More than three thousand securitization professionals descended on the Fontainebleau Hotel in Miami for ABS East.

Steve Eisman delivered a keynote which charmed (and sometimes chided) the audience with his first return to the conference since 2007. Several media reports seized on Eisman’s comments regarding marketplace lending. A portfolio manager, pleased at the satirical remarks, commented, “I hope the negative headlines stay forever,” while gingerly snapping up loans at wider spreads and more favorable terms.

In this week’s newsletter, we provide a “mark-to-market” from Q1’s ABS West to present day (and link to PeerIQ real-time analysis along the way).

A “Mark-to-Market” from ABS West

This past February, at ABS West, conversations centered on deteriorating collateral performance and liquidity concerns.

A steady flow of negative headlines–Madden-Midland, negative ratings actions, San Bernadino, platform layoffs, and global slowdown concerns–weighed heavily on investor sentiment.

Two events marked the peak of investor apprehension:

  • In the bond market, the pricing of CHAI 2016-PM1 (PeerIQ analysis here) where Mezzanine bonds delivered greater returns than the whole loans themselves.
  • In the equity market, investor capitulation after the Lending Club May 9th disclosures.

Turning of the Tide

Global credit markets began to firm in April. Lending Club tightened DTI criteria, elevated the role of the capital markets function, and strengthened leadership on the board and executive team.

In May, the US Treasury report published “Opportunities and Challenges in Marketplace Lending”–a constructive regulatory development. Treasury acknowledged the role of securitization in funding growth, and consistent with the PeerIQ RFI, recommended the need for standardized reps & warranties, consistent reporting standards for loan origination data, loan securitization transparency, and consistent market-driven valuation standards.

SoFi achieved a AAA rating for an MPL bond and cracked open the MPL ABS investor market to global investors via its hands-on marketing approach.

PeerIQ observed that secondary ABS spreads continued to tighten despite volatility in the equity markets. PeerIQ also observed in the Q2 tracker that the combination of stricter underwriting, higher coupons, and tighter secondary ABS spreads meant the conditions for securitization were strong.

In June, SoFi brought to market its first rated personal loan deal which executed extremely well as compared to personal loan deal, CHAI 2016-PM1. (We contrast both deals here).

Marlette followed in the wake of successful issuance and achieved a double-digit increase in IRR. Avant returned to market with a deal whose mezzanine bond was multiple times over-subscribed. Lending Club introduced a branded shelf potentially signaling a goal for repeat, standardized issuance. Prosper released a 10-K alongside news of a $5 Bn loan purchasing consortium.

Where do we go from here?

We are gratified to see our founding thesis take hold—the secular transition of consumer and SME credit to the capital markets. It is now generally accepted that securitization is essential to delivering low-cost, scaled, permanent capital to fund the category growth.

Looking back to media coverage from ABS East coverage nine years ago, we see the same challenges then as today: the need for greater transparency, disclosure, liquidity, and investor confidence.

Solutions–including standardization, market-driven valuation, and promoting investor confidence via third party solutions–are the key topics of the day.

We look forward to sharing our outlook at upcoming conferences and in next week’s newsletter.

Thank you for your continued support.


PeerIQ Mentions:

Industry Update:

  • LoanDepot Pool Hits Loss Trigger (AB Alert, 9/23/16) Losses in a pool of personal loans securitized by Jefferies have breached a pre-set limit—losses reinforce need for 3rd party curve generation.

Lighter Fare: