WSJ by Peter Rudegeair (June 21, 2016)
Offering suggests investors still willing to own online unsecured loans in wake of LendingClub scandal
Online lender Social Finance Inc. on Tuesday completed one of the largest sales of bonds backed by consumer loans this year, suggesting that a scandal that recently rocked rival LendingClub Corp. hasn’t dented investors’ overall willingness to own online unsecured loans.
SoFi Chief Financial Officer Nino Fanlo said in an interview that 28 investors participated in the $380 million offering, and there was demand for nearly three times the amount of bonds that SoFi was looking to sell.
Money managers have been subjecting online lenders to greater scrutiny since LendingClub’s board forced out company founder and Chief Executive Renaud Laplanche in early May after discovering he presided over a series of alleged breakdowns in internal controls. Mr. Laplanche has said that “events occurred on my watch where we failed to meet our high standards.”
But in SoFi’s case, Mr. Fanlo said bond buyers were less concerned with the events at LendingClub than about macroeconomic events such as the coming U.K vote on leaving the European Union.
The least risky portion of SoFi’s bond deal commanded a yield of around 2.4 percentage points above benchmark rates, a spread that was several percentage points lower than that of similar securitizations of unsecured loans made by other lenders earlier this year, according to data from online lending tracker PeerIQ.
The loans underlying SoFi’s deal were less likely to default than those in prior securitizations of online loans, according to Kroll Bond Rating Agency, which gave the deal a single-A rating.
Kroll’s base-case expectation of cumulative net losses on the pool of SoFi loans was between 7.5% and 9.5%, lower than the 9.5% to 11.5% loss range on a March securitization of loans made by Prosper Marketplace Inc.
Privately held SoFi is run by Chief Executive Mike Cagney. The company drew an investment last year led by SoftBank Group that valued the lender at about $4 billion.
[Original article available here.]