A potential new issuer in esoteric ABS is in Miami at Invisso's ABS East Conference with the intention of selling not just their brand, but an entire new sector: produce-backed securitizations.
“We think we’ve invented a new asset class” said ProducePay CEO, Pat McCollough.
ProducePay is an agricultural technology company, based in Los Angeles, that also lends to farmers to help maintain their food supply chains and working capital.
McCollough, a solar finance veteran who worked at companies like Just Energy and Sunworks, said that produce loans are somewhat volatile as they sit uneasily in the world of lending. Since fruits and vegetables expire faster than stable foods they cannot be considered commodities, but they also expire much slower than electricity which is inherently immediate without a battery.
“We live in a very volatile spot,” said McCollough “our stuff perishes over weeks or months depending on the commodity.”
“My naïve thought was ‘wait a minute this should be easier than electricity, it expires more slowly.' And, at the end of our vertical is Walmart, Amazon, Kroger, Costco - nothing but investment grade brands.”
ProducePay is now looking to drum-up interest for doing a securitization. McCollough said that he has already run the idea by a variety of heavy hitting private equity firms, and the responsive has been positive.
The loans typically carry hefty interest rates over a few months of duration, and as a result, farmers are able to grow and sell their crops while ProducePay is able to keep a revolving portfolio of loans available for potential securitizations.
“We’re going into places where banks won’t go and we make these loans to secure our food supply,” said McCollough.
McCollough said the revolving structure allows ProducePay to make an attractive longer term product.
“Investors in ABS facilities are 30-year money looking for long term yield that want to match,” said McCollough, “Technically we’re short term with long term capital using ABL [asset-backed lending]. Until now we’ve been doubling every four years. The real issue for us is being able to get the 30-year money so that we don’t have to rely on growth to continue.”
“We acknowledge that someday we’re going to plateau so we’re looking for ABS on 30-40% of our book.”