Shares of Lending Club and OnDeck surged last Monday 3.9% and 9.5% respectively, on reporting from the WSJ citing increased investor appetite for bonds backed by marketplace lending loans. The price action in response to the report underscores public markets focus on execution in the ABS markets. The report, citing bond performance information provided by PeerIQ, shows a substantial tightening in new issue pricing and greater investor acceptance.
Also this week, Blackrock announced a new ETF enabling retail investors to access bonds backed by consumer loans. The ETF is an investor-friendly way for investors to access consumer credit with liquidity, daily pricing, and convenience of access via a brokerage account.
The launch of the ETF reminds us of another ETF launch in a rapidly growing credit asset class – the launch of Blackrock’s iShares High-Yield Bond index (Ticker: HYG). HYG was launched in 2007 as a means of creating transparency and liquidity in the new issue high yield bond market.
The market for new issue high yield started quite small initially. Today, the high-yield market today is a mature market consisting of thousands of issues, broad ratings coverage, and a diverse capital market.
The high yield bond market has now grown to over two trillion outstanding and the market has tripled in the last ten years alone.
New issue high-yield bonds, popularized by Michael Milken, offer an alternative form of financing for non-investment grade issuers. The bonds create a long-term, fixed coupon alternative to financing. MPL ABS, like the high-yield new issue market, also emerged as alternative source of financing to high-cost equity and tight bank credit.
Continuing the analogy, the high-yield bond market went through its own cycles of investor frenzy and investor confidence issues borne from lack of transparency and data integrity (see WorldCom and Enron).
However, unlike the high-yield bond market which is now mature, the MPL ABS market is in its early growth stages. Growth, as documented in the PeerIQ Securitization Tracker, is robust at 59% YOY growth and cumulative issuance is approaching $20 Bn. Non-bank lenders across myriad asset classes are still in the early innings of accessing the debt capital markets to avail themselves of low-cost, non-recourse, permanent capital.
At the time of the launch of HYG in 2007, the ETF was greeted with skepticism and seen as an experiment. Today, HYG is considered a resounding success. Tens of billions of high yield risk trade via various ETFs linked to high-yield bond collateral.
In a few years time, we may look back and point to these and other events as key milestones that lead to MPL ABS as a core component of a fixed income portfolio.
We wish our readers here in the US safe travels and a peaceful Memorial Day.
PeerIQ CEO, Ram Ahluwalia, will speak at SCI’s 3rd Annual Marketplace Lending Securitisation Seminar on June 22nd in NYC.
PeerIQ in the News:
- ‘Stacking’ Prevention on the Rise (AB Alert, 5/25/17) PeerIQ is seamlessly integrating with the TransUnion Fraud Prevention Exchange to protect investors from “stacking.”
- Credit Scores Hit Record High as Recession Wounds Heal (WSJ, 5/29/17) Economists expect a rise in loan and credit-card approvals and increased spending.
- With an Asset-Backed Debt ETF, the Bet Is If You Can Pay What You Owe (Bloomberg, 5/25/17) BlackRock plans new fund that invests in consumer-loan ABS. If approved, it will be the first ETF to target the ABS market.
- My Quarterly Marketplace Lending Results – Q1 2017 (LendAcademy, 5/22/17) Higher DQs from the 2015 vintage continue to work their through portfolio returns.
- Banks Aren’t Worried That More Credit-Card Loans Are Souring (Bloomberg, 5/22/17) Despite record U.S. card balances, historically low unemployment rates assuage concerns.
- SoFi Co-Founder Dan Macklin is Leaving the Company (TechCrunch 5/25/17) SoFi co-founder, Dan Macklin, who served as VP of Community and Member Success at SoFi, has announced he will be leaving the company.
- FDIC: Press Releases – PR-39-2017 (FDIC, 5/24/17) The banking industry reported largely positive results for the first quarter, but the operating environment continues to pose challenges for banks.
- ‘Stacking’ Prevention on the Rise (AB Alert, 5/25/17) Data companies seek to design programs to prevent fraud among online personal loans, including those bundled into asset-backed bonds.
- M&A hits Alternative Credit: MW Eaglewood to merge with Pollen Street Capital (Altfi, 5/24/17) The merger will create one of the largest specialist asset management firms focused on non-bank lending.
- Lending Club Publishes Vintage Performance Data (Lend Academy, 5/24/17) Lending Club filed a S-3ASR with the SEC providing comprehensive and updated information on the business.
- OnDeck Under Pressure to Make Bigger Cuts to Cost Base (FT, 5/24/17) Activist investors push to reduce overheads further and explore a possible sale.
Not So Lighter Fare:
- Larry Summers: 5 Suggestions for Avoiding Another Banking Collapse (The Washington Post, 5/22/17) Larry Summers analyzes the popular view that banks are now safer because they are better capitalized.