J.C. Flowers-Led Group to Sell Rare Non-Prime Canadian ABS

(Bloomberg) -- Fairstone Financial Inc., a lender owned by an investor group led by J.C. Flowers & Co. LLC and Värde Partners, is selling bonds backed by a pool of secured and unsecured personal loans to Canadian consumers, the first since 2007.

The Montreal-based company, formerly CitiFinancial Canada, plans to issue C$322.4 million ($242.5 million) of bonds, according to a person with knowledge of the matter, who asked not to be identified as the details are private. The transaction pools 34,289 loans carrying a weighted average interest of 28.5 percent, ratings company DBRS said in a report Wednesday.

Fairstone is testing investor demand for non-prime debt at a time when the Canadian economy is beginning to deleverage from a massive consumer boom. The Bank of Canada said last week the economy is facing a longer than expected “detour” after surprising signs of weakness in household spending and investment.

The debt to disposable income ratio in Canada rose to about 174 percent at the end of September, from 137 percent in 2006, before the start of the global credit crisis, which left Canada largely unscathed. By comparison, U.S. household debt to disposable income was below 100 percent as of September.

J.C. Flowers-Led Group to Sell Rare Non-Prime Canadian ABS

Fiona Story, a spokeswoman for Fairstone in Montreal, didn’t immediately reply to an email seeking comment. Tony Maraschiello, a spokesman for RBC, declined to comment.

Royal Bank of Canada, which helped Fairstone organize outreach to fixed income investors last month, is arranging the deal with National Bank Financial. The bonds may be sold as soon as this week, said the person. Citibank NA and Credit Suisse Group AG are co-managers on the deal, selling the bonds to U.S. investors, said the person.

The transaction is divided in four slices carrying ratings between Aa2, Moody’s Investors Service’s third-highest investment grade, and Ba3, three steps below high grade, said person. It would be the first widely marketed non-prime transaction out of Canada holding public ratings since Xceed Mortgage Corp., a lender focused on alternative mortgage financing, priced a deal in March 2007, according to DBRS data.

The J.C. Flowers and Varde-led investor group bought CitiFinancial Canada in 2016 for an undisclosed amount. It was renamed as Fairstone the following year. The lender operates via 225 branches nationwide.

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