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Old Line Funding LLC--ABCP Conduit Profile

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Old Line Funding LLC--ABCP Conduit Profile

Current Ratings

ABCP notes(i) Rating
Standard A-1+ (sf)
Callable A-1+ (sf)
Puttable A-1+ (sf)
Puttable/callable A-1+ (sf)
Investor-option extendible A-1+ (sf)
(i)U.S. dollar-denominated standard ABCP notes. The ABCP notes listed are issued at a discount or interest-bearing basis at a fixed rate. ABCP--Asset-backed commercial paper.

Rationale

The 'A-1+ (sf)' ratings on the standard, callable, puttable, puttable/callable, and investor-option extendible asset-backed commercial paper (ABCP) notes issued by Old Line Funding LLC (Old Line) reflect the following:

  • Credit risks addressed on a transaction-specific basis via transaction-specific enhancement. The conduit benefits from program-wide credit support provided by Royal Bank of Canada (RBC). The amount is the greatest of (1) 10% of the face amount of all partially supported outstanding ABCP plus unpaid advances under the uncommitted program-liquidity loan agreement, (2) the purchase limit of the single largest partially supported transaction in the pool, or (3) the $300 million floor.
  • If transactions financed include foreign exchange risk, then it is addressed at the program level via hedging strategies administered by RBC as administrative agent. RBC will indemnify the conduit for any shortfalls caused by its mis-hedge.
  • The conduit's total interest rate exposure might not be calculable at the time of issuance due to floating-rate interest-bearing notes. RBC, as administrative agent, has a daily obligation to ensure that it has sufficient liquidity commitments. If interest rates rise to the extent that interest obligations exceed the existing 102% transaction-specific agreements, RBC will increase the commitment under the program liquidity support agreement to cover such exposure.
  • Support providers rated 'A-1+' that provide liquidity and credit support as well as other hedge indemnifications.
  • Structural protections to ensure Old Line's bankruptcy-remote structure.
  • The experience and ability of RBC as administrative agent to carry out day-to-day services to Old Line, administer the issuance and maturity of ABCP, and draw on liquidity and credit facilities to repay the ABCP on a timely basis.

Environmental, Social, And Governance (ESG)

The assets funded in partially supported ABCP programs may have material exposure to ESG credit factors if they influence our liquidity-enhanced credit analysis. Support providers in ABCP conduits are typically highly rated financial institutions, and our assessment of their creditworthiness incorporates any material ESG credit factors. For further information, see our U.S. and Canadian, EMEA, Asia-Pacific, and Latin American bank ESG industry report cards (https://www.spglobal.com/ratings/en/products-benefits/products/esg-in-credit-ratings#sector-report-cards).

Program Structure

The chart below shows an overview of the program structure.

Chart 1

image
Key features

Liability issuance.  Old Line can issue standard, callable, and investor-option extendible ABCP notes with a tenor of 360 days as well as puttable ABCP notes with a tenor of 270 days. The notes can be issued at a discount or interest-bearing basis and may have a fixed or floating interest rate.

The callable notes may be redeemed in whole or in part at the option of the administrative agent on behalf of Old Line. Upon its election to call a note and its delivery of notice pursuant to the call notice provisions, Old Line is obligated to pay principal and interest or discount, as applicable, accrued up to the call date only, regardless of when the note is presented for payment.

Similarly, the puttable notes may be redeemed in whole or in part at the option of the investors. Upon the noteholder's election to put a note and its delivery of notice pursuant to the put notice provisions, Old Line is obligated to pay principal and interest or discount, as applicable, accrued up to the put date only, regardless of when the note is presented for payment.

Old Line will not redeem a callable note if there is any event of default (as outlined below) on the call date. In addition, it won't issue any puttable notes if the issuance would cause the aggregate face amount of all outstanding puttable ABCP notes to exceed 25% of the aggregate face amount of all outstanding notes.

The holders of investor-option extendible ABCP notes have the option to extend the maturity date by providing written notice of its election. Old Line will pay each note in full, including principal and all accrued and unpaid interest, up to the extended maturity date.

Program Overview

Program Details
Conduit name Old Line Funding LLC
Conduit type Multiseller
Liabilities offered Standard, callable, puttable, puttable/callable, and investor-option extendible asset-backed commercial paper (ABCP) notes issued at a discount or interest-bearing basis at either a fixed or floating rate. Program-level liquidity covers any interest shortfall related to floating-rate liabilities, if applicable. To the extent any seller-related borrowings are LIBOR based, fallback provisions are applicable referencing alternate base rates, such as the Secured Overnight Financing Rate (SOFR), Federal Funds Rate, or any other base rate with varying reset periods as specified in the transaction documents.
Sponsor Royal Bank of Canada
Administrative agent Royal Bank of Canada
Maximum program limit $25 billion
Support type Partial
Review type or review status Post review for U.S. transactions of prime auto loans and leases, credit cards issued by master trusts with S&P Global Ratings-rated term issuances, equipment loans and finance leases, trade receivables, and FFELP student loans. Template-assisted for U.S. and non-U.S. transactions where the credit risk is fully covered through a combination of credit and/or liquidity support.
Preference risk Transaction-level coverage in various ways, including an officer's certificate, ordinary course of business representations, security interest opinions, true sale opinions, or liquidity facilities wrapping preference payments in the funding formula.
Amount of PWCE Greatest of 1) 10% of the face amount of all partially supported outstanding ABCP plus unpaid advances under the uncommitted program-liquidity loan agreement, 2) the purchase limit of the single largest partially supported transaction in the pool, or 3) the floor of $300 million
Reported PWCE $750 million
Rating-dependent participants
Liquidity provider Royal Bank of Canada
Support provider (including currency and interest swaps) Royal Bank of Canada
Bank account provider Deutsche Bank Trust Co. Americas (Cash in trust accounts swept daily to State Street Bank and Trust Co., Boston, MA)
Insurance provider None
Non-rating dependent participants
Indenture trustee Deutsche Bank Trust Co. Americas.
Administrative agent Royal Bank of Canada
ABCP--Asset-backed commercial paper. SOFR--Secured overnight financing rate. LOC--Line of credit. FFELP--Federal Family Education Loan Program. PWCE--Programwide credit enhancement.

Counterparty/Credit Quality

Liquidity support

Program-specific.  The conduit maintains a program liquidity asset purchase agreement (PLAPA) with RBC. This liquidity agreement has been included in the issuance test to ensure that liquidity covers the interest associated with floating-rate notes.

Pool-specific.  Old Line will enter into committed liquidity facilities consisting of a transaction-specific liquidity agreement, an increase to the program-wide liquidity agreement, or a combination of both, providing liquidity support for the notes. For each transaction, Old Line arranges and enters into a transaction-specific liquidity facility with RBC that is generally sized at 102% of program's transaction commitment.

Under each liquidity agreement, Old Line has the right to draw liquidity at any time on a nonrecourse basis. Liquidity agreements may be fully or partially supported. Either way, the transaction liquidity provider's sole out to funding is the bankruptcy of Old Line, which is intended to be bankruptcy-remote, subject to the liquidity provider's limitation to not fund beyond its available liquidity commitment. Fully supported liquidity agreements do not contain any asset-quality tests.

For partially supported liquidity agreements, the liquidity provider funds up to the full amount of performing assets plus interest accrued and to accrue to the maturity of the ABCP. In addition, liquidity is structured so that the risk of loss to investors is limited to approximately 30 days. If the amount of eligible receivables falls below the amount of ABCP funded plus the required transaction credit enhancement, the transaction is "out of formula," and it causes an automatic put to RBC to fund under the liquidity facility. A funding shortfall would only occur if defaulted receivables over approximately 30 days (short-tail) exceeded the total transaction-specific credit enhancement. This risk is mitigated by the various levels of credit support and the administrator's surveillance procedures. We analyze each partially supported pool Old Line finances to ensure a credit quality level consistent with the 'A-1+' rating.

Credit support

Program-specific.  We review the credit quality of the conduit's securitized assets on a transaction-by-transaction basis. The conduit benefits from program-wide credit enhancement provided by RBC. The maximum amount available is the greatest of (1) 10% of the face amount of all partially supported outstanding ABCP plus unpaid advances under the uncommitted program-liquidity loan agreement, (2) the purchase limit of the single largest partially supported transaction in the pool, or (3) the $300 million floor.

Credit risks are intended to be addressed on a pool-specific basis via transaction-specific enhancement (reviewed by S&P Global Ratings on a pre-review basis for each transaction, with the exception of certain transactions that may be reviewed on a post review basis).

Pool-specific.  To provide credit support against losses, each seller is required to provide one or more forms of transaction-specific credit enhancement that, when combined with program-wide credit enhancement, are sufficient for Old Line to maintain the ratings. Transaction-specific credit enhancement generally includes overcollateralization, subordinated classes of financial assets, third-party credit support, excess spread, and other forms of enhancement.

Interest rate protection

Liquidity facilities fund for interest accrued and to accrue to the maturity of ABCP.

The conduit maintains a PLAPA that ensures that liquidity covers interest associated with floating-rate notes. As administrative agent, RBC has a daily obligation to ensure that it has sufficient liquidity commitments. If interest rates rise to the extent that interest obligations exceed the existing transaction-specific agreements, RBC will increase the commitment of the PLAPA to cover such exposure. If the transaction-level liquidity commitments are insufficient to repay ABCP interest obligations, the PLAPA liquidity purchaser (RBC) will be obligated to pay the deficiency.

Foreign exchange hedging

If assets underyling a financed transaction are denominated in a currency other than U.S. dollars, foreign exchange risk is addressed at the program level via purchase of a U.S. dollar-denominated note from a bankruptcy-remote purchasing company, where RBC enters into hedges and will indemnify the conduit for any shortfalls caused by an imperfect hedge.

Legal

Clawback/preference risk

ABCP investors are insulated from legal risks associated with a seller bankruptcy or with preference risk. This is documented in various ways:

  • A certificate from an officer of the ABCP issuer (or its administrative agent) to the effect that the ABCP issuer has received satisfactory true sale or security interest opinions;
  • A representation as to the satisfaction of the ordinary course of business defense from the transferor and transferee of the applicable transfer (other than the ABCP issuer) in the transaction;
  • A security interest opinion and representations and warranties in the transaction documents regarding security interest issues not covered by such an opinion;
  • A true sale opinion with respect to the applicable transfer; and
  • A liquidity facility that wraps preference payments in the funding formula.

The liquidity facility further protects ABCP notes from commingling risk by funding for collections that have been received by the seller/servicer but not yet remitted to Old Line. Furthermore, the contracts that support the conduit's operations provide for structural protections that isolate the assets from the bankruptcy of entities involved in each transaction and ensure full and timely payment of the ABCP notes.

Cash Flow And Payment Structure

Events of default

Old Line has a number of events of default outlined in the program documents, including:

  • Failure to pay principal or interest on any note or advance;
  • Bankruptcy or any insolvency event of Old Line;
  • Failure by Old Line to make any payment to a liquidity or a credit support provider;
  • Breach by Old Line of any covenant or obligation set forth in the indenture;
  • Breach by Old Line of any material representation or warranty or any statement, report, document or certificate of Old Line is incorrect in any material respect;
  • Failure by Old Line to pay any debt of $100,000 or more;
  • Failure of the indenture trustee to have a first-priority perfected security interest in Old Line's assets that benefit the noteholders;
  • Any of the administrative agreement, management agreement, liquidity agreement, or credit support agreement is no longer enforceable; and
  • Use of greater than 20% of the program-wide credit enhancement for five or more consecutive days.
Liability issuance tests

The conditions necessary for Old line to issue ABCP include, but are not limited to:

  • Old Line's outstanding obligations (the face amount of the ABCP notes, including liquidity advances) do not exceed the conduit's aggregate available liquidity, plus cash and permitted investments;
  • The conduit's outstanding obligations do not exceed the termination of the final maturity of liquidity agreements;
  • There must be no event of default under the agreements;
  • The administrative agent has provided prior consent to the issuance;
  • There is no potential deficiency, or the conduit is able to pay its liabilities from available sources; and
  • The required credit enhancement must be in place.
Conduit wind-down events

Old Line has a number of events outlined in the program documents that would lead to a conduit wind-down, including:

  • Failure to pay principal or interest on any note when due;
  • Occurrence of an event of default under the indenture specified above; and
  • Determination by the administrative agent that the conduit has insufficient funds to repay all notes, advances, and interest when due.
Waterfall/priority of payments

There are two waterfalls: pre- and post-event of default (EOD) In both waterfalls, ABCP investor payments are subordinate to trustee fees capped at $300,000. In the post-EOD waterfall, liquidity lenders and noteholders are paid pro rata.

Pre-EOD waterfall:

  • Reimbursement of any advances made by the trustee;
  • Fees and expense to trustee not exceeding $300,000;
  • Interest payment due on the ABCP notes;
  • Repay matured notes; and
  • Repurchase receivables from support provider and pay any fees, expenses, obligations, and other operating costs of the issuer.

Post-EOD waterfall:

  • Reimbursement of any advances made by the trustee;
  • Fees and indemnity amount to trustee not exceeding $300,000;
  • Pro rata to liquidity lenders and ABCP noteholders;
  • Fees to trustee not paid above; and
  • Pay any other unpaid fees and expenses and all other amounts due and payable to RBC and other parties.

Operational Risk

Review status

Old Line may fund U.S. assets on a transaction-specific basis via transaction-specific enhancement, reviewed by S&P Global Ratings on a pre-review basis for each transaction. Similarly, Old Line can fund U.S.-based post-review transactions in the following asset classes: certain auto loans and leases, credit cards issued by master trusts with S&P Global Ratings-rated term issuances, equipment loans and finance leases, trade receivables, and FFELP student loans. For other asset types or for non-U.S.-based asset jurisdictions, each seller will be reviewed prior to closing.

Administrator review

The program administrator's experience and past performance are factors in the ratings process. We conduct ongoing administrator business reviews to evaluate RBC's ability to carry out responsibilities under the program documents, such as:

  • Originating and structuring new receivables pools;
  • Performing a formal credit evaluation for each new seller and the related receivables;
  • Maintaining ongoing surveillance of asset quality and liquidity facilities;
  • Maintaining and administering the issuance and maturity of ABCP; and
  • Drawing liquidity and credit enhancement facilities as necessary to repay ABCP holders on a timely basis.

Based on the outcome of the reviews and ongoing communications with RBC, we are satisfied that it is capable of carrying out its responsibilities under conduit's program documents.

Surveillance

The ratings on all support providers in Old Line are 'A-1+'. Each partially supported pool financed by Old Line is reviewed to a credit quality level consistent with the 'A-1+' rating. We monitor the ratings on all support providers and their asset performance metrics on an ongoing basis.

Portfolio Data

The conduit administrator has provided capacity utilization and collateral concentration data for the portfolio as a part of S&P Global Ratings' ABCP conduit surveillance process, which is presented below in a standardized format.

Chart 2

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Chart 3

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Related Criteria

Related Research

This report does not constitute a rating action.

Primary Credit Analyst:Radhika Kalra, New York + 1 (212) 438 2143;
radhika.kalra@spglobal.com
Research Contributor:Mugdha D Mane, Mumbai;
mugdha.mane@spglobal.com

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