Lending Club is reportedly working with Goldman Sachs and Jefferies Group to securitise its loans.
The US market’s largest marketplace lender Lending Club is reportedly planning to sell bonds backed by unsecured loans as an alternative method of obtaining new funding sources, according to the Wall Street Journal. The online lender seems to be working with a pair of global investment banks – Goldman Sachs and Jefferies Group – on the offering. The two banks will be testing the appetites of potential investors as early as this week.
In the past, Lending Club loans have only been securitised indirectly. In October 2014, the investment management firm Eaglewood Capital Management resold Lending Club loans via a $75 million securitization, without the company’s involvement. Those unsecured consumer loans were purchased by Eaglewood’s inaugural fund – Eaglewood Income Fund I, LP. Similarly, Insikt – an online lending and securitisation platform – placed a $46 million securitisation last November, one which was backed by loans that were purchased from Lending Club.
“We have a big competitive advantage over some of the newer platforms that, for the most part, have no retail investors and considerable concentration in investor base or strong reliance on the securitization markets.”
Full details about the potential arrangement are yet to emerge. However, the Wall Street journal reports that Goldman Sachs’ role as an advisor will be to promote the parts of the deal that are comprised of loans to borrowers with strong credit scores, with Jeffries Group likely to market the segments that have lower credit quality loans underlying them.
The securitisation of marketplace loans is becoming a popular method of increasing liquidity for an asset class that isn’t yet supported by a well-developed secondary market. It’s a major part of the creation of a marketplace lending “ecosystem”, which is still in its infancy at this stage. A recent example of securitisation in the industry is offered by the student-focused marketplace lending platform CommonBond, which yesterday announced the completion of a $150m securitisation of student loans. The deal again involved a pair of major investment banks – Barclays and Goldman Sachs – and received a rating of "A (high)" from the ratings agency DBRS. Purchasers of the assets were institutional investors, including a range of insurance companies, banks, credit funds and asset managers.