Are there lessons to learn in contrasting the initial pricing of SoFi’s SCLP 2016-1 with Citi’s CHAI 2016-PM1?

Clearly, the latter executed under extremely challenging market conditions at the end of Q1. Poor market conditions explain a great deal of wider initial pricing on the CHAI 2016-PM1. Are there other non-market factors also at play?

To recap, SCLP 2016-1 was SoFi’s first rated securitization consisting of its own unsecured consumer installment loans, and its second unsecured consumer installment loan deal overall. CHAI 2016-PM1 was executed in March 2016 and was the 4th deal issued by Citi consisting of Prosper loans. We have analyzed the seminal CHAI shelf extensively in prior newsletters and in the Q1 Securitization Tracker.

Collateral Considerations

SCLP 2016-1 advantages include a much larger pool size. A large pool size and a pattern of repeat issuance expands the market. The expectation of significant repeat deal volume makes it worthwhile for buyers to commit resources; significant data and analytics investments are required to model deal economics under various prepay and default scenarios.

SCLP 2016-1 also has a higher credit quality as evidenced by higher average FICO scores, higher average incomes, and higher home ownership levels. SoFi also removed any loans that missed three payments before including in the collateral pool which is another way of demonstrating “skin in the game.”


The last CHAI deal has a shorter weighted average original term at 44 months as compared to 70 months for SCLP 2016-1. There are two benefits to shorter-term loans. First, all things being equal, shorter term loans tend to have lower losses due to selection effects. Second, the combination of short-term loans with a sequential pay waterfall creates a structure where senior bondholder risk is rapidly self-liquidating.

Indeed, the WAL of the Kroll A-rated senior bond in CHAI 2016-PM1 is approximately 1-year. Senior bond holders earn 400 bps above LIBOR for a note with 1-year life – hundreds of basis points higher than comparable duration Treasury  bills which currently fetch ~47 bps.

Excess Spread

The flip-side to the higher credit quality is that SoFi loans have a lower coupon reflecting their focus on super-prime borrowers. Lower coupons for borrowers imply lower excess spread for investors.

The higher coupons on the underlying Prosper loans creates a substantial amount of excess spread for aggregators. Excess spread represents the weighted average coupon on the collateral less weighted average coupon paid to noteholders. Excess spread is the primary economic motivation for aggregators that seek to purchase and finance whole loans via securitization. Excess spread is also an important form of credit enhancement.

The CHAI shelf has a total WAL-weighted gross excess spread ranging from 6.13% to 8.5% as compared to 3.49% for SCLP 2016-1.

Other Features

There are also several key structural and regulatory differences in SCLP as compared to CHAI:


Updated Chart 7.11


SoFi meaningfully shaped the success of its own deal as a co-manager on the deal. SoFi successfully expanded the base of ABS investors attracting global investors, including buyers whose home markets experience negative rates, and cross-marketed the consumer credit deal to 24 student loan ABS investors.

In broad brushstrokes platforms have two goals: acquire and retain borrowers at low-cost and at scale, and acquire resilient capital at low-cost and at scale. The ABS market offers an abundance of capital and secondary market liquidity. The ABS market also sets pricing for alternative distribution including banks, and influences financing costs for aggregators.

Platforms that recognize ABS investors as a core customer and invest in infrastructure to support this market–3rd party credit validation, standardized reps and warrants, expanded warehouse capacity, loan-level data and analytics, and granular remit data–are best positioned to compete and win.


  • PeerIQ COO, Kevin Reed, will speak on a panel at AltLend 2016 on July 13-14 in New York.
  • CEO, Ram Ahluwalia, and Head of Quantitative Strategies, Wilfred Daye, will participate in LendIt China, speaking on panels at the Lang Di Fintech Conference in Shanghai, China from July 17-18.

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