Marketplace Lending Securitization Tracker: 3Q2017
- This quarter saw six marketplace lending securitizations with quarterly issuance of $2.6 Bn, representing 7.6% growth in issuance over 3Q2016. To date, cumulative issuance equals $23.8Bn across 96 deals.
- We observe a remarkable 15 months of spread tightening and acceleration of the deal calendar as investors grow concerned at the possibility of policy errors or geopolitical risk. 3Q17 saw a benign macro environment and low volatility.
- Lending Club issued its first self-sponsored deal with prime loans with borrowers having FICO scores of at least 660. Lending Club expects to offer similar deals on a regular cadence.
- All deals this quarter were rated. DBRS continues to lead the rating agency league table, while Kroll dominates the unsecured consumer sub-segment. We see increased engagement from the top 3 ratings agencies, particularly Fitch, with their rating of PMIT 2017-2A.
- Goldman Sachs, Deutsche Bank, and Morgan Stanley continue to top the issuance league tables with over 49% of MPL ABS transaction volume. College Avenue, a nascent MPL student loan originator, issued its first securitization CASL 2017-A, managed by Barclays.
- Spreads at issuance are marginally tighter in the consumer space on higher rated tranches. As priced 14bps tighter on average, while Bs and Cs priced 1-2bps wider. In the student space, As priced 51bps wider, while Bs and Cs priced 46bps and 61bps wider respectively. We also observe tighter pricing in the warehouse finance market where spreads have compressed 150 to 200 bps over the last 12 months.
- Credit support requirements remain stable as rating agencies get more comfortable with collateral performance. We see deterioration in credit performance, but investors are well protected due to structural features. Demand remains robust in a “risk-on” environment.
Marketplace Lending Securitization Tracker: 2Q2017
- This quarter saw nine marketplace lending securitizations with quarterly issuance of $3.0 Bn, representing 76% growth over 2Q2016. To date, cumulative issuance equals $21.9 Bn across 92 deals.
- Multi-seller club deals and self-sponsored deals have emerged at several leading platforms. All deals were rated in this quarter, including record-sized consumer deals from SoFi, large multi-seller deals from Marlette and Prosper, and the first self-sponsored, near-prime deals from Lending Club and Upstart.
- Dealer and rating agency participation continues to intensify. Fitch rated its first Consumer MPL ever, Prosper’s PMIT 2017-1, indicating broadening acceptance across ratings agencies. Goldman Sachs, Morgan Stanley, and Deutsche Bank lead over 47% of MPL ABS transaction volume. Noteworthy is the rising presence of BNP Paribas, which co-managed CLUB 2017-NP1. DBRS leads the rating agency league table, and Kroll dominates the unsecured consumer sub-segment.
- New issuance spreads continued to tighten and flatten—a credit friendly environment for securitization. In 2Q2017, we saw spreads tighten in riskier tranches of consumer ABS, indicating strong investor appetite for MPL ABS paper in the market.
- Delinquency rates have continued to increase across in several verticals—such as subprime auto, student, and personal loans—due to exposure to riskier borrowers, a re-leveraging of consumer balance sheets, “loan stacking,” and shifting payment priority trends.
- Initial pricing is near record tight levels. Lending Club’s inaugural deal priced at Libor + 110, second only to Marlette’s MFT 2017-1 (L+100) in execution on the Class A bond. Overall, spreads have tightened with greater investor acceptance in an overall “risk on” environment.
Marketplace Lending Securitization Tracker: 1Q2017
- This quarter saw seven marketplace lending securitizations with a total issuance of $3.0 Bn, bringing cumulative issuance to date to $18.0 Bn across 80 deals.
- The movement towards rated securitizations at larger transaction sizes continues. All deals were rated in this quarter, with record-sized consumer deals from SoFi, a large multi-seller deal from Marlette, and the first prime paper deal from Lending Club.
- Dealers and rating agency participation continues to intensify. Goldman Sachs, Morgan Stanley, and Deutsche Bank lead over 55% of MPL ABS transaction volume; DBRS leads the rating agency league table, as Kroll dominates the unsecured consumer sub-segment.
- New issuance spreads continued to tighten and flatten—a credit friendly environment for securitization. In 1Q2017, we saw spreads tighten in riskier tranches, indicating strong investor appetite for MPL ABS paper in the market.
- Initial credit support continues to be stable. For the quarter, we have not seen a meaningful uptick in initial credit support for consumer MPL ABS.
- Delinquency rates have increased in several verticals—such as subprime auto, student, and personal loans—due to exposure to riskier borrowers and a re-leveraging of consumer balance sheets.
Managing Data in Marketplace Lending
- Sophisticated whole loan and ABS buyers—including large asset managers, ’40 Act funds, and banks—are funding the growth of the marketplace lending sector. They have complex portfolios and want to manage their exposures with ease.
- Inconsistent data content, formatting, and transmission practices increase diligence time, back-office outlays, and operational risks; all of which increases transaction costs and deters new capital sources from entering.
- Data best practices allow investors to more easily assess loans, enhance risk management capabilities through robust loss and prepayment modeling, and automate back-office processes— thereby reducing investment costs and other barriers to entry.
- Industry efforts to increase standardization are accelerating, led by the Marketplace Lending Association, UK’s P2P Finance Association, and SFIG, which released its Green Paper on industry standards in December 2016. This whitepaper builds on those efforts, offering additional suggestions and detailed data recommendations.
Marketplace Lending Securitization Tracker: 4Q2016
- Marketplace lending securitization issuance topped $2.4 Bn this quarter with cumulative issuance now totaling $15.1 Bn. YTD issuance of the sector stands at $7.8 Bn as compared to $4.9 Bn from prior year, a 59% increase.
- Although MPL origination volumes have declined at some platforms, the percentage of loans funded through ABS is at a record high of 70%.
- New issuance spreads continued to tighten in—a credit friendly environment for securitization. In 2016, we saw moderate spread compression across senior classes, indicating stable investor appetite for MPL ABS paper in the market.
- We estimate $6.3 Bn to $11.2 Bn MPL ABS issuance for 2017.
- Goldman Sachs, Morgan Stanley, and Citi take top positions on the league tables.
- We expect higher volatility from rising rates, regulatory uncertainty, and an exit from a period of unusually benign credit conditions.
Marketplace Lending Securitization Tracker: 3Q2016
- Total issuance topped $2.4 billion this quarter—a record—and is up 41.1% from Q2, with cumulative issuance now totaling $12.7 billion.
- Although MPL origination volumes have declined at some platforms, ABS issuance is increasing as is the proportion of loans funded by ABS.
- The movement towards rated securitizations at larger transaction sizes continues. All the deals issued in the third quarter were rated, with the exception of LCIT 2016-NP1.
- New issuance spreads continued to tighten in—a friendly environment for securitization.
- We estimate $6.0 to $10.3 billion MPL ABS issuance for 2017.
Marketplace Lending Securitization Tracker: 2Q2016
- Marketplace lending securitization volume topped $1.7 billion this quarter, up 14.8% from Q1, with cumulative issuance reaching $10.3 billion.
- New issuance and secondary spread tightened by quarter end, a good sign for the industry.
- Numerous factors, including lending platform rate increases, and spread tightening in both primary and secondary markets, look to improve future deal economics.
- The demand for higher standard of due diligence, transparency and analytics will be the norm.
Marketplace Lending Securitization Tracker: 1Q2016
- Widespread market volatility reduced the pace of marketplace lending securitizations in the first quarter of 2016.
- Consumer and Student MPL established a significant lead over SME loan segment.
- 15 new rated tranches–the most to date–as Kroll enters the market.
- Citi, with its CHAI shelf, tops our first MPL Securitization league table.
Marketplace Lending Securitization Tracker: 4Q2015
- The fourth quarter of 2015 saw an acceleration in Marketplace Lending (MPL) securitization activity despite wider credit spreads.
- Consumer MPL established a significant lead in 4Q15.
- More rated tranches.
- In the long term, this bodes well for originators as well as investors.
US Treasury RFI Submissions Survey
In July 2015, the US Treasury Department (“UST”) issued a request for information (“RFI”) to market participants on the rapidly growing marketplace lending industry. UST solicited input on a broad range of topics related to credit extension, consumer protection, data & privacy, capital markets issues, regulatory matters, and alignment of interests. We reviewed over a hundred submissions, which we summarized per the following key findings:
- We saw strong consensus on the overarching benefits of active securitization markets.
- Comments universally stood against capital-based risk retention requirements.
- Numerous marketplace lenders are committed to display loan level data and maintaining high standards of transparency
- Comments introduced several novel ideas and mechanisms for regulator consideration.
Projecting CCOLT 2015-1 Performance Under Stress
- In this note, we model the cashflows of the CCOLT 2015-1 deal under a set of base case and bear case scenarios.
- Our analysis demonstrates that under the deal structure, cash flows to liability holders remain insulated from small to medium tail risk scenarios. Liability holders breakeven in larger cum loss scenarios.
- We also conclude that certificate-holders earn an IRR between 4% to 52% depending on the severity and timing of losses. We note that the findings are sensitive to loss and prepayment timing
Marketplace Lending Securitization Tracker: 3Q2015
In this inaugural report, we unveil our Marketplace Lending Securitization Tracker:
- Securitization is an essential link in the funding chain connecting originators to institutional investors in the capital markets.
- We believe the marketplace lending securitization market will grow substantially in the years ahead.
- Now that prominent securitizations have seasoned, this first issue goes beyond the tally of listed securitizations and looks into relative performance.
- Our analysis suggests that marketplace lending securitizations are similar to other consumer credit classes, even though investor perception may differ.
- We think the perception gap may be unwarranted.