The Verizon Master Trust is revving up for its 2023 asset-backed securities issuance with a deal secured by a revolving pool of payment plans on mobile devices, both to everyday consumers, and to an increasing extent, business accounts with three-year loan plans.
Expectations for securitization issuance have been dampened for this year, but VZMT 2023-1, as the deal is known, will offer $1 billion in asset-backed notes through a subordinate capital structure with three tranches, according to Moody’s Investors Service, which intends to assign ratings to the notes.
Most of the obligors in the pool are seasoned Verizon customers with high FICO scores, which come in at a weighted average (WA) FICO score of 723, the rating agency said. VZMT 2023-1 has more than 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 began securitizing those proceeds in 2021, Fitch noted. Historically, 24-month plans made up the bulk of the device payment contracts, but Verizon gradually extended that to 36 months. Now business device plans account for up to 10% of the VZMT 2023-1’s asset pool, according to Fitch.
VZMT has some potential exposure to a duration mismatch, according to Fitch. The deal’s assets pay fixed interest rates, while up to 30% of the class A notes might pay a coupon based on compounded Secured Overnight Financing Rate (SOFR). All of the notes have a legal final maturity date of Jan. 22, 2029.
Wells Fargo Securities, BofA Securities, SMBC Nikko and TD Securities are underwriters on the deal, according to Fitch. Cellco Partnership, a wholly owned Verizon subsidiary that Fitch said is financially strong, will service the notes.
Aside from subordination, VZMT 2023-1 benefits from a reserve account, overcollateralization (OC) and excess spreads, Fitch said. Also, a cash reserve account provides liquidity to the transaction, Fitch said.
Yet Fitch also noted a few inherent strengths to the deal. For one, the rating agency says, consumers use their smart phones frequently and they tend to prioritize payments for high-use products. Another benefit is the relatively fast amortization among the 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 accelerate prepayments, Fitch said.
Fitch expects to assign ratings of ‘Aaa’ to the A-1a and A-1b notes; ‘Aa1’ on the class B notes; and ‘A1’ on the class C notes.
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