Marketplace industry turmoil brushed off by Marlette as it pulls off big securitisation

By David Stevenson on Friday 5 August 2016

Alternative Lending

US based platform behind Best Egg closes MFT $205 m securitisation

The Marketplace lending sector in the US has had a tough few months, in large part because of Lending Club’s well publicised woes. One particular area of concern has been institutional backing for online lending platforms following the LC crisis. As growth rates in the US have accelerated over the last few years, lenders have become increasingly reliant on institutional capital, with many platforms particularly focused on securitisation as one means of funding. Platforms such as SoFi, Avant and Lending Club have pulled off a series of successful securitisations with leading Wall Street institutions, but over the last few months the pace of new issues has slackened as institutional investors react cautiously to the problems at Lending Club. Critics of the market place lending model worry that if the securitisation pipeline did become blocked, many platforms might struggle to maintain their growth rate.

It’s against this backdrop that many in the industry will have breathed a big sigh of relief on the news that Marlette Funding has this week announced its first proprietary “MFT” securitization – crucially the securitisation was oversubscribed, which suggest that many US asset managers and investment banks are still keen to snap up attractively priced alternative credits.

According to Marlette approximately $205 million of Best Egg collateral was financed via three classes of Notes and one class of Certificates with the loan sellers retaining a portion of Notes and Certificates. The Class A, B and C fixed-rate Notes were rated Single-A, Triple-B and Double-B by Kroll Bond Rating Agency (KBRA). Crucially rating agency noted that “Marlette’s business model ensures an alignment of interests among the Company, the originating bank and institutional loan buyers.” Many institutional investors have been concerned that market place lenders might not thoroughly scrutinise credit risk as carefully as traditional balance sheet lenders, thus creating a potential alignment issue.

"Accessing the securitization markets represents the third major component of a diversified funding plan, which also includes building strong relationships with institutional investors and developing on-balance sheet asset backed credit facilities,” observed Paul Ricci, CFO of Marlette Funding.

The securitisation was placed through Goldman Sachs, and deepens Marlette’s access to the broader ABS capital markets. The underlying assets within the securitisation consist  of  unsecured consumer loans originated by Cross River Bank using Marlette Funding’s Best Egg Platform. Crucially this is the second securitisation of this loan flow to date - the first line closed on March 4, 2016.

“Our institutional partners value our ability and willingness to help them access the securitization markets,” said Jeffrey Meiler, CEO of Marlette Funding. “The elegance of this type of collaboration is it provides programmatic consistency in terms of structure, reps and warranties, and risk sharing.”

Although Marlette itself was set up in 2013, it’s big push came with the launch of the Best Egg loan product. To date more than $2B loans – and over 125,000 personal loan customers - have been originated by Cross River Bank through the Best Egg website since its inception in March of 2014. Best Egg, is an unsecured personal loan platform that offers a simple online process where qualified customers can borrow with transparent terms and receive their loan funds in as little as one day.

Back in summer 2015, Marlette pulled off a $75 million equity funding round to accelerate its growth. That equity raise was led by Invus Opportunities, a diversified global private equity firm, and included Navient (NASDAQ: NAVI), the nation’s leading loan management, servicing, and asset recovery company, as well as existing investors. 

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