Pagaya Structure Products LLC is preparing to sponsor a $1.0 billion asset-backed securitization collateralized by cashflows on unsecured consumer loans, in a deal that coincides with its parent entity going public through EJF Acquisition Corp., a special purpose acquisition company.
Pagaya’s parent company, Pagaya Technologies, headquartered in New York City, is a fintech that uses machine learning, big-data analytics and AI-driven credit and analysis technology to make unsecured consumer loans.
As a result of going public through the SPAC, Pagaya AI Debt Trust, 2022-1, or PAID 2022-1, will be Pagaya Structure’s first publicly rated securitization, according to a presale report from Kroll Bond Rating Agency.
Proceeds from the securitization will be used to fund the securitization’s prefunding account, fund a reserve account and pay certain transaction expenses. PAID 2022-1 is a fully prefunded transaction; no collateral will be funded at closing, KBRA said, adding that the notes will be supported by amounts deposited in the prefunding amount, initially.
During the six-month prefunding period, funds on deposit in the prefunding account will be used to purchase unsecured consumer loans. The prefunding account will purchase loans from several platforms, including LendingClub Bank, National Association, MF Consumer Loan Trust, and Prosper Funding.
Originating banks include LendingClub Bank, WebBank and Cross River Bank, the rating agency said.
PAID 2022-1 will issue notes from three classes, and KBRA expects to assign ratings ranging from ‘A-’ on the $833.4 million class A notes to ‘BB-’ on the $129.6 million class C notes.
The transaction structure uses sequential pay, wherein the class A notes will receive principal payments before the subordinate notes. Overcollateralization, subordination in the form of classes B and C, a reserve account, and excess spread all will provide credit enhancement to the deal.
Initial overcollateralization on the initial pool balance is 10.0% and will accumulate to a target of 12.0% of the current pool balance, KBRA said. The reserve account will be funded at closing in an amount equal to about $18.2 million, or about 1.52% of the prefunded pool balance. The target reserve account amount will be equal to the greater of either 0.50% of the current pool balance and 0.15% of the initial pool balance.
In terms of excess spread, gross excess spread before losses is about 16.6%, based on a weighted average collateral interest rate of 20.5%, minus the 1.0% servicing fee and a weighted average life adjusted note coupon of 2.97%.
