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.