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Landmark Rating for P2P Securitisation

A securitisation within the peer-to-peer sector has won a landmark rating from one the world’s foremost credit rating agencies.

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Standard & Poor’s become the first of the big three credit rating agencies to assign a rating to a securitisation from the peer-to-peer lending arena. The securitisation is being sold by SoFi – the P2P student loans provider that has recently been branching out into mortgages and consumer lending. The securitisation – a package of peer-to-peer loans – was sold for $270 million after receiving a single A” rating from S&P and DBRS on the most senior segment of the deal.

Mike Cagney, Chief Executive of the platform, commented:

“It’s a huge win to get S&P to the table. It opens up the entire money manager universe as buyers of the securities. DBRS opened the insurance market for us but S&P opens up where the bulk of capital is.”

Today’s news actually marks the second time SoFi has sold a securitisation – the first being a $150 million deal from late last year that received a rating from DBRS. Only a handful of securitizations have been enacted within the peer-to-peer sector, Eaglewood Capital and Insikt are the are major players in the space, and as such this deal represents untested ground. So why all the fuss over the S&P rating? Many large investors can only purchase securities that have been evaluated by one or more of the big three rating agencies. The S&P involvement is being touted as a landmark moment because, as Mr. Cagney suggests, it should open the door to vast oceans of untapped capital. 

Purchasers of the $270m deal included a number of large investors such as Western Management. The upper-most slice of the securitization will return around 3% to its investors.

The S&P rating is particularly surprising in light of the statement relating to P2P securitisations issued by the rating agency just a few short months ago:

“As with any young and untested market, we believe there are issues that need to be addressed before we can assign ratings.”

One such risk is that there is a level of prevailing uncertainty about how the P2P sector will perform in a period of economic downturn – something that most of the platforms have yet to experience. But S&P has clearly had a change of heart, and its endorsement of the sector is the latest in a string of developments that signal the industries’ growing maturity.

Not everyone within the peer to peer sector will welcome the news of more securitisations. Some are wary of the problems caused by securitisations during the credit crunch just a few years ago and are fearful of the damage to a young sector’s reputation that that any slight hiccup may cause. Hopefully all those involved in these deals will also have that in mind when structuring them and ensure that the risk is appropriate. 

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