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PeerIQ Monthly Update: October 2015

By Vy Phan

November 3, 2015

A lot to cover this month so let’s get started! October usually has a surprise or two for the capital markets, and this month was no exception. Although equities have recovered from their September dip, credit spreads remain wide.  ABS sponsors have hard choices to make—pay higher financing costs or defer/cancel deals. Against this market backdrop, we note that marketplace lending platforms have evolved their financing programs in exceptionally benign credit conditions. Default rates and financing costs are as low as they have ever been.  We view the past few weeks as bluster rather than storm.  Nevertheless, the wider spreads and shelving of deals exposes the fragility of the financing chain linking platforms to the capital markets. It’s often discussed that funding continued growth will require platforms to broaden and diversify their sources of financing. We’d like to add two ideas to the mix—the resiliency of funding during market stress and access to low-cost-capital. Platforms that can fund through the cycle will slingshot past their rivals.  Platforms that have access to low-cost capital will offer better rates to the consumer and greater net interest margins to investors.  (See our US Treasury RFI response for more of our views.) How to get there?  We believe that groundwork consists of three pillars—data, analytics, and risk-transfer instruments. We started development of our data analytics platform in anticipation of the growth of risk-transfer instruments such as securitizations.  It’s gratifying to see the thesis—the transition of consumer and SME credit to the capital markets—take hold. And we are excited to work with the leading marketplace participants to lay the groundwork for continued growth. We have covered market developments closely. In prior months, we released for public consumption the analysis of the seminal CCOLT deal  and also a comparison of CCOLT and CHAI. This month we are pleased to build on this and introduce: We are excited to share these first-of-its-kind research pieces and at the same time demonstrate the importance of granular loan-level analytics to improve transparency, liquidity, and exchange of risk. We have a lot of work ahead. We are grateful for your continued support and interest! Upcoming Events Lots of conferences this past month, including a successful exhibition of our cash flow analytics module at IMN Marketplace Lending Investors' Conference on October 29th.  Was great to see so many of you there and gather all the feedback on our live demo. The event circuit continues with the following events this week and in coming weeks: Sector Update