Bloomberg First Word by Adam Tempkin (June 6, 2016)

Existing marketplace lending (MPL) ABS investors are eager for more deals in the secondary mkt, according to PeerIQ monthly update published June 5.

  • MPL ABS credit spreads continued to tighten in the secondary
    following the LendingClub (LC) headline-news disclosure
    event and earnings announcement
  • Behavior of MPL ABS credit spreads was in sharp contrast to
    volatility observed in the LC stock price
  • NOTE: PeerIQ is a credit risk analytics firm serving the
    peer-to-peer lending sector
  • In order to gauge credit investors’ response to May 9 LC
    event, PeerIQ looked at quoted secondary spreads on several
    CHAI and SOFI deals: CHAI 2015-PM2, CHAI 2015-PM3, CHAI
    2016-MF1, and CHAI 2016-PM1; SOFI 2013-A, SOFI 2014-B, SOFI
    2015-B, SOFI 2015-C, SOFI 2016-A
  • NOTE: CHAI shelf has historically consisted principally
    of unsecured consumer installment loans issued by
    Prosper. SoFi shelf consists of student loans; student
    loans are non-dischargeable and have substantially
    different default, prepayment characteristics and loan
    terms as compared to consumer loans, “so we should
    limit our conclusions accordingly,” PeerIQ says
  • Most actively quoted parts of CHAI capital structure are
    the Class B and C sub tranches; fewer quoted
    observations on senior tranches owing to short duration
    of these bonds
  • In contrast, SoFi senior pieces, A, A1, and A2’s
    frequently appear on dealers’ inventory and quote sheets
    and the B’s exhibit limited trading
  • Credit spreads in the secondary continued to tighten post-
    May 9
  •  When looking at spreads by tranche, tightening is most
    prevalent for the riskiest CHAI C bonds, indicating
    reduction in mat’s expectations of cumulative losses
  • SoFi senior tranche has tightened substantially and its
    current levels are the tightest seen
  • Tightening is “welcome news — it affords SoFi the
    ability to extend even lower rates to consumers and
    increase their effective net interest margin”
  • The base of participating ABS investors in SoFi’s last
    deal, SOFI 2016-B, has expanded considerably and
    includes 38 investors across Europe and Asia; “Broader
    mkt acceptance and interest is lowering the yield”