CommonBond – a marketplace lending platform that lowers the cost of student loans for borrowers – has announced its inaugural securitization of graduate student loans.
The company is securitizing about $100 million of student loan assets. It is expected that the securities will be rated Baa2 by Moody’s and A (high) by DBRS. This means the debt is two notches above the non-investment grade line (Ba1).
Purchasers are expected to include top institutional investors, including banks, insurance companies, credit funds and asset managers. Significantly for the industry, this transaction marks the first time that Moody’s has issued an investment grade rating for a first time issuing marketplace lending platform.
“This is a major milestone for CommonBond that reflects the quality of our underwriting, the strength of our team, and the scale of our platform. This securitization has meaningfully expanded our investor base among top institutions and money managers, and further positions us to meet and exceed our growth objectives over the coming months and years.”
Morgan Stanley served as lead underwriter and sole manager for the transaction. White Pine Advisors served as advisor.
CommonBond has a solid track record. The platform has served more than 2,000 credit-worthy borrowers and has yet to experience a default, or a 30-day delinquency, among its borrowers.
In February the company announced a partnership with Nelnet, a leading education planning and financing company, in which Nelnet committed to purchasing at least $150 million of loans on the CommonBond platform. Nelnet also made an equity investment in the company. At the same time, CommonBond expanded its student loan refinancing options to more than 700 graduate degree programs. To date, CommonBond has funded $200 million in loans.
In January a bundle of Prosper’s loans were securitized and rated. The $327 million deal was put together by BlackRock. 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. In November last year SoFi closed a $303 million+ securitization for refinanced student loans to graduate borrowers. The senior notes were rated A by S&P, A2 by Moody’s and AA (low) by DBRS. This context is interesting, but it is difficult to make much of a comment and compare the ratings without knowing exactly what went into the securitization.
Last month Moody’s wrote a detailed report on the risks of marketplace lending securitization. It is expected that we will see more securitisations happening in the US space. However, this trend has been slow to take off in Europe. Some industry experts have said that this could be because no platform wants to be the first to issue securities that may be poorly rated, but the activity in the American space should offer reassurance.