Ann: 4Q24 Trading Update - Growth and strong loan performance, page-41

Thanks. I will go hunting for them, although I did a “word search” and the only use of the word “covenant” was once, in 2023 AR. I’ll see if they provide other hints.

I expect you are right re the funding for the Soc One purchase, as that was a corporate loan, and would be secured on the whole MME balance sheet. The type of covenant you mention (in effect a measure of gearing) is very common for corporate debt but I doubt would apply within securitisation vehicles (SPVs), which are non recourse to the consolidated balance sheet, or to MME’s other SPVs. The lenders into the SPVs would be concerned with quality of assets within their own SPV, as cash and receivables in that SPV (and the income from them) are the only source of repayment of those debts. (There would be no intangibles in SPVs). That was the cause of TGA’s distress. The lenders would also insist on MME or peer holding a specified minimum of “restricted cash” which is linked to each SPV as a safety buffer against default.

I am keen to know of any specific covenants that readers have discovered for any of MME or their peers. Given the extremely high level of debt that the SPVs hold, I expect that SPV covenants are kept secret as a competitive matter v peers (and also competitive for the debt investors, as in banking). Only ratings agencies and the investors (ie lenders) in that unique SPV are likely to know. It would be great to know, but I doubt if we ever will!

The covenant info (or even the nature of them) would be much more useful for us to know than the pricing of the debt in the SPVs. Anyway MME has published only the margin on the top ranked debt tier, which is nothing like the full picture. I can’t find recent full details for MME, but there is a good example by HUM. HUM’s ABS Trust 2023-1 was settled in April 2023; Humm helpfully provided the pricing and size of every debt tranche of that SPV. The top rated tier (least risky) cost125bps over the bill rate, similar to MME’s. On the assumption that HUM itself funded only the most risky slice of that SPV debt, the weighted average cost of the external debt in that securitisation was 270bps over the bill rate. If HUM itself funded the two riskiest tranches, the external debt cost a weighted average of 240bps over bank bill rate. (MY calculations, not Humm’s). I give this only as an example to show the rough overall cost of the debt within such vehicles, as opposed to the safest slice. SPVs typically account for nearly all the debt of business like MME, except for some much smaller corporate loans.

In summary I agree that MME's corporate loan would have covenants like the one you mention; although it’s relatively small it’s still crucial for MME to comply with them. However, most likely that very different covenants would apply to the vastly bigger SPV debt. At June 23 MME’s corp. debt was $50m but other debt $1.1 Billion.