to, the Obligor;
  15. the Trust Receivable is legal, valid, binding, and enforceable in accordance with its terms against the relevant Obligor (subject to equitable principles and remedies and defences generally affected creditors’ rights);
  16. at the time the Trust Receivable was originated, it complied in all material respects with all applicable laws (including the National Credit Legislation);
  17. the Trust Receivable is not subject to any dispute, litigation, or claim which has a significant risk of being adversely determined;
  18. if the Trust Receivable is the subject of:
    1. an Offer to Sell, the relevant Seller is the sole legal and beneficial owner of the Trust Receivable free from any Encumbrance (other than a Permitted Encumbrance); or
    2. a Reallocation Notice, the Disposing Trustee is the sole beneficial owner (as trustee) of the Trust Receivable free from any Encumbrance (other than any Permitted Encumbrance or Encumbrance that will be released with effect from the Reallocation Date) and the relevant Seller is the sole legal owner of the Trust Receivable;
  19. the Trust Receivable provides that the Obligor may not set-off any amount payable by the Obligor under the Trust Receivable against any amount payable or claimed as being payable by the relevant Seller to the Obligor; and
  20. the Receivable Terms of the Trust Receivable are materially the same as the pro forma contract that has been provided to the Initial Subscriber from time to time and which is the subject of a legal opinion addressed to the Initial Subscriber.

As at the date of this Supplemental Information Memorandum, the Servicer is not aware of any subsisting breaches of the representation or warranty made by each Seller referred to above in respect of any of the Trust Receivables.

Pool Parameters

The Pool Parameters for the Trust Receivables are as follows:

  • the Arrears Ratio in respect of the most recent Determination Date does not exceed 12%;
  • the Net Loss Rate does not exceed 10%;
  • the aggregate Outstanding Principal Balance of all Trust Receivables located in the same State or Territory (such location to be determined by reference to the usual residency of the Obligor at the time of origination of the Trust Receivable) does not exceed the following percentages of the Pool Balance:

Table 1. State/Territory Percentages

State or Territory Maximum Percentage
New South Wales 50.0%
Victoria 45.0%
Queensland 35.0%
Western Australia 20.0%
ACT, Northern Territory, South Australia, Tasmania 7.5%

Source: IAM Capital Markets

  • the aggregate Outstanding Principal Balance of all Trust Receivables in respect of which the Obligor is classified in the same “Employment Sector” does not exceed:
    • in respect of any single “Employment Sector” (excluding “Other”), 20.0% of the Pool Balance; and
    • in respect of the “Employment Sector” titled “Other”, 25.0% of the Pool Balance;
  • the aggregate Outstanding Principal Balance of all Trust Receivables in respect of which the Obligor has been in their current place of employment for 1 year or less does not exceed 45.0% of the of the Pool Balance; and
  • the aggregate Outstanding Principal Balance of all Trust Receivables with an Outstanding Principal Balance in excess of $20,000 does not exceed 15.0% of the Pool Balance.

For the purpose of this Section 4.4, the Pool Balance on any day means the aggregate of the Outstanding Principal Balance of all Trust Receivables (which are not Line of Credit Receivables) plus the aggregate Credit Limit of all Line of Credit Receivables, on that day.

If a breach of a Pool Parameter under paragraph (a) above occurs in respect of a Determination Date, then despite any inconsistency with such paragraph (a) (as applicable), the relevant Pool Parameter shall be retested on a daily basis thereafter until such breach is cured.

The definitions of Arrears Ratio shall be interpreted to give effect to this paragraph, with the relevant Outstanding Principal Balances and status of payments in arrears, for the purposes of those definitions, being tested as at the relevant date of calculation rather than as at the last day of the relevant Collection Period.

Details of the Indicative Pool

The information provided is as of close of business on 28 February 2022.
Arrears Ratio and Net Loss Rate
Arrears Ratio Maximum = 12%

Net Loss Rate Maximum = 10%

Chart 2. Arrears Ratio

Source: IAM Capital Markets

Chart 3. Net Loss Rate

Cumulative Losses in respect of all Receivables (B)
Cumulative Losses in respect of Historical Trust Receivables (C)
Initial Principal Balance of all Trust & Historical Receivables (D)
Permitted Advances on all Trust & Historical Receivables (E)
Net Loss Rate = (B+C) / (D+E)

Source: IAM Capital Markets

Arrears Ratio

This warehouse has been on foot since late 2018. There is a residual part of the portfolio originated up to and including 2020, when MME was lending to higher risk customers. Looking at the portfolio, loans originated up to and including 2020 account for c.27% of the portfolio but account for c.55% of the arrears. MME’s FY22 half year results (further detailed below) contain details of the improving credit quality of MME’s overall loan portfolio, with low static losses in more recent vintages and an overall improving Equifax score.

The static loss rate (%) shows that the quality of the pool has been improving alongside an increasing average Equifax portfolio score. The static loss rate (%) is a better metric than the outright net loss rate (%) as it is a more evolving metric with seasoning of the loans.

Chart 4. Static Loss Rate vs Increasing Average Equifax Portfolio

Source: MoneyMe IM

There is an element of negative selection as the better performing loans originated in that period have paid out. The proposed increase and restructure will materially help the arrears ratio:

  1. MME will add c. AUD20m of loans that will not be in arrears, which will (all other things being equal) reduce the arrears rate to c.6.86%; and
  2. Increasing the loan sizes will enable MME to be able to sell in a better credit quality borrower into the trust, it is expected that the change in criteria and increased pool size will enable the WA Veda Score to be increased from 592 to 621.

Net loss Rate

The 4% loss rate over three years is a good outcome, when viewed in the context of the yield on the portfolio.

Chart 5. Outstanding Principal Balance (by Customer #)

Source: IAM Capital Markets

Table 2. Concentration of Trust Receivables by State

Sum of Current Principal Balance % Composition
Australian Capital Territory 1,304,531 1.6%
New South Wales1 31,236,982 37.5%
Northern Territory 887,050 1.1%
Queensland 15,186,065 18.2%
South Australia 3,916,172 4.7%
Tasmania 1,150,645 1.4%
Victoria 23,830,621 28.6%
Western Australia 5,827,876 7.0%
Grand Total 83,339,942 100.0%

Source: MoneyMe IM

Table 3. Concentration of Trust Receivables by Employment Sector

Sum of Current Principal Balance % Composition
Accounting 596,191 0.7%
Admin/Office Support 1,382,239 1.7%
Advertising & Marketing 264,445 0.3%
Agriculture, Fisheries and Forestry 264,445 0.3%
Architecture & Design 144,258 0.2%
Automotive 1,007,891 1.2%
Banking & Financial Services 785,109 0.9%
Community, Sport and Leisure 134,088 0.2%
Construction, Building & Architecture 1,053,687 1.3%
Customer Service & Call Centre 1,465,876 1.8%
Education and Training 1,533,195 1.8%
Engineering 919,198 1.1%
Entertainment 85,598 0.1%
Executive/Corporate 255,696 0.3%
Government & Defence 1,583,509 1.9%
Hair and Beauty 185,321 0.2%
Hospitality, Food and Beverage 13,261,928 15.9%
Hospitality, Travel and Tourism 1,209,386 1.5%
Human Resources & Recruitment 280,615 0.3%
Insurance and Superannuation 1,855,639 0.2%
IT & Telecommunications 1,855,639 2.2%
Legal 258,087 0.3%
Logistics, Transport & Supply 10,583,026 12.7%
Manufacturing, Trades and Service 4,977,551 6.0%
Medical & Healthcare 7,162,217 8.6%
Mining, Oil & Gas 2,104,386 2.5%
Other 15,857,050 19.0%
Property and Real Estate 88,808 0.1%
Real Estate 220,277 0.3%
Retail 7,290,118 8.7%
Sales 884,759 1.1%
Sport & Well-Being 100,152 0.1%
Supermarket & Convenience Stores 1,012,654 1.2%
Tourism & Travel 445,792 0.5%
Trades and Construction 3,288,125 3.9%
Grand Total 83,339,942 100.0%

Source: MoneyMe IM

MME did not notice that the Hospitality, Food and Beverage sector performed materially differently to its overall book during COVID-19. This may have been because of management actions taken in 2020 to limit their exposure to that particular sector. MME’s COVID hardship experience has been particularly good, with currently only 0.1% of their portfolio in COVID hardship.

Chart 6. Concentration of Trust Receivables by Employment Length

Source: IAM Capital Markets

Chart 7. Concentration of Trust Receivables by Product Type

Source: IAM Capital Markets

MME have not targeted a particular percentage related to the above and have been offering larger loan amounts on PLs (up to AUD50K), which has led to a substantial portion of personal loans (PLs) originated in more recent times not being eligible for this trust receivables. This would be addressed by increasing the loan sizes.

Annual Percentage Rate (APR)

The APR is Annual Percentage. The loans that are not showing an APR are all loans associated with our List Ready product. This product does not have an interest rate associated with it but a 4% service fee that is payable on maturity. Given that these receivables typically only have a tenor of c. 3 months, this provides an annualised return of c. 16%.

Table 3. Concentration of Trust Receivables by Employment Sector

Average APR 19.9%
Weighted APR 17.7%

Note: Weighted according to outstanding principal balance.
Source: IAM Capital Markets

MME does not have the weighted average prepayment rate for the pool but can provide stats on how prepayment rates have been performing across our total portfolio. For PLs their credit receivable (CPR) is around 25-30%, for line of credit (LOC) is around 55-60%. These have been constant for the last 18 months.

MoneyMe (MME)

MoneyMe’s parent company, MoneyMe Limited, is listed on the ASX. Further information in respect of MoneyMe Limited can be found on their investor website.

On 22 February 2022, MoneyMe Limited released its FY22 half year results. Highlights included:

  • Record Revenue and Robust Returns
    • Revenue of AUD48m for H1 2022, up 101% on pcp (AUD24m, H1 2021)
    • H1 2022 contracted revenue of AUD178m for H1 2022, up 293% on pcp (AUD45m, H1 2021)
    • Cash profit of AUD10m for H1 2022, up 140% on pcp (AUD4m, H1 2021)
    • Statutory loss of AUD19m for H1 2022, reflecting upfront SocietyOne related expenses and AASB 9 provisioning expense driven by record receivable growth
  • Record Originations and Gross Customer Receivables
    • Originations of AUD441m in H1 2022, up 286% on pcp (AUD114m, H1 2021)
    • Gross customer receivables of AUD590m, up 252% on pcp (AUD168m, H1 2021)
  • Increasing operating leverage and cost efficiencies
    • Average funding cost rate of 5% for H1 2022, down 39% on pcp (9%, H1 2021)
    • Core operating costs margin of 7% for H1 2022, down 43% on pcp (12%, H1 2021)
  • Strong Credit and Book Quality
    • Average Equifax score of the book increased to 672 for H1 2022 (637, H1 2021)
    • Net losses of 4% for H1 2022, down 5% on pcp (5%, H1 2021)

As announced on 17 December 2021, MoneyMe has executed a Merger Implementation Agreement to acquire SocietyOne. The transaction delivers a powerful combination of two of the leading innovators in the consumer lending market and will harness SocietyOne’s strong brand recognition as a pioneer in disruptive personal lending, with MoneyMe’s leadership in product innovation, efficiency, and customer experience through its proprietary technology platform (Horizon).

Origination and Servicing of the Pool

MME is a leading player in the digital credit business with technology (Horizon Technology Platform) and AI to deliver highly automated innovative products and customer experiences. Founded in 2013, MME has originated over AUD1bn in loans through its risk-based lending platform.

MME originates through a diversified mix of credit products and distribution channels to create significant scale and long-term customer advantages. MME’s automotive finance, personal loans, revolving credit accounts, and at point-of-sale retail products are for credit approved customers who are seeking simplicity, fair pricing, and flexibility.

MME’s technology platform enables applications to be completed and checked within minutes, security to be established, funds to be disbursed, or credit limits to be available, to the customer shortly after approval.

MME’s parent company, MME Limited, is listed on the ASX. MME Financial Group Pty Limited holds an Australian Credit License (ACL Number 442218). MME is headquartered in Sydney.

MoneyMe derives income from the following product areas:

  • Personal Loans: a fixed instalment loan product which charges interest and fees to offer up to AUD50,000 to retail consumers.
  • Freestyle: a virtual line of credit product that is MasterCard-enabled to offer up to AUD20,000 in credit to retail consumers with interest and fee charges.
  • MoneyMe+: a retail point of sale focused product launched in August 2020 that offers interest free periods to the retail consumer, a financing range up to AUD50,000, and interest and fee-based pricing.
  • List Ready/Rent Ready: property sector-focused Buy Now Pay Later products that charge a service fee to support property listing (List Ready) or rental-related expenses (Rent Ready).
  • Autopay: a fixed instalment loan product to finance the purchase of a motor vehicle which charges interest and fees to offer up to AUD100,000 to retail and commercial customers.

MoneyMe originates receivables through its brands ‘MoneyMe’, ‘My OzMoney’, ‘List Ready’, ‘Rent Ready’, and ‘Autopay’. Only Personal Loan, Freestyle, MoneyMe+, and List Ready product related receivables are sold to the Trust.

Chart 8. MoneyMe Trust Products

Source: MoneyMe IM

Approach to Risk Assessment

Line of Credit and Fixed Instalment Loan

MME relies on data and algorithmic-based decisioning models to rigorously assess and control credit quality, risk, and responsible lending standards. The loan application process is managed through MME’s proprietary loan management system, Horizon, which is designed to assess credit risk and manage credit exposure through calibrating price and time-based product offers.

MME’s Credit Policy (“Credit Policy”) is intended to balance growth and profitability with loan book integrity. The discipline surrounding the Credit Policy is controlled by the Credit Committee, which consists of the CEO, CFO, COO, CSO, and Treasurer. The Credit Committee is responsible for developing and recommending changes and monitoring the Credit Policy and its application to management and operations.

MME’s loan servicing, credit risk monitoring, reporting, and arrears management are all centralised in a single, 100% cloud-based platform built in Microsoft .NET and controlled in-house.

List Ready

List Ready administers a tailored risk assessment process through agency, vendor, and asset due diligence. As part of the risk assessment, the business leverages MME’s proprietary data and third-party sources. Consistent with the Line of Credit and Fixed Instalment Loan, List Ready conducts Know Your Customer requirement on vendors as part of the onboarding process.

The business leverages MME’s proprietary system to control the end-to-end distribution and collection of funds. This includes facilitating the disbursement of funds to the agencies as well as collection on settlement upon instruction from vendors’ solicitors.

In addition, List Ready reserves the right to lodge a caveat against a customer’s property, further ensuring the product maintains a low risk profile.

Approach to Servicing

Credit risk monitoring, reporting, and arrears management are core to MME’s business. MME adheres to required legal process when dealing with delinquent accounts. It is a requirement under the National Consumer Credit Protection Act 2009 and the Privacy Act that a debtor receives adequate notice about their overdue balance and to provide the appropriate contact information for an external dispute resolution body. MME also adheres to the Debt Collection Guideline for Collectors and Creditors issued by the Australian Competition and Consumer Commission.

It is MME’s policy that all customers set up a direct debit at loan origination. The collections process involves the automated issuance of communications and notifications which begins from the first scheduled repayment. The handling of overdue accounts is performed through a combination of automated and human communications − telephone, SMS, email, and postal letters. Registering a default with the credit reporting bodies is a fundamental action taken on overdue loans.

MME employs a mix of collection strategies including frictionless payment processes, the use of skip tracing technologies, credible mercantile agencies, and debt recovery legal proceedings.

Conditions of the Notes

Table 5. Note Conditions

Class A Notes Class B1 Notes Class B2 Notes
Issuer MME Horizon Warehouse Trust
Trustee Perpetual Corporate Trust Limited
Manager Perpetual Nominees Limited
Frequency Monthly Monthly Monthly
Aggregate Amount AUD68m AUD8.5m AUD4.25m
Interest Rate 1m BBSW + 5.5% 1m BBSW + 8.50%-9.00% 1m BBSW + 10.00%-10.50%
CE 20% 10% 5%
Notional CE AUD17m (Class B1, Class B2 and Equity or Class C) AUD8.5m (Class B2 and Equity or Class C) AUD4.25m (Equity or Class C only)
Scheduled Maturity Date 18 March 2025 18 March 2025 18 March 2025
Issuer Extension Option 1 year right to extend for a 2% coupon step-up 1 year right to extend for a 2% coupon step-up 1 year right to extend for a 2% coupon step-up
Issuer Call After year 1 at 101% at each coupon payment date. After year 2 at 100% at each coupon payment date. After year 1 at 101% at each coupon payment date. After year 2 at 100% at each coupon payment date. After year 1 at 101% at each coupon payment date. After year 2 at 100% at each coupon payment date.

Source: MoneyMe IM

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