KBRA Comments on Amendment to Momnt Technologies Trust 2023-1
On April 19, 2024, Momnt Technologies Trust 2023-1 (“MMNT 2023-1” or the “Trust”), a home improvement loan ABS transaction, was amended to allow for the conveyance of approximately $8.09 million of additional collateral (“Additional Collateral”) into the Trust.
On April 19, 2024, Momnt Technologies Trust 2023-1 (“MMNT 2023-1” or the “Trust”), a home improvement loan ABS transaction, was amended to allow for the conveyance of approximately $8.09 million of additional collateral (“Additional Collateral”) into the Trust.
Momnt Technologies Inc. (“Momnt” or the “Company”) was founded in 2019 and is a financial technology company headquartered in Atlanta, GA. The Momnt 2023-1 transaction initially closed on December 22, 2023. The portfolio balance as of the Initial Cut-off Date was expected to be approximately $150.9 million, consisting of an aggregate principal balance of the initial receivable pool of approximately $90.1 million plus an expected prefunding account balance to be deposited on the closing date of approximately $60.8 million. The transaction had a 90-day prefunding period, that expired on March 18, 2024.
The amendment was to address a collateral shortfall that was first discovered after the first Payment Date in February 2024 and caused by the purchase of collateral during the prefunding period at an amount exceeding the specified amount required in the transaction documents and an overestimation of the collateral at closing. Regarding the former, on the closing date approximately $60.8 million was deposited into the prefunding account, which was used to purchase additional collateral during the prefunding period. According to the Indenture, loans acquired by the Trust during the prefunding period were required to be purchased at the principal balance of such loan as of the applicable cutoff date. However, the purchase price incorrectly included accrued finance charges and fees into the principal balance.
The application of cash and loan acquisitions were the responsibility of the Administrator, Saluda Grade Asset Management, LLC. The Sponsor added the Additional Collateral on April 19, 2024 to address the collateral shortfall, and bring the credit enhancement to the approximate level that would have been achieved if the prefunding proceeds had been appropriately utilized to acquire collateral at par and the open-to-buy shortfall had been discovered at closing. The below table shows the credit enhancement of each rated class of notes at closing, before the conveyance of Additional Collateral (as of the March 2024 Distribution Date for the February 2024 Collection Period), and on a proforma basis after the conveyance of Additional Collateral (as of the March 2024 Distribution Date for the February 2024 Collection Period).
Approximately $90.1 million of collateral, as of the closing date, was outside the purchase window, implying that borrowers no longer had the ability to make further draws (the “open-to-buy” limit). A borrower’s open-to-buy limit is a closed-ended credit limit Momnt assigns a borrower, which the borrower can use to make purchases during a purchase window (typically the earlier of five months or whenever the borrower utilizes their entire open-to-buy limit). However, approximately $4.6 million of the $90.1 million was never drawn on by borrowers during their purchase window. This shortfall was not identified by the Sponsor or Momnt at closing. Therefore, the $4.6 million never materialized as collateral and the portfolio balance as of the Initial Cut-off Date was approximately $4.6 million less than expected.
KBRA has been in dialogue with the Sponsor and Momnt, which indicated that the administrative processes that led to the issues herein were due to misinterpretation of purchase price for each subsequent receivable acquired by the Trust during the prefunding period, as well as an oversight regarding the final principal balance at closing. Given the transaction is outside of the prefunding period and all collateral, including Additional Collateral, is outside the purchase window, KBRA believes this issue has been remediated for the Momnt 2023-1 transaction going forward.
A review of the Additional Collateral and that of the remaining pool indicated the credit quality of the collateral is generally commensurate with that of the collateral on the Closing Date. Furthermore, the credit enhancement levels of each class have increased since closing. KBRA is not effectuating rating actions at this time, and will continue to monitor the situation in conjunction with its ongoing surveillance effort. Should further administrative issues arise it may result in Watch Placements or rating actions.
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