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First European P2P securitisation sees Moody’s upgrade

Good news for Funding Circle as it sees an upgrade to a pool of  its securitised loans from the ratings agency.

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Ratings agency Moody’s has upgraded its outlook for the first ever in the European marketplace lending securitisation, the £130m Funding Circle ‘SBOLT’ due to lower than expected losses.

Securitisations have been an interesting but thorny trend for p2p/marketplace lending investors, particularly institutions, as while they are widely seen as an important feature of the maturity of the asset class they have not always gone to plan. Notably, VPC speciality Lending’s holding of US consumer loans from Avant – another securitised pool – led to its own difficulties last year.

Moody’s has upgraded the rating on the four senior tranches of the SBOLT securitisations primarily due to the deleveraging of the transaction following a high level of prepayments from the underlying portfolio.

SBOLT - 2016 -1, to give the securitisation’s full name, launched in May 2016. It represents approximately £130m of loans originated via Funding Circle’s UK platform.

The rating changes are: A notes (£87.8m, outstanding £43.0m) from Aa3 to Aa2, B notes (£6.1m) from A2 to A1, C notes (£7.8m) from Baa2 to Baa1, D notes (£6.3m) from Ba1 to Baa3. The securitisation is based on a fixed pool of loans, with no reinvestment of proceeds from repayments. The weighted average cost of debt at issue was c.3.3 per cent.

The A notes were issued with an original balance of £87.8m, but have been paid down to £43.0m. Cumulative defaults, Moody’s says, have turned out be slightly below initial expectations. Delinquent loans also have remained at low levels, averaging nearly 0.8 per cent of the current.

As a result, Moody’s has ramped up its prepayment assumption from 8 per cent to 12 per cent per year. It has left its default assumption unchanged at 10 per cent of original balance.

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