With its marquee ABS funding deal, Plenti stands alone in fintech lending as it targets strong FY22 profit growth
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Through the strength of its loan-book, Plenti has secured a major new financing deal on particularly favourable terms.
Fintech lender Plenti (ASX:PLT) continues to drive strong operational momentum as it scales towards a $1 billion loan portfolio.
And in its market update last week, Plenti demonstrated how that top-line growth is converting into strong margin growth with a marquee asset-backed securitisation (ABS) deal.
Speaking with Stockhead, CEO Daniel Foggo said the metrics of the ABS structure are unique for the fintech lending space, in a deal he called “really transformative” for Plenti’s future profit growth.
Under the terms of the deal, Plenti issued $306.3m of notes backed by loans in its automotive lending portfolio.
The ABS package was assessed by multinational credit ratings agency Moody’s, which applied a AAA rating to almost 90% (87.8%) of the underlying portfolio.
On the one hand, those ratings are a reflection of the strength of Plenti’s loan-book and credit assessment practices.
But it also allows the company to lock in debt funding with low rate costs – just 0.97% above the benchmark one-month Bank Bill Swap Rate (BBSW).
“To have a rating agency like Moody’s assess the loan-book with a AAA rating for our first ABS deal really reflects the underlying strength of that credit performance,” Foggo said.
Along with the industry leading interest rate, Plenti also secured the deal with an equity contribution of just 0.5% — well below comparable ABS financing deals in the fintech lending space.
“We’re not aware of any other non-mortgage lender with a recent ABS deal with those metrics,” Foggo said.
“So in that sense, the terms of this deal are really quite exceptional — particularly for an inaugural issuer.”
The average Equifax credit score for the auto loans underpinning Plenti’s securitisation deal was over 850 (800 and over is considered excellent).
Plenti’s ability to negotiate optimal terms for the ABS deal “all come down to our lending practices and focus on prime credit customers”, Foggo said.
“If you look at our auto loan book, the number of loans classified as 90-days or more in arrears is surprisingly low, showing we really are cracking open the prime automotive market.”
Aside from the favourable metrics, the strategic rationale for issuing the ABS notes is that it materially reduces Plenti’s cost of funding.
The group’s profit margins are driven by the interest revenue generated from its loan-book, offset against the cost of funding those loans.
By structuring the ABS deal with an interest rate of less than 1%, Plenti has reduced its overall cost of funding on those loans by over 1.5%.
And in terms of the bottom line, Foggo said that will convert to another $400,000 of free cash flow in the first month after the ABS completes.
‘That’s why we can save so much through this structure – it really is transformative in terms of cash flow to the business,” he said.
And it helps set the business towards its target of cash NPAT break-even by June 2022.
“Already the first quarter (of FY22) has been extremely strong,” Foggo said.
“So we’re looking forward to continuing to drive performance as we scale towards a $1 billion loan book.”
This article was developed in collaboration with Plenti, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.