Island Finance, a Puerto Rico-based lender owned by JC Flowers, is preparing its first asset-backed bond offering, a transaction that provides investors the rare opportunity for exposure to consumer loans originated in the Caribbean territory.
The US$325m three-tranche deal, which is poised to price on Wednesday, also offers investors a significantly higher-yielding alternative to the heavy slate of auto ABS supply that has dominated the market this year.
Price guidance on the deal's US$227.5m senior note, with a two-year tenor and expected Single A ratings, is US Treasuries plus 260bp-280bp. By contrast, the Single-A rated tranche in Consumer Portfolio Services' US$442.42m subprime auto loan securitization earlier this month priced at plus 90bp.
Given their attractive spreads, orders have been strong with all three tranches oversubscribed ahead of launch, a person familiar with the Island Finance deal said on Tuesday.
The hefty 24.99%–47.90% interest rates on the securitized personal loans also provide strong credit enhancements for bondholders, S&P said in a January 13 presale report.
The offering's two subordinated classes – a US$34.9m note and a US$30.07m note – both carry four-year tenors. S&P and DBRS Morningstar are expected to rate them BBB/BBB and BB+/BB(H), respectively. Price guidance is plus 410bp-430bp and plus 830bp-860bp.
Atlas SP is sole lead bank arranging the deal named Island Finance Trust 2025-1. JC Flowers acquired the lender in 2017.
Island Finance's total loan portfolio was US$374.8m at the end of November 2024, S&P said in the report.
Despite storm-induced disruptions to Puerto Rico's economy in recent years, Island Finance's loan portfolio "has exhibited relatively strong credit performance," the rating agency said.