By Ryan Weeks on Friday 5 August 2016
Prosper is said to be discussing a $5bn loan purchasing agreement, with Lending Club rumoured to be exploring a similar deal for $1.5bn.
After months of uncertainty in the capital markets, the world’s biggest and best known marketplace lenders appear to be closing in on landmark funding deals. The Wall Street Journal reports that Prosper is in talks to sell around $5bn of loans to a group of investment firms that features Fortress Investment Group (or an affiliate), Soros Fund Management, Third Point and the investment bank Jefferies. Prosper has not yet commented on the deal.
The loans would reportedly be bought at face value, but equity warrants in Prosper may be required by the investors. The buyers are also said to be talking to banks about borrowing money to support the loan purchases. The WSJ article says that the deal could be wrapped up within “the coming weeks”.
Meanwhile Bloomberg reports that Lending Club is in talks with Western Asset Management Co. to establish a fund which could purchase as much as $1.5bn of loans over time. Again this news is based on hearsay, but reports suggest that the deal could be reached in the coming weeks. Western had close to $460bn in assets under management as of June 30, according to its website.
Lending Club has been up against it since its founder Renaud Laplanche was forced out of the company in early May, after it was discovered that he had overseen the mis-selling of loans to an institutional investor. The company's share price has fallen dramatically since, down 58% on the year. The platform has also had real trouble selling loans to institutional investors, even going so far as to consider funding loans using its own balance sheet. Prosper has had similar difficulties, and both platforms have been forced to make significant layoffs over the past couple of months.
However the tide now appears to be turning. Moody’s decided against downgrading a Prosper loans-backed bond offering in mid-July, after having placed the deal on review in February. A week later, news broke that Jefferies had revived a planned securitisation programme with Lending Club – which had been put on hold in the aftermath of Laplanche’s ousting from the company.
The multi-billion dollar deals for Prosper and Lending Club, should they come to fruition, would mark a significant shift in industry sentiment. But questions are already being asked about what the two platforms will have to give up in order to seal the deals, with the most obvious sacrificial lamb being their “peer-to-peer” roots.