Avant, the marketplace lender that added former FDIC Chairman Sheila Bair to its board this month, is marketing its second rated securitization of loans to consumers with less-than-stellar credit.
Avant, located in Chicago, targets borrowers who can’t qualify for a loan from its better known peers such as Prosper Marketplace or Lending Club. Typical customers have an average annual income of $61,000 and average FICO score of 580 – 720.
The deal, dubbed Avant Loans Funding Trust 2016-B, will issue three tranches of notes with preliminary ratings from Kroll Bond Rating Agency: $170.1 million of notes with initial credit enhancement of 49.05% are rated A-, $76.7 million of notes with 26.8% credit enhancement are rated BBB-, and $44.8 million of notes with 13.8% credit enhancement are rated BB.
Avant was in the market in February with its first rated transaction, for $300 million. It also completed an unrated deal, for $139 million, in November 2015. The company also sells whole loans to institutional investors, a total of $1.0 billion so far, and some of these investors have securitized the loans.
The collateral in the latest transaction is similar to that of 2016-A with regard to original loan term, credit tier mix, borrower interest rate and average FICO, according to KBRA.
There is a slight improvement in credit grade and term mix which resulted in approximately 50 basis point lower expected lifetime cumulative net loss. However this improvement is offset by approximately 50 basis point lower annual excess spread, due to higher expected funding costs and lower borrower interest rate on the collateral.
Loans backing the note typically have an original term of between 24 and 60 months, and an original balance of between $1,000 to $35,000 that pay interest of between 9.95% and 36.00%. The borrower’s primary purposes for the loans are for debt consolidation, emergency expense, home improvement, or life events.
Avant, as the primary servicer, is responsible for all collections and payment processing activities until the loan is charged off. Wilmington Trust is the indenture trustee and backup servicer.
Like other marketplace lenders, Avant has a short track record, so rating agencies and investors can’t assess how its loans might perform in different parts of the economic cycle. However, Kroll takes some comfort from the fact that Avant keeps so many loans on its balance sheet and randomly selects the loans to be sold to institutional investors. In its presale report, the rating agency said that this compares favorably with other marketplace lenders that use their platform to generate origination and servicing fees but do not retain a direct economic interest in loans.
