Online consumer lender Avant continues to boost quality of its underwriting, and this is helping to reduce its funding costs.
On Monday, the Chicago-based firm launched a $192.6 million deal dubbed Avant Loans Funding Trust (AVNT) 2017-A, its fourth rated securitization and the second since it shed staff and shelved expansion plans in the middle of 2016.
Kroll Bond Rating Agency assigned a preliminary A rating to the senior tranche, as it did to the comparable tranche of Avant’s prior deal, completed in August. However, Avant only had to provide 41.84% credit enhancement due to the improved credit quality of the underlying loans, according to the ratings agency.
By comparison, the senior, A rated tranche of Avant’s prior deal benefits from 56.85% initial credit enhancement, while a deal completed in April had initial credit enhancement of 49.9%.
The latest transaction features the lowest-ever average loan balance ($5,348) of Avant’s three asset-backed deals in 2016 that ranged from $6,589 to $7572, as well as a shorter weighted average original term of 37 months and far fewer long-term loans. Only 1.51% of the loans have initial 60-month terms, compared to 11.5% of the pool in Avant’s $312.6 million AVNT 2016-C transaction last August.
As a result of improving metrics, KBRA only expects cumulative net loss (CNL) to be in the range of 16.3%-18.3%; by comparison it expected CNL for the deal completed in August to exceed 20%.
That comes in spite of recent poorer-than-expected CNL levels in recent deals, as well as recent concerns over loan quality across the marketplace lending industry. The first transaction for 2016 has enough losses to trigger a turbo amortization feature in April 2016, while the 2016-B transaction is likely headed for an early amortization trigger as well, according to KBRA.
Borrowers in the pool have average annual incomes of $61,000 and their FICO scores range from 580-720 (the weighted average FICO is 655). The loans, which were originated by partner WebBank, have a balances ranging from $1,000 and $35,000, with a fixed-APR between 5.95%-36%.
The loans are primarily for debt consolidation, emergencies, home improvements or “life event,” according to KBRA’s presale report.
Since launching in 2013, Avant has originated a total of $3.8 billion. Avant and WebBank retain a majority of its loans (approximately $2.5 billion to date) that are used in securitizations; the company sells the remainder to institutional investors, but maintains servicing rights.
Originations have plunged since midway through 2016, when management scaled back due to growing losses. The firm originated just $269 million in loans in the second half of 2016 (78% down from the $1.2 billion lent in the final six months of 2015). Avant laid off 30% of its sales staff (with servicing and collection staff levels remaining constant), and also dropped plans for expanding into auto lending and credit cards.
Avant has focused on building its credit warehouse lines to fund the loans, with $820 million in committed warehouse lines that have $375 million in available capacity. That includes a new $100 million facility the company obtained out this month from an undisclosed lender, according to KBRA.