The Australian by Peter Rudegeair and Telis Demos (April 28, 2016)

Lending Club is planning its first sales of bonds backed by its unsecured loans, as the largest US online lender looks for new funding sources in a challenging ­market.

The San Francisco firm has been working with Goldman Sachs and Jefferies Group on the offerings, which are slated to be discussed with potential investors as early as this week, sources said. It would be an important test of investor appetite for the kinds of consumer loans that investors have grown more discerning of for much of the year.

Lending Club, which started in 2006 as an online peer-to-peer marketplace where individual investors lend money to individual borrowers, is one of the only large online lenders that hasn’t actively pursued securitisation deals as a means to ramp up growth.

But the firm has failed to win over investors since a much-anticipated 2014 initial public stock offering. Lending Club shares lost a third of their value since the start of 2016 and 60 per cent over the past 12 months, before rallying 1 per cent in trading yesterday.

The company led by CEO Renaud Laplanche would be particularly hard hit if investor demand for its loans were to wane. It derives the majority of its revenue from fees it charges borrowers, as opposed to interest collected over the life of the loans, and the company projected in February that 2016 revenue would be 72 per cent greater than it was a year earlier.

In the past, Lending Club loans have been securitised indirectly. Other financial firms, such as the hedge fund Eaglewood Capital Management, have resold Lending Club loans via securitisations without the company’s partici­pation.

“It’s a key part of diversifying funding sources,” said James Gutierrez, chief executive of Insikt, an online lending and securitisation platform. Insikt in November independently placed a $US46 million securitisation, backed by loans it bought from Lending Club, with wealthy individual investors.

He said it would be smart for Lending Club to be closely involved with the structuring of the offering, rather than remain on the sidelines. “They can customise (the deal) in a way they think works best for investors,” he said.

But the online lender is looking to embrace securitisation at a time when the overall industry is dialling back new issuance. In the first quarter, $US1.5 billion ($1.94bn) worth of securitisations backed by online loan pools were sold to investors, down 21 per cent from the $US1.9bn sold in the fourth quarter of 2015, according to PeerIQ, an online lending data and analysis firm.

Other lending companies including Prosper Marketplace and Social Finance have looked for alternatives to securitisations to expand investor appetite for their loans.

Some details of the potential Lending Club arrangement, such as the exact structure and number of potential transactions, couldn’t be determined.

Goldman Sachs was expected to advise on the packaging of Lending Club loans to borrowers with better credit scores, and Jefferies, a unit of Leucadia National, was expected to do the same for the loans to less creditworthy borrowers, sources said.

Recent securitisation transactions that have been sold to investors were largely done at much higher yields, reflecting concerns about the creditworthiness of borrowers and the economy. Buyers of a March bond offering based on Prosper Marketplace loans demanded yields as much as five percentage points higher than a similar deal late in 2015.

Lending Club’s Mr Laplanche previously has touted the company’s relative independence from the whims of bond investors in securitisation markets as a selling point.

[Original article available here.]