Chesswood Group Ltd CHWWQ

abs deal completed

[Nashville35]

chw announced closed us$346 million abs.   in tough funding market, positive for chw to get this size deal done, even at higher funding costs.  according to sifma.org, overall equipment abs issuance was down 22% in q1 and 33% in q2 and 37% in july 2022. ytd, equipment abs issuance is down 29% and overall abs market issuance down 40%, so equipment abs has held up a little better.  but with recession risk, rates up across the board for those who can get a deal done.

latest abs has 7 tranches, ranging from r-1 to bb(low).  the coupon for each tranche is about 360-370 bps higher than oct 2021 abs when market was close to record interest rate lows (effective rate of that oct 21 abs at jun 30 2022 was only 1.79%).  79% of aug 22 abs made up of r-1 and aaa credits. 

so cost of funding has gone up which company said in latest commentary and clear to anyone watching the fixed income markets.  chw offsetting this thru higher rates charged to clients, which prob contributes to slower origination in second half of the year, along with just more cautious lending stance due to econ uncertainty. 

avg borrowings in jun quarter were $1.86 billion (ended qtr at $1.956 billion), with qtrly interest expense of $17 million, means around 3.67% in borrowing cost.  aug 2022 abs would be ~22% of total borrowings and if 155 bps higher (based on coupon breakdown in dbrs report) than june quarter borrowing cost of 3.67%, increases overall chw company borrow cost to ~4%.   not bad imo, and could be offset by higher rates charged to clients.  important factor was getting this deal done imo for flexibility.