ECN Capital Corp

TSX:ECN

Earnings Call Transcript 2021-Q2

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the ECN Capital Second Quarter 2021 Results Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the meeting over to Mr. John Wimsatt. Please go ahead, Mr. Wimsatt.

[John B. Wimsatt]

Thank you, operator, and good afternoon, everybody. First, I want to thank everyone for joining this call, given the day and time change in light of today's news. Second, this call may last a little bit longer than normal, given that we'll discuss both the Service Finance transaction today, our Q2 results as well as an update on the go-forward business and guidance. Joining us are Steve Hudson, Chief Executive Officer; Michael Lepore, Chief Financial Officer; and Randy Yasny, who's our Chief Investment Officer. A news release summarizing these results was issued this afternoon and the financial statements and MD&A for the 3-month period ended June 30, 2021, has been filed with SEDAR. These documents are available on our website at www.ecncapitalcorp.com. Presentation slides to be referenced during this call are accessible in the webcast as well as in PDF format under the Presentation section of the company's website. Before we begin, I want to remind our listeners that some of the information we are sharing with you today includes forward-looking statements. These statements are based on assumptions that are subject to significant risks and uncertain I'll refer you to the cautionary statements section of the MD&A for a description of such risks, uncertainties and assumptions. Although management believes that the expectations reflected in these statements are reasonable, we can obviously give no assurance that the expectations that any forward-looking statements will prove to be correct. You should note that today's earnings release, financial statements, MD&A and today's call include references to a number of non-IFRS measures, which we believe help to present the company and its operations in a way in ways that are useful to investors. A reconciliation of these non-IFRS measures to IFRS measures can be found in our MD&A. All figures are presented in U.S. dollars unless explicitly noted. With these introductory remarks complete, I'll now turn the call over to Steve Hudson, Chief Executive Officer.

[Steven K. Hudson, CEO & Executive Director]

Thanks, John. Turning to -- we'll move through the slides fairly quickly today. I'm sure those -- a few questions on the Service Finance sale. Turning to Slide 7. We are pleased to announce the sale of Service Finance to Truist Bank for USD 2 billion in an all-cash transaction. ECN will distribute to shareholders the net after-tax proceeds of approximately $1.5 billion by a special dividend of CAD 7.50. Michael Lepore, will speak to that in a moment. This sale and its distribution demonstrates ECN's commitment to 3 things: our capital discipline, our shareholder stewardship and maintaining a strong balance sheet to support ECN's continued growth. We expect the transaction to close in the fourth quarter of '21. Service Finance management will join the point-of-sale lending unit at Truist National Consumer Finance and Payments Group, and we remain based in Boca Raton, Florida. Turning to Slide 8. This has been a -- sorry, a 48-month 4-year partnership with the Service Finance team. They've been amazing partners. If I had to pick 10 things that stand out over the last 4 years. I would comment on the new programs, particularly the multi-lender platform and the Complimentary Flow platform. I would turn you to vendor programs, Beacon Roofing, which we believe will be larger than Lennox Mohawk industry that sells 1 in 3 -- every title in the U.S. Service Titan is another program. Number 6 would be the increased flow partners expanding from 13% to 28%. Number 7 would be the CPPIB program. As you know, CPPIB is the eighth largest sovereign wealth fund in the world. Number 8 will be Michael's SAP implementation. Number 9 would be how the business prospered and grew through the COVID pandemic. And number 10, most importantly, would be my partnership and friendship with Mark Berch and his team. We went to war and we won. Turning to Page 9. On the strategic rationale. ECN's focus is to manage and maximize investor capital within the commercial finance sector. We began that process in '17 and '18 when we sold our commercial and vendor finance businesses and reinvested that capital in consumer-facing finance businesses. Under ECN's ownership, Service Finance expanded meaningfully across all business matrics. Home Improvement segment has been seeing increased bank participation, including the recent acquisition of Interbank by Regions Bank. And given the recent industry dynamics and the increased scale of Service Finance, we believe and I believe this transaction maximizes shareholder value and put service finance in the best hands to thrive in its next phase of growth. And we're so happy that's Truist Bank. They've been a partner of ours for almost 2 decades. Turning to Page 10. As you know, we have created a business model where we do no longer on-balance sheet commercial finance. We've turned that into an asset-light and origination and management business. We prefer to partner, not compete with our banking partners. If you look to the latter part of 10, the first 4 years, we've grown 3 successful platforms. We are now at $10 billion in annual originations, we're $33 billion in asset managed assets. We had significant growth in capital opportunities with in front of us so significant growth and capital returns, and we've exited this afternoon one of our platforms at a 6-plus return. The next 18 months from my perspective and the team's perspective is equally as exciting as we continue to build upon the successful asset-light model utilized by both Triad and KG. Triad as you'll see in a second, has expanded its product menu and its take share strategy and develop further flow arrangements. We're quite happy with the progress of both Triad and KG. Turning to Slide 11. I think a number of you've seen this chart before, just recaps the progression of ECN over the past 5 years. You'll note in the earlier part of this histogram that we divested of a few businesses and reinvested that capital. We also purchased capital back. And more recently, we've been able to drive shareholder appreciation and this afternoon announcing the sale of Service Finance and distribution back to our shareholders. Turning to Page 10 -- sorry, Slide 12. We've -- I will be extending my contract for the next 5 years. we will be rightsizing ECN's overhead expenses that will be rightsized to approximately $12 million. Our senior credit facility has been underwritten by our bank group almost stand at $700 million for the next 4 years. Our NCIB will be renewed for both common and preferred shares. Our common dividend, obviously, while we review the level, but we will be maintaining a dividend going forward. Turning to Slide 14. I think the 2 takeaways on this slide is Triad is a leader in affordable housing solutions. We provide the financing to that sector. The second part that I would focus you on is the full product menu that's now complete. Like we did with Service Finance, we've now rolled out a comprehensive take share strategy with a full menu of product offerings by banks, credit unions and lifecos who purchase those assets. And today, you'll see we'll announce shortly the last menu item, which are FHA alone. The prospects of Triad are very bright, and see where we are increasing guidance on Triad. I think everyone on this call has seen Slide 15, 16 and I would pause on Slide 17, just to reflect the progression of the menu development in this make share strategy at Service Finance. That was Complimentary Flow and credit waterfall. In Triad's case, it is expanding the loan menu to fit the requirements of the marketplace, and more importantly, the investors who purchase these loans. I turn to Slide 18. We've seen floor plan grow the floor plan, as you know, is what drives the loan origination in this case, chattels and mortgages. It's an important part that fuels the start of the funnel. 19 is a new slide. We're pleased to announce this afternoon that Triad has been approved as an FHA provider. FHA is an extremely important product for the Canadians on the phone. If you can do this as CMHC in Canada, the FHA will wrap our loans, our mortgages and channels going forward. This is a final part of the menu. It's a very important part of the menu. You'll see a substantial increase in the origination estimates and forecast.Finally, on Page 20. One thing that we've been able to drill down on a number of things, but in particular, is that Triad loans, channels and mortgages are CRA eligible, CRA is a U.S. federal law that is designed to acquire U.S. banks to meet the needs of low and moderate income borrowers. It's an extremely important requirement for banks in the U.S. We've learned through our due diligence and review that approximately 70% of Triad's 2020 loans meet CRA requirements. CRA loans are tradable assets in the U.S. We'll be coming back to you with the value of CRA loans in the next quarter. Suffice it to say that a substantial portion of our loan production is CRA eligible. Turning to 21. As I mentioned a moment ago, we are increasing the guidance for Triad in 2021 from $39 million to $44 million, up to $43 million and $46 million. That's based upon the strong growth in our make share strategy as well. Our initial guidance for 2022 is being increased to $57 million to $65 million and originations of $1.25 billion to $1.5 billion. I happen to believe that the originations will be on the upper end of $1.4 billion to $1.5 billion. Again, this is a successful implementation of our maker strategy, whether it's land home, whether it's FHA wrap and other products like Bronze Chattel. John?

[John B. Wimsatt]

Thanks, Steve. I'm on Slide 22. We have seen slides in the past. So we'll run through them relatively quickly. But just on Slide 22, I just want to highlight, KG, historically, for the last 40 years, has built and attracted customers to the affinity card portfolio space. that's been its history. It's done that through strategic long-term relationships with top banks and issuers and proprietary data and analytics that drive that expertise and those results over 4 decades. Today, it offers multiple solutions for customers. One of the things that we've always thought was important whenever we looked at an acquisition was buying a franchise out of the ability to continue to expand, add products a core competencies and expand on what they did best. We clearly did that with Service Finance. As Steve just laid out, we've done that with Triad as well. And going forward and even over the last couple of I think we're really on the verge of being able to say we're doing that with Kessler as well. Moving to Page 23. Obviously, there is a series of core competencies that have driven 3 areas of the business: partnership services, marketing services and transaction services businesses. Through those areas, we drive -- we manage and advise credit card portfolios of over $27 billion. Over time, the company has created over 6,000 credit card partnerships, co-branded credit card partnerships. And we continue to expect excellent results future. On Page 24, just a bit about business drivers. As we've discussed in the past, KG has a huge opportunity to expand not only inside the credit card vertical, but across other verticals like we talked about last quarter, telecom and other areas within, say, the marketing space, credit card investment management platform, et cetera. We use a series of proprietary data need relationships with data analytics to drive those -- drive those opportunities. And in a minute, when we get into the quarterly data, we can talk about some of the things that we've signed up over the last couple of quarters and maybe think it could look like over the next couple. On Page 25, just talking about the outlook. We are tightening adjusted operating income before tax guidance to $46 million to $49 million from $46 million to $52 million. That's really just a reflection of better visibility now that we've gotten through sort of 7, 8 months of the year, and we have better visibility now on transaction timing as it's going to land continuing rebound in the credit card industry should continue to drive growth into 2022. We see robust partnership opportunities and the CCIM business has identified several attractive investment management possibilities in 2022. Marketing Services continues to rebound from COVID-19. We added a significant 3-year marketing program with a large regional bank among other marketing opportunities. And looking at our initial guidance for 2022, we're looking at $52 million to $59 million and adjusted operating earnings before tax, which is about 17% growth in the business. With that, I'm going to turn it back to Steve to talk about the guidance. Actually, Michael. I'm sorry. I'm going to turn to Michael.

[Michael Lepore, Chief Financial Officer]

Thanks, John. So Page 26 provides a summary of our preliminary 2022 guidance. As covered by Steve and John, we expect strong growth from both Triad and KG in 2022. And Triad growing at approximately 37% and KG at 17% compared -- at the midpoint compared to 2021. These results are driven by the growth opportunities at both Triad and KG that were just outlined by Steve and John. Corporate expenses will be brought in line with the size of the company going forward, and we are currently forecasting an effective tax rate to be approximately 20% in 2022. And finally, we will provide more detailed guidance at our 2022 Investor Day. With that, I'll turn it back to Steve.

[John B. Wimsatt]

Me.

[Michael Lepore, Chief Financial Officer]

Sorry.

[John B. Wimsatt]

So we're on Slide 28, and we're just going to start looking at our Q2 overview. We had strong results across all the businesses in Q2, reporting a $0.12 a share, which compared to our Investor Day guidance of $0.11 to $0.13. Really, across each of the businesses, we saw strength with Service Finance having originations up around 27% year-to-year. We continue to build out a series of new programs. Obviously, we want to highlight Triad and KG today, but really excellent Q2 out of Triad this year. Q2 originations up over 60%, and we're well on track for $1 billion-plus in 2021. Land home is on track for about $150 million in 2021. That is at the lower range of our previous guidance of $150 million to $200 million. But as we've discussed in the past, our originations for this year were going to be somewhat dependent upon what the backlog like in the industry, and we've seen the backlogs continue to extend. The good news is monthly approvals and have grown from $52 million -- $52 million from $45 million last quarter, and we expect that to continue to grow into 2022, and that should drive some really solid land home numbers into next year. We are fully funded for '21 and into '22, and we have 11 new partners year-to-date at Triad. KG, Q2 was ahead of management expectations. Some very strong partnership income, and we continue to see the rebound in the marketing servicing side -- services side. Strong growth pipelines are driving growth and some new programs have officially launched. Turning to Slide 29 on Service Finance. Solid quarter of $22.1 million of adjusted operating income before tax. It's up 52% year-to-year. That's on 27% growth in originations and 25% growth in managed portfolios. Again, a very, very strong quarter for side report. I did want to report to you on some of the things that we had talked about previously, like our held for trading assets. As you can see, they actually went up slightly in the quarter from $152 million to $156 million. We're on Slide 30. Subsequent to the end of the quarter, we did sell -- had a large sale of $174 million. But importantly, we told you we told investors that we would turn this into a flow program. We're actually successful in accomplishing that in the quarter post the quarter. And going forward, it would have been a flow arrangement. Page 31, you see the traditional originations chart. I'll leave it at that. And then Page 32, I just want to give you an important update on the ESG side. As part of our ongoing commitment to ESG, in early 2021, we actually engaged Sustainalytics to give us a second-party opinion on the Service Finance loan program. Service Sustainalytics issued their opinion last month. It was importantly a large majority of originations materially improve the energy efficiency of the home. They contribute to several United Nations Sustainable Development goals. That report can be found in the Analytics website. I have the link on the bottom of the slide here. We are shifting focus to try out in Q3. We've engaged Sustainalytics as well, again, to take a look from an ESG perspective and evaluate the environmental and social or waste and affordable housing, et cetera, attributes the triad load program, and we expect to have an update to that in Q3. With that, I'm going to turn it back to Steve to talk about Triad.

[Steven K. Hudson, CEO & Executive Director]

Thanks, John. Slide 33. Income before tax in the second quarter of 13 -- a little over $13 million, up 82% year-over-year. Both originations and approvals were up strongly on a year-over-year. Land Home is on track for $150 million in '21. Proud to report that we had 6 new bank and credit union partners out in the second quarter, which is 11 year-to-date. You'll see that RSRs are up in the quarter. As you know, we've been able to launch land home and other mortgage-type products. Those require us to establish an MSR that will be a pickup -- a permanent pickup going forward. Adjusted operating income has increased from $39 million to $44 million up to $43 million to $46 million. Turning to Page 34. Again, strong approvals and strong originations. On Page 35, dock out or cases where we have documents out, they are signed, and we have a deposit in hand. These have a 99% closing rate. It's important to note that this backlog now stands at as 6 months, but it's close to 12 months. In fact, we have certain manufacture and home builders who are no longer taking orders this quarter. They will resume taking orders whether able to clear the backlog. This bodes well for our Q3 and Q4 as well in '22. Turning to land home on 36, that's well in hand. It's been rolled out and we're happy with the success of that expanded menu, our "make share." Held for trading assets are at a modest $36 million. We're happy with that basis. We had 4 new partners the second quarter who purchased loan portfolios that we created for them. Delinquencies, credit trends are similar to leasing portfolios that are not owned by us but managed for us on behalf of banks and credit unions and licensures. We're very happy with the credit profile, both on delinquencies and charge-offs. Originations remained strong. As I noted earlier on Slide 39. And John, I'll pass it back to you on Slide 40 for KG.

[John B. Wimsatt]

Great. Thanks, Steve. Again, Kessler had a very strong quarter with adjusted operating income before tax of almost 43% to $13.4 million. That's on increased revenues of 31%. Obviously, there are expenses has been excellent. Partnership services revenues, up almost 46% year-to-year. That's really a reflection of solid growth across multiple recurring revenue streams. Marketing Services also improving as client activity continues to rebound to COVID-19. Transaction service as well. We didn't see any revenues in this quarter. The good news is that we are starting to sign up new deals, and we have now finalized negotiations to the best 3 partner programs, which should result in middle least $5 million of fees over the next couple of quarters. Adjusted margin -- EBITDA margin in the quarter is around 65%, obviously, very strong. Page 41. Partnership services, like I said, 46% year-to-year growth in parts services, driven by both strong traditional partnership businesses as well as continued growth in our CCIM platform. We had find several new agreements to develop market ships outside of the credit card space, specifically in the student loan, identity protection and the NPL space or buy-now-pay-later including a key partnership with a 12 million member organization in the student loan space, very excited about this. In addition to that, the rollout that we talked about previously of the Turnkey Banking as a Service program continues. We are up and running with that $4 billion credit union that was our launch customer. We're active and expect to be onboarding others over the coming quarters. Page 42, Marketing Services. Again, as we've discussed and we started to see some news reports that marketing is starting to pick up and the credit card companies are out there added again with direct mail, et cetera. we have started to see some of that pick up as well. It continues to recover post COVID-19. We've continue to work with our customers and continue to try to grow that business. We did win a new 3-year marketing campaign with a large regional bank. That the first campaign with that bank will launch in September. We did launch our telco marketing that we talked about last quarter in the quarter with a 2.7 million piece pre-screened mail campaign. And importantly, as we discussed last quarter, this expansion verticals has really taken shape. And if you look at some of this identity that is something we had identified previously. But looking forward, we are looking to do partnerships in Medicare supplement, subscription wine, subscription water, telemedicine, personal loans, in addition to the various financial services marketing areas that we're in, such as credit card or student loan and telco. So pretty excited about where Kessler stands. And with that, I'll turn it back to Michael to run through the financial summary.

[Michael Lepore, Chief Financial Officer]

Thanks, John. Turning to Page 44 on the Q2 consolidated operating results. Total originations for Service Finance and Triad Financial Services of $913.4 million in Q2 2021 were up 35% compared to the same prior year quarter, reflecting a 27% increase in Service Finance and over 60% increase at Triad. That growth drove Q1 adjusted -- Q2 adjusted net income to common shareholders to $29.5 million or a record $0.12 per share compared to $17 million or $0.07 per share in the prior year quarter. Turning to Page 45 and the balance sheet. Key highlights are that total assets and total debt were both up over the previous quarter, with total assets of about $72 million and total debt by approximately $43 million. The increase was driven primarily by the increase in held for trading assets and Service Finance and the floor plan loans at Triad. Total assets and debt decreased subsequent to quarter end as a result of the sale of the held-for-trading assets and Service Finance with pro forma debt down of approximately $126 million. As noted earlier, our Complimentary Flow program now been converted to a regular flow program at Service Finance. Managed advisory assets remained at approximately $33 billion, comprised of $3.5 billion of servicing assets and Service Finance, $2.8 billion in managed loans at Triad and approximately $27 billion in advisory assets at KG. Turning to Page 45 of the Q2 income statement. Q2 Adjusted EPS was $0.12 per share, which is in the middle of our previous guidance range for Q2 of $0.11 to $0.13 and in line with our analyst consensus. Q2 2021 adjusted EBITDA was $48.2 million compared to $31.3 million in the prior year quarter, a 54% increase driven by the growth at all 3 of our business segments. Finally, turning to Page 47 in operating expenses. Key highlights are business segment operating expenses were increased primarily driven by the growth in originations and managed assets at Service Finance and Triad. Corporate operating expenses of $6.5 million reflect a return to normal activity levels for business development, professional services and travel. As mentioned previously, we will reduce corporate expenses in 2022 to align with the size of the business going forward. Finally, legacy business expenses were $2.1 million in Q2 2021, which were largely offset by legacy business revenues. With that, I'll pass it back to Steve.

[Steven K. Hudson, CEO & Executive Director]

Thanks, Michael. On Slide 49, just in closing, we're pleased to report the Service Finance transaction and return to capital to our share is very important to us as well as maintain a strong balance sheet to support end continued growth. The Q2 results were in line with expectations, the $0.12 of earnings per share was up almost 60% year-over-year. We're happy with the growth of all of our platforms. And on the capital management aspect, pleased to report our dividend this quarter. We've also actively repurchased preferred and common shares in the second quarter. With that, operator, we're happy to open the call to questions.

[Operator]

[Operator Instructions] The first question comes from Geoff Kwan with RBC Capital Markets.

[Geoffrey Kwan, Analyst]

My first question was after paying a special dividend, like how much do you expect to have like ballpark in terms of other net debt or net cash? And then are there plans to perhaps buy another platform or platforms? And if so, what types of businesses would be the types of things that you'd have interest in?

[Michael Lepore, Chief Financial Officer]

Thanks, Geoff. I'll answer the first part of the question. On debt levels, once everything settled, we expect to have debt of approximately $350 million for the remaining businesses -- supported by the remaining businesses.

[Steven K. Hudson, CEO & Executive Director]

I would -- with the second part of the question, Geoff, we obviously are in the midst of a significant growth ramp in Triad. That's the focus of this business in the third and fourth quarter as well as continued growth at KG. As you know, we've developed something pretty unique here, which is how to take commercial finance assets, which up to 4 years ago, really on bank balance sheets, and we've built a model, I think, a successful model on how to convert those into flow arrangements. We have been approached by some other parties and assets, categories we know of obviously not home improvement. We'll have a noncompete in that for a period of time. But I think you can look at us growing it. All that said, we can do that in our balance sheet, and we're very confident we can grow the balance sheet of this company.

[Geoffrey Kwan, Analyst]

Okay. So there is the possibility that we may see you enter into a new platform, I guess, is what you're saying?

[Steven K. Hudson, CEO & Executive Director]

Well, nothing new, Geoff. I'm 62 years of age. I kind of know what works and doesn't work. I've had both good and bad experiences. So we will stick to our knitting. We're only going to originate assets that our bank credit gains and lifeco partners want to see. So in the short term, Geoff, it's all about executing on Triad and KG. Service Finance was a tremendous company, Triad better, and KG is good as well. But we are the premier provider of affordable housing solutions in the U.S. That industry segment is going through rapid growth, particularly by this new administration. And I think we're all going to be hopefully pressed by the results of Triad and KG but to try to particular over the next 18 months.

[Geoffrey Kwan, Analyst]

Okay. Because that -- yes, my follow-up question, I think you may have answered it, but just wanted to ask it anyways is thinking about the long-term strategy to not obviously, over the next year or 2. Is it then pretty much keeping the business you have, maybe you expand some of the products that you're willing to originate as opposed to a long, long-term strategy of recycling capital, but by buying, growing, monetizing assets and kind of wash, rinse, repeat over time.

[Steven K. Hudson, CEO & Executive Director]

I think, Geoff, you're right. Our focus in the next 24 months is to execute on Triad and KG. And I think we've done a pretty good job on Service Finance and you'll see the increased guidance for Triad that's our focus, and then we'll -- we've been, I think, pretty good stewards of capital, and we partner with banks well. So let's come back to that question in 24 months. Let us -- we got to go back to work and continue to execute on our growth strategy.

[Geoffrey Kwan, Analyst]

Okay. And just one last question is I know the deal is expected to close near year-end, which I guess makes it a bit simpler. But just wanted to know how this transaction, how it impacts his compensation expense how it's determined for this year? And also kind of going forward to the extent that you can talk about it and separately, if there's any aspect of the deal that will impact compensation.

[Steven K. Hudson, CEO & Executive Director]

Yes. No, Geoff, a quick answer to this is that no one on the ECN team, no members of senior management, no employee will receive compensation for completing this transaction. We're in the business of managing shareholder capital. We'll get our bonuses in due course, but there won't be any different than the fullness laid out in the proxy process. So there's no special bonus or deal bonus whatsoever. Going forward, obviously, I'm going to lead by reducing my base in my bonus to rightsize this company. This management team, as you know, Geoff, we're the second largest shareholder. We look at the entire management team director indirectly. So I think we look at this platform to the lens of a shareholder first and employee second. Did I answer your question?

[Geoffrey Kwan, Analyst]

No. That's helpful.

[Operator]

The next question comes from Vincent Caintic with Stephens.

[Vincent Albert Caintic, MD & Senior Specialty Finance Analyst]

I just wanted to congratulate you. It's quite a thing to turn $300 million into $2 billion in 4 years. So very well done. So first question, organically when you talk about Triad and Kessler. So highlighted the things you brought to Service Finance in terms of adding different products, the marketplace and so on. With Kessler -- or sorry, with Triad, you were -- you talked about now you had a full product suite. I'm wondering when you think about, say, the next 24 months and pushing execution there, what -- are there other things you were thinking about to add or to invest in kind of a similar question to Kessler to what you foresee going over the next 24 months.

[Steven K. Hudson, CEO & Executive Director]

Yes. Thanks, Vincent. If you look to -- we talked about, in essence, loan chattel and mortgage products, second go. But if you look to the underlying affordable housing crisis in the U.S. There's been some recent interesting initiatives by also have that Elon Musk is now living in a 400 square foot home on the site of SpaceX. Those homes on the regulatory definition are what they refer to as park homes, there 400 square feet and smaller the kind of interesting if you've got free time and look at that, we think that we are going to become a significant participant power cord homes and as well, something called tiny homes. It really goes park up to 400 square feet and then tiny homes from 400 to 800 square feet and then to manufactured housing. So we have increased spectrum of loan products and we have an increased spectrum of type of home that we are underwriting. Those are powerful drivers -- If you look -- it's interesting, if you could look at it and say our forecast originations in '22 were at $1.4 billion to $1.8 billion. If I remember correctly, I think when we acquired Triad, it was originating about $200 million to $300 million a year. We have a chance to overlay that growth with service, but it's probably at or better than that growth. So growth in type of loan products and growth in the type of homes that we're originating. Again, we're not de-gradating the credit profile originate loans, channels and mortgages that fit the requirements that our institutional investors. John, did you want to...

[John B. Wimsatt]

Yes. I just want to say, if you look at Page 17 here, we have this expanded menu. I mean if you look over to the right side, there's a series of statistics. As you know, Core - Chattel is the business that we bought from Don Glisson and Triad. I mean that's a business that it's national, it's fantastic. But just looking at our originations year-to-date, they're up 59% year-over-year. That's the core business. So that's the most business that we have, and we're still looking at growing that materially. Look at the other businesses that we have. The other ones are relatively new. All of them have sizable end markets, but look at them today. Yes, you've seen some tremendous growth, but there from a mix of our originations perspective, silver at 3%. Land home is only 6% today. That's an area we think can be bigger than Chattel over some period of time. Bronze is only 2%, rental 2%. CLP is a brand-new program that's at 0%, and we think that can be a very large program for us. So just looking at the menu as we've seen it today, like Steve said, we've added the FHA product, et cetera, we see a just a tremendous amount of growth still coming out of Triad. There's also an opportunity to look at some ancillary products and some of the things that we think we can add to over time. It's a similar process when we look at KG. KG has long-term history, it has an incredible set of core competencies. And over the last couple of years, we've been trying to develop those core competencies outside of those initial products and the ones that they've had for years. And we've been quite successful primarily on the marketing side over the last couple of months in some of these new products, but also in the partnerships side. And really the CCIM business, where we've acquired over $1.5 billion worth of assets, which was a total change for the industry going from bank to bank to bank to investors. That's something that down. So you look these businesses, not only do we see fantastic near-term growth, we think we've got a long way to go in terms of really developing these franchises.

[Vincent Albert Caintic, MD & Senior Specialty Finance Analyst]

That's really helpful. And then on the inorganic question I have and Geoff asked part of the question in terms of things if you're looking to acquire. But I guess on the remaining businesses, and we'll see where the stock price trades tomorrow, but on the remaining businesses, when you think about valuations on that and your success in monetizing the Service Finance business. I'm kind of curious on how you're thinking about the rest of the business. And it sounds like there's a lot of opportunity to grow it organically, but in terms of monetizing or as you're thinking about when you think about the remaining ECN.

[Steven K. Hudson, CEO & Executive Director]

I think that's when you look at -- I'll let John talk to KG, but when you look at Triad, I think there was a moment in time when we bought the business where some people, not all, but not the majority of some people had the stigmatism of looking down at this "mobile home" which is not. And we've had a great partnership and friendship with Mark and with his team, we've done exceedingly well beyond what our expectations were. We're going to surpass that with Triad because affordable housing is here, and we are the leader in affordable housing. Yes, we have Berkshire Hathaway and yes to this, but they don't have our growth rates. And we're the #2 provider by size. We're #1 by growth rate, and it's -- and we've invested all the time and effort. We put in all that we made a $6 million investment in the systems so we could provide Freddie and Fannie underwritten mortgages and loans, then we invested in systems to do FHA, then we invested in floor plan systems and we put in the credit processes and all that hard work and effort by our partners and friends at Triad is now coming to fruition. I'm not an expert in valuation, but this growth rate that's your expertise online. But I think that growth rate is going to surpass service finance. And then John, if you want to chat on KG.

[John B. Wimsatt]

Yes, I would just add similar sentiments to what Steve just said about Triad. I mean been very clear the successes of Service Finance, and I think also tried to a large degree. I think the Kessler over the last couple of years was affected by COVID and some other things. And I'm not sure that a real appreciation for where we see the value in the Kessler business going forward into the future. I think over the next couple of years with the efforts that are going on inside the company and with help from ECN we see some real opportunity to grow that franchise and add value. So never say never, Vincent. Obviously, there's a price for anything, but we feel like there's a lot more upside over the next couple of years inside ECN. We look forward to realizing that.

[Steven K. Hudson, CEO & Executive Director]

If you just a final comment move on to the next question is that if you look to our bank credit union lifeco partners or the demand for our assets is up significantly. We're getting inbound quarries now on D&E done floor plan can we structure floor plan. The answer is yes. So I think we can further perfect and fine-tune our model about origination and management on behalf of our partners. So we're comfortable -- very comfortable we have the capital to grow our business.

[Operator]

The next question comes from Tom MacKinnon with BMO Capital.

[Tom MacKinnon, MD & Analyst]

For questions, just a couple. First, with respect to the price paid for Service Finance. If I sort out a little bit of the corporate overhead that might have been associated with Service Finance with a price of about 20x '22 -- 2022 operating earnings after tax, be kind of close to what do you think you got in the $2 billion price for Service Finance. And then I have a follow-up.

[Steven K. Hudson, CEO & Executive Director]

Okay. Yes, Tom, I mean, you can do the math we've given you the guidance of what we thought for 2021, if you affect that with a normalized tax rate for where we were, you can generally see where the multiple would have been. And I think you're not wrong in your math.

[Tom MacKinnon, MD & Analyst]

Okay. And secondly, what's the implication for funding partners as a result of not having Service Finance. Are some funding partners like funding all 3 of these segments. And given Service Finance is not here, are they going to be -- is there any implications for the deal as far as your relationships or with funding partners or do funding partners have I'm in for help Triad, but I want Service Finance as well. And if Service Finance is not there, then I'm not going to be part of the Triad. Maybe you can talk or walk through that for us, please.

[Steven K. Hudson, CEO & Executive Director]

Yes. That's a good question, Tom. There is no cross between funding partners that triad nor service. So the Triad partners, sort of the service finance partners, we still have three months to close, so we'll continue to honor the are hell high-water obligations. So we'll continue to buy that paper. The Triad Group stands on its own. However, I think we've established an extremely good relationship with certain partners like CPPIB. And it's clear that Truist is going to take those assets going forward to '22 onto their balance sheet. But there's an opportunity to reengage with those partners who had -- if you look at CPPIB and go to their annual report on, they refer to the credit deal with Service Finance as their most successful credit investment in '21. And I would hope this is a hope to get help today if we can have a conversation with a be about coming as a funding partner Triad. But there is no cross pollinization or cross ownership or across agreements between the 3 sites.

[Tom MacKinnon, MD & Analyst]

And the last question, looks like the dividend might be somewhere around a 20% payout as you rightsize the company, would we look for something around a 20% payout ratio, 25%.

[Steven K. Hudson, CEO & Executive Director]

Yes, Tom, I think we'll come back and talk to that in Q3. We're going to maintain a dividend. The Board has the approval of dividends management has not made a recommendation yet other than to say that we'll continue our dividend, so we'll have to get back to you that.

[Operator]

The next question comes from Cihan Tuncay with Stifel.

[Cihan Tuncay, Director]

Most of my questions have been answered. But just to confirm, I believe, Steve, you mentioned there was a noncompete clause post the transaction with Service Finance for home improvement loans. Just to confirm, that only is applicable within U.S. or is it state by state? Or is it nationwide? Or I just want to confirm that.

[Steven K. Hudson, CEO & Executive Director]

Yes, it's a 24-month noncompete specific to the U.S. specific to residential home improvement.

[Cihan Tuncay, Director]

Okay. Thanks for clarifying. Just going back to Kessler, John, it sounds like there's a lot of new initiatives on the go. You mentioned the student loan partnerships, identity protection, by now, pay later. How do we think about what those partnerships could look like from a structure perspective, revenue perspective? Because it sounds like it's pretty different than what Kessler Group has historically been known for. So how do we think about what the potential is from those new partnerships and new programs?

[John B. Wimsatt]

Cihan, like we said, these are newer initiatives for us. So we're moving forward with them. We hope to be able to give you a more robust update in Q3 and certainly at Investor Day. Each of these areas are going to have sort of different components and aspects to them. There's a combination of partnership opportunities, like we mentioned in the student loan space, where we have connected with a 12 million-plus member student provider. There's also multiple different opportunities in the marketing space. It's a little early to go through each of those things individually. But hopefully, we'll have a lot information for you as they sort of evolve and we get towards Investor Day.

[Cihan Tuncay, Director]

Got you. And then just 1 more question for me. With respect to Triad and the updated guidance for 2022. You mentioned that originations are set to go through the $1 billion range for 2021. And I'm wondering what origination assumptions you have for the updated guidance for 2022 for Triad.

[John B. Wimsatt]

Yes. Cihan, if you look back at the slide after we say what we expect earnings to kind of look like, we say we expect originations of about $1.25 billion to $1.5 billion for 2020 (sic) [ 2022 ].

[Steven K. Hudson, CEO & Executive Director]

And I think it would be -- I would point you towards the high end of that range given the success we've had in land home and the FHA approval this afternoon. So I would -- if you had to take a number, $1.4 billion to $1.5 billion in that range.

[Cihan Tuncay, Director]

Appreciate the color there, guys. Congrats on the deal.

[Operator]

The next question comes from Mario Mendonca with TD Securities.

[Mario Mendonca, MD & Research Analyst]

Steve, I think you referred to in your presentation, you referred to changing dynamics in the business that encouraged or maybe certainly not necessitated, but I encourage you to make that -- make the sale of Service Finance. I have an idea of what dynamics you're referring to. What would be helpful to hear from you is what dynamics are you thinking about? And do those dynamics also apply to Triad?

[Steven K. Hudson, CEO & Executive Director]

Yes. So I think the Interbank sale of post sale by regions really, I think, opened up the eyes to everyone, but as you know, Mario, both U.S. and Canadian banks are flush liquidity, looking for new loan production. I think that transaction, I think, brought focus to that. I'm happy to be the second transaction after that because we have the dominant platform. And I think that demand for loan product, particularly on improved product is insatiable in the short term. And I would -- as I commented to you, I think the world is pretty perfect right now. And we've had, I think, a pretty good history here a lot of things where you see increasing bank participation, I would reference you back to the sale of ECN's corporate finance business to P&C, which was an attractive business. We can see that increased participation is time to be a seller.

[John B. Wimsatt]

One thing I would add, Mario, is as we've said before, Eventually, this business, in particular, was going to get enough scale that a bank or someone else would have interest in it. We've clearly accomplished that at Service Finance. It's an area that the banks are not focused on, as you've seen from a acquisitions, but they're really only focused on those prime and super prime platforms that are out given the scale that we've been able to build inside of service finance. It's just there's going to be a time where that business should sit on either a depository or a lifeco or someone who's got a real low cost of money.

[Steven K. Hudson, CEO & Executive Director]

And I think, Mario, you wanted to -- I think the question was 2 parts, maybe I'm wrong, but 2 parts. What does my view on industry dynamics? What does that mean for Triad? Is that a fair...

[Mario Mendonca, MD & Research Analyst]

Yes, I think the dynamics probably apply to Triad as much as they do to Service Finance, but maybe I've got it wrong.

[Steven K. Hudson, CEO & Executive Director]

Yes. No, you're right, but maybe the 1 thing that's a little different, Mario, is the tenor of the loans in Triad because we are producing longer-term loans. They are by far a better match for lifecos and for credit unions. We don't -- we have a little bit of bank participation on those programs, not a lot. And we don't -- we haven't seen as much liquidity go into the life and credit union industry as we have in the other aspects. So I don't if you had to pick a partner for Triad down the road, I suspect it's not a bank respect it's somewhere in those areas. And it's -- we do benefit. One of the great things about affordable housing if it's needed. And there is a stigmatism attached to it. If you talk to bank partners about some of our other bank partners about manufactured homes, they kind of look away. And I think that's great for us because it has credit performance that's better than home improvement loans. And I think that stigmatism benefits the walls, you will, around our origination platform. And then finally, I would say that we like with Service Finance, we've taken the time and effort to make sure that we've built regulatory moats around our origination platform. We are licensed and we don't rely upon things like Federal Bank preemption. We don't sell loans to a bank and then buy them back. That's not our operating platforms.

[Mario Mendonca, MD & Research Analyst]

So the question then, when you've taken $2 billion pretax billing after tax, there are plenty of things you can do with it, and there are plenty of options at your disposal. A special is not the -- a special dividend is not the only thing you could have done. Why do you rule out things like buybacks or holding on to a portion of the cash to allow you to fund another acquisition? Why is all of it being devoted to a special? And particularly, why not buybacks? What was the logic there?

[Michael Lepore, Chief Financial Officer]

So Mario, I think at the end of the day, it's about the most efficient way to get all the capital back to shareholders. And it's the most efficient way to limit our exposure to capital markets going forward to do an SIB, for example, would be the simplest answer.

[Mario Mendonca, MD & Research Analyst]

Limit your exposure to what?

[Michael Lepore, Chief Financial Officer]

To the capital markets, we're -- while we're doing the tender offer itself, I think it's the best outcome for shareholders.

[Mario Mendonca, MD & Research Analyst]

Okay. My final question then is.

[Steven K. Hudson, CEO & Executive Director]

Mario, can I just add 1 more comment to your question. I think with respect to M&A, things are pretty pricey. And I mentioned to you before, I think things are prime for protection. We have the benefit and goodness of strong organic growth. So I prefer -- and we have adequate capital because we've maybe not perfected it, but we've gone a long way on our asset-light, our capital-light model. We don't need as much capital as we did in the past to grow our business materially. So I'm comfortable with the capital base we have, we're not going to issue equity. We can grow the business significantly with our base in place. And I think in the M&A market, I think I would prefer to come back in the M&A market. down the road, this is not the time to be acquiring my personal view, not the time to acquire platforms.

[Michael Lepore, Chief Financial Officer]

Mario, it's Michael, might be one other point on the dividend. We're still doing the analysis now, but we expect to be able to pay a significant portion of the dividend on a tax-efficient basis to Canadian shareholders. So that would and make it even more attractive than buying back shares.

[Mario Mendonca, MD & Research Analyst]

Got it. My final question is more of a numbers question. The interest expense in your guidance for 2022 at $15 million. I believe that's right, corporate. And just that's really high relative to what you had guided for, for 2021 and given the reduction in the debt outstanding that you've offered, the $350 million. So I feel like I'm missing something in your corporate interest expense guidance.

[Steven K. Hudson, CEO & Executive Director]

Interest versus preferred. Yes. I think, Mario, the plan is to -- we'll go through a detailed balance sheet with you. But those preps we have outstanding, you'll see the preferred share dividend is down materially going forward. So it's better for us to use debt. That debt can be the form of senior line or it can be a form of a hybrid, a hybrid gives you 50% equity treatment from respect to a rating agency. So if you have a hybrid at 6% and the pref at 6%, it becomes far more attractive to the hybrid. I'm trying to -- we still got pref in the marketplace. We haven't made the decision to what to do with them, but I think it's pretty clear based upon our forecast, what we intend to do with our pref. To better to use a debenture or hybrid to refinance that front.

[Mario Mendonca, MD & Research Analyst]

Correct me on. I think your debt right now is what is it $650 million? Is that right?

[Michael Lepore, Chief Financial Officer]

I think that's about $600 million in total right now.

[Mario Mendonca, MD & Research Analyst]

You go from $600 million to $350 million, but your interest expense guidance is down very, very modestly. So -- and maybe this isn't the right time to get into it, but the $15 million it just doesn't -- I don't quite understand it because your debt is a lot more.

[Steven K. Hudson, CEO & Executive Director]

Yes. Mario, why don't we come back? It has to do with how you treat the hybrid, which will be the form of financing for the pref. So when it -- if it's okay, we'll come back and do a reconciliation for you.

[Operator]

The next question comes from Jaeme Gloyn with National Bank Financial. Please go ahead.

[Jaeme Gloyn, Analyst]

Yes. I think you answered my question. I was just going to dig into the preferred shares, and it sounds like we should see some buybacks on that in 2022. So my next -- my second question was going to be the -- on the tax rate, it looks like it's going back up to the 20% range. Can you give us a little bit of color on why that's moving up higher from 17% previously?

[Michael Lepore, Chief Financial Officer]

Jaeme, it's Michael. As you imagine, with the size of the gain we're recording on this transaction, we're going to use a lot of the going to do as much tax planning to minimize the cash tax portion of the gain now, but there -- obviously, that's going to impact our rate going forward as the trade-off.

[Operator]

There are no further questions registered at this time. And this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.