CAN Capital’s Collateral ‘Adjustment’

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Last month, CAN Capital disclosed that they had “self-identified that some assets were not performing as expected” on the same day that three of the company’s top executives were put on leave. Since then it’s been reported that a discrepancy arose when CAN’s old systems were not equipped to handle the shift from variable payment advances to fixed payment loans. This is notable given that CAN began doing fixed payment loans all the way back in April 2010.

The discrepancy found its way into CAN’s 2014 securitization. S&P Global Ratings recently reported on this that “there was a correction of previously misclassified assets that affected the results of the calculation of [the] adjusted performing asset balance” on CAN Capital Funding LLC Series 2014-1.

Ratings agency DBRS illustrates the collateral dip on CAN’s securitization once the classifications were reported correctly on Series 2014-1 below.

CAN Capital DBRS

Chart appears in DBRS’s recent analytics report

This is the first public glimpse into what CAN’s old systems got wrong and by how much.

The drop triggered a rapid amortization event, potentially causing liquidity issues for CAN, hence why new funding may be paused. The principal balance on the $200 million notes has dropped by nearly $70 million in the last two months, indicating big payouts.

The process to manage a rapid amortization event is described in the original DBRS ratings report. The implications aren’t good given that this appears to be brought on by misclassifying assets rather than a natural deterioration of loan performance.

Last week, CAN laid off nearly half of its employees as it tries to correct course.

Update: On December 25th, deBanked published a brief of a newly discovered lawsuit filed against CAN Capital on December 19th by an aggrieved shareholder alleging the company had failed to pay her a $150,000 settlement payment.

Last modified: December 25, 2016
Sean Murray

Category: Business Lending, Industry News

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