The marketplace lending market has received an influx of positive news recently.
The WSJ reports that Moody’s removed Class C mezzanine bonds issued by CHAI 2015-PM1, 2015-PM2, and 2015-PM3 from downgrade review and confirmed Ba3 rating.
At the time of downgrade review in February, Moody’s cited a faster build-up of delinquencies and charge-offs than expected. Moody’s also increased the expected cumulative lifetime net loss from 8% to 12% (bringing revised estimates in-line with platform and market expectations).
As of the June 15, 2016 distribution date, losses on the CHAI 2015-PM1, 2015-PM2 and 2015-PM3 pools have reached 3.6%, 1.5% and 0.5%, respectively.
Improvement in Credit Spread on MPL ABS bonds
The ratings action was presaged by the ABS market which showed spread tightening from 1000 to 400 bps. Readers may seek to review the May month-end newsletter to see the analysis cited in the WSJ report:
Leading up to the CHAI 2016 PM-1 offering in April, the culmination of ratings actions, regulatory chatter, delinquency fears, and volatile credit markets created an inhospitable environment for new deals. The auction resulted in limited participation and wide initial pricing–10.26% coupon priced to 12.5% yield on the CHAI 2016 PMI-1 C tranche.
Investors that bought the CHAI C tranche at new issuance without any leverage would have seen about 15% price appreciation in 3 months. Investors that performed the up-front credit work and applied analytics to separate the signal from headlines were able to earn outsized returns.
Dislocation creates opportunity
Ironically, the dislocation in recent months has created substantial investor interest in MPL ABS and whole loans. The CHAI 2016-1 PM1 offering prompted investors that were historically dismissive of marketplace lending to do a double-take.
Repeat ABS investors are now looking upstream to capture additional whole loan economics.
Large asset managers with double-digit return objectives in a negative to low rate world are looking to strike bargains with platforms. There is still much more to be done. Nevertheless, the climate for establishing relationships with platforms may be as good as ever.
- PeerIQ will speak at the AltFi Global Summit on September 14th in New York.
- PeerIQ will attend and speak at IMN’s ABS East Conference in Miami on September 18-20th.
- CEO, Ram Ahluwalia will speak on a panel at the Alternative Lending Summit in Dana Point, CA on September 28th.
- LendingClub Names BlackRock’s Dunne Chief Capital Officer (Bloomberg, 7/18/16) Lending Club stock price jumps after hiring former BlackRock COO Patrick Dunne.
- Moody’s Decides Against Downgrade for Prosper Marketplace Loan Deal (WSJ, 7/15/16) Moody’s removed a downgrade warning on bonds sold by Citigroup and backed by online lender, Prosper.
- Investors Soak Up Surging Supply (AB Alert, 7/15/16) Investors readily absorb influx of asset-backed bond deals.
- Jefferies, LendingClub Said to Eye Revival of Scuttled Bond Sale (Bloomberg, 7/14/16) Jefferies is considering selling bonds backed by Lending Club and Online lender Marlette Funding has hired Goldman Sachs to underwrite a securitization of its own.
- Funding Circle Hires Nomura Man Who Designed Toxic-Asset Program (Bloomberg, 7/13/16) New Funding Circle CFO, Jeremy Bennett, led rescue program for crippled British banks.
- House Financial Services Committee Schedules Hearing on Marketplace Lending (CrowdFundInsider, 7/11/16) Meeting entitled, “Examining the Opportunities and Challenges with Financial Technology (Fintech): The Development of Online Marketplace Lending,” took place on Capitol Hill on Tuesday, July 12th.
- PeerIQ发布美国网贷资产证券化报告 称美网贷ABS正在回暖 (p2p.hexon.com, 7/7/16) PeerIQ’s P2P Securitization Tracker indicates that the U.S. ABS Market is recovering.
- Charles Minard’s visual depiction of Napoleon’s losses during the Russian Campaign of 1812.