A home improvement loan ABS transaction underwent an amendment permitting the inclusion of approximately $8.09 million in additional collateral (“Additional Collateral”) into the Trust.
Momnt Technologies Inc. (“Momnt” or the “Company”), established in 2019 and headquartered in Atlanta, GA, is a financial technology company. The Momnt 2023-1 transaction concluded on December 22, 2023, with an expected portfolio balance of about $150.9 million as of the Initial Cut-off Date. This balance comprised an aggregate principal balance of the initial receivable pool, approximately $90.1 million, along with an expected prefunding account balance of around $60.8 million to be deposited on the closing date. The transaction featured a 90-day prefunding period, expiring on March 18, 2024.
The amendment aimed to address a collateral shortfall discovered after the first Payment Date in February 2024. This shortfall stemmed from the purchase of collateral during the prefunding period exceeding the specified amount in the transaction documents, and an overestimation of collateral at closing. Around $60.8 million was deposited into the prefunding account on the closing date, utilized to purchase additional collateral during the prefunding period. However, the purchase price erroneously included accrued finance charges and fees into the principal balance, as per the Indenture.
The responsibility for cash application and loan acquisitions lay with the Administrator, Saluda Grade Asset Management, LLC. To rectify the collateral shortfall, the Sponsor added the Additional Collateral on April 19, 2024. This move aimed to bring the credit enhancement close to the level expected if the prefunding proceeds had been appropriately utilized and if the open-to-buy shortfall had been identified at closing.
KBRA has engaged in discussions with the Sponsor and Momnt regarding these issues. They indicated that administrative processes led to misinterpretation of purchase prices during the prefunding period, as well as an oversight regarding the final principal balance at closing. With the transaction now outside the prefunding period and all collateral, including Additional Collateral, outside the purchase window, KBRA believes the issue has been resolved for the Momnt 2023-1 transaction moving forward.
A review of the Additional Collateral and the remaining pool suggests the credit quality is generally consistent with that of the collateral on the Closing Date. Additionally, the credit enhancement levels of each class have increased since closing. KBRA is not implementing rating actions presently and will continue monitoring the situation alongside ongoing surveillance efforts. Any further administrative issues may lead to Watch Placements or rating actions.
For more information, refer to the related publication “Momnt Technologies Trust 2023-1 New Issue Report.
