Volumes in the peer-to-peer space continue to increase, and investment opportunities in the sector are growing in tandem. Platforms are becoming more inventive in producing investment products that attract institutional investors to their offerings.
Prosper has taken the huge step of having a bundle of its loans securitized and rated. The $327 million deal, called Consumer Credit Origination Loan Trust 2015-1, was put together by BlackRock Financial Management.
Moody’s gave the top tranche of the deal, worth $281m, an investment grade rating of Baa3, while the lower tranche was given a speculative grade rating of Ba3. Moody’s said that the cumulative net loss expectation of the CCOLT 2015-1 loan pool is 8%.
The deal features a $50 million prefunding feature that will see investors essentially buy into the securitisation before the P2P loans have been originated. These prefunding accounts were a feature of securitisations before the financial crash but are making a return as investors seek higher returns, as yields continue to be compressed.
The FT commented that the “swiftness of the rating may surprise some financial market participants” as many believed the ratings agencies were looking to take a more cautious approach to this new asset class. Especially after some of the ratings disasters before the crash. People are watching the peer-to-peer market closely to see how it matures, any comparisons with the mortgage market pre-crisis will want to be avoided, as it could be ruinous for the nascent industry’s image. That said, platforms will need to monitor these new investment products closely in order to avoid the problems that beset the securitized mortgages during the financial crisis.
It has previously been reported that Santander is working on a similar deal with Lending Club.
The trend of securitizing peer-to-peer loans is gaining momentum. Back in November SoFi closed a $303 million securitization for refinanced student loans. These notes were rated by Moody’s and S&P and were given an A2 and A rating respectively. And in October Eaglewood Capital Management completed a $75 million securitization of peer-to-peer loans. These loans were originated via Lending Club.
Securitizations allow a broader range of institutional investors to get involved in the peer-to-peer sector. And so it is likely we will continue to see innovation in this space and more platforms offering a variety of investment products.