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European Investment Fund and KfW invest in Funding Circle securitisation

The securitisation could be one of the last UK deals to be backed by the European Investment Fund, as Brexit looms.

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The latest securitisation of Funding Circle loans (SBOLT-2018) has priced. On closing, the spread over 1 month Libor on the senior tranche was 75 basis points, which represents a tightening of 220 basis points on the firm’s last securitisation (SBOLT-2016).

Such a reception will be seen as evidence that institutional investors are becoming increasingly comfortable with the assets being originated by Funding Circle.

The German development bank KfW bought a ‘significant portion’ of the senior tranche, with a guarantee from the European Investment Bank, through the European Investment Fund. The securitisation is entirely made up of small business loans originated by the platform.

The £207m portfolio has been issued by P2P Global Investments PLC, the London Stock Exchange-listed investment trust managed by Pollen Street Capital. Its senior tranche was rated Aa3, A (high) and AA- by Moody’s, DBRS and Kroll respectively. Deutsche Bank acted as sole lead manager and arranger.

Funding Circle has hailed the deal as evidence that the online lending model has the capacity to open up ‘deep pools of capital’ to fund small businesses, while at the same time weaning SMEs off bank dependency, as recommended by the Bank of England and European Central Bank in a report published in 2014.

“This latest securitisation further validates the attractive, risk-adjusted returns that are being generated for investors in SME loans,” said Funding Circle’s chief capital officer, Sachin Patel.

“Now investors of all shapes and sizes can support the growth of small businesses, which in turn drives much-needed job creation across the UK. This significant commitment by the EIF and KfW, alongside other key investors, will help thousands of small businesses access the finance they need to expand and grow.”

It is possible that the deal will represent one of the final times that the European Investment Fund backs UK businesses, as the UK’s departure from the European Union draws near.

The Brexit vote effectively killed off a planned multi-billion pound funding programme between the European Investment Fund and Funding Circle.

George Passaris, head of securitisation at the EIF, commented on the latest securitisation: “We are pleased to be working again with Funding Circle to boost access to finance for businesses. Many SMEs are still struggling to obtain competitive financing from traditional funding sources and smaller businesses are often the ones most affected. EIF's participation in these new securitisation, demonstrates our continuous commitment to embracing innovative and pioneering structured finance solutions, allowing SMEs to access to funding to grow their business and ultimately help the economy overall.”

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Sachin Patel

Chief Capital Officer

Funding Circle

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