Goldman Sachs and Jefferies rumoured to have put securitisation on hold.
Leading US market place lender LendingClub hasn’t had the best few days. Yesterday its shares collapsed in value after the ousting of CEO Renaud Laplanche, following irregularities in its loan process – you can see our article here. Now the online lending platform looks like it might be having challenges with key investment banks involved with its loan and securitisation process. The Wall Street Journal reports that Goldman Sachs and Jefferies have paused their programmes of buying the platform’s loans. It's also worth noting that Jefferies is the bank involved with the current crisis, with reports that loans issued to the bank didn’t meet its criteria.
Both Goldman Sachs and Jefferies were supposed to be involved in an impending securitisation. At the time AltFi observed that this $150m issue might involve GS focusing on the marketing of loans to borrowers with strong credit scores (“the lower end of the prime spectrum”), while Jefferies was said to be focusing on marketing bonds with lower credit quality loans (average interest rates of 28.5%).
Apparently LendingClub had planned for this bond to be deposited into a special-purpose vehicle called LendingClub Investment Trust. Rumour has it that the asset-backed securities issued by the LendingClub SPV would have had credit ratings as high as A- from Kroll Bond Rating Agency.
Traditionally LendingClub hadn’t been as enthusiastic as some of its competitors about securitising its loans, but in recent months the platform has been experiencing diminishing institutional interest. Scott Sanborn, the company's acting CEO, reported on an earnings call on Monday that LendingClub's first-quarter loan volume purchased by funds fell to 32% from 45% in the fourth quarter.
The Wall Street Journal article also reported that the platform is now “exploring its funding options, including private loan sales to outside investors, in the event securitization deals are no longer plausible, one person familiar with the matter said.” According to finance chief Carrie Dolan, the situation “will be a bit fluid as we assess over the next several days and weeks, the impact that would include the securitizations that were contemplated”.
LendingClub’s share price has collapsed in the last two days, hitting $4 a share, implying a market capitalisation of about $1.5 billion. At its peak the shares were valued at $28 putting the market cap at over $10 billion. It's worth noting that the business also has $623 million in cash on its balance sheet.
The pause by the two big banks, though worrying, need not necessarily be a major issue for the platform. Both could reengage with the platform at a later stage. LendingClub could also access alternative sources of investment besides securitisation, not least retail investors who apparently comprise as much as 50% of its funding base.