Issue No. 29

At Pier we provide senior secured, sub-$25M credit facilities to loan originators, collateralized by portfolios of loans, advances, receivables, or other contractual cash flows. A key driver of price is portability, which we assess in two ways: (1) salability: could we resell the portfolio if we owned it, and (2) servicer transferability: could we move servicing to a new servicer without material disruption or value loss?
 
We prefer portfolios that are easy to sell or easy to transfer. Those are cleaner, simpler deals and we are comfortable holding them in a downside scenario because we can monetize or transition the asset quickly.
 
When a portfolio is harder to sell or transfer, we reflect portability factors in the terms:

• Lower advance rates to account     for the costs (outlined below)
• Increased reserves to cover the     added work and risk
• Personal guarantees from key     executives providing skin in the game to ensure a smooth servicing     transfer
• Tech protections, such as an     unlimited use license to the originator’s systems in default

 
In a default we may need to run a shell originator or stand up temporary servicing, which creates two main costs:

• People: staff for collections,     reporting, compliance, and project management.
• Technology: engineering and     integration work to keep payment rails and borrower portals functioning.

Portability determines price and deal terms. We evaluate deals carefully from this lens and require protections, so we are on stable footing if things gowrong.

-Jillian

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Auto lending has made headlines recently, particularly with the issues at TriColor and First Brands. While these cases are concerning, they’re largely about fraud and double pledging. These risks stem from poor credit facility controls, not underlying asset performance. At Pier, our standard practice is to be the sole creditor to our counterparties. If there’s only one lender, double pledging becomes a non-issue.

As for auto loan performance, delinquency rates do remain elevated versus historical norms. However, they’ve actually been improving in the last 18months. As of the latest dv01 data, delinquencies are at their lowest levels since January 2024. Subprime is modestly higher than recent years, but still within a range comparable to 2017–2020 levels. Both points can be seen in the charts above.

This is not to say we ignore the data. But from our perspective, these are modest shifts well within the bounds of normal variation—particularly given our short-duration approach, which allows us to respond quickly to performance changes.

Auto is a space we continue to underwrite with care. But recent headlines are more about structural failures than asset-level weakness. We remain constructive. Watchful, but not alarmed.

– Conor