Presale:
Mariner Finance Issuance Trust
2017-A
This presale report is based on information as of Feb. 9, 2017. The ratings shown are preliminary. This
report does not constitute a recommendation to buy, hold, or sell securities. Subsequent information may
result in the assignment of final ratings that differ from the preliminary ratings.
! " !
! #
Preliminary Ratings
$ % & !'( )
Class
Rating
Type
Interest rate
(%)(i)
Amount (mil. Legal maturity
$)(i) date
* + , A
BBB+ (sf)
Senior
Fixed
189.0 Feb. 20, 2029
B
NR
Subordinate
Fixed
19.8 Feb. 20, 2029
*
C
NR
Subordinate
Fixed
16.2 Feb. 20, 2029
(i)The actual size of the tranches and the respective interest rates will be determined on the pricing
date. NR--Not rated.
Profile
Expected closing date
Feb. 23, 2017.
Collateral
Personal consumer loan receivables.
Servicer and administrator
Mariner Finance LLC.
Sponsor
Mariner Finance LLC.
Sellers
Mariner Finance LLC, a Maryland limited liability company, Mariner
Finance Florida Inc., a Florida corporation, Mariner Finance North
Carolina Inc., a North Carolina corporation, Pioneer Credit Co. Inc., a
Tennessee corporation, Pioneer Credit Co. of Alabama Inc., a
Tennessee corporation, and Mariner Finance of Virginia LLC, a
Virginia limited liability company.
Depositor
Mariner Finance Funding LLC.
Lead managers
Wells Fargo Securities LLC and Goldman, Sachs & Co.
Primary Credit Analyst:
Shane N Franciscovich, New York (1) 212-438-2033; [email protected]
Secondary Contacts:
Romil Chouhan, New York 212.438.3512; [email protected]
See complete contact list on last page(s)
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Profile (cont.)
Indenture trustee, depositor
loan trustee, issuer loan
trustee, bank account provider,
and backup servicer
Wells Fargo Bank N.A.
Owner trustee
Wilmington Trust N.A.
Credit Enhancement Summary
2017-A(i)
Subordination (% of the initial adjusted loan principal balance)
Class A
14.27
Class B
6.42
Class C
0.00
Reserve account (% of the initial adjusted loan principal balance)
Initial
1.00
Target
1.00
Floor
1.00
Overcollateralization (% of the initial adjusted loan principal balance)
Initial
10.80
Target
10.80
Floor
10.80
Total initial hard credit enhancement (% of the initial adjusted loan principal balance)
Class A
26.07
Class B
18.22
Class C
11.80
Total credit enhancement, including excess spread (% of the initial adjusted loan principal balance)
Class A
42.9
Initial adjusted loan principal balance ($)
252,249,108
Total securities issued ($)
225,000,000
(i)Prior to pricing.
Rationale
The preliminary ratings assigned to Mariner Finance Issuance Trust 2017-A's (MFIT 2017-A's) $189.0 million
asset-backed class A notes reflect:
• The availability of approximately 42.9% credit support to the class A notes, in the form of subordination,
overcollateralization, a reserve account, and excess spread (see the Credit Enhancement Summary table above for
more information). The credit support level is sufficient to withstand stress commensurate with the preliminary
rating on the notes based on our stressed cash flow scenarios (see the Cash Flow Modeling: Stress Scenarios section
for more information).
• Our expectation that under a moderate ('BBB') stress scenario, the ratings on the class A notes would remain within
two rating categories of our preliminary rating on the notes. This potential rating movement is consistent with our
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•
•
•
•
•
•
•
credit stability criteria, which outline the outer bounds of credit deterioration as equal to a two-category downgrade
within the first year under moderate stress conditions (see "Methodology: Credit Stability Criteria," published May 3,
2010).
Our expectation of the timely payment of periodic interest and principal by the legal final maturity date according to
the transaction documents, based on stressed cash flow modeling scenarios, using assumptions commensurate with
the assigned preliminary rating.
The characteristics of the pool being securitized, which include loans with smaller balances and shorter original
terms. The transaction has a revolving period in which the loan composition can change. As such, we took into
consideration the worst-case pool allowed by the transaction's limits.
Mariner Finance LLC's (Mariner's) established management and its experience in origination and servicing
consumer loan products.
Wells Fargo Bank N.A.'s (Wells Fargo; the backup servicer) consumer loan servicing experience.
The operational risks associated with Mariner's decentralized business model (see the Key Rating Considerations
section for more information).
Significant and rapid loan portfolio growth after the integration of Sunbelt Credit Corp. of Florida and Security
Finance Corp. of Lincolnton (collectively, "Mariner South"), acquired on June 30, 2014, and Pioneer Credit Co. Inc.
and Pioneer Credit Co. of Alabama Inc. (collectively, "Pioneer") acquired on Dec. 1, 2014. Mariner South and
Pioneer have limited loan performance histories since their integration. Loans originated from Mariner South and
Pioneer can represent up to 60% of the aggregate principal balance.
The transaction's payment and legal structures.
Key Rating Considerations
Based on our review of Mariner's operations and performance history, we considered the following strengths in rating
the class A notes:
• Mariner has been in business since 2002 and, in our view, has exhibited relatively strong credit performance on its
consumer loan portfolio, including through the recent recession.
• Mariner has been profitable every year since 2002.
• The company's management team has extensive experience in the consumer finance industry and a long history at
Mariner.
• The company's branch operations, which are the core of its community lending business model, are overseen by
branch managers, district managers, and regional managers who have, on average, been with Mariner for seven,
seven, and 13 years, respectively.
• Wells Fargo, as the backup servicer, is experienced in servicing personal consumer loans, which can mitigate the
risk of a servicing disruption, given Mariner's decentralized servicing operations.
• The company has strong relationships with many lenders that participate in its existing liquidity facility.
Despite these strengths, we believe that the following limitations, taken as a whole, weigh against assigning a rating
above 'BBB+ (sf)' to the class A notes:
• Mariner relies on a decentralized branch network to originate, underwrite, and service its personal consumer loan
portfolio, though specialized default servicing and some late-stage collections (including all recovery collections) are
generally centralized.
• Because a substantial percentage (approximately 30% as of Dec. 31, 2016) of obligors make payments at their local
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•
•
•
•
•
branches, branch closures could delay payment collections and impede the company's ability to continue servicing
its portfolio effectively.
There is some uncertainty about how collateral performance would be affected if existing customers could no longer
renew their loans if Mariner's operations were disrupted.
There is limited performance data following the integration of Mariner South and Pioneer, which were acquired in
2014 and 2015. These were large integration projects that resulted in significant branch and loan portfolio growth.
The company's current business strategy, which focuses on high growth, much of which is expected to occur
through acquisition and new branches. We expect the company to expand its current branch footprint as it moves
toward having a greater national presence.
The company's reliance on loan growth, which is primarily funded through an external liquidity facility. Disruption
in the liquidity facility (including disruption in renewing the facility) could affect the company's ability to grow as
expected.
There is significant geographic concentration within Mariner's existing pool of loans and within the allowed
worst-case pool composition. There is increased risk of loss due to risks associated with certain regions, which
could experience weaker economic conditions or event risk such as natural disasters. This risk is addressed to some
extent by Mariner's ability to use unaffected branches to service affected branch obligors. As Mariner's business
model grows toward lending in other geographical areas, the performance in those new geographical areas could
vary from that of the existing portfolio.
Mariner
Mariner operates one of the largest consumer loan branch networks in the U.S., with over 300 branches across 22
states as of Dec. 31, 2016. The business provides personal consumer loans and insurance products to nonprime and
subprime customers through community-based branches. Mariner's operating model combines its relationship-driven
branch network with a centralized platform. Underwriting (within systemically controlled limits), originations,
servicing, and most early-stage collections are generally performed at the branch level. Marketing, credit scoring,
specialized default servicing, and some late-stage collections (including all recovery collections) are generally
centralized. As of Dec. 31, 2016, the company's personal consumer loan portfolio totaled approximately $944 million.
Mariner's executive management team has extensive experience in the consumer finance industry, having worked, on
average, for 26 years within the financial services industry. The branch operations division also has many tenured
managers. Branch managers, district managers, and regional managers have, on average, been with Mariner for seven,
seven, and 13 years, respectively.
Mariner was founded in 2002 and has since acquired several other branch-based personal consumer lending
companies. Part of the company's business strategy involves growing its business in this non-organic manner through
the selective acquisition of complementary companies, loan portfolios, or loan products. The largest of these
acquisitions occurred in 2014, with the purchase of Mariner South and Pioneer, respectively. The integration of these
acquisitions has occurred, but there is limited performance history to show how these assets will perform under
Mariner's operations. On average, we expect the borrowers of Mariner South and Pioneer to have lower FICO scores.
As such, we also expect the average borrower rate to be higher for these loans to compensate for the additional risk.
As of Dec. 31, 2016, approximately 1,200 branch-based employees serviced over 400,000 active customers, supported
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by approximately 250 employees in centralized and administrative functions.
Originations And Underwriting
Mariner offers secured and unsecured personal consumer loans through its extensive branch network. As of Jan. 31,
2017, approximately 62% (based on the outstanding balance) of the statistical pool of loans were unsecured, and the
remainder were secured by titled collateral (typically automobiles but also other assets for which, under applicable
state law, a certificate of title is issued). Mariner may hold a first or second lien on the pledged collateral. The
concentration limits for this transaction require at least 25% of the aggregate principal balance to be secured loans. As
noted below, we give limited credit to recoveries for secured loans in our cash flow scenarios. In addition to personal
consumer loans, Mariner also originates indirect sales finance contracts, which are used to finance home goods or
home improvement products and services. Sales finance contracts may be secured or unsecured by collateral.
Mariner's personal consumer loans are all fixed-rate, amortizing products. Generally, they have original terms of up to
five years, interest rates of 36.00% or less, and loan sizes up to $40,000. As of Jan. 31, 2017, the weighted average
annual percentage interest rate for the statistical pool was 28%, and the average loan balance was approximately
$2,805. We believe the lower balance and shorter term on the loans positively affect net loss performance.
Mariner's target demographic is described as nonprime or subprime and has an average FICO score ranging from the
high 500s to high 600s. As of Dec. 31, 2016, the average customer was 50 years old with a household income of
$47,000, owned their own home, and had been at their current residence for over 10 years. Borrowers typically take
out loans to address a specific financing need, such as vacation and holiday spending, auto repairs, home bills and
repairs, medical bills, and debt consolidation.
The company employs a marketing strategy that it believes prioritizes acquiring profitable new customers while
retaining and growing relationships with profitable existing customers. Customer acquisition can be broken down into
three main segments: present, former, and new borrowers. Mariner offers multiple personal consumer loan products to
these three segments, the principal of these being direct loans, indirect sales finance contracts, and loans by mail.
Direct loans are originated in person at local Mariner branches. These may be secured or unsecured loans, though
Mariner typically seeks to obtain a pledge of collateral as security for loan repayment.
Indirect sales finance contracts are originated by sellers of goods or home improvement services to consumers where
financing is centrally approved and underwritten by Mariner Finance's centralized underwriting department in
accordance with criteria acceptable to Mariner Finance. Mariner has relationships with thousands of retailers across
the country that offer this product. Once the loan is originated, it is transferred to a branch for servicing, and then the
branch will work to establish a relationship with the customer and convert the obligation to a direct loan. Indirect sales
finance contracts may be secured by unperfected security interests in household goods, such as furniture, electronic
equipment, or jewelry. As noted below, we do not give credit to recoveries from such security in our cash flows. The
transaction limits indirect sales finance contracts to 15% of the aggregate principal balance.
Loans by mail are typically smaller loans targeted to customers living within close proximity of a Mariner branch,
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prescreened from credit bureau data and proprietary scoring data. These loans are originated by sending to a
prospective customer a live check (executable up to 30 days from the issuance date), accompanied by the relevant
loan documents that become effective upon their execution and the check deposit. Once a prospective customer
deposits a live check, the loan by mail is executed, and Mariner's branch staff will work to contact that customer to
establish a relationship and convert the obligation to a direct loan. The transaction limits loans by mail (which have yet
to be converted to a direct loan) with balances less than $4,500 to 25% of the aggregate principal balance. Up to 20%
of the aggregate principal balance can be loans by mail with FICO scores greater than 620 and 5% can be loans by
mail with no FICO or a FICO score of 620 or below.
Mariner's underwriting process utilizes both industry standard and proprietary credit tools to evaluate an applicant's
credit standing and ability to pay. Mariner uses the GOLDPoint System (GPS) to centrally embed the underwriting
criteria and processing requirements to ensure objectivity and consistency across the network. Branch personnel use
GPS to guide their conversations with customers and collect application data. During the application process, GPS
obtains a full credit report, processes the applicant through a multistep risk algorithm, and assigns both an industry
standard credit score and a proprietary Mariner custom score. All direct loans are underwritten with full verification
and documentation of the borrower's information--including identity, income, employment, and residence--and they
are closed at the branch.
Renewals are new loans made to existing customers who undergo a full re-underwriting process. In addition, the
borrower's credit history and performance with Mariner is considered during the re-underwriting process. In most
cases, the renewed loan balance is incrementally higher than the outstanding balance of the loan being replaced, and
part of the renewed loan's proceeds are used to retire the replaced loan. The renewed loan's terms may differ
materially from those of the replaced loan because the borrower may be assigned a new credit score or change from
an unsecured loan to a secured loan. Renewals are an important source of Mariner's new loan volume.
Servicing And Collections
Generally, Mariner operates a decentralized servicing and collections platform with centralized assistance. All
branches service and collect on loans, and they work to build relationships with customers through frequent personal
interaction. GPS logs each branch's servicing and collection activity and can be accessed from different locations. This
allows other branches or the centralized servicing facility to assist busy branches with servicing activities. This also
allows easy transitioning of collections for branches that have a temporary or permanent closing. On a daily basis, field
managers can review the individual branches' performance to better manage and prioritize further servicing efforts.
Branch payments are an important way for Mariner to maintain close contact with its customers for servicing purposes
and future solicitation opportunities. Payments to the branch (including payments made in person via cash, check,
debit card, or Automated Clearing House (ACH) payment) accounted for about 30% of all payment receipts as of Dec.
31, 2016. Centralized payment options (via telephone, checks mailed to a centralized payment processing center, and
online) were the remainder. Generally, branch-collected payments are deposited to a local bank account at the close of
business. Additional, daily deposits are made if branch cash levels at any point during the day reach $4,000.
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Loans in the early stages of delinquency (30 days or less past due at the close of any particular month) are generally
serviced in the applicable branch by the branch customer service representative. As delinquent accounts age, they are
assigned to branch personnel for servicing depending on position or experience. Collection activities commonly begin
when a payment is five or more days past due but can begin after the customer is one day past due. The branch
relationship and customer's situation drive the call, letter, and offer strategies. Collection calls turn into sales
opportunities, which is core to the business model. According to Mariner, a refinance balance only (RBO) renewal is a
customer service tool that may be offered to customers in their early stages of delinquency (but may also be used for
loans in later stages of delinquency under limited circumstances). The refinanced full-term loan will have a new
amortization profile, and the scheduled monthly payment will be equal to or less than the previous loan's monthly
payment.
Mariner uses three loss mitigation techniques: cures (re-aging), deferment, and modification. For an account to be
eligible for a cure, the account holder must be either bankrupt, subject to legal proceedings, or subject to credit
counseling services, or the account must not be otherwise renewable. Deferment is used to relieve customers of a
short-term issue and delays the monthly due date by a month, advancing the customer's paid-to-date. A reinvestment
criteria event will occur if loans subject to deferment during the previous collection period exceed 4.0% of the
aggregate principal balance. Mariner may also modify loans, for example, by reducing the interest rate and/or
extending the loan amortization schedule. A modification addresses ongoing or higher-severity issues, and it can be a
temporary or permanent change to the loan terms. Before granting a modification, full income, employment
verification, and district manager approval are required, similar to the verification process for newly underwritten
loans.
Mariner also has a settlement (partial payment) policy and may agree to accept less than the full principal balance
owed on a delinquent loan. Once a settlement is accepted and the customer pays the agreed-upon payment, the
remainder of the balance is written off. Generally, a settlement is only offered to customers who are severely
delinquent (i.e., greater than 90 days past due).
When a delinquent account is secured with a lien on an automobile or other titled asset, the branch manager, along
with the district manager, recommends whether the collateral should be repossessed. Mariner has a centralized
repossession department that handles all repossession processes and is responsible for complying with state
regulations. If there is a deficient balance after applying funds from repossession and liquidation, the branch will
continue to attempt collecting the deficiency, subject to applicable state laws and regulations.
Mariner generally charges off loans in full when they become 180 days contractually delinquent. Loans may also be
charged off in part as a result of the settlement policy described above. Charge-offs are transferred to Mariner's
centralized collections unit to pursue recovery.
If the servicer defaults, servicing will be transferred to Wells Fargo as the backup servicer. Mariner and Wells Fargo
have implemented a two-stage backup servicing plan whereby certain actions would be taken after an interim trigger is
breached but before a servicer default initiates a servicing transfer. Specifically, if Mariner ceases all or most servicing
activity for personal consumer loans, Wells Fargo may hire additional personnel, confirm access to a centralized
lockbox, and begin negotiating agreements with a subservicer and collection agent. If a servicing transfer occurs, Wells
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Fargo can service the Mariner receivables how it deems appropriate. For example, Wells Fargo may opt to centralize
collections and other servicing functions and decrease reliance on the branch network, or it may engage subservicers.
We believe that Wells Fargo has experience and scale in the consumer loan sector, and we view the backup
arrangement a credit positive in a potential downturn scenario.
Transaction Overview
MFIT 2017-A is Mariner's inaugural personal consumer loan term asset-backed securities (ABS) transaction (see chart
1).
MFIT 2017-A is structured as a true sale of the receivables from the sellers to Mariner Finance Funding LLC, a
multi-use, special-purpose Delaware limited-liability company and a wholly owned, limited-purpose subsidiary of MF
Raven Holdings Inc. The sellers will convey legal title to the loans to Wells Fargo as the depositor loan trustee.
Mariner Finance Funding LLC (and Wells Fargo), in turn, will transfer the receivables to MFIT 2017-A, the issuer and
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newly formed special-purpose Delaware statutory trust, and the legal title to Wells Fargo, the issuer loan trustee. The
issuer will pledge its interest in the receivables to the trustee on the noteholders' behalf. The trust will issue three note
classes (A, B, and C) that will receive interest and principal payments on the 20th business day of each month.
Wells Fargo will be the backup servicer, indenture trustee, depositor loan trustee, and issuer loan trustee for MFIT
2017-A.
In rating this transaction, S&P Global Ratings will review the relevant legal matters outlined in its criteria.
Transaction Structure
MFIT 2017-A is issuing three classes backed by secured and unsecured personal consumer loans. The structure
incorporates the following structural features:
•
•
•
•
•
•
Nonamortizing overcollateralization of 10.80%;
A 1.0% nondeclining reserve account;
Subordination for the class A and B notes;
Sequential principal payments on the notes;
A revolving period of approximately 24 months (ending Jan. 31, 2019);
Performance-based early amortization triggers linked to a three-month average annualized net loss percentage or an
overcollateralization test;
• Early amortization triggers linked to pool composition or a servicer default;
• Optional call by the issuer of the notes on any payment date as of February 2019 or thereafter at amounts that
would at minimum repay the class A, B, and C note balance plus accrued interest; and
• Optional call by the depositor of the notes on any payment date on or after the date on which the aggregate note
principal amount of the outstanding notes is reduced to 20% or less of the initial note principal amount at amounts
that would at minimum repay the Class A, B and C note balance plus accrued interest (the clean-up call).
Payment Structure
The servicer will deposit interest and principal collections on the pool of receivables in addition to any servicer
advances into the collection account. Priority and regular principal payments made in items five, seven, nine, 12, and
15 of the collection account's payment waterfall (see table 1) will be deposited into the principal distribution account,
which is subject to its own payment waterfall. The class A, B, and C notes will receive interest payments on each
monthly payment date and no principal during the revolving period. Principal payments on the notes will be made
once the revolving period terminates, in sequential priority. Funds may be withdrawn from the reserve account each
month to make interest and principal payments in items one through nine of the collection account's payment waterfall
if collections are insufficient.
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Table 1
Payment Waterfall--Collection Account
Priority
Payment
1
Pro rata (based on amounts due), to the indenture trustee, account bank, note registrar, owner trustee, backup
servicer, depositor loan trustee, and issuer loan trustee, capped at $250,000 per year (unless an event of default occurs
and continues).
2
Backup servicing fee equal to the greater of $10,000 each month and 0.06% per year and servicing transition costs,
capped at $250,000 if a servicing transition event has occurred.
3
Servicing fee of 4.75% per year.
4
Class A note interest.
5
First-priority principal payment (generally an amount is owed if the class A notes' balance is greater than the adjusted
loan principal balance).
6
Class B note interest.
7
Second-priority principal payment (generally an amount is owed if the class A and B notes' balance is greater than the
adjusted loan principal balance after any first-priority principal payments are made).
8
Class C note interest.
9
Third-priority principal payment (generally an amount is owed if the class A, B, and C notes' balance is greater than
the adjusted loan principal balance after any first- and second-priority principal payments are made).
10
Restore the reserve account to its required amount.
11
To the servicer, an amount equal to the aggregate unpaid balance of any advances.
12
Regular principal payment (the excess, if any, of the class A, B, and C notes' balance over the difference between the
adjusted loan principal balance and the required overcollateralization amount after any priority principal payments are
made).
13
Before an event of default occurs, any unpaid fees payable to the trustee, owner trustee, account bank, note registrar,
depositor loan trustee, issuer loan trustee, or backup servicer.
14
Before an event of default occurs, any indemnities payable to the trustee, owner trustee, account bank, note registrar,
depositor loan trustee, issuer loan trustee, or other third parties.
15
If all servicer advances have been reimbursed, at the issuer's option, any remainder to the trust certificates or
deposited in the principal distribution account, or if servicer advances remain unreimbursed, to be deposited into the
collection account.
During the revolving period, deposits in the principal distribution account will be available to the issuer to purchase
additional loans. The issuer may also take one or more of the following loan actions:
• Acquire additional loans without using deposits in the principal distribution account or any portion of the trust
estate;
• Designate any loan that was not charged off or delinquent as an excluded loan;
• Reverse an excluded loan's designation, provided it is not charged off or delinquent;
• Reassign to the depositor any loan that was not charged off or delinquent and release the loan from the indenture
trustee's lien; or
• Exchange any loan that was not charged off or delinquent for any eligible loan that is not a charged-off loan.
The issuer cannot undertake a loan action on a loan action date (the first calendar day of any collection period),
including purchasing additional loans, if it would cause a reinvestment criteria event (see the Early Amortization
Events section below). No more than 20% of the original loan principal balance may be reassigned or exchanged
throughout the revolving period during any 12-month period. Loans may not be excluded if an overcollateralization
event is in effect (an excluded loan is not part of the adjusted loan principal balance, but it remains part of the trust
estate and subject to the indenture trustee's lien for the noteholders' benefit).
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If the revolving period has terminated from an early amortization event or an event of default, deposits in the principal
distribution account will be applied according to the payment waterfall in table 2.
Table 2
Payment Waterfall--Principal Distribution Account
Priority
Payment
1
Class A note principal until the class A note balance is reduced to zero.
2
Class B note principal until the class B note balance is reduced to zero.
3
Class C note principal until the class C note balance is reduced to zero.
Early Amortization Events
The pool's revolving period terminates on Jan. 31, 2019 unless an event of default occurs (see the Events Of Default
section below) or one of these three early amortization events occurs:
• The three-month average annualized monthly net loss percentage exceeds 17%;
• A reinvestment criteria event occurs for three consecutive payment dates; or
• A servicer default occurs.
A reinvestment criteria event will occur if:
• The aggregate principal balance of the three states with the highest concentrations of loan originations exceeds
55.0% of the aggregate principal balance.
• The aggregate principal balance of loan originations of any single state with one of the three highest concentrations
exceeds 25.0% of the aggregate principal balance.
• The aggregate principal balance of loan originations in any single state other than the three with the highest
concentrations exceeds 15.0% of the aggregate principal balance.
• The pool's weighted average coupon (WAC) is less than 24.5%.
• The weighted average remaining term of the pool exceeds 38 months.
• The aggregate principal balance of all loans by mail exceeds 25.0% of the aggregate principal balance.
• The aggregate principal balance of all loans with an original principal amount of more than $20,000 exceeds 1.5% of
the aggregate principal balance.
• The aggregate principal balance of all indirect sales finance contracts exceeds 15.0% of the aggregate principal
balance.
• The aggregate principal balance of all loans originated by a Mariner South branch exceeds 35.0% of the aggregate
principal balance.
• The aggregate principal balance of all loans originated by a Pioneer branch exceeds 25.0% of the aggregate
principal balance.
• The aggregate principal balance of all loans in the pool that have received a payment deferment during the previous
collection period exceeds 4.0% of the aggregate principal balance.
• The aggregate principal balance of all loans in the pool that have a FICO score within any range specified in table 3
exceeds the percentage of the aggregate principal balance set forth therein.
• The aggregate principal balance of all loans by mail that either have no FICO score or that have a FICO score less
than 621 exceeds 5.0% of the aggregate principal balance.
• The aggregate principal balance of all unsecured loans exceeds 75.0% of the aggregate principal balance.
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• An overcollateralization event exists.
Table 3
Reinvestment Criteria Event Percentage Triggers For Original FICO Score Ranges
FICO range
% of aggregate principal balance
No score
2.0
No score or less than 541
15.0
No score or less than 581
30.0
No score or less than 621
55.0
No score or less than 661
85.0
A servicer default will occur if the servicer fails to make any required payments, fails to perform any covenants, fails to
remedy any representation or warranty that is incorrect, or becomes insolvent.
An overcollateralization event will occur if the excess of the aggregate principal balance over the note balance is less
than the required overcollateralization amount of $27,249,108.
The revolving period may be reinstated under one or both of these conditions:
• If the three-month average annualized net loss percentage trigger causes an early amortization event but is cured for
three consecutive months and there is no other event that would terminate the revolving period; or
• If a reinvestment criteria event causes an early amortization event but is cured and there is no other event that
would terminate the revolving period.
Events Of Default
An event of default resulting from the issuer's failure to perform any covenants or to remedy any breach of
representation or warranty could accelerate the note maturities upon the outstanding note classes' simple majority
vote. However, the payment waterfall would remain unchanged from that described in the Payment Structure section
above. All other events of default could accelerate the note maturities, but they would also alter the payment priority
so that the subordinate noteholders would not receive interest payments until the senior class is fully repaid. Some of
the events of default that could alter the payment priority are nonmonetary in nature.
Managed Portfolio
As of Dec. 31, 2016, the company's managed portfolio of personal consumer loans consisted of $944 million in
receivables. Since 2012, net losses as a percentage of unpaid principal balance have been trending upward but remain
under 9.00% (see table 4).
Table 4
Managed Portfolio
Year to date (unaudited)
Number of loans outstanding (000s)
Dec-16
Dec-15
Dec-14
Dec-13
Dec-12
367.0
321.9
319.4
95.8
81.7
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Table 4
Managed Portfolio (cont.)
Year to date (unaudited)
Dec-16
Dec-15
Dec-14
Dec-13
Dec-12
943.8
741.3
684.8
258.6
217.4
30-59 days
18.1
15.4
23.7
3.9
4.0
60-89 days
12.9
9.1
11.7
2.3
1.8
90+
33.5
23.5
30.4
6.3
5.0
30-59 days
1.92
2.08
3.46
1.51
1.85
60-89 days
1.36
1.22
1.71
0.88
0.85
90+
3.55
3.17
4.44
2.45
2.31
Aggregate net losses (mil. $)
54.9
58.4
32.5
8.6
6.1
Net losses (as a % of avg. UPB)
6.81
8.51
7.83
3.84
3.25
UPB of loans (mil. $)
Delinquencies (mil. $)(i)
Delinquencies (as a % of UPB)(i)
(i)Delinquencies for 2014 are shown as gross amounts and not net amounts. Pioneer was acquired on Dec. 1, 2014, and its loan system did not
contain unearned interest on precompute interest loans at loan level. These loans were converted to the GOLDPoint System in August 2015.
Therefore, UPB information at the loan level was not available for December 2014. UPB--Unpaid principal balance.
Pool Analysis
The pool consists of three types of personal consumer loans: direct loans, indirect sales finance contracts, and loans by
mail. Only direct loans may be "hard" secured (with a first or second lien on a titled asset). These are segmented into
five FICO score ranges. The statistical pool--with a Jan. 31, 2017, cut-off date--comprises 62.12% unsecured or other
secured loans and 37.88% hard secured loans. Over time, the distribution of characteristics in this statistical pool may
change because a significant number of additional loans may be added to the loan pool during the revolving period.
However, such additions and removals may not result in a reinvestment criteria event (see tables 5 and 6 for the
statistical pool's collateral characteristics as of Jan. 31, 2017).
Table 5
Collateral Characteristics(i)
Series 2017-A
Pool size (mil. $)
252.25
No. of loans
89,914
Avg. principal balance ($)
2,805
Weighted avg. coupon (%)
27.68
Weighted avg. remaining term (mos.)
Weighted avg. FICO score (at origination)
Weighted avg. custom score (at origination)
30
622
60
Division by principal balance (%)
Mariner North
57.57
Mariner South
28.45
Pioneer
13.98
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Table 5
Collateral Characteristics(i) (cont.)
Series 2017-A
Asset type by principal balance (%)
Direct loan
76.93
Loan by mail
15.67
Sale finance
7.40
Collateral description by principal balance (%)
Unsecured/other secured
62.12
Hard secured
37.88
Top five state concentrations (%)(ii)
NC
14.70
MD
14.28
FL
13.77
PA
8.86
TN
7.77
(i)All percentages are of the initial adjusted loan principal balance. (ii)All others concentrations are less than 5%.
Table 6
Collateral FICO Characteristics(i)
Series 2017-A
No score
0.91
Less than 541
8.86
541-580
13.95
581-620
23.31
621-660
28.29
661-680
11.20
681-700
6.52
Above 700
6.97
(i)All percentages are of the initial adjusted loan principal balance.
S&P Global Ratings' Expected Loss
We analyzed Mariner's static pool, vintage pool, and managed loss data for originations segmented by the five FICO
score intervals, by the origination division (Mariner North, Mariner South, and Pioneer) and by the loan product (direct
loans (secured and unsecured), indirect sales contracts, and loans by mail). Based on our review we would generally
expect:
• Indirect sales contracts to perform the best (as reflected by lowest expected loss levels);
• Secured loans to perform better than unsecured loans; and
• Loans by mail that have not converted to direct loans to perform worse than direct loans and sales finance
contracts.
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The performance data for Mariner South and Pioneer is limited due to their recent acquisition and integration by
Mariner. We expect on average a proportionately higher percentage of the loans originated by the Mariner South and
Pioneer divisions to exhibit lower FICO scores and to have a correspondingly higher yield as compensation for this
additional risk. Nonetheless, Mariner South and Pioneer customers have similar borrower characteristics as customers
we have observed at other nationwide personal consumer lenders. Our analysis incorporated the uncertainty related to
the limited performance data at Mariner South and Pioneer in our determination of our base case losses.
We recognize that the loans by mail do not have the same underwriting criteria applied as the direct loans due to the
lack of direct interaction with the prospective customer (such as employment and income verification). This lack of
direct interaction also increases the risk of fraud. We do believe that Mariner has other criteria in place regarding its
selection of borrowers, which helps to limit losses. We also believe that the limited time frame (30 days) in which the
check can be cashed helps limit credit deterioration, which can occur from when the selection criteria are applied.
Even with the strong credit selection and controls in place for the loans by mail, we do expect losses to be higher for
these loans.
When Mariner renews a loan, the loan is re-underwritten as if it were a new loan, and it may be assigned a FICO score
that differs from that at the time of origination. Mariner tracks the renewed loan's performance within its original
vintage, as well as in subsequent vintages representing unique credit decisions. This means that every credit decision
to either lend to the customer or migrate the customer (in the case of an RBO or modification) is tracked as a separate
occurrence.
Typically, we use a static pool analysis to project losses on pools of closed-end installment loans, such as retail auto
loans. The cumulative net loss percentage is calculated using the loans' original principal balance as the denominator,
which remains fixed as the pool seasons. In our view, this approach is not completely suitable for installment loans that
can be renewed because introducing new money effectively changes the denominator over time, and typically the
denominator would be adjusted to account for the additional balance created through a renewal.
In our transaction projections, we used a dynamic denominator that adjusts for renewals as they enter or drop out of
the pool each month. The denominator equals the sum of the initial principal balance and cumulative renewals of
outstanding vintages. As the pool seasons, the outstanding vintages' composition changes, and the denominator will
change accordingly because renewed balances are only included in the denominator while their associated vintages
remain outstanding.
By adjusting the denominator to reflect renewals, we projected cumulative net losses, on a product level, on
origination static pool data in the five FICO-range segments. We converted the cumulative net losses to annualized net
losses by dividing each credit range's cumulative net loss by its respective weighted average life.
In our opinion, Mariner's business model has several risks, including a decentralized servicing and collections platform
and subprime customer base, which make it less likely that static pool loss projections will indicate long-term loss
rates, specifically in various stress scenarios. For example, it is not clear what effect large-scale branch closures would
have on collateral performance because previous closures were controlled and limited in scope. It is also unclear what
would happen to collateral performance if Mariner could no longer offer loan renewals to existing customers or if
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modifications and deferments would no longer be available. In light of these questions and because these assets have
limited securitization history in the U.S., we did not use the static pool projections as the basis for forming our credit
opinion for this transaction.
According to our criteria (see "Global Methodology And Assumptions For Assessing The Credit Quality Of Securitized
Consumer Receivables," Oct. 9, 2014), we performed a peer analysis in which we compared Mariner's annualized net
loss rates with those of comparable issuers, specifically credit card ABS issuers that lend on an unsecured revolving
basis to borrowers with similar credit profiles (e.g., FICO scores) and with those of issuers in other personal consumer
loan securitizations, such as OneMain Financial Group (OneMain) and Springleaf Finance Corp.). We benchmarked
each risk level to comparable peers in the credit card issuer universe. We believe credit card ABS issuers are a valid
benchmark as these loans are also short term, unsecured personal consumer loans that are securitized in a revolving
structure, allowing for a potential shift in pool composition and change in portfolio performance over time. In addition,
in our amortization scenarios, a nonprime credit card ABS transaction could demonstrate amortizing collateral
performance when, in our assumptions, open-to-buy credit lines are shut down in a distressed situation. When the
utility of a credit card diminishes due to closed lines in this manner, we believe that credit card obligors could
demonstrate similar payment behavior under stress as the obligors of unsecured personal installment loans.
For the top credit tier (FICOs between 661-680), we benchmarked our base-case loss (separately for direct loans and
loans by mail) to prime U.S. bankcard and private-label credit card pools that constitute the S&P Global Ratings Credit
Card Quality Index (CCQI) and to those in the mid to top credit tiers from OneMain and Springleaf Finance Corp.'s
securitizations. For U.S. bankcards, these issuers include American Express Credit Account Master Trust, BA (Bank of
America) Master Credit Card Trust II, Capital One Master Trust, Chase Issuance Trust, Citibank Credit Card Master
Trust I, and Discover Card Master Trust I. For U.S. private-label cards, these issuers include Synchrony Credit Card
Master Note Trust (formerly known as GE Capital Credit Card Master Note Trust), World Financial Network Credit
Card Master Note Trust, Citibank Omni Master Trust, and Cabela's Master Credit Card Trust. During the most recent
recession, the U.S. bankcard CCQI reached its peak of 10.50% annualized monthly charge-off rate in August 2009 and
again in February 2010, and the U.S. private-label CCQI reached its 12.60% peak in February 2010. Comparing the
historical loss performance and obligor characteristics between Mariner's top FICO tier (661 or greater), by loan
product type, and those of its peers, we determined that our expected annualized loss rate (the base case) for Mariner's
top credit tier is 13.0% for direct loans. Our review of historic loans by mail that did not convert to direct loans showed
consistently weaker performance in the same top FICO tier compared with direct loans and indirect sales contracts.
Our expected annual loss rate for Mariner's loans by mail with FICOs greater than 620 is 20.0%. This figure also
reflects the incremental uncertainty associated with the loans by mail underwriting process, arising from less robust
data verification. Although benefiting from strong prescreening controls, certain verifications, such as borrower
employment and income, are not a part of this process.
For the bottom FICO tier (FICO of 540 or less), we benchmarked our expected loss rate by loan product type to trusts
that exhibited higher-than average losses, including subprime credit card issuers, such as Metris Master Trust and
Providian Gateway Master Trust, and to those in lower credit tiers from OneMain and Springleaf Finance Corp.'s
securitizations. Comparing the historical loss performance and obligor characteristics between Mariner's bottom FICO
tier (540 or less) and those of its peers, we determined that the expected annualized loss rate for Mariner's bottom
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FICO tier is 30.00% for direct loans. Our review of historic loans by mail that did not convert to direct loans showed
consistently weaker performance in the same bottom FICO tier compared with direct loans and indirect sales finance
contracts. Our expected annual loss rate for Mariner's loans by mail with FICOs of 620 or less is 35.0%. This figure
also reflects the incremental uncertainty associated with the loans by mail underwriting process, arising from less
robust data verification. Although benefiting from strong prescreening controls, certain verifications, such as borrower
employment and income, are not a part of this process.
For direct loans, we then determined the expected loss rates for the intermediate credit levels (FICO scores of
541-580, 581-620, and 621-660) by making similar comparisons to losses for trusts in S&P Global Ratings' bankcard
CCQI, private-label CCQI, and loans from comparable credit score bands in OneMain and Springleaf Finance Corp.'s
securitizations. We assumed that loans without a credit score (limited to 2.0% of the aggregate principal balance) were
equivalent to the bottom credit tier. We only gave recovery credit to direct loans with titled pledged collateral.
We apply our expected annual loss rates based on the worst-case pool allowed by the transaction documents. As such,
we did not assume any of the loans were indirect sales finance contracts because these have historically been the best
performing loans and because the concentration limits do not require a minimum percentage of the pool to be indirect
sales finance loans.
Cash Flow Modeling: Stress Scenarios
We assumed that the pool composition will migrate from its initial characteristics as of the initial cut-off date to a
worst-case composition based on the eligibility criteria and concentration limits as defined by the parameters of the
reinvestment criteria events and the eligible loan definition. For example, we assumed that 2.0% of the aggregate
principal balance will consist of loans that have no FICO score, and 15.0% of the aggregate principal balance will
consist of loans that have a FICO score less than 541. For the worst-case pool, we weighted the expected loss rates for
each credit tier and loan product type by its percentage composition to calculate a 21.40% expected annualized
monthly net loss rate.
Prepayments occur when a customer repays their loan in full before the final payment date outlined in the loan
contract or makes additional payments that are not yet due. In our cash flow modeling, we haircut our constant
prepayment rate (CPR) assumptions as we move into higher rating categories because this is more stressful on the
cash flows of the transaction. A lower CPR leaves more assets in the trust, which we are then able to stress via our
expected annualized loss assumptions. Our stressed 6.00% CPR for direct loans and stressed 4.00% CPR for loans by
mail are stressed after a review of Mariner's prepayment data and of CPRs observed across other personal consumer
loan issuers, including OneMain and Springleaf Finance Corp.
We modeled the transaction according to the indenture and applied stress assumptions to simulate rating scenarios
appropriate for the assigned ratings. We tested the adequacy of the proposed credit enhancement and structural
features using the following assumptions:
• Worst-case pool concentration of 25% hard-secured loans, 25% loans by mail, and 50% unsecured loans.;
• Repline-specific annualized monthly net loss rates that are increased linearly over 12 months from a base case to a
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peak loss equal to a rating stress multiple of the base case;
A 20.00% stressed recovery rate on hard-secured loans, which make up 25.00% of the worst-case pool;
A three-month recovery lag;
For direct loans, a stressed 6.00% CPR for voluntary prepayments in the 'BBB+' scenario;
For loans by mail, a stressed 4.00% CPR for voluntary prepayments in the 'BBB+' scenario;
A 38-month weighted average remaining term;
No loan renewals nor additional loan purchases;
A 4.75% servicing fee;
A 24.50% weighted average coupon;
Some scenarios with a servicer default causing $250,000 in one-time servicing transition expenses;
A back-up servicing fee the greater of $10,000 or 0.06% of the aggregate principal balance per month except for
scenarios where it is assumed the back-up servicer transitions to servicer;
• Annual senior fees capped at $250,000 per year; and
• The issuer or the depositor do not exercise any call options before the notes' legal final maturity.
•
•
•
•
•
•
•
•
•
•
For each rating level, we tested two amortization scenarios:
• Early amortization occurs immediately in month one, resulting from a reinvestment criteria event that is assumed to
have been continuing and is on its third consecutive month as of the first month of the projection; and
• Early amortization occurs immediately in month one, resulting from a servicer default. A one-time servicing
transition expense of $250,000 occurs in month one.
Based on these modeling assumptions and cash flow scenarios, our cash flow results indicate that the class A notes
can withstand 'BBB+' stresses, respectively, under both immediate amortization scenarios (see table 7). The notes
receive timely interest each month and full principal by legal maturity in the 'BBB+' rating stress scenario.
Table 7
Cash Flow Assumptions And Results
Class A
Scenario (preliminary rating)
BBB+ (sf)
Base-case initial annualized net loss rate (%) (weighted average base case for worst-case pool)
21.40
Approximate rating stress multiple (x) (weighted average multiple for worst-case pool)
1.8
Approximate stress case annualized net loss rate (peaked in month 12) (%)(weighted average stress for worst-case pool)
39.3
Approximate credit enhancement levels (%)
42.9
Sensitivity Analysis
In addition to running stress scenario cash flows, we conducted a sensitivity analysis to test ratings stability given a
moderate ('BBB') stress. We analyzed the loss coverage multiples for the class A notes to determine the degree of
ratings migration and whether it would be within the permissible movement under our credit stability criteria.
For example, in a moderate stress scenario, the class A notes (preliminary 'BBB+ (sf)' rating) could achieve a 1.00x loss
coverage multiple within the first 12 months, equal to the rating multiple used to derive the peak net loss rate at the 'B'
level, which is within two rating categories of the preliminary rating (see chart 2 and 3).
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Chart 2
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Chart 3
In our view, under the moderate stress scenario, we would expect our ratings on the class A notes to remain within
two rating categories of our preliminary rating. This is consistent with our credit stability criteria, which state that the
maximum downgrade within the first year of issuance is two rating categories (for more information, see
"Methodology: Credit Stability Criteria," May 3, 2010
Related Criteria And Research
Related Criteria
• Criteria - Structured Finance - General: Ratings Above The Sovereign - Structured Finance: Methodology And
Assumptions, Aug. 8, 2016
• Criteria - Structured Finance - General: Methodology: Criteria For Global Structured Finance Transactions Subject
To A Change In Payment Priorities Or Sale Of Collateral Upon A Nonmonetary EOD, March 2, 2015
• Criteria - Structured Finance - ABS: Global Methodology And Assumptions For Assessing The Credit Quality Of
Securitized Consumer Receivables, Oct. 9, 2014
• Criteria - Structured Finance - General: Criteria Methodology Applied To Fees, Expenses, And Indemnifications,
July 12, 2012
• General Criteria: Global Investment Criteria For Temporary Investments In Transaction Accounts, May 31, 2012
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• Criteria - Structured Finance - General: Standard & Poor's Revises Criteria Methodology For Servicer Risk
Assessment, May 28, 2009
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Special-Purpose Entities, Oct. 1, 2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Appendix III: Revised UCC Article 9
Criteria, Oct. 1, 2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Criteria Related To Asset-Backed Securities,
Oct. 1, 2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Securitizations By Code Transferors, Oct. 1,
2006
• Legal Criteria: Legal Criteria For U.S. Structured Finance Transactions: Select Issues Criteria, Oct. 1, 2006
Related Research
• U.S. Credit Card Quality Index: Monthly Performance - December 2016, Jan. 20, 2017
• Global Structured Finance Scenario And Sensitivity Analysis 2016: The Effects Of The Top Five Macroeconomic
Factors, Dec. 16, 2016
• Credit Conditions: Policy Uncertainty And Rising Rates Pose Risks In North America, But Faster Growth May Help,
Dec. 5, 2016
• Credit Conditions: North American Credit Conditions Are Broadly Favorable But Could Change As Risks Remain,
Oct. 12, 2016
In addition to the criteria specific to this type of security (listed above), the following criteria articles, which are
generally applicable to all ratings, may have affected this rating action: "Post-Default Ratings Methodology: When
Does Standard & Poor's Raise A Rating From 'D' Or 'SD'?," March 23, 2015; "Global Framework For Assessing
Operational Risk In Structured Finance Transactions," Oct. 9, 2014; "Methodology: Timeliness of Payments: Grace
Periods, Guarantees, And Use of 'D' And 'SD' Ratings," Oct. 24, 2013; "Counterparty Risk Framework Methodology
And Assumptions," June 25, 2013; "Criteria For Assigning 'CCC+', 'CCC', 'CCC-', And 'CC' Ratings," Oct. 1, 2012;
"Methodology: Credit Stability Criteria," May 3, 2010; and "Use of CreditWatch And Outlooks," Sept. 14, 2009.
Analytical Team
Primary Credit Analyst:
Shane N Franciscovich, New York (1) 212-438-2033; [email protected]
Secondary Contacts:
Romil Chouhan, New York 212.438.3512; [email protected]
Ildiko Szilank, New York (1) 212-438-2614; [email protected]
Analytical Manager:
Frank J Trick, New York (1) 212-438-1108; [email protected]
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