Bloomberg First Word by Adam Tempkin (March 3, 2016)
As marketplace-lending grows into a mainstream ABS asset class, structures are adapting to changing ratings dynamics and slightly increased delinquencies, but underwriting remains solid, said Ram Ahluwalia, CEO of PeerIQ, at a Feb. 29 ABS Vegas panel.
- Securitization volumes have grown robustly y/y in the consumer unsecured installment ABS and student loan ABS sectors
- In the last qtr, credit spreads have widened and there’s been less deal activity, particularly in Jan.; new marketplace-lending issuance started again in Feb.
- There are new entrants into the mkt because “platforms are realizing they need to compete on low-cost capital, and they need diversified funding channels and securitization can scale” and “fund the origination growth”
- Seeing increased ratings activity in this sector; transforming from a niche asset class to a mainstream asset class; “there’s a lot of relative value there compared to other mkts such as CLOs where issuance is down 50%”
- NOTE: PeerIQ is a credit risk analytics firm serving the peer-to-peer lending sector
- First-time peer-to-peer issuers are looking to build a brand in the ABS mkt; “they’re bumping up into each other on the deal calendar and that’s creating increased financing costs for them”
- Credit performance: a mild uptick in delinquencies starting early 2H 2015 of about 30bp-50bp, which is still relatively low from historical perspective
- Underwriting standards on platforms remain very high, with average FICO to origination ~700
- As a result of uptick in delinquencies, seeing changes to the capital structure; for example, a recent deal had twice the overcollateralization as prior deal
- Also seeing more innovation; for example, the CHAI shelf now includes collateral from Marlette Funding
- “Broadly speaking, investor mood is apprehensive”
- “I wouldn’t necessarily agree with that (apprehension); I’d say there’s a lot of opportunity to enjoy short duration at Libor +550 yield w/ substantial credit enhancement, which is very hard to find in the capital markets, so we remain very optimistic about the growth and the quality of securitizations in this asset class”