In an industry first, SoFi received a AAA rating from Moody’s on its most recent securitization offering.

Why the Higher Rating?


Unlike prior SoFi securitizations, the latest deal utilizes a sequential pay rather than a pro-rata structure. Furthermore, SoFi utilized the A2A/A2B time tranching structure to accommodate the needs for duration matching for various senior noteholders.

The key difference is that in sequential pay structures no principal is allocated to the subordinate classes until senior noteholders are paid in full. In contrast, pro-rata structures pay each tranche a proportionate share of collateral cashflow through the life of the deal.  The pro-rata structure maintains the leverage of the transaction since the the percentages of credit enhancement available to various tranches will be constant.  A pro-rata structure offers no greater protection to the senior classes than to junior pieces.  Moreover, it also offers no additional protection for senior noteholders if the collateral underperforms against initial expectation.

The sequential pay structure in SoFi 2016-B allows for trapping excess spread during the first six months and thereafter under certain collateral performance conditions.  Specifically, the Class A notes (A1, A2A, and A2B) enter into full turbo principal amortization if a set of pre-defined performance triggers are breached or if credit enhancement deteriorates.  The subordinate Class B will be locked out if the rolling six-month average deferment or forbearance rate is greater than 8.0%, or the cumulative default rate exceeds 4.0% of the initial pool balance.  SoFi 2016-B permits structural flexibility to insulate senior noteholders from unexpected collateral performance issues.  This deal shows that MPL securitization is growing in sophistication to meet the investors’ demands for appropriate risk and reward trade-off.

The Class A notes have 16.92% of over-collateralization on closing. Given the baseline cumulative loss assumption of 4.25% (DBRS), a AAA break-even stress analysis shows 5.47x protection on the A tranche and 4.68x for the B tranche. Furthermore, DBRS is also more conservative on prepayment speeds.  The deal can withstand approximately 23% in cumulative losses – a substantial amount of protection given base case assumptions.


Borrowers in SoFi 2016-B have higher incomes and monthly cashflows than previous deals.


Management Team and Financials

Ratings agencies cited the multiple warehouse lines, balance sheet, access to bank funding, improved financial position, repeat issuance, and strength of the management team as additional drivers of the rating.

Our Observations

  • SoFi has established a pattern of repeat, standardized, programmatic issuance. SoFi 2016-B is SoFi’s ninth securitization–a remarkable level of pace and consistency for a company that started operations in 2011.
  • SoFi has broadened its brand in the global ABS market. The AAA rating will expand the eligible universe of ABS investors to ratings-sensitive pensions and endowments (many of which have limitations on purchasing whole loans). The deal included 38 investors across Europe and Asia and a third of investors are new participants.
  • We note that Moody’s cumulative loss assumption is 4.9% vs. 4.25%–a significant variance for high quality student loan paper reflecting the need for more data and analytics.

We believe platforms (marketplace, balance-sheet, or hybrid) that can efficiently transform loans into securities and convey risk into the capital markets will substantially de-risk their funding objectives.


  • CEO, Ram Ahluwalia, will join a panel discussion entitled, “Alternative Lending Securitization and Similar Capital Sources,” on June 9th in New York—RSVP here.
  • PeerIQ will be in Miami for the ABS East Conference in Miami September 16-18.

PeerIQ Mentions:

Industry Update:

  • Why I am Keeping My Money in Lending Club (LendAcademy, 5/18/16) Peter Renton provides perspective on Lending Club—he remains confident in the LC business model and considers the recent events isolated incidents, not systematic problems.
  • The Lending Club Distraction (WSJ, 5/18/16) Marketplace lending business model offers a critical source of competition in credit markets that badly need it.