Weekly Industry Update: October 10, 2016

By Vy Phan

October 11, 2016

Last Thursday, PeerIQ CEO Ram Ahluwalia spoke at Bloomberg BNA’s Marketplace Lending: Regulatory Perspectives from Washington and Industry, where he discussed securitization as a key cornerstone of marketplace lenders' funding strategy and projected that it will continue to grow. Indeed, the first week of Q4 was marked by an impressive active new issuance market for MPL ABS. We have seen approximately $800 million in new issuance priced this week and an additional $168 million in pre-marketing.

In this week’s newsletter, we summarize the two deals priced this week, MHMT 2016-LC1 and SCLP 2016-3, and highlight key observations and insights from our Q3 2016 Marketplace Lending Securitization Tracker.

Murray Hill Marketplace Trust (MHMT) 2016-LC1

Over the past nine months, American Consumer Lending Holdings, a subsidiary of Prospect Capital, has been purchasing Lending Club (LC) Near-Prime loans with an intent to securitize. With the market stabilizing, as evidenced by the favorable pricing of the SoFi and Marlette deals, Morgan Stanley, the sole lead, priced this transaction under the Bloomberg ticker MHMT 2016-LC1.

Murray Hill Marketplace Trust (MHMT) 2016-LC1, an unrated transaction, is collateralized by approximately $314 million of Near-Prime unsecured consumer loans. This deal is significantly larger than Jefferies’ LCIT 2016-NP1, which is backed by about $135 million of LC Near-Prime collateral (for more, see our J uly Monthly Update). MHMT 2016-LC1 has a 9 month weighted-average loan age (WALA) and a 26.5% weighted-average coupon (WAC), in contrast to LCIT 2016-NP1, which had 2 month and 28.5% respectively. The more seasoned nature of Murray Hill collateral leads to shorter weighted-average life (WAL) across its capital structure (Exhibit 1). For instance, the MHMT 2016-LC1 subordinate tranche has a 1.6 year WAL versus a 2.3 year WAL for LCIT 2016-NP1. Still, MHMT 2016-LC1 A and B tranches have identical credit support levels to those of LCIT 2016-NP1. Further, a $39.3 million retained tranche C was created and sat on top of the 10% residual piece.

Exhibit 1 Comparing Capital Structures

Source: PeerIQ

MHMT 2016-LC1 was priced at 4.25% yield and 6.25% yield for A and B tranches, respectively. Jefferies priced LCIT 2016-NP1 to 3.75% yield for the senior bonds and 6.5% yield for the subordinate bonds. The pricing for MHMT 2016-LC1 A was 50 basis points wider than the senior bond in Jefferies’ deal with the same credit support, yet, longer WAL

SoFi Consumer Loan Program (SCLP) 2016-3

SoFi Consumer Loan Program (SCLP) 2016-3 is the largest unsecured consumer ABS since the inception of MPL ABS in 2013. JP Morgan, Citi, Deutsche Bank, and Goldman Sachs are the co-leads on the deal with SoFi as the co-manager. The deal was upsized during the initial pricing process—the A tranche was upsized to $452 million from $377 million, and the B tranche to $61 million from $51 million, implying $600 million SoFi collateral pool.

Kroll and DBRS are consistent in the ratings assigned to the tranches; the A tranche is rated single A; the B tranche has a BBB rating (Exhibit 2). The credit support associated with both tranches are also relatively consistent with prior deals.

Exhibit 2 Summary of SCLP Deals

Source: PeerIQ

Since the inauguration of SCLP shelf, the SoFi deals have priced tighter over time. Comparing SCLP 2016-3 to SCLP 2016-4 (the deal priced last month), the A tranche was 15 basis points tighter, and the B tranche was 30 basis points tighter (Exhibit 3). We expect further tightening of the asset class as rating agencies grow more comfortable with the category and as investors reach for yield.

Exhibit 3 SCLP Initial Pricing Spreads

Source: PeerIQ

Q3 2016 Marketplace Lending Securitization Tracker

We have released our Marketplace Lending Securitization Tracker for Q3. We underscore several observations and insights below:

Total issuance topped $2.4 billion this quarter—a record—and is up 41.1% from Q2, with cumulative issuance now totaling $12.7 billion.

Although MPL origination volumes have declined at some platforms, ABS issuance is increasing as is the proportion of loans funded by ABS.

The movement towards rated securitizations at larger transaction sizes continues. All the deals issued in the third quarter were rated, with the exception of LCIT 2016-NP1.

New issuance spreads continued to tighten in—a friendly environment for securitization.

We estimate $6.0 to $10.3 billion MPL ABS issuance for 2017.

Conferences:

CEO, Ram Ahluwalia, will speak on a panel entitled, "The State of the Industry in the USA" at LendIt Europe on October 10-11 in London.

Money2020 on October 23-24 in Las Vegas.

PeerIQ Mentions:

Credit Veteran Tackles Opacity in Peer-to-Peer Lending (Risk.net, 9/27/16, subscription required) Nice Risk Magazine profile on PeerIQ.

Marketplace Lending: Regulatory Perspectives from Washington and Industry (Bloomberg, 10/6/16, subscription required) For Bloomberg users, the recording of Ram’s panel can be accessed by searching for “BBNA Marketplace Lending”.

With New Mutual Funds, Marketplace Lenders Continue to Seek Diversified Sources of Capital (Tradestreaming, 10/5/16) Between 2013 and Q2 2016, the total size of marketplace lending securitization issuance volume to date is $10.3 billion.

US P2P Securitisation Hits Record High (p2pfinancenews, 10/7/16) The MPL securitization market continues to mature with record number of deals rated by rating agencies in Q3 2016.

Industry Update:

Lending Club Chief Capital Officer Posts Reassuring Message to Investors (Crowdfundinsider, 9/30/16) COO of Lending Club, Patrick Dunne, shares that a growing number of investors have returned and welcomed their first ’40 Act fund.

TransUnion Finds 9.3M Consumers Couldn’t Handle Rate Rise (AutoRemarketing, 9/26/16) Research from TransUnion found that up to 92 million credit-active consumers would experience some type of monthly debt service payment increase if policymakers had raised interest rates by 25 basis points.

Funding Circle CEO Says it's a 'Golden Age' for Marketplace Lending as Revenue Jumps 144% (Business Insider, 10/1/16) The CEO of marketplace lender Funding Circle says the industry is going through a "golden age".

Marketplace Loan Registry Forming (AB Alert, 10/7/16, subscription required) Update on new loan-vetting solutions under development, including those by PeerIQ and TransUnion.

FirstKey Preps Next Toward Point Deal (AB Alert, 10/7/16, subscription required) The fifth FirstKey securitization is expected to top $600 million and hit the market mid-November.

Podcast 76: Scott Sanborn of Lending Club (LendAcademy, 10/3/16) The new CEO of Lending Club talks about the mood inside his company, the adjustments they have made and their view of the future.

Lighter Fare:

The Economics of Dining as a Couple (Bloomberg, 10/30/16) Free trade ensures that the best goods reach both sides of the table.