Verizon Master Trust is accelerating its 2023 asset-backed securities issuance with a deal secured by a rotating set of mobile payment plans, both for everyday consumers and, increasingly, for business accounts with payday loan plans. three years.
Expectations for the issuance of securitizations have been lowered for this year, but VZMT 2023-1, as the deal is known, will offer $1 billion of asset-backed notes through a subordinated capital structure with three tranches, according to Moody’s. Investors Service, which intends to assign ratings to ratings.
Most of the obligors in the group are experienced Verizon customers with high FICO scores, coming in at a weighted average (WA) FICO score of 723, the ratings agency said. VZMT 2023-1 has over 33 million customer accounts with account tenures of 113 months, on a WA basis.
Verizon has offered business device payment plans since 2016, but only started realizing that revenue in 2021, Fitch noted. Historically, 24-month plans made up the bulk of device payment contracts, but Verizon gradually extended them to 36 months. Now, commercial device plans account for up to 10% of the VZMT 2023-1 asset pool, according to Fitch.
VZMT has some potential exposure to a duration mismatch, according to Fitch. The assets of the arrangement pay fixed interest rates, while up to 30% of the Class A notes could pay a coupon based on the compounded Guaranteed Overnight Financing Rate (SOFR). All notes have a final legal maturity date of January 1. 22, 2029.
Wells Fargo Securities, BofA Securities, SMBC Nikko and TD Securities are the underwriters of the deal, according to Fitch. Cellco Partnership, a wholly owned subsidiary of Verizon that Fitch says is financially sound, will manage the notes.
In addition to the subordination, VZMT 2023-1 benefits from a reserve account, overcollateralization (OC) and excess margin, Fitch said. In addition, a cash reserve account provides liquidity to the transaction, Fitch said.
However, Fitch also noted some inherent strengths in the deal. On the one hand, says the rating agency, consumers use their smartphones frequently and tend to prioritize payments for high-use products. Another benefit is the relatively quick depreciation between assets. VZMT consists of fully amortizing installment plans with average remaining terms of 26 months. Some 58% of them are eligible for upgrades, which could speed up prepayments, Fitch said.
Fitch expects to assign ‘Aaa’ ratings to the A-1a and A-1b notes; ‘Aa1’ on class B tickets; and ‘A1’ in C class notes.