Mercury Financial is one of the largest credit builder and subprime credit card companies.
They are bigger than Mission Lane and Self.
In 2017, Värde acquired them.
They recently filed a $500M securitization backed by 1.8 million credit cards and $3.2 billion in receivables.
They have partnered with FB&T, a South Dakota state-chartered bank.
Overview of the Mercury Financial Credit Card Master Trust Series 2024-2:
Company:
• Mercury Financial, founded in 2013 and owned by Värde Partners, is sponsoring its 10th credit card ABS transaction
Collateral:
– $500M Series 2024-2 notes with 2-year revolving period
– Backed by $3.28B portfolio of credit card receivables as of April 30, 2024
– “Organic Accounts” originated through First Bank & Trust since 2019
– “Legacy Accounts” acquired in 2017 from an unaffiliated bank
Portfolio Overview:
– Target demographic: Near prime consumers with 600-700 FICO scores
– WA FICO: 667
– Avg Income: $50,000 – $75,000 (self reported)
– WA APR: 28.66%
– Avg credit line: $3,523
– Avg balance: $2,292 (65% utilization rate)
– WA Age: 49 months
– FICO distribution:
– 63% of pool balance from 600-699 FICO obligors
– Organic Accounts: 663 weighted average FICO
– Legacy Accounts: 680 weighted average FICO
– Accounts:
– Organic Accounts: 76% of pool, 24 months weighted average age
– Legacy Accounts: 24% of pool, 130 months weighted average age
– Top state concentrations:
– CA (10.3%), FL (9.1%), TX (7.4%)
Excess spread (net of charge offs) has reduced from 8% (2022) to 4% (2023).
Servicing Fee – 1.5% – it’s lower than other similar portfolios. Most lenders charge 2.5%-5%.
This shows the increasing stress in the portfolio.
Credit Enhancement:
– Note structure:
– Class A: $378.3M, 29.25% initial credit enhancement
– Class B: $47.3M, 20.40% initial credit enhancement
– Class C: $40.6M, 12.80% initial credit enhancement
– Class D: $33.7M, 6.50% initial credit enhancement
– Enhancement sources:
– Overcollateralization
– Subordination (except for Class D)
– Reserve account (if funded after closing)
– Excess spread (18.44% based on 28.66% yield and 8.72% note coupon)
– Recent performance trends:
– Delinquencies and losses rose in 2022 post-stimulus
– Organic Account losses reached 19.6% in April 2024
– Slow improvement observed in early 2024
– Mercury tightened underwriting in lower credit tiers in late 2022
Notable Risks:
– Mercury’s lack of profitability
– Mitigated by Värde’s support and capital markets execution
– Regulatory challenges:
– Exportation of state usury laws
– “True lender” status in bank partnership model
– CFPB’s credit card late fee ruling
– Potential impact on profitability
– Recent judicial stay pending litigation