Fintech Pagaya Closes on ABS $200 Million, Tops $500 Million in Total Issuance: “Pagaya Pulse” Uses AI to Deliver Returns

Pagaya has closed on a $200 million consumer credit asset-backed security (ABS) fully-managed by its AI. This transaction is Pagaya’s largest to-date and the fourth this year, bringing the Fintech’s issuance to $515 million in the first nine months of 2019, according to a note from the company.

Pagaya is a global Fintech using artificial intelligence (AI) to “reshape asset management” all actively managed by Pagaya’s AI. Pagaya’s technology platform, Pagaya Pulse, runs on a suite of AI technologies to deliver a high and scalable performance edge consistently, claims the company.

This newest securitization places Pagaya as a top ten issuer under the category of Estoteric Consumer & Marketplace Loans, according to data from Finsight.

Gal Krubiner, Pagaya’s CEO and co-founder, commented on the news:

“It’s exciting to see this kind of innovation play so well in the ABS space. We’re seeing huge demand from institutions looking for better returns in this low-rate climate while not overexposing themselves. Our technology opens up a huge world of opportunity in an otherwise limited space.”

Pagaya explains that their team of data scientists, AI specialists and finance experts have built AI to analyze millions of data points and select individual loans instead of securitizing a pool of previously assembled assets to unlock more low-risk opportunities for institutional investors. The company says it is considering new asset classes that would benefit from AI-driven underwriting.

Marshall Insley, Co-Head of Securitized Products, Cantor Fitzgerald, said they are very excited with the development of the PAID shelf:

“… we’ve had a lot of success helping to expand their audience. We hope to continue to grow this partnership and develop Pagaya’s offerings going forward,” said Insley.

Pagaya has focused on fixed income and alternative credit offering a variety of discretionary funds to institutional investors, including pension funds, insurance companies, and banks. The company was founded in 2016 and has offices in New York and Tel Aviv. Pagaya most recently raised $25 million in series C funding led by Oak HC/FT.

[easy-tweet tweet=”Pagaya is a global #Fintech using artificial intelligence (AI) to reshape asset management” template=”light”]

College Ave Student Loans Completes $300 Million Securitization of Private Student Loans

Student loan marketplace, College Ave Student Loans, announced on Tuesday it has completed a $300 million securitization of private student loans, its third securitization and largest to date. According to College Ave, the transaction was oversubscribed attracting a broad and diverse group of repeat investors and new participants. Barclays and Goldman Sachs were joint lead underwriters on the transaction with Barclays serving as structuring agent and sole bookrunner.

Speaking about the securitization, Joe DePaulo, CEO and Co-Founder of College Ave Student Loans, stated:

“In our five years in the market, College Ave Student Loans has built and continues to have a strong reputation among the investment community. The successful third securitization and higher ratings from DBRS and S&P further confirms the outstanding quality of our assets and portfolio.”

College Ave went on to add that to date, College Ave Student Loans has $660 million in securitized loans and the company has secured more than $2 billion of committed loan purchasing power from multiple sources.

LendingPoint Completes $178 Million Inaugural Personal Loan Securitization

LendingPoint announced on Wednesday it has closed its inaugural securitization of consumer loans. The company reported that the securitization, LendingPoint Receivables Trust 2019-1 (LDPT2019) issued a total of  $177.85 million of notes backed by a pool of $187.22 million of direct-to-consumer loans originated on the LendingPoint platform.

“The LendingPoint Receivables Trust securitization was rated by Kroll Bond Rating Agency, Inc. and includes $117.76 million of Class A notes rated “A-“, $24.74 million of Class B notes rated “BBB-“, $23.68 million of Class C notes rated “BB-” and $10.67 million of Class D notes rated “B-.” The notes priced at a blended yield of 4.05% per annum and provided for a 95% advance rate. The transaction has a 5% overcollateralization Deposit and a 5% overcollateralization Target. The risk adjusted yield of the receivables securing the notes is expected to be 13.14% per annum.”

While sharing more details about the securitization, Tom Burnside, CEO of LendingPoint, stated:

“We are very pleased that our first securitization received such an enthusiastic response from the ABS market. The strong rating report, the efficient deal structure, and the attractive pricing all validate our decision to focus first on credit as the initial step on our mission to revolutionize and democratize commerce.”

LendingPoint went on to add that since making its first loan in 2015 its platform has helped fund more than $1.4 billion of personal loans to more than 125,000 borrowers nationwide.

Funding Circle Announces Completion of $198 Million ABS Securitization

Marketplace lending company Funding Circle (LSE:FCH) announced on Wednesday it has completed its first asset-backed securitization (ABS) of US small business loans originated through its platform. According to Funding Circle, a total of $198 million was raised through the securitization, which marks “the debut of Funding Circle’s US securitization sponsorship capability,” as well as it is the fifth securitization of Funding Circle business loans globally.

Funding Circle lobby

Funding Circle also reported that the transaction is rated by two ratings agencies, with its senior tranche earning an A- (sf) rating from Kroll Bond Rating Agency and an A3 (sf) rating from Moody’s Investors Service. It was revealed that the oversubscribed transaction saw a demand from 18 institutional investors, ranging from asset managers and private credit funds to insurance companies and sovereign wealth funds.

While sharing more details about the securitization, Bernardo Martinez, Funding Circle U.S. Managing Director, stated:

“Funding Circle’s inaugural US securitization is a major milestone in our journey to build the infrastructure where any institutional investor can efficiently lend to small businesses. With our global securitization program and sponsorship capability, we’re proud to expand access to a traditional fixed income asset class for new types and styles of investors, while also providing diversified funding for small businesses to grow and drive the economy forward.”

Bernardo Martinez

The completion of the securitization comes less than two weeks after Funding Circle announced it has lent over $10 billion since launch in 2010. At the time of the announcement, Martinez revealed:

“We are incredibly proud that Funding Circle has become small business’ first choice for loans. We look forward to continuing to build on the strong foundations we have put in place to help many more businesses in the years ahead.”

Funding Circle further explained it has facilitated loans from over 90,000 investors to 72,000 small businesses and it manages a loan portfolio of $3 billion (£2.5 billion) in the UK, $1 billion in the U.S., and an additional $175 million (€156 million) and $129 million (€115 million) in Germany and the Netherlands

LendInvest Completes £259 Million Securitization Transaction

LendInvest, a UK-based online marketplace for mortgages, announced on Monday it has securitized £259 million of UK prime Buy-to-Let mortgage loans in an oversubscribed RMBS transaction. LendInvest claims it is the UK’s first marketplace platform to securitise its own assets and the securitization received an AAA rating (for 83% of the securitization) from both Moody’s and Fitch, the global credit rating agencies.

“The securitization is part of a strategy being executed by LendInvest to continue to drive down its cost of capital, and continue its move towards the mainstream mortgage market. The senior tranche for the inaugural issue was priced at 130bps over SONIA. In addition to reducing the cost of funding, the process frees up LendInvest’s capacity to fund future Buy-to-Let mortgage loans as the company continues to win market share from traditional bank lenders.”

Christian Faes, Co-Founder and CEO of LendInvest, stated:

“This is a significant milestone for LendInvest. This securitisation provides us with funding that is cheaper than if we were a small deposit-taking bank, and proves out our business model and its scalability. We are building a new type of financial services business that can properly take on and challenge the banks in this market. The securitisation received strong support from the market, with new institutions coming into the fold, and buying loans originated through the LendInvest platform.”

The news notably comes just after LendInvest raised £200 million from HSBC to launch its first homeowner loan product, and after the company reported a fifth year of profitable growth for the twelve months to 31 March 2019.

LendInvest added it has lent more than £2 billion to date, successfully disrupting the UK mortgage market by providing attractive products to both borrowers and investors by employing technology which provides a superior customer experience.

Credibly Announces Investment Grade Senior Debt Offering

Less than six months after announcing the first rated securitization of its receivables portfolio, Credibly, a small and medium-sized business lending platform, announced the next phase in its balance sheet growth strategy by launching a $10 million investment grade-rated senior debt offering. The transaction closed late last month.

Credibly reported that it and its products have been exceeding expectations for years and securitizing its portfolio provides a means to significantly lower its cost of capital and compete more aggressively in the SMB lending space. The $61 million asset-backed transaction announced in November is expandable to $237.5 million to support the company’s anticipated growth but was only the first phase of its funding strategy. Michael Seneski, CFO of Credibly, stated:

“We are proud of our growth, profitability, and the performance of our assets. Solidifying the strength of our balance sheet with this $10 million Senior Debt Offering is the next step in continuing our aggressive growth trajectory.”

Credibly also revealed the Senior Debt Offering was deemed investment grade quality by SEC-registered Egan-Jones Ratings Company, reaffirming Credibly’s abilities as both an originator and a servicer. The rated issuance further lowered the company’s cost of capital, which will strengthen its financial position and help to fund continued growth and profitability. Ryan Rosett, Founder and Co-CEO of Credibly, went on to add:

“This is a major milestone. The investment grade rating shows that we can continue to scale our operations while maintaining reliable, stable, and predictable performance, while financing businesses which would typically be overlooked.”

Kabbage Completes $700 Million Securitization

Global financial service platform Kabbage announced on Monday it has closed a $700 million securitization. The company claimed it was the largest asset-back securitization (ABS) by a small business online lending platform to date.

According to Kabbage, the oversubscribed transaction saw strong demand from both new and existing institutional investors, further demonstrating the market’s continued confidence in the strength of Kabbage’s platform. Kabbage also reported that to date, it has helped more than 170,000 small businesses access over $6.5 billion in funding via its automated underwriting models which analyzes the live business data of customers to provide a funding decision in minutes. Kabbage explained:

“The most senior class of the five-tranche transaction earned a AA(sf) rating from Kroll Bond Rating Agency, representing the highest ABS rating earned by a small business online lending platform for a three-year facility. The transaction also reduces the company’s cost of funds compared to its existing ABS by more than 100 basis points.”

Speaking about the latest milestone, Kabbage CFO, Scott Rosenberg, stated:

“The new ABS and AA(sf) rating is a testament to Kabbage’s proven and real-time approach to responsibly provide credit access to small businesses. The new transaction positions the company for continued milestone growth as small businesses accessed more than $2 billion through Kabbage last year and more than $600 million already in the first quarter of 2019.”

Kabbage went on to add that the securitization brings its current debt funding to $940 million, including other existing bilateral credit facilities. The transaction is issued by Kabbage Asset Securitization LLC, a wholly-owned subsidiary of Kabbage, Inc., and a majority of its proceeds were used to pay down an existing asset-backed securitization transaction.

Online Lender Upgrade Closes $225 Million Securitization backed by Personal Loans

Upgrade, an online lender in the consumer credit sector, has closed its second securitization of personal loans. Upgrade Receivables Trust 2019-1 (UPGR 2019-1) issued $225 million in notes backed by personal loan assets facilitated through the Upgrade platform.

The Upgrade Receivables Trust securitization was rated by Kroll and includes $140.5 million of Class A notes rated “A (sf)”, $23.8 million of Class B notes rated “BBB (sf)”, $31.2 million of Class C notes rated “BB (sf)” and $31.2 million of Class D notes rated “B- (sf).”

According to a note from Upgrade, Jefferies was the lead and Barclays and Credit Suisse were co-leads. Upgrade reportedly contributed collateral to the transaction and, as the sponsor of the transaction, served as the risk retention party. Upgrade says the transaction was “significantly oversubscribed.”

Renaud Laplanche, co-founder and CEO of Upgrade, said they are pleased with the deal and the fact that it attracted so many institutional investors thus allowing them to provide “attractive term financing” to their whole loan investor base.

“Our team’s ability to continue to deliver strong underwriting and solid performance will enable Upgrade to further diversify and scale capital across the platform for long-term growth,” said Laplanche.

Mike Wade, Head of Capital Markets at Jefferies, said they were extremely pleased to have been the structuring lead.

“With multiple tranches significantly oversubscribed, $1.5 billion in orders, 26 unique investors (including many new investors that did not participate in Upgrade’s inaugural ABS transaction), and the opportunity to continue to establish the Upgrade securitization program, we are happy to have helped Upgrade achieve this highly successful and marquee transaction.”

Upgrade said it intends to do quarterly securitizations.

Since launching in April 2017, Upgrade has helped fund more than $1.4 billion of personal loans to more than 125,000 borrowers.

Juncker Plan: €360 Million Investment for Spanish SMEs will Use Hyperledger Blockchain Tech

The European Commission (EC) recently announced a European investment plan designed to boost access to capital to Spanish SMEs and “midcap investment projects.” The plan is for the European Investment Bank Group and BBVA to provide €360 million for these smaller businesses. A €60 million “synthetic guarantee” will be used to aid the project. The plan is the first synthetic corporate loan securitization transaction in Spain by the EIB Group and BBVA and the first one said to be supported by blockchain technology.

This most recent agreement is being facilitated by the European Fund for Strategic Investments (EFSI). The EFSI is described as a “central pillar” of the Investment Plan for Europe, dubbed the “Juncker Plan”. The goal is to provide financing to riskier firms (read early stage) and thus create jobs and boosting innovation and competitiveness.

The “Juncker Plan”, is said to be one of the EC’s top priorities. It focuses on boosting investment while removing obstacles to investment and providing visibility and technical assistance to investment projects.

The EU explains that blockchain “offers a better client experience by automating the negotiation process and minimizing operational risks, thanks to the inherent characteristics of this technology.”

The distributed ledger technology or “DLT” platform built by BBVA was used by the three parties to negotiate the agreement, from the origination to the agreement signing. The EU states that this ensured traceability and immutability. All the negotiation was recorded on the permissioned blockchain Hyperledger, while a hash or unique identifiers of the signed agreement were recorded on Ethereum.

European Commission Vice-President Jyrki Katainen, responsible for Jobs, Growth, Investment and Competitiveness, welcomed the agreement and the ability of Spanish SMEs to access needed capital for growth:

“They will join over 850,000 other small and medium-sized businesses who are already expected to benefit from the Investment Plan across Europe.”

Carlos Torres, CEO of BBVA, said that BBVA is committed to boosting the growth, competitiveness and digitization of the Spanish SMEs.

“In addition, we are proud of the DLT platform developed in-house by BBVA, which was used to negotiate this agreement.”

CMU: Common Securitization Rules Kick in on January 1st in the European Union

As part of the Capital Markets Union (CMU), updated rules for securitization will commence on January 1st, 2019 in the European Union (EU). The new “harmonized” rules are designed to streamline the process of financial services firms to leverage securitization to boost access to capital.

Securitization is when a financial instrument is created by pooling assets for investors to more easily  purchase. Securitization is widely utilized both in Europe and in other countries but EU member states presently do not have equivalent rules thus creating unnecessary friction to the process.

According to the EU, the Securitisation Regulation creates common rules and sets the criteria for “simple, transparent and standardized (STS) securitization in the EU.” The updated rules are expected to make it easier to issue and invest in securitizations in the EU and will “help ensure financial stability and investor protection.”

Commenting on the new rules, Valdis Dombrovskis, Vice-President responsible for Financial Stability, Financial Services and Capital Markets Union, stated:

“This legislation is one of the cornerstones of the Capital Markets Union, the Commission’s pivotal project to build a single market for capital in the EU. It will help build a sound and safe securitisation market in the EU, bringing real benefits to investment, jobs and growth. It will free up bank lending so that more financing can go towards supporting our companies and households.”

The EU Capital Markets Union is core to the concept of a single European market. While conceptually simple, the reality has been slow to materialize.

The Commission has a stated mission of breaking down barriers that are blocking cross-border investments in the EU to make it easier for companies and infrastructure projects to get the finance they need, regardless of where they are located.

CMU also seeks to create opportunities for investors with deeper integration and more competition.

BBVA & EIB Group Sign Synthetic Securitization in Blockchain of €1 Billion

BBVA and the European Investment Bank Group (EIB) announced on Thursday they have signed a synthetic securitization of €1 billion. According to the duo, this agreement is an innovative financing operation and it is claimed the first synthetic securitization to be supported by blockchain technology in the European Union (EU) and the third synthetic corporate loan securitization signed by the EIB Group and BBVA. Along with the agreement, BBVA and EIB Group are set to provide €360 million to finance investments projects of SMEs and midcaps.

“The agreement has been possible thanks to the support of the European Fund for Strategic Investments (EFSI). EFSI is the central pillar of the Investment Plan for Europe, known as the “Juncker Plan”. Its support increases the EIB Group’s capacity to finance investment projects that, in line with the Plan’s criteria, involve activities that by their structure or nature have a higher risk profile but which foster firms’ competitiveness and create jobs.”

While sharing more details about the agreement, EIB Vice President, Emma Navarro stated:

“We are delighted to support the EIB Group’s third mezzanine guarantee operation in Spain  Thanks to our partnership with BBVA, Spanish SMEs will be able to benefit from the advantages of our financing. This agreement combines EIF’s and EIB’s resources under the Juncker Plan to increase BBVA’s support for Spanish businesses, fostering job creation and economic growth”.

EIF’s Chief Executive, Pier Luigi Gilibert, also commented:

“SME synthetic securitisation agreements are deployed by a number of European banks to provide regulatory capital relief. EIF is pleased to be working with BBVA and the EIB to allow BBVA to provide additional access to finance for Spanish SMEs. Joint EIB and EIF support via EFSI funds offer a competitive solution for BBVA which will serve to boost the supply of finance in the real economy”.

The CEO of BBVA, Carlos Torres, then added:

 “BBVA is committed to boosting the growth, competitiveness and digitization of the Spanish SMEs. In addition, we are proud of the DLT platform developed in-house by BBVA, which was used to negotiate this agreement.”

CommonBond Completes Another AAA Securitization of $399.2 Million In Total Loans

CommonBond, an online lending platform servicing the student loan market,  announced on Thursday it has completed another securitization of $399.2 million in total loans.

According to CommonBond, the securitization received AAA ratings from Moody’s and DBRS. The transaction was the lender’s eighth and brings its total securitized loan amount to approximately $2.0 billion. Goldman Sachs served as structuring agent, co-lead manager, book-runner, and co-sponsor for this securitization. Barclays, Citi, and Guggenheim Securities also served as co-lead managers and book-runners on the transaction.

CommonBond also reported that the structure included a unique feature called “prefunding,” which enables the lender to add loans to the securitization after its close. CommonBond is the first private lender to prefund a student loan refinance securitization in the modern financial era. CommonBond prefunded approximately $80 million worth of loans as part of the deal. David Klein, CommonBond CEO and Co-Founder, stated:

“Pre-funding allows us to provide investors with more size and certainty, while at the same time add flexibility to our own funding model, in a way that is differentiated from others in the market. This is a key milestone in our securitization program, and powers even more liquidity in the name, stability in the program, and consistency in performance.”

CommonBond then added that this securitization marks continued growth for CommonBond, which will originate more than $1 billion in 2018. The lender previously raised $3 billion in debt funding and more than $130 million in equity to date.

Upgrade Securitizes $282 Million of Personal Loans

Online lender Upgrade, Inc., has closed on its inaugural securitization of personal loans. According to the Fintech, Upgrade Receivables Trust 2018-1 (UPGR 2018-1) issued approximately $282 million in notes to nearly 20 banks and asset managers. Credit Suisse and Jefferies acted as joint lead underwriters, and Upgrade served as sponsor, servicer and administrator for the transaction.

It was not that long ago when no online lenders were securitizing baskets of loans. Today, securitization has become more routine. For Upgrade, a relatively young consumer lender, the completion of a securitization represents a significant step in establishing its platform. Upgrade stated the securitization program plans on a quarterly issuance.

Upgrade CEO and co-founder Renaud Laplanche, said they were thrilled with the success of the transaction.

“Our securitization program is designed to provide liquidity and a lower cost of funds to our loan buyers through a standardized issuance program. We believe this rated securitization program is the ideal complement to our marketplace approach whereby banks and asset managers can buy consumer loans and personal credit line balances on an on-going basis.”

The Upgrade Receivables Trust securitization was rated by Kroll Bond Rating Agency, Inc. and includes $184.5 million of Class A notes rated “A (sf)”, $32.1 million of Class B notes rated “BBB (sf)”, $28.0 million of Class C notes rated “BB (sf)” and $37.5 million of Class D notes rated “B (sf).”

Since launching in April of 2017, Upgrade reports having originated over $1 billion in loans. The online lender has raised approximately $142 million in equity capital to fuel its growth.

Upgrade employs over 300 team members and is headquartered in San Francisco, California, with an operations center in Phoenix, Arizona and technology centers in Chicago, Illinois and Montreal, Canada.

College Ave Student Loans Announces Completion of Second Successful Securitization

Student loan marketplace, College Ave Student Loans, announced on Tuesday it has completed a $199 million securitization of private student loans, its second successful securitization. According to the platform, the CASL 2018-A transaction completed over the summer, achieved higher ratings than College Ave’s inaugural securitization, receiving an ‘AA’ rating from DBRS and an ‘A’ rating from S&P for its senior notes. 

According to College Ave, the transaction was heavily oversubscribed attracting a broad and diverse group of repeat investors and nine new participants. Barclays and Credit Suisse were joint lead underwriters on the transaction with Barclays serving as structuring agent and sole bookrunner. Speaking about the securitization, Joe DePaulo, CEO and Co-Founder of College Ave Student Loans, stated:

“In its four years in the market, College Ave Student Loans has built and continues to have an incredible reputation among the investment community. The successful second securitization and higher ratings from DBRS and S&P further confirms the outstanding quality of our assets and portfolio.”

College Ave then added that based on the two successful deals, the marketplace anticipates it will offer an asset-backed bond opportunity at least annually. The securitization also marks a year of growth for College Ave Student Loans. To date, the company has secured more than $2 billion of committed loan purchasing power from multiple sources.

Online Lender CommonBond Issues 2nd AAA Rated Securitization

Online lender CommonBond has issued its second AAA rated securitization from Moody’s and DBRS. This is the largest securitization for CommonBond yet at $292 million of total collateral. This was the second securitization for 2018 and the 7th overall bringing the total to $1.5 billion.

CommonBond said a mix of new and pre-existing investors participated in the transaction.

Goldman Sachs served as structuring agent, co-lead manager, book-runner, and co-sponsor for this securitization. Barclays, Citi, and Guggenheim Securities also served as co-lead managers and book-runners on the transaction.

Additionally, CommonBond noted that Moody’s recently upgraded six senior tranches in three CommonBond securitization to AAA ratings. DBRS also upgraded 12 tranches in four securitizations this spring.

The securitizations are said to be indicative of ongoing growth and demand for the Fintech’s products. CommonBond refinances loans to college graduates, new loans to current students, and provides  multiple student loan repayment benefits to employees through its CommonBond for Business program.

Sam Luk, head of capital markets at CommonBond, said the company is maintaining a strong track record credit performance.

“We continue to generate high-quality assets, which has encouraged the expansion of our investor base. We also remain committed to serving as a programmatic issuer, and consistently providing best-in-class products to consumers, partners, and investors.”

The company announced a $50M Series D equity funding round in March and has secured over $3B in lending capacity. Fast Company named CommonBond one of the World’s 50 Most Innovative Companies in 2018.

White Label Loan Origination Platform INSIKT Secures $25 Million Social Bond Securitization

INSIKT (pronounced “in-seekt”), a Lending as a Service (LaaS) company, announced on Tuesday it has completed a $25 million social and securitization. The company has completed 15 private market securitization issuances for a total of $247 million.

As previously reported, INSIKT was founded in 2012 by Progreso Financiero founder James Gutierrez and is described as a white label loan origination and investing platform that enables any brand to lend to its customers and any accredited investor to invest in consumer loan portfolios. INSIKT reported it closed its seventh micro-securitization of $25 million in June backed by more than 20,000 of its responsibilities, credit-building loans, for an aggregate of $145 million in less than two years. This is in addition to the eight prior issuances totaling $102 million that INSIKT closed from 2013 to 2016.

The company also revealed that these were backed by loans purchased from third parties in order to establish the company’s proprietary securitization capability. Gutierrez, also CEO of INSIKT, stated:

“With fifteen successful bond issuances behind us, we’ve established a new securitization platform that helps banks, foundations and social impact investors recycle capital back into our low-income communities. INSIKT’s approach is a game changer for the social capital world that allows us to expand our loan-making services to people in need at increasingly lower costs.”

INSIKT went on to add that to date, it has provided hundreds of thousands of loans to low-income households in the U.S. and has helped improve credit scores for those who take a second loan, by an average of 312 points.

Online Lending in Risk On Mode: Unprecedented 21 Months of Non Stop Securitization Issuance

PeerIQ has just published their quarterly marketplace lending securitization tracker. The periodic report gauges activity in the online lending sector providing an interesting barometer of industry sentiment and investor activity.

The most recent report stated that PeerIQ has observed an “unprecedented 21 months of non-stop issuance. Markets remain in a “risk-on” mode and MPL investor appetite continues to grow. This is a very bullish statement for online lenders coming at a time when interest rates are rising as is competition in the sector is increasing. During Q1, securitization hit $4.3 billion – a 34% increase year over year and the second highest quarter ever.

CI hopped on the phone for a quick call with founder and CEO Ram Ahluwalia and PeerIQ Head of Research Ashish Dole. The activity in the ABS market was described as pretty incredible;

“It would have to be pre-crisis when we last saw this type of activity,” said Dole. “It is extremely interesting with a new asset class. The market is getting more comfortable with this type of asset. “Also the ratings agencies are continuing to revisit their ratings and a lot of [51 student and 33 consumer] have have seen their ratings upgraded.”

During the quarter, SoFi issued the largest consumer and student deals ever seen in the marketplace lending space. SoFi continues to increase deal sizes every quarter after quarter.

SoFi is leading the way for students and consumer lending, according to PeerIQ. SoFi has built a “customer acquisition machine.” SoFi has done an excellent job of leveraging the employer channel positioning their offerings as an employee benefit. This has been the surprise winner. But it is not just the employer network. Direct mail has been very reliable and mass market promotion has been doing very well too.

[clickToTweet tweet=”SoFi has built a ‘customer acquisition machine.’ SoFi has done an excellent job of leveraging the employer channel positioning their offerings as an employee benefit #OnlineLending #FIntech @PeerIQNews” quote=”SoFi has built a ‘customer acquisition machine.’ SoFi has done an excellent job of leveraging the employer channel positioning their offerings as an employee benefit #OnlineLending #FIntech @PeerIQNews”]

Ahluwalia and Dole said that traditional financial players are entering the market in a couple of different strata. There are the large money center banks that are building out their lending capabilities with some partnering with tech companies. Then you have the regional banks.

All of these banks are waving their origination fees which is putting pressure on the revenue model of Fintechs.

As for Fintechs, they are responding by creating new types of products and deepening their relationship with the borrowers. LendingClub was mentioned with their new exchange traded product. New market entrant Upgrade should join in the ABS ride.

And what about big tech and their turbo charged data points and low cost of customer acquisition? Will big tech challenge both established Fintech and traditional finance with better, faster, cheaper models?

“You are seeing big tech recognize the lending opportunity,” said Ahluwalia. “They are partnering in cases where they lack a regulatory swim lane. Amazon is partnering with banks on small business credit cards. In other areas they are going after it directly. For example, there are rumors that Amazon is launching a non-bank commercial mortgage lender.”

What about risk?

There is the potential for an error in interest rate policy. The Fed is walking a fine line of maintaining growth while keeping inflation in check. Too much, or too little, one way of the other, could sideline the economy. Smooth sailing so far – though. But the added twist of global trade disruption and the never ending debate on byzantine regulation may deliver a volatile credit model during 2018.

As for big tech (or even Fintech’s) the problem remains the same.

“What they lack is a regulatory framework which to compete nationally,” said Ahluwalia.

That’s a problem that is not going away anytime soon unless Congress acts. Good luck with that.

Online Lender CommonBond Receives First AAA Rated Securitization

 

CommonBond, an online lending platform servicing the student loan market, has received its first triple A rating for securitization. Moody’s has assigned provisional ratings of (P)Aaa (sf) to Class A-1 and A-2 notes to be issued by CommonBond Student Loan Trust 2018-A-GS (CBSLT 2018-A-GS). DBRS rated the loans AAA as well. The transaction was CommonBond’s sixth securitization at $233.75 million bringing the total to $1.22 billion.

The Commonbond Student Loan Trust 2018-A – GS were segregated into $155,552,000 Private Credit Student Loan Backed Class A-1 Notes and $47,946,000 Private Credit Student Loan Backed Class A-2 Notes. Moody’s expects cumulative net loss for the loan pool of 2.0%. The solid provisional ratings were given due to “over-collateralization” and multiple other justifications. Moody’s has also issued a research on the securitization.

CommonBond is a Fintech company with a mission to give students and graduates more transparent, simple, and affordable ways to pay for higher education. The company offers refinance loans to college graduates and new loans to current students.

 

Prosper Releases Third Quarter 2017 Results: Loan Originations Up 164% Year-Over-Year

On Monday, leading peer-to-peer lending platform for consumer loans, Prosperreported growth in both transaction revenue and loan originations for the third quarter of 2017. The online lender claimed that the continued demand for personal loan product resulted in $822 million in loan originations through its platform, up 6% quarter-over-quarter and 164% year-over-year. Prosper also grew transaction fee revenue 5% quarter-over-quarter and 164% year-over-year and has completed $1.5 billion of securitization this year alone. While sharing more details about the third quarter results, CEO of Prosper, David Kimball, stated:

“We continued to see growth during the third quarter as people turned to Prosper’s personal loan product to refinance high-interest debt, pay for medical expenses, and finance home improvement projects. As we look to the end of the year and 2018, our ability to consistently generate positive operating cash flow along with the $50 million capital raise in the third quarter will help drive strategic investments in the company’s platform and products.”

Prosper recently closed the third securitization from the Prosper Marketplace Issuance Trust, Series 2017-3, with approximately $500 million of notes issued. Usama Ashraf, CFO of Prosper, then commented:

“We are very pleased with the success of the Prosper securitization program this year, which included three deals totaling $1.5 billion and over 45 unique investors participating.”

Prosper released the third quarter result summary:

Highlights include:

  • Prosper facilitated $822 million in loan originations through its platform, up 6% quarter-over-quarter and 164% year-over-year, driven by strong demand for its personal loan product.
  • Transaction fee revenue rose to $37.2 million, up 5% quarter-over-quarter and 164% year-over-year.
  • The company reported a Net Loss of $26.9 million in the third quarter of 2017, which included $28.1 million in non-cash charges related to warrants to purchase preferred stock that was issued to a consortium of investors and a third party in connection with a settlement agreement.
  • Prosper generated $9.9 million of Net Cash from Operating Activities and Adjusted EBITDA of $7.3 million in the third quarter of 2017.

Fitch Upgrades Select Ratings, Outlook on Prosper Marketplace ABS

Fitch has moved to upgrade ratings that impact assets originated on the Prosper marketplace lending platform. According to the rating agency, Fitch taken the following rating actions on two Citi Held for Asset Issuance trusts, which are backed by marketplace loans:

  • CIiti Held for Asset Issuance 2015-PM3 (CHAI 2015-PM3):
    • Class B upgraded to ‘A+sf’ from ‘BBB+sf’; Outlook Stable;
    • Class C affirmed at ‘BB-sf’; Outlook revised to Stable from Negative.
  • Citi Held for Asset Issuance 2016-PM1 (CHAI 2016-PM1):
    • Class A upgraded to ‘A+sf’ from ‘Asf’; Outlook Stable;
    • Class B upgraded to ‘Asf’ from ‘BBBsf’; Outlook Stable;
    • Class C affirmed at ‘Bsf’; Outlook Stable.

The rating actions are said to reflect the growth to date in hard credit enhancement (CE) available to the class A and B notes and stabilization of asset performance. Fitch increased its lifetime gross default expectations slightly to 13.7% from 13.6% for CHAI 2015-PM3 and to 15% from 14.9% for CHAI 2016-PM1.

The key ratings drivers are as follows:

Collateral Quality: The trusts consist of unsecured consumer loans that are with original terms of 36 or 60 months originated and serviced on Prosper’s marketplace online lending platform. Fitch’s gross default assumption for the life of the CHAI 2015-PM3 collateral is 13.7%, which translates to 13.7% of the current pool. Fitch’s gross default assumption for life of the CHAI 2016-PM1 collateral is 15%, which translates to 15.1% of the current pool. Fitch assumes a base case recovery rate of 7%. At the ‘A+sf’ level, a default multiple of 3.7x and a recovery haircut of 33% are applied.

Increasing Credit Enhancement: Hard CE for CHAI 2015-PM3 has grown since close from 26.5% to 62.9% for the class B notes and from 12% to 18.1% for the class C notes. Likewise, hard CE for CHAI 2016-PM1 has grown since close from 33% to 74.7% for the class A notes, from 25.1% to 53.3% for the class B notes, and from 12% to 17.9% for the class C notes. While subordination available to the class A and B notes will grow as the transactions pay down, overcollateralization (OC) is at its target release level of 16.5% for both transactions, and will not grow until it hits its floor of 2% of the initial balance, which occurs at 12.1% pool factor.

Rating Cap at ‘Asf’: Fitch placed a rating cap on the notes at the ‘Asf’ category, considering primarily the sector’s untested performance throughout a full economic cycle. History for unsecured installment loans originated via online platforms such as Prosper’s thus far has only been during a benign macro environment. Furthermore, the underlying consumer loans are likely at or near the bottom of repayment priority for consumers, since repayment does not provide the consumer ongoing utility as auto loans, credit cards and cellphone plans do. The cap only constrains the CHAI 2015-PM3 class B and CHAI 2016-PM1 class A notes.

Adequate Servicing Capabilities: Prosper will service the pool of loans, and Citibank, N.A. will act as the backup servicing. Fitch considers both parties to be adequate servicers for this pool based on prior experience and capabilities.

Fitch said that unanticipated increases in the frequency of defaults could produce loss levels higher than the base case and would likely result in declines of CE and remaining loss coverage levels available to the investments. Decreased CE may make certain ratings on the investments susceptible to potential negative rating actions, depending on the extent of the decline in coverage.

Rating sensitivities provide greater insight into the model-implied sensitivities the transaction faces when one or two risk factors are stressed while holding others equal. The modeling process first uses the estimation and stress of a base case loss assumption to reflect asset performance in a stressed environment. Second, structural protection was analyzed with Fitch’s proprietary cash flow model. The results below should only be considered as one potential outcome as the transaction is exposed to multiple risk factors that are all dynamic variables.

CHAI 2015-PM3:

  • Default increase 10%: class B ‘A+sf’; class C ‘B+sf’;
  • Default increase 25%: class B ‘A+sf’; class C ‘B-sf’;
  • Default increase 50%: class B ‘Asf’; class C ‘B-sf’;
  • Recoveries decrease to 0%: class B ‘A+sf’; class C ‘B+sf’.

CHAI 2016-PM1:

  • Default increase 10%: class A ‘A+sf’; class B ‘A-sf’; class C ‘B-sf’;
  • Default increase 25%: class A ‘A+sf’; class B ‘BBB+sf’; class C ‘CCCsf’;
  • Default increase 50%: class A ‘Asf’; class B ‘BBBsf’; class C ‘<CCCsf’;
  • Recoveries decrease to 0%: class A ‘A+sf’; class B ‘Asf’; class C ‘B-sf’.

Fitch added that given the cumulative net loss trigger structure, the class C notes of both trusts demonstrate exposure to further deterioration, and in particular to back-loaded losses. Given the short remaining life of the assets, Fitch modelled timing curves different from those described in the Global Consumer ABS Criteria. The front, even, and back curves, which are in three-month intervals, were 37.5%/37.5%/12.5%/12.5%, 25%/25%/25%/8.33%/8.33%/8.33%, and 18.75%/18.75%/18.75%/18.75%/6. 25%/6.25%/6.25%/6.25%, respectively.